KSE Limited| BSE Scrip Code: 519421

Package Food September 12, 2012

Equity Statistics Business Summary

KSE limited (KSE), is a regional player with concentration in southern
Current Market Price Rs. 227.0 part of India. The company is primarily engaged in the manufacturing
52 Week High / Low Rs. 1.2 of cattle feed. The company’s business segment includes Animal Feed,
Market Capitalisation Rs. crores 72.6 Oil Cake Processing and Dairy division comprising milk and milk
products including ice cream.
Free Float Rs. crores 50.0
Dividend Yield % 4.8 KSE manufactures coconut oil from coconut oil cake and refined
One Year Regression Beta Times 0.3 edible oil. Animal feed division of the company continued to be major
contributor to the revenue, which contributed ~75% of total income in
BSE Volumes Trend - Average = 0.27 Thousand FY12 (refers to the period April 1 to March 31).
3 in '000s
Core strength for KSE is established market position in southern part
2 of the country in the cattle feed segment and location advantage in
1 terms of proximity to raw material suppliers. KSE’s key risks are in
terms of intense competition faced from the integrated poultry
0 companies in India, operating margins exposed to fluctuations in raw
material prices.

KSE is currently trading at 7.4 times FY12 EPS and 1.8 times FY12
adjusted book value.
Relative Returns

150
125
100
75
KSE Sensex

Board of Directors
Returns (%) 1M 3M 6M 1Yr Person Role
Absolute -10% -11% -9% -7% M.C Paul MD, Chairman
Relative to Sensex 2% 7% 2% 9% P.K Varghese ED
A.P. George NED
Shareholding Pattern K.P John NED Independence
100% Dr. K.C. Vijayaraghvan NED Independence
T.R. Rghulal NED Independence
P.D. Anto NED, Independent
John Francis K. NED, Independent
50%
Jose Paul Thaliyath NED, Independent
Joseph Xavier NED, Independent
Source: AR and CARE Research
0%
Note: MD: Managing Director, NID: Non Executive Independent
Sep '11 Dec '11 Mar '12 Jun '12
Director ED: Executive Director, NED: Non Executive Director,
Promoter DII FII Others

Source: BSE, Capitaline and CARE Research

1 Initiative of the BSE Investors’ Protection Fund

Background
Incorporated in the year 1963, KSE Ltd., formally known as Kerala Solvent Extraction was promoted by Mr K. L. Francis,
Mr M. C. Paul, Mr T. O. Paul and Mr A. P. George.
The company is engaged in the business of solvent extraction of coconut & rice and refinery of coconut oil and rice bran oil.
It also undertakes processing of milk and related products. The product portfolio consists of de-oiled cake (DOC) known as
cattle feed, refined coconut and rice bran oil, dairy products comprising milk and milk products, including ice cream.
The company’s manufacturing facilities are located in two states namely Kerala and Tamil Nadu. The manufacturing facilities
together have a cattle feed manufacturing capacity of around 3.68 lakhs tonnes per annum (TPA), milk processing capacity of
18,250 kilolitres per annum (KLPA), ice cream manufacturing capacity of 1,250 KLPA, oil refining capacity of 30,000 TPA,
and coconut oil solvent extraction capacity of 90,000 TPA. KSE is a regional player with significant presence in southern
India along with extensive network of distributors and retailers.

Business overview
KSE operates on three segments, Animal Feed (~75% of the total revenue for FY12), Oil Cake Processing (~22% of the
total revenue for FY12) and Dairy Products (~3% of the total revenue for FY12).
During FY12, the company reported strong top line growth in the entire three segments. The bottom line growth is primarily
driven by the strong margins reported by the Animal Feed segment (3.46% in FY12 viz a viz 1.08% in FY11). Since products
are consumed by cattle owners, any increase in the price of milk has a positive impact on the cattle feed consumption.
The margins for other two segments are prone to fluctuations with the raw material costs and finished goods prices. During
FY12, the margins for Oil Cake Segment dropped from 4.68% to 2.20% YoY as the price of coconut oil (finished product)
dropped from around 100/kg to around 60/kg. Furthermore, the company had to clear the stock of imported cake (raw
material) in hand, which was procured at a higher rate.
Overall, the Animal Feed segment is major contributor to the revenue profile of KSE, with the rising demand and better
margins in the segment company plans for capacity augmentation.

Strengths and growth drivers

 Core strength is the presence in animal feed industry from the last 40 years coupled with positive industrial outlook.
 Moderate financial risk profile characterized by low debt to equity ratio.
 Extensive distribution network in southern part of India and better customer reach.

