Venky's (India) Ltd - GEPL Capital

Initiating 

Coverage 

Equity | India | Consumer Discretionary 

Venky’s (India) Ltd 

The golden egg laying chick December 05, 2011 

BUY 

CMP (`) 

Target (`) 

440 544 

Potential Upside Absolute Rating 

24% BUY 

Market Info (as on 02 nd December, 2011) 

BSE Sensex 16,846 

Nifty S&P 5,050 

Stock Detail 

BSE Group 

B 

BSE Code 523261 

NSE Code 

VENKEYS 

Bloomberg Code 

WH IN 

Market Cap (`bn) 4.13 

Free Float (%) 45% 

52wk Hi/Lo 789 / 365 

Avg. Daily Volume (NSE) 39887 

Face Value / Div. per share (`) 10.00 / 5.00 

Shares Outstanding (mn) 9.39 

Shareholding Pattern (in %) 

Promoters FIIs DII Others 

56.12 0.22 3.68 39.98 

Financial Snapshot 

(`mn) 

Y/E Mar FY10 FY11 FY12E FY13E 

Net Sales 7,055 8,520 10,169 12,401 

EBITDA 916 1,135 994 1,676 

PAT 545 733 585 1,003 

EPS 57.8 77.8 62.3 106.8 

ROE (%) 29.9 30.4 19.5 26.9 

ROCE (%) 21.1 22.3 14.6 19.5 

P/E 5.8 8.2 7.1 4.1 

EV/EBITDA 4.3 6.2 5.2 3.2 

Share Price Performance 

110 

100 

90 

80 

70 

60 

50 

40 

Dec-10 

Jan-11 

Feb-11 

Mar-11 

Apr-11 

May-11 

Jun-11 

Jul-11 

Aug-11 

Sep-11 

Oct-11 

Nov-11 

Dec-11 

Venky's (India) BSE SENSEX 

Rel. Perf. 1Mth 3 Mths 6Mths 1Yr 

Venky’s (%) (12.9) 6.4 (29.2) (40.8) 

SENSEX (%) (3.5) 0.2 (8.9) (15.7) 

Source: Company data, GEPL Capital Research 

Investment Rationale 

India’s Poultry Industry - set to lay golden eggs in the years to come 

We expect the Indian poultry industry to grow at +9.5% CAGR in FY11-13E considering a) we are 

the 6th largest poultry populated nation, b) the cheapest Country in the World in terms of cost 

of eggs sold, and c) amongst the cheapest Countries for day old chicks (Sri Lanka is the 

cheapest). Moreover, the potential to grow remains intact with the Indian Egg industry having 

achieved a mere 29% of its true potential (per capita consumption of 53 eggs vis-a-vis NIN’s 

recommended 180 eggs). Similarly, the poultry meat segment has achieved a 32% of its 

potential (per capita consumption of 3.5 kgs as compared to NIN’s recommendation of 11kgs). 

With a low export share, low per capita consumption and lack of other alternatives like beef 

and pork due to religious reason, we believe there is plenty of scope for the Poultry industry to 

continue its growth trajectory. 

The best bird amongst the flock in India’s Poultry Industry 

Venky’s is amongst the best candidates to capture the growth in the Indian poultry industry in 

FY11-13E (+9.5% CAGR) due to its healthy track record and a strong parent company backing. 

Venky’s is part of the VH group and with a group turnover of `35 bn offering a whole host of 

benefits like a) Pan-India presence (Venky’s has a strong presence in North and West India while 

VH group has its presence in South and East India), and b) the large scale of operations result in 

operating leverage with lower transportation, marketing storage cost per unit enabling higher 

margins. The Pan-India presence has helped Venky’s to increase its presence across the value 

chain as well diversified portfolio with AHP and solvent extraction insulating its risk at times of 

flu’s and viruses and poultry products being non-impacted by global slowdown. 

Venky’s XPRS – the future wings of growth 

Venky’s has entered the hospitality industry with the launch of ‘VENKYS XPRS’ to serve their 

customers with a range of healthy, hygienically cooked, and yet reasonably priced chicken 

delicacies. The first store was rolled out in Jan, CY10 and currently five stores in India are 

operational. The company plans to invest ~`2.5 bn for its research and development and set up 

over 100 Venky’s XPRS outlets (including London) over the next three years. Though currently 

the contribution from this segment is minimal, the scope for growth remains high given the 

changing demographics in India with a rise in disposable income, higher working population 

(both youth and women). 

Strong Financials – Fine feathers 

With a strong growth in the Indian poultry industry we expect Venky’s to grow at 20.6% CAGR in 

FY11-13E to `12.4 bn driven by 23% CAGR in poultry and poultry products, 11.5% CAGR in animal 

health products and a 16.4% CAGR in the solvent extraction division. We expect high raw 

material prices to impact margins in FY12E with a strong bounce back in FY13E with retracing 

feed prices. Consequently, we expect the EBITDA to witness 21.5% CAGR from FY11-13E to `1.68 

bn. With a higher interest cost (higher capex and debt and higher interest rates), higher 

depreciation rate and lower other income, we believe the PAT growth would be marginally 

lower at 17.2% CAGR from FY11-13E to `1.0 bn. 

Valuation 

At CMP Venky’s is currently trading at 7.1x FY12E EPS and 4.1x FY13E EPS, a 34% discount to its 

historical one-year forward P/E band of 6.2x and a 45% discount to its average one-year forward 

P/E band over the last 12 months of 7.4x. We have valued the company on the four year 

average of its historical P/E band (5.1x) to capture the cyclicality of the industry and its profits. 

We believe there is good potential upside in the stock and initiate coverage with a Buy rating 

and target price of `544 per share (5.1x FY13E). 

