India is the largest importer of palm oil. Thus, the Indian edible oil industry is expected to benefit from this situation.
With a ban on exports of palm oil, the prices of all edible oils such as sunflower oil, mustard oil, and soy oil might go up. This will boost the margins of the unsold inventory left with Indian edible oil companies.
Here’s a list of top edible oil stocks that are most likely to gain in the current circumstances.
Marico, a leading consumer goods company in the country, is first on our list.
The company has a diversified product portfolio that includes coconut oils, hair oils, edible oils, hair care, and male grooming products.
It derives close to 66% of its revenue from the edible oils segment. In the super-premium refined oil segment, Marico’s edible oil brand Saffola has an 83% market share.
Its edible oil franchise has grown continuously in value and volume in the past few years. This is mainly due to changing customer preferences toward healthy cooking and increased in-house consumption during the pandemic.
In the last three years, Marico’s revenue has grown at a compound annual growth rate (CAGR) of 3.1%, due to growth in its edible oil business. The net profit also grew at a CAGR of 2%.
In recent quarterly results, its revenue grew by 13% year-on-year (YoY). The net profit only grew marginally by 1% due to inflationary pressures.
The company is focusing on expanding its edible oil business to new markets by leveraging its successful Saffolalife campaign and also increasing penetration in existing markets.
#2 Ruchi Soya
Next on our list is Ruchi Soya, an integrated player in the edible oil business.
The company is a leading manufacturer and marketer of edible oils in the country with a presence across the value chain.
It’s also the largest palm oil plantation company in India.
Ruchi Soya has twenty-two manufacturing facilities in India with a refining and seed crushing capacity of 11,000 tonnes per day and a packaging capacity of 10,000 tonnes per day.
The company has a diversified portfolio with the brands such as Ruchi Gold, Nutrela, Sunrich, and Mahakosh.
In the last three years, its revenue has grown at a CAGR of 8.4%, driven by high volumes led by new product launches.
In the recent quarterly results, the company’s revenue jumped 40.8% YoY while the net profit grew marginally by 2.9% YoY.
#3 Agro Tech Foods
Third on our list is Agro Tech Foods, an established player in the edible oils and branded foods business.
The company has a diversified product portfolio consisting of edible oils, ready to cook snacks, ready to eat snacks, and spreads and dips.
It sells its products under the brand names Sundrop and Act-II.
Agro Tech Foods derives close to 60% of its revenues from edible oils. It has a market share of 13.8% in the refined edible oil segment.
The company’s edible oil brand Sundrop enjoys a good brand recall and is an established brand in the edible oil segment.
In the last three years, Agro Tech Food’s revenue has grown at a CAGR of 2.7% while net profit has fallen by a CAGR of 3%, mainly due to high input costs.
In the recent quarterly results, the company’s revenue has stayed flat. However, the net profit fell by 17.3% YoY
#4 Gokul Agro Resources
Next on our list is Gokul Agro-Resources, one of the prime processors and manufacturers of edible oil.
The company is primarily involved in the business of manufacturing edible oil, non-edible oil and allied products.
It also produces cereals, spices, oilseeds and feed, and other meals.
Gokul Agro’s brands include Vitalife, Makeh, Zaika, Pride, and Puffpride.
The company has a seed processing capacity of 3,200 tonnes per day and an oil refining capacity of 3,400 tonnes per day.
Besides this, it also has a cake extraction capacity of 1,000 tonnes per day and a vanaspati manufacturing capacity of 200 tonnes per day.
Gokul Agro also has a wide distribution network that reaches its customers in 20 states. It also exports its products to several countries, including the USA, China, South Korea, and the European Union.
In the last three years, the company’s revenue has grown at a CAGR of 22.6% due increase in the scale of operations. The net profit has grown at a CAGR of 60.1% due to reduced finance costs.
In the recent quarterly results, its revenue has grown by 12.8%. Net profit also jumped by 106.4% YoY.
The company plans to concentrate on reducing costs, improving product quality, and expanding to new markets.
#5 Adani Wilmar
Last on our list is Adani Wilmar, a joint venture between the Adani Group and the Wilmar Group.
The company is one of the leading consumer goods companies that offers essential kitchen commodities such as edible oil, wheat flour, rice, pulses, and sugar.
It derives 65% of its revenues from the edible oil business and sells its oil under the brand name Fortune. The company has an 18% market share in the edible oil segment.
Some of its other brands include King’s, Jubilee, Alpha, Aadhar, Raag, Bullet, and Avsar.
Adani Wilmar has twenty two manufacturing plants in India consisting of 10 crushing and 19 refining units with a capacity of 8,525 metric tonnes per day and 16,285 metric tonnes per day, respectively.
It also has a wide distribution network of 5,590 distributors and 16 lakh retail outlets across 28 states and eight union territories.
The company also exports to over 50 countries and is India’s largest exporter of castor oil.
In the last three years, Adani Wilmar’s revenue grew at a CAGR of 8.8% on account of growth in the edible oil business. The net profit also grew 21.3% on account of lower finance costs.
In the recent quarterly results, the company’s revenue has grown at 41% YoY and the net profit jumped 66%.
Going forward, the company plans to increase its market share through penetration in South and West India.
Should you bet on edible oil stocks?
Indonesia banned palm oil export to control the sky-rocketing prices of palm oil in the country. This move may result in a fall in palm oil prices in Indonesia, but prices in India can go up.
With oil prices going up, edible oil companies are likely to benefit from it.
Moreover, the government announced National Mission on Edible Oil-Oil Palm (NMEO-OP) to increase palm oil production in India and reduce the dependence on imports.
This opens up an opportunity for existing edible oil players in the country to grow their oilseed crushing and refining capacities.
Hence edible oil stocks could be a good bet for the medium and long term.
However, before investing in any of the stocks, it’s important to check the fundamentals and valuations of each of these stocks.
Remember that it is essential to practice caution before investing in the market.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com