Risk and concerns

 KSE faces significant competition from the products offered by the state government run company (Kerala Feeds Limited)
and other organized and unorganized players in the market.
 The margins of the company are susceptible to the volatility in the raw material prices.
 Indirect control of government over the prices of milk.

Future strategy and expansion plans

 With the increasing demand for cattle feed, the company is planning for capacity augmentation.
 The company plans to appoint new dealers in untapped areas like western part of country to improve the volume of sales
and thereby increasing the profitability.

Industry outlook
The Animal feed division is expected to perform well in year 2012-13 also, though there is high volatility in the ingredient
prices. In the Animal feed division, the prices of all major ingredients are going up steadily over the past few years. In FY11,
due to State Government’s interference, the retail price of milk was kept at uneconomical levels and the farmers could not
absorb any increase in the feed prices. As a result thereof, the players in cattle feed segment faced problems in adjusting
selling price in tune with the ingredient prices. However, in FY12, the milk price was revised reasonably which helped
companies to adjust the feed price in line with ingredient prices. The competing brands controlled by the State Government
holding their feed prices for reasons other than economical is another issue that affects the flexibility in adjusting the feed
prices.

2 Initiative of the BSE Investors’ Protection Fund

 Peer Comparison Year ended March 31, 2012
Income statement (Rs. Crore) KSE* Modern* Simran* Milk Food#
Total income 546.7 494.0 229.7 305.1
Net sales 542.2 492.8 227.9 304.5
EBITDA 22.7 (30.1) 0.6 26.3
Ordinary PAT 10.5 (18.2) 0.8 0.6
Adjusted PAT 10.4 (18.2) 0.8 0.6
Per share data (Rs.)
Adjusted BVPS 12.2 - 45.8 10.0
Diluted EPS 30.9 - - 1.2
Growth (Y-o-Y) (%)
Growth in total income 20.1 4.9 35.6 1.7
Growth in net sales 19.5 6.4 38.4 (0.8)
Growth in EBITDA 64.8 10.9 NM 158.7
Growth in adjusted PAT 132.0 (28.9) NM 13.7
Growth in EPS* 148.2 NM NM NM
Profitability ratio (%)
EBITDA margin 4.2 NM 0.3 8.6
Adjusted PAT margin 1.9 NM 0.4 0.2
Valuation ratios (Times)
Price/EPS (P/E) 7.4 NM NM 69.9
Price/Book value (P/BV) 1.8 NM 0.6 8.3
Enterprise value (EV)/EBITDA 3.3 NM 16.5 1.5
Source: BSE, Capitaline and CARE Research
Note: Salzer: Modern Daries Limited, Simran Farms Limited, Milk Foods Limited
NM: Not Meaningful, *: Audited, #: Unaudited

Quarterly financials Quarter ended June 30, 2012

Income statement (Rs. crore) Q1FY13 Q4FY12 Q3FY12 Q2FY12 Q1FY12
Total income 149.8 146.5 137.8 131.3 127.8
Net sales 149.7 146.0 137.8 131.3 127.7
EBITDA 3.6 5.4 5.4 6.7 5.6
Ordinary PAT 1.3 2.3 2.3 3.4 2.5
Adjusted PAT 1.3 2.3 2.3 3.4 2.5
Growth (Q-o-Q) (%)
Growth in net sales 2.6 6.0 4.9 2.8
Profitability ratio (%)
EBITDA margin 2.4 3.7 3.9 5.1 4.4
Adjusted PAT margin 0.9 1.6 1.6 2.6 1.9
Source: BSE, Capitaline and CARE Research

3 Initiative of the BSE Investors’ Protection Fund

Financial analysis
 In FY12, KSE reported net sales of Rs.542.2 crore up 19.52% y-o-y. Total income witnessed a growth of 20.1% during the
same period.
 Raw material forms the largest portion of cost for KSE. In FY12, raw materials cost as a percentage of net sales was at
approximately 83%.
 The company reported EBITDA margins and adjusted PAT margins of 4.2% and 1.9%, respectively, in FY12.
 PAT margin of the company improved marginally in FY12, resulted by marginal decrease in the raw material prices.
 Interest coverage ratio of the company improved to 5.3x as on March 31, 2012, on account of increase in EBITDA.
 KSE had negligible levels of leverage as on March 31, 2012. The total debt as on March 31, 2012 was at Rs.7 crores
compared with an adjusted networth of Rs.39.71 crores.
 The company has paid a dividend of