Analyst 

Sunil Sewhani 

+91-22- 6614 2690 

sunilsewhani@geplcapital.com 

GEPL Capital Research 1


Venky’s (India) Ltd December 05, 2011 

Investment Rationale 

Indian Poultry Industry set to lay golden eggs in the years to come 

The World Poultry Industry is expanding at an exceptional rate over the last decade with strong 

consumption demand. Factors such as a) growth in per capita income, b) population growth, c) 

direct price effect under the influence of productivity improvement and cost reduction, d) 

product innovation, and e) development of modern distribution systems have led to this growth. 

Hence an industry predominantly dominated by developed countries’ exporters a few years ago, 

is largely shared by developing countries today. With the variation in growth of per capita 

consumption; faster rates of increase in developing countries than in the developed world, we 

expect the developing Nations to gain in the growing share of the Global Poultry Industry. 

Rise of the Indian Poultry Industry 

The Indian Poultry Industry too is constantly on the rise with modern techniques and changing 

from live bird to fresh chilled and frozen product market. Several breakthroughs in poultry 

science and technology have led to the development of genetically superior breeds capable of 

higher production, even under adverse climatic conditions that offer opportunities for overseas 

entrepreneurs to expand export and import of poultry products on a large scale. 

Indian poultry industry 

India’s Poultry industry and GDP growth 

Rs mn 

600 

500 

400 

300 

200 

350 

380 

400 

450 450 

550 

25 

20 

15 

10 

% 

% 

21 

19 

17 

15 

13 

11 

20.0 20.0 

19.0 

15.0 

10.0 10.0 10.0 10.0 

18.0 

20.0 

10.0 

100 

- 

CY05 CY06 CY07 CY08 CY09 CY10 

Poultry Industry YoY growth 

5 

0 

9 

7 

5 

8.0 

8.0 

9.0 8.7 

7.0 7.2 

8.5 


Annual GDP (%) Poultry layer (%) Brolier (%) 



The Indian poultry industry has grown at 9.5% CAGR in the last five years and is a major force to 

reckon with. The industry is worth `550 bn and provides employment to over 20 mn people. 

India is the second largest egg producing nation in the world with an annual production of 53 bn 

eggs and ranks third in the World for broiler production with an estimated 3.5 mn tons of 

production. India’s Poultry layer and Poultry broiler industry have seen a higher growth than our 

GDP over the last 10 years. The broiler industry has grown at a rate of 18-20% over the last five 

years while the layer industry has witnessed a steady 8-10% CAGR in the same period. We 

expect India’s Poultry industry to continue growing at 9.5% CAGR over FY11-13E and to be worth 

`659 bn by FY13E. 

GEPL Capital Research| Initiating Coverage 2



India is the 6th largest poultry populated nation in the World 

Chickens are physiologically comfortable in intensive conditions at temperatures between 28-32 

degrees Celsius. It is due to this factor that the industry remains extremely country 

concentrated. Currently 65% of the World Chick population is found in 10 countries with China 

alone accounting for 25% of the World chick population. India too is fast emerging as a strong 

poultry operator and currently has the 6th largest World chick population. 

India is the 6th largest poultry populated nation 

4,500 

4,000 

3,500 

3,860 

mn chicks 

3,000 

2,500 

2,000 

1,500 

1,970 

1,200 1,100 

540 

1,000 

500 

0 

425 340 286 280 250 

China 

USA 

Indonesia 

Brazil 

Mexico 

India 

Russia 

Japan 

Iran 

Turkey 

Source: Indiaagronet, GEPL Capital Research 

Chicken is the cheapest source of protein with limited substitutes in India 

Poultry meat production accounts for 26% of the total meat production in the World and ranks 

third with pig meat (pork) leading at 40% followed by beef meat at 28%. Chicken is the dominant 

source of poultry meat (88%) followed by Turkey (12%). 

Global Meat Production 

28 

23.4 

26 

2.6 

40 

6 

Others Pork Beef Chicken Turkey 





Pig meat is not consumed by Muslims while beef meat is not consumed by Hindus, both due to 

their respective religious reasons. Since most of the butchers in India are Muslims they do not 

sell pig meat. Similarly, since a large population of India is Hindus beef meat is not sold in order 

to not hurt their sentiments. Even at large format retail chains like ‘Natures Basket’ etc, pig 

meat and beef meat are not sold. Hence chicken is best and most widely available option. This 

has also resulted in the taste for pig meat and beef meat not being developed in India despite 

the change in demographics. 

To add to this, poultry is the cheapest source of protein available and hence we see longer term 

drivers of poultry consumption in India remaining intact. We also believe with return of 

economic growth, poultry consumption is set to grow in India as per capita poultry consumption 

in India is still low. Moreover, Indian meat is preferred because it is lean and contains less fat. 

However in India, the sporadic bird flu outbreaks in different parts of the country along with 

lack of storage and processing facilities and rising prices of feed stocks including soya meal and 

maize have severely impacted poultry exports. 

India is the amongst the cheapest Nations in terms of cost eggs and day old chicks 

Dumping of egg powder by America and other European countries, supported by heavy dose of 

subsidies has resulted in the decline of egg powder prices. Many countries are exporting eggs at 

prices lower than production costs. This has resulted in Poultry industry in these countries 

where investments are high coming under threat of extinction. To counter this, various Nations 

have implicated a ban on imports. 

In terms of the global prices of eggs, India is the cheapest; costing 50 US cents a kg. The prices 

across other Asian Countries are slightly higher (Sri Lanka 0.58 cents, Taiwan - 108 cents and 

Bangladesh 117 cents) while that of developed Nations (USA –80 cents, France - 102 cents, Great 

Britain – 102 cents, New Zealand – 136 cents, ) also remain high with Argentina being the 

costliest in at 145 cents per kg. 

