Simran Farm - Query

Friends, 
I got this query from Kumra.


Hi Team,

Its true that simran farms is a gr8 pick but for no reason it has fallen down from 85 odd levels to 40....do u have any reason for this??? 


Whilst replying I realised that there were several reasons hence I am replying through a new post. Please appreciate that the reasoning given is my understanding of the situation.


The reasons are as follows.
a) The general downtrend in the market has reduced midcaps and smallcaps by an average of 50%-100% from their highs.
b) Monsoons are never a good time for poultry industry especially in North India because of festivals like "Navratri" etc. A lot of people also turn veggies during "Saawan".
c) Floods in North India led to dumping of products by farmers and this plummeted rates. Read this article on Economic Times.


Hence the profit margin for Simran plummeted in September 2010 quarter.


Let me leave you with a very interesting comparison between Simran Farms and Srinivasa Hatcheries. Sales for both the companies are about same but look at the market cap of both companies. Check it out guys.
Some of the difference can be ascribed to low levels of profit margin of Simran. But 16 crores compared to 114 crores. Thats a lot of difference. Isnt it?


Just imagine if Simran gets even close to the profit margins of Srinivasa Hatcheries.


Till my next post happy investing.

Chicken and egg story

Inflation seems to be on everyone's lips nowadays. Not because it is fashionable to talk about inflation but because its hurting everyone quite bad as soon as you venture into the market. On one of my recent visits it just occurred to me that amidst all this price rise if we could find a company which was benefitting we could possibly hedge the pinch to our pockets, (i.e., the increase in price of daily food would be offset by the increase in the share price of the company gaining from the inflation)

Hence, I put on my thinking cap to scout for companies which would benefit. I started trying to find companies which were producing and selling onions, garlic or tomatoes or other pricey vegetables. Soon I realised that my efforts were in vain.

However, a few days later whilst I was dining out at KFC I got the company I was looking for. It was companies engaged in the poultry sector. I tried verifying at the market (Eastern India) and realised that the prices of eggs and chicken too had shot through the roof. An average of 33% rise whilst the fodder price would not have increased to the same extent. However this was lot less than what had happened to the prices of vegetables. Hence I am sure the consumption of meat products must have substituted to some extent the usage of vegetables.

Again we add to this the fact that the cold has been particularly severe this year and the consumption of meat products go up quite a lot during winters you will realise what I am getting at.

Volume increase + price increase+ not much increase in price of input raw materials (Ideal combination for profit growth)

And the companies are

1) Venkys
2) Srinivasa Hatceries
3) Simran farms (My favorite as it has the potential to double form current levels of Rs 44 odd)

All of these have the potential to give atleast about 50% gains after the results come out. If you think my reasoning is good enough go for it guys. However, if you think my reasoning is flawed do let me know

Till my next post happy investing