Edelweiss has initiated coverage with BUY rating on LAKSHMI ENERGY & FOODS and the following recommendation,
Lakshmi Energy & Foods (LAKENE), the largest rice processor in India with processing capacity of 1.2 mtpa, still forms less than 1% of the country’s highly fragmented 135 mn tonne paddy processing industry. We believe, as the value chain gets more organised, bigger players will emerge, forcing smaller unorganised millers to shut shop due to better efficiency and better access to working capital funding. LAKENE, already the largest rice processor in India, is best placed to capture this opportunity
LAKENE’s EBITDA margins have steadily improved from 13.3% in FY06 to 30.3% FY08, driven by moving further downstream into the rice processing value chain as well as greater realisations for it’s by products. A rice processor can substantially improve his margins if he decides to further move downstream in the value chain; however, scale is a must to exploit this opportunity
LAKENE has signed a five year agreement (price renegotiable annually) with Power Trading Corporation (PTC) for sale of power from its 30 MW husk-based power plant commissioned in FY09. At CMP of Rs. 124, LAKENE is trading at a P/E of 4.6x on our FY10E EPS of Rs. 27.2, P/BV of 1.1x and EV / EBITDA of 3.4x on FY10E. We like the recession proof nature of LAKENE’s business
Target Edelweiss has set is Rs 150.