Even in terms of day-old chicks, India is one of the cheapest Nations with day old chicks costing 

39 US cents a chick. Though the price is slightly higher than Sri Lanka’s 29 cents (cheapest 

Nation), prices are still competitive when compared to other developed Nations like USA (47 

cents), UK (70 cents) or Japan (132 cents). 

Cost of Eggs sold across Countries 

Cost of Day-old chicks across Countries 

cents per kg 

160 

140 

120 

100 

80 

60 

40 

20 

0 

50 

58 

80 

86 

102 102 

117 

127 

136 

145 

cents per chick 

200 

180 

160 

140 

120 

100 

80 

60 

40 

20 

0 

29 

39 

47 

70 

76 

132 

172 


Sri Lanka 

USA 

Holland 

France 

UK 

Bangladesh 

Japan 

New Zealand 

Argentina 

Sri Lanka 


USA 

UK 

Canada 

Japan 

New Zealand 






As per media reports, the egg price are selling at a flat rate of `2.9 per piece after witnessing a 

marginal increase in November due with onset of winter. The prices remained flat due to 

resistance of buyers; need to perk up demand and high competitive scenario. 

Broiler chicken meanwhile continues its slide and the prices have been reduced to as low as `46 

per kg on account of the Sabarimala season. The prices may remain under pressure due to the 

festive season is South India which is a main consumer market. However, we do not expect this 

to impact sales of Venky’s significantly as the company is strongly present in the Western and 

Northern regions on India. The National Egg Coordination Committee (NECC) has also slashed the 

price of layer birds to `43 per kg as compared to `46 per kg earlier. 

Higher raw material prices could impact margins 

The poultry industry is highly dependent on the feed industry as feed alone constitutes 65% of 

the cost of broiler and egg production. Therefore, any price movement in the feed sector 

(maize, soya, rice, and other cereals) has a direct impact on the prices of eggs and broilers. As 

per Mckinsey’s report, the Indian poultry can compete at an international level if it is able to 

successfully reduce feed cost. As maize costs are key for the growth of the Indian poultry 

market, the report has suggested that the poultry players may integrate into feed and maize 

seed production. 

The nature of the poultry industry is such that product pricing is a major weapon in companies’ 

competitive pricing. The cost of production comparison favor countries with ample low cost raw 

material feedstuff supplies and low labour cost. Hence the drive becomes to minimize the cost 

added per unit sold in process between the base input costs and the overall cost. Poultry 

industry with high investments in these countries is under threat of extinction. Many countries 

have saved their poultry industry with a ban on imports. In the global poultry market, Indian 

eggs are cheapest while that in Argentina are the costliest. 

Maize prices 

Feed cost for eggs across Countries 

3,000 

2,500 

2,298 

2,437 

60 

50 

44 45 

50 

Rs per Kg 

2,000 

1,500 

1,000 

1,490 

1,442 

1,730 

1,621 

1,836 

1,937 2,205 

cents per kg 

40 

30 

20 

10 

18 

24 25 25 

27 

0 

500 

Nov-10 

Dec-10 

Jan-11 

Feb-11 

Mar-11 

Apr-11 

May-11 

Jun-11 

Jul-11 

Aug-11 

Sep-11 

Oct-11 

Zimbawe 

Sri Lanka 

Pakistan 

France 

UK 


Phillipines 

USA 

Source: Bloomberg, GEPL Capital Research 





Strong potential to grow 

Fast urbanisation, changes in life style and food habits of consumers, improvement in standards 

of living etc. have resulted into increase in per capita consumption of egg and poultry meats but 

per capita consumption of these commodities in India is still far below that of developed 

countries showing enormous potential/scope for poultry development 

The industry has grown at a 9.5% CAGR over the last 5 years aided by a 3.3% CAGR in egg 

production and an 11.8% CAGR in broiler production. Despite this the Indian Egg industry has 

achieved a mere 29% of its true potential with a vast gap between per capita consumption (53 

eggs) and National Institute of Nutrition’s recommended level (180 eggs). Similarly, the poultry 

meat segment has achieved a 32% of its potential with per capita consumption of 3.5 kgs as 

compared to the National Institute of Nutrition’s recommendation of 11kgs of poultry meat. 

Here, again, there is considerable variation in per capita consumption between rural and urban 

areas and also across the region. 

Egg consumption per capita and potential of achieved 

Poultry meat consumption in India and potential achieved 

per capita consumption 

54.0 

52.0 

50.0 

48.0 

46.0 

44.0 

42.0 

25.0 

27.8 

28.9 28.9 

29.4 

29.4 

30.0 

29.0 

28.0 

27.0 

26.0 

25.0 

24.0 

23.0 

% 

per capita consumption 

4.0 

3.5 

3.0 

2.5 

2.0 

1.5 

1.0 

0.5 

18.2 

20.0 

28.2 

28.2 

29.1 

31.8 

35.0 

30.0 

25.0 

20.0 

15.0 

10.0 

5.0 

% 

40.0 

22.0 

- 

- 



Egg consumption (nos per capita) 

Potential achieved 

Poultry meat consumption (kgs per capita) 

Potential achieved 



The growth potential for the Indian poultry industry is further evident if our per capita 

consumption is compared with that of USA (300 eggs and 49.8 kgs of poultry meat). Realising 

the massive untapped potential of this industry, the Central Government has reiterated its 

commitment to create an enabling environment for steady growth in agricultural and agrobased 

industries production and diversification from traditional crops to ancillaries, including 

animal husbandry. The allocation for Mid-Day Meal program has been stepped up significantly 

by Central and State Governments. 

Fuelled by burgeoning demand for broiler meat and eggs, the poultry industry in the country, 

the Business chamber, Assocham, has pegged the market size for the poultry products at `1.32 

tn by CY15E. They believe there is a huge opportunity for foreign direct investment (FDI) in 

the poultry sector in areas like breeding, medication, feed production, vertical integration 

and processing. 




The best bird amongst the flock in India’s Poultry Industry 

Venky’s has a witnessed a revenue CAGR of 17.3% in FY06-11 to `8.52 bn driven by a 21.6% CAGR 

in poultry and poultry products. We expect the company to grow steadily with operational 

leverages due to a) strong parent lineage in the form of VH group which offers it a Pan-India 

presence, b) presence across the geographies, and value chain, and c) large scale operation 

leverages like lower transportation and storage cost. 

Strong parent lineage 

Venky’s is part of the (VH) group which was established in 1971 in Pune, India, by founder 

Chairman Late Padmashree Dr. B.V.Rao, referred to as “The Father of the Indian Poultry 

Industry”. With a unique combination of expertise and experience and supported by strategic 

collaborations, the company diversified its activities to include SPF eggs, chicken and eggs 

processing, broiler and layer breeding, genetic research and Poultry diseases diagnostic, Poultry 

vaccines and feed supplements, vaccine production, bio-security products, Poultry feed & 

equipments, nutritional health products, soya bean extract and many more. 

With a focus on technology and return on investments, the company embarked upon new 

ventures, and has grown to over 30 units spread across India. The strategic collaborations has 

helped combine expertise and experience, and diversify into Specific Pathogen Free (SPF) eggs, 

processed chicken products, solvent oil extraction, chicken and eggs processing. The company’s 

SPF Egg unit, in technical collaboration with SPAFAS Inc is among four such units in the world. 

The company has also added to its credit, manufacturing facilities for nutritional health 

products for humans, and pet food and health care products. With a product mix of more than 

40 unique poultry health products, Venky’s offers complete solutions to all concerns in poultry 

farming right from ‘field to fork’. 

Geographical presence 





Presence across geographies, and value-chain 

Currently, the group is the largest fully integrated poultry group in Asia. The VH group has an 

annual turnover of over `50 bn (Venky’s contributes 17% to the top line). Moreover, while 

Venky’s has a strong presence in the Northern and Western regions of India, the VH group has a 

remarkable presence down South and in East India. Also the brand recall for the ‘Venky’s 

chicken’ is one of the highest in the country. This has helped Venky’s expand its product 

portfolio as well as increase sales over the last few years. 

The company is also present across segments (branded and unbranded) as well across markets 

(organised and unorganised). In the organised market the company markets its presence through 

processed chicken where the brand recall remains high for Venky’s chicken. The company has 

also started its new retail store formats- VENKYS XPRS on a small scale to cater to the organised 

market and earn higher margins though the revenue pie remains miniscule as compared to the 

group turnover. In the unorganised market as well the VH group has a strong presence and 

supplies grown-up chicks, grown up commercial broilers and grow-up commercial layers to other 

players and operators in the industry. Such innovative steps has made it possible for the VH 

group to command a 85% market share in the commercial layer industry and a 60% market share 

in the commercial broiler industry. 

Large scale benefits 

According to a study by the Food and Agriculture Organization (FAO) of the United Nations, 

small producers of poultry enjoy fewer advantages when compared with large producers in 

terms of obtaining information, marketing, and transportation and storage facilities (transaction 

costs). At the same time, small producers are observed to spend more effort per unit of poultry 

output than large producers on collecting; drying and transporting poultry manure (pollution 

abatement costs). 

Speculatively, this could be due to the lower opportunity cost of their labor, or perhaps due to 

the greater incentive to keep the surrounding household and neighborhood environment clean in 

a close-settled smallholder setting. In addition to transaction costs and pollution abatement 

costs, differences in the amount of implicit policy subsidies received by farms across 

regions/states are also found to affect the relative profit efficiency of small and large 

producers. 

Due a strong parent company backing, Venky’s is able to enjoy the benefits of economies of 

scale, a larger distribution network, lower transportation cost and lower effort per unit with a 

strong management in place. 

Benefits of large scale production 

Parameters Large scale production Smaller scale production 

Information gathering 

Transportation 

Lesser time to gather 

information 

Lower transportation cost due 

to economies of scale 

More time and effort to gather 

information 

Higher transportation cost per egg 

Storage Storage cost per unit lower Higher storage cost per unit 

Transaction 

Marketing 

Lower transaction costs per 

unit 

Lower marketing effort due to 

strong presence 

Transaction cost per unit is higher 

Higher marketing efforts 

Labour Lower labour cost per unit Higher labour cost per unit 

Effort per unit 

Source: GEPL Capital Research 

Lower effort to production 

ratio 

Higher effort to production ratio 




VENKYS XPRS- the future wings of growth 

Besides being a prominent supplier of chicken products to various International Quick Service 

Restaurant chains in India like Kentucky Fried Chicken, Pizza Hut, Domino’s, TGIF and Vista 

Foods etc., Venky’s have also developed a whole range of Ready-to-eat, Freezer-to Fryer and 

Easy-to-Cook products based on three types of cooking, i.e. flash fried, kettle cooked and oven 

cooked products. 

The food services industry in India is expected to witness a 5% CAGR in the next four years 

driven by the changing demographics in India, rising urbanization, concept of nuclear families, 

rising income levels, growth of middle class, higher percentage of youth population and growth 

in working women ratio. Among the various formats, Quick Service Restaurants (QSR) and cafes 

have had the maximum growth over the last few years. 

Venky’s has hence entered the hospitality industry with the launch of ‘VENKYS XPRS’ to serve 

their customers with a range of healthy, hygienically cooked, and yet reasonably priced chicken 

delicacies. This will help them cater the increasingly popular QSR segment. ‘VENKYS XPRS’ 

brand sell various delicacies like garlic & pepper roast chicken, tender grilled chicken, tandoori 

chicken roast, grilled chicken burger, chicken hot dog, Kathi roll, etc. 

The first store was rolled out in Jan, CY10 and currently five stores in India are operational. The 

company plans to invest ~`2.5 bn for its research and development and set up over 100 Venky’s 

XPRS outlets (including London) over the next three years. It expects a break-even for the new 

initiative within 15 months. The company also has a technical agreement with Campden BRI of 

the United Kingdom to get food technologies. 

India’s answer to foreign QSR’s 

Venky’s XPRS seems to be India’s answer to international QSR’s due to: 

Healthier Products: Venky’s XPRS is set up with the intention to cater to the niche health 

conscious consumers who want quick food but do not want to compromise on quality. With a 

focus on health, the UK stores are expected to gain immediate traction. Moreover, the concept 

of healthy food is gaining momentum in Tier I cities in India and should lead to a stronger 

growth in the years to come. Even as the current menu is limited, Venky’s XPRS serves their 

frozen products fried n hot right in front of the customer. This ensures that the products are 

fresh and healthy 

Effective Pricing: The pricing remains extremely competitive when compared to other QSR’s 

like KFC and McDonalds. Given the price sensitivity of Indians, we believe this should help them 

gain market share in the time to come. 

Lower pricing than competitors 

Menu Venky’s XPRS McDonalds KFC 

Chicken Burger 50 69 99 

Chicken Roll 40 129 110 

Roast Chicken (2 pieces) 60 NA 120 

Source: various companies, GEPL Capital Research 

Though currently the contribution from this segment is minimal, the scope for growth remains 

high given the changing demographics in India with a rise in disposable income, higher working 

population (both youth and women). The management is focused towards the growth of its 

brand and plans to expand the XPRS network and open restaurants all over India and overseas, 

in the near future. 




Financials 

Revenues to record 20.6% CAGR in FY11-FY13E 

Venky’s has a witnessed a revenue CAGR of 17.3% in FY06-11 to `8.5 bn driven by a 21.7% CAGR 

in poultry and poultry products and a 15.4% CAGR in the solvent extraction business. 

Consequently, the poultry and poultry products segment contributed 65% to the consolidated 

revenues in FY11 as compared to 55% in FY06. While the revenue contribution of the solvent 

extract division declined marginally over the same period to 20% from 21%, the contribution 

from the animal health product segment declined to 10% from 16%. 

Revenue mix in FY11 

Revenue mix in FY13E 

20% 

5% 

18% 

5% 

10% 

65% 

8% 

69% 

Poultry and poultry products 

Animal health products 



Solvent extraction 

Others 


Others 


Source: Various Companies, GEPL Capital Research 

With the a) strong growth in the Indian poultry segment, b) vast gap between the present per 

capita consumption and NIN’s recommended level, and c) strong market position of Venky’s, we 

expect it to be the biggest beneficiary and capture a larger pie of the growth. We expect the 

company to witness a 20.6% CAGR in FY11-13E to `12.4 bn driven by a 23% CAGR in poultry and 

poultry related products. We expect the AHP segment to grow at 11.5% CAGR and the solvent 

extraction business with witness a 16.4% CAGR in the same period. 

Net revenues 

14.00 

12.40 

12.00 

10.00 

8.52 

10.17 

Rs bn 

8.00 

6.00 

5.69 

7.05 

4.00 

2.00 

0.00 

FY09 FY10 FY11 FY12E FY13E 





Operational efficiencies has helped EBITDA grow four fold in FY06-FY11 

The company has witnessed a four-fold increase in EBITDA in FY06-FY11 while the EBITDA 

margin has doubled to 13.3% in FY11 from 6.6% in FY06. The poultry and poultry related 

segment contributed ~73.5% of the company’s EBIT in FY11 and going forward we expect this 

segment to drive revenue and profitability growth for the other segments as well. 

The growth trend is clearly visible in the poultry segment (contributed ~73.5% of EBIT in FY11) 

of where EBIT margins have doubled from 7.2% in FY08 to 14.4% in FY11. The company has also 

been able to maintain its animal health product margins at 17-19% over the last five years. 

Given the interlinked business activities with promoters and the Pan-India presence we expect 

the margins to remain in this range. While the animal health product segment has seen a 

constant margin, the picture is very different for solvent extracts with EBIT margins ranging 

from 5-11.8% in FY07-FY11. The high volatility in margins is due to higher commodity prices. 

EBIT mix in FY11 

Segmental margins 

13.1% 

25.0 

13.3% 

20.0 

15.0 

17.5 

18.5 17.9 

14.4 

17.7 

15.4 

19.1 

73.6% 

% 

10.0 

5.0 

2.2 

9.5 

11.8 

9.6 

7.2 

5.0 

5.0 

6.9 




0.0 

FY07 FY08 FY09 FY10 FY11 

Poultry and poultry products Animal health products Solvent extraction 



EBIDTA to witness 21.5% CAGR as margins improve by 20bps in FY11-13E 

The company has been able to constantly scale up its operations. This coupled with a strong 

bargaining power due to its track record and parent company backing has resulted in 

operational efficiencies with employee expenses as a percentage of sales improving by 100bps in 

FY06-FY11 while other expenses have improved by 440bps in the same period. However, the 

poultry margins depend highly on the raw material cost (75-80% of which consist of feed 

ingredients like maize and soya). 

Despite the fact that there has been an improvement of 280bps in raw material expenses as a 

percentage of sales due to better operations by the company, the pressure on margins due to 

increase in prices of soya and wheat is visible. Moreover, a strong demand all through put the 

entry of newer players who are ready to sell products below the cost of production has resulted 

in lower realizations for the company and the industry, these two factors have resulted in 

margin erosion in FY12 so far. 

We expect the company to maintain a double digit margin in FY12E and witness a strong 

recovery in FY13E due to the historical cyclical nature of the business with cycles lasting for 3-4 

years and a typical downtrend lasting for 6-9 months. We expect the margins to improve by 

20bps over the next two years despite the current scenario of higher competition, lower 

realization and higher raw material prices. Consequently, we expect the EBITDA to witness 

21.5% CAGR from FY11-13E to `1.68 bn. 




Cost break up 

EBITDA and EBITDA margin 

% 

100.0 

80.0 

60.0 

40.0 

14.8 

13.5 14.1 

16.0 

14.7 

7.2 

6.2 6.6 7.0 

6.4 

70.7 67.4 65.9 67.3 65.3 

Rs mn 

1,800 

1,600 

1,400 

1,200 

1,000 

800 

600 

7.3 

13.0 13.3 

9.8 

13.5 

16.0 

14.0 

12.0 

10.0 

8.0 

6.0 

% 

20.0 

400 

4.0 

200 

2.0 

0.0 


0 


0.0 

RMC Employee expenses Other expenses 

EBITDA 

EBITDA margin(%) 



Net profit to record 17.2% CAGR in FY11-13E 

The company has capex of `1.10 which would spill over till FY13E owing to which the interest 

cost is expected to increase. We expect the PAT CAGR to be marginally lower led by the a) 

higher interest costs owing to the rise in interest rates, b) higher depreciation, c) a flattish 

other income component, and d) marginal rise in tax rates. Hence, we expect the PAT to 

witness a 17.2% CAGR in FY11-FY13E despite a 20% de-growth in FY12E owing to a sharp bounce 

in FY13E. 

Net profit 

1,200 

1,000 

1,003 

200.0 

150.0 

Rs mn 

800 

600 

400 

543 

730 

585 

100.0 

50.0 

% 

200 

206 

0.0 

0 

(50.0) 


Profit after tax 

YoY growth 





Key Risks 

Strong input cost could hurt margins 

The poultry industry faces the threat of relentless increase in prices of fee ingredients like 

maize and soya which account for 80% of the cost of production. A sharp surge in prices has 

impacted margins in the past and can do so in the future. 

However, the overall demand scenarios are favourable for continued growth of the industry. 

Moreover, the poultry industry has pleaded with the Government to ban forward trading in 

maize and soya and channelises the export of maize and soya meal through a designated 

government agency and to put a ceiling on the volume of export. 

Virus and diseases 

In the last quarter of the FY06, poultry industry suffered a major set back due to reports of bird 

flu in Maharashtra. The panic caused a steep fall in consumption of both eggs and chicken. 

Similarly, bird flu in February, 2006 had affected the performance of the company during the 

first half of the FY07. Any further such virus and diseases can impact the financial performance 

of the industry and the company going forward. 

However, the fact is that India is second to none as far as poultry technology is concerned and 

has the most advanced technology outside USA. With the increasing awareness amongst 

consumer led by the company and various government initiatives we believe the company is 

prepared to tackle such a situation in a much better way if the need arises. 

Competition 

The poultry business due to its constant growth has become extremely competitive. The 

expenses are increasing even as customers want quality products at cheaper rates. Due to this 

fact newer players are offering products even at below cost prices which have impacted 

realizations. Continuation of such a scenario can be harmful to the industry. 

However, India with abundant land, technical people, and irrigation systems can offer the best 

place for world’s poultry industry. Being a large Pan-India player with a strong backing and 

strong brand recall, we expect the company to be able to absorb the marginal pain. 

Lower Global slowdown 

The global economic slowdown witnessed in 2008 had adversely impacted all the major 

economies of the world including that of India. The global slowdown impacted the poultry 

industry at large as well as Venky’s. A threat of global slowdown persists. 

However, while most of the industries showed a severe decline, the poultry industry managed to 

withstand the impact to a certain extent as the industry in India is primarily domestic demand 

driven. 




Valuations 

Currently, Venky’s is trading at 7.1x FY12E EPS and 4.1x FY13E EPS, a 34% discount to its 

historical one-year forward P/E band of 6.2x. The discount is wider (45%) when compared to its 

average one-year forward P/E band over the last 12 months of 7.4x. 

However, the stocks has traded within a wide band over the last few years with it commanding 

a one-year forward P/E of 12.5x in its best year (FY06) and 2.8x during FY10. A volatile earning 

scenario with a drop in profits after every two-three years due to the cyclical nature of the 

business coupled with the systemic risks (break-out of diseases and virus like Bird flu) have led 

to this erratic movements in the one-year forward P/E bands. 

We have hence taken a four year average of its historical P/E band (5.1x) to capture the 

cyclicality of the industry in terms of pricing, downtrend in the industry, lower realisations and 

lower profits once in every four years. We believe Venky’s should be viewed as a turnaround 

story in FY13E despite the below expected performance seen in HiFY12. 

We believe there is good potential upside in the stock and initiate coverage with a Buy rating 

and target price of `544 per share (5.1x FY13E EPS). 

1 year forward P/E 

1,200 

1,000 

800 

600 

400 

200 

0 

Apr-05 

Aug-05 

Dec-05 

Apr-06 

Aug-06 

Dec-06 

Apr-07 

Aug-07 

Dec-07 

Apr-08 

Aug-08 

Dec-08 

Apr-09 

Aug-09 

Dec-09 

Apr-10 

Aug-10 

Dec-10 

Apr-11 

Aug-11 

Dec-11 

Price 2.0x 5.0x 8.0x 11.0x 


1 year forward EV/EBITDA 

1,400 

1,200 

1,000 

800 

600 

400 

200 

0 

-200 

Apr-05 

Aug-05 

Dec-05 

Apr-06 

Aug-06 

Dec-06 

Apr-07 

Aug-07 

Dec-07 

Apr-08 

Aug-08 

Dec-08 

Apr-09 

Aug-09 

Dec-09 

Apr-10 

Aug-10 

Dec-10 

Apr-11 

Aug-11 

Dec-11 

Price 3.0x 5.0x 7.0x 9.0x 





Company background: A Chick laying golden eggs 

Venky’s India Limited (Venky’s) formerly known as Western Hatcheries Limited was established 

in 1976, mainly to produce day-old layer and broiler chicks for the dense poultry markets of 

North India. It is part of the Venkateshwara Hatcheries (VH) group established in 1971, by 

Late Padmashree Dr. B.V.Rao, “The Father of the Indian Poultry Industry” in Pune, India. 

Its main products can be broadly classified into 

1. Poultry and poultry products 

2. Animal health products 

3. Solvent extraction 

Company Structure 

Venky’s 

Poultry & Poultry 

Products (65%) 

Animal Health 

Products (10%) 

Solvent Extraction 

(20%) 

Chicks 

Animal Health 

Products- Powder 

Refined Oil 

SPF Eggs 

Animal Health 

Products- Liquid 

De oiled cake for 

poultry 

Grown up 

Commercial broiler 

Grown up 

commercial layers 

Grown up broiler 

parents 

Poultry Feed 

Processed Chicken 


1. Poultry and Poultry Products 

The Company’s major business segment is poultry and poultry products which consisted of 65% 

of the total revenues in FY11. The business involves production and sale of day old broiler and 

layer chicks, specific pathogen free eggs, processed chicken products and poultry feed. 

a) Chicks: The Company produces over 55 mn chicks a year for both their meat and their eggs. 

Chickens raised for meat are called broilers, whilst those raised for eggs are called laying 

hens. 




b) SPF Eggs: SPF Eggs are fertile chicken eggs produced from known SPF parent flocks and are 

free from the vertically transmitted agents and laterally transmitted infections. Venky’s is 

the only company in Asia and one of the 6 companies in the world to produce SPF eggs. 

c) Grown up commercial broilers: Broiler grown up birds are slaughtered for production of 

whole chicken, portions in fresh and frozen form and sold in retail and institutional market 

under “Venky’s” brand. The products are also sold to institutional buyers, major hotels and 

leading Quick Service Restaurant chains like KFC, Pizza Hut, Dominos, Vista Foods who 

supply to McDonalds, etc. Venky’s are also in further processing, value added Chicken-inminutes 

products like freezer to fryer, completely cooked, ready-to-eat products sold under 

“Venky’s” brand. Venky’s chicken products are sold through distributors and retail outlets 

and are available in all leading super markets / food malls. 

d) Grown up broiler parents: Venky’s sources one day old broiler breeder parents who are 

grown in farms and females are artificially inseminated to obtain the hatching eggs which 

are hatched in incubators. Chicks coming out of the eggs are called commercial chicks 

which are sold to various commercial poultry farmers and integrators who grow the 

commercial chicks in their own/contract farms and when the commercial chicks are grown 

to an age of 40 to 45 days they are sold as grown up broiler birds for meat purpose meant 

for human consumption. 

e) Grown up commercial layers: Venky’s sells commercial layer chicks to various poultry 

farmers who, in turn, grow them for obtaining “table eggs” – meant for human 

consumption. 

f) Poultry Feeds: Venky’s manufactures and sells poultry feed under the Venky’s brand name 

for captive consumption to the VH Group as well as to the major poultry markets of 

Western and Northern states of India. 

g) Processed Chicken: Venky’s is the first national brand in the processed chicken segment 

and sells its processed and further processed chicken under the Venky’s brand name. It is a 

preferred supplier to the Indian outlets of McDonalds, KFC, Pizza Hut, and Domino’s. 

2. Animal Health Products (AHP) 

The Company has its animal health products manufacturing facility at Pune which constituted 

9% of the company’s revenues in FY11. AHPs are manufactured in powder as well as liquid forms 

in the manufacturing plant. It has more than 35 unique products ensuring better health and 

better performance in breeders as well as commercial broilers and layers. 

Nutritional supplements: Venky’s offers a unique range of Nutritional supplements to poultry 

farmers as profit enhancers to the business. The blend of vitamins and minerals is standardized 

after research of more than 2 decades depending upon the needs of various kinds of birds. 

3. Solvent Extraction 

The solvent extraction segment contributed 26% to the revenues of Venky’s in FY11. However, 

lower realisation in oil prices was the main reason for the fall in profit. The solvent extraction 

business can be further classified into 

a) Refined oil: The Company’s soya processing plant is located near Solapur, Maharashtra. 

Edible oil obtained from the processing activity is sold in bulk to traders while the de-oiled 

cake is used in poultry feed. 

b) De-oiled soya cake (DOC) for poultry: is an important ingredient of poultry feed. To meet 

the growing demand for the DOC of feed mills of VH Group, Venky’s set up a solvent 

extraction plant in 1954. 




Income Statement 

Y/E march (`mn) FY09(A) FY10(A) FY11(A) FY12(E) FY13(E) 

Total net revenues 5,693 7,055 8,520 10,169 12,401 

COGS 4,024 4,752 5,616 6,844 8,102 

Gross Profit 1,668 2,302 2,904 3,325 4,299 

Employee Cost 410 437 566 707 796 

Selling & Admin Exp. 427 493 617 0 0 

Other Expenditure 415 456 586 1,624 1,827 

EBITDA 416 916 1,135 994 1,676 

EBITDA Margin (%) 25 39.8 39.1 29.9 39 

Depreciation 86 90 96 124 162 

Other Income 60 49 87 80 80 

Interest (Net) 79 50 46 77 97 

PBT 311 825 1,080 873 1,496 

PBT Margin (%) 5.5 11.7 12.7 8.6 12.1 

Tax 105 280 347 288 494 

Minority Interest 0 0 0 0 0 

Adjusted PAT 207 545 733 585 1,003 

Extraordinary items 0 0 0 0 0 

Reported PAT 207 545 733 585 1,003 

Key Ratio 

Y/E (`mn) FY09 FY10 FY11P FY12E FY13E 

Per Share Ratios 

Fully diluted E P S 22 58 78 62 107 

Book Value 167 220 292 347 446 

Dividend per share 4 4 5 6 7 

per share FCFO 4 5 5 11 11 

Valuation Ratio 

P/E 3 6 8 7 4 

P/BV 0 2 2 1 1 

EV/EBITDA 4 4 6 5 3 

EV/Sales 0 1 1 1 0 

Price/ FCFO per share 19 62 133 42 40 

Growth Ratios 

Sales Growth 9 24 21 19 22 

EBITDA Growth (23) 120 24 (12) 69 

Net Profit Growth 4 8 9 6 8 

EPS Growth (23) 164 35 (20) 71 

Common size Ratios 

Gross Margin 29 33 34 33 35 

EBITDA Margin 7 13 13 10 14 

PAT Margin 4 8 9 6 8 

Employee Cost 7 6 7 7 6 

S&G Expenses 8 7 7 0 0 

Return ratios 

RoAE 14 30 30 20 27 

RoACE 10 21 22 15 20 

Turnover ratios (days) 

Debtors ( Days) 32 27 24 22 21 

Creditors ( Days) 37 33 31 29 27 

Inventory (Days) 49 41 45 44 41 

Net working capital 56 47 50 51 50 

Solvency Ratios 

Total Debt/Equity 1 0 0 1 1 

Interest coverage 3 12 17 8 11 

Balance Sheet 

Y/E March (`mn) FY09 FY10 FY11P FY12E FY13E 

Equity capital 94 94 94 94 94 

Reserves & Surplus 1,477 1,973 2,648 3,167 4,093 

Preference Capital 0 0 0 0 0 

Net worth 1,571 2,067 2,742 3,261 4,187 

Minority interest 0 0 0 0 0 

Deffered tax liability 134 146 153 153 153 

Total debt 939 899 1,145 1,545 1,945 

Total Liab. & Equity 2,510 2,966 3,887 4,806 6,132 

Net block 1,175 1,238 1,515 2,191 3,029 

Capital WIP 87 97 245 345 445 

Total fixed assets 1,262 1,335 1,760 2,536 3,474 

Investments 521 813 928 928 928 

Goodwill 0 0 0 0 0 

Current Assets 1,471 1,595 2,108 2,631 3,373 

Inventories 710 866 1,223 1,254 1,563 

Debtors 523 514 599 655 781 

Cash & bank 108 85 135 569 842 

Loans & advances 130 130 151 153 187 

Other Current Assets 0 0 0 0 0 

Current Liab. & Prov. 609 632 756 1,136 1,489 

Creditors 409 444 523 563 644 

Other liabilities 78 89 129 149 190 

Provisions 123 98 104 424 656 

Net Working capital (134) (146) (153) (153) (153) 

Miscellaneous Exp 0 0 0 0 0 

Total Assets 2,510 2,966 3,887 4,806 6,132 

Cash Flow 

Y/E March, (`mn) FY09 FY10 FY11P FY12E FY13E 

PBT 311 825 1,080 873 1,496 

Add: Depreciation 86 90 96 124 162 

Add: Interest expense 79 50 46 77 97 

Less: Other Income (60) (49) (87) (80) (80) 

Other Adjustments 0 0 0 0 0 

Change in working cap. 50 (125) (339) 291 (116) 

Taxes paid 105 280 347 288 494 

CF from operations 362 511 449 997 1067 

Change in fixed assets (121) (163) (521) (900) (1100) 

Changes in Int. Asset 0 0 0 0 0 

Change in investments 5 (292) (115) 0 0 

Other income 60 49 87 80 80 

CF from investing acti. (56) (406) (549) (820) (1020) 

Change in debt (165) (40) 246 400 400 

Change in Equity cap. 0 0 0 0 0 

Changes in Pref. capital 0 0 0 0 0 

Dividend & dividend tax (38) (44) (55) (66) (77) 

Interest paid (79) (50) (46) (77) (97) 

Other Adjustments (5) 8 7 0 0 

CF from financing acti. (287) (126) 153 257 226 

Change in cash 18 (24) 50 434 272 

Opening cash 91 108 85 135 569 

Closing cash 108 85 135 569 842 

Du-Pont Analysis 

(%) FY09A FY10A FY11E FY12E FY13E 

Net Profit Margin 3.6 7.7 8.6 5.8 8.1 

Asset Turnover 2.3 2.4 2.2 2.1 2 

Leverage 1.6 1.4 1.4 1.5 1.5 

ROE 13.8 29.9 30.4 19.5 26.9 





NOTES 

Recommendation Rationale 

Recommendation 

Expected Absolute Return (%) over 12 months 

BUY >20% 

ACCUMULATE 10% 

NEUTRAL

Venky's (India) Ltd - GEPL Capital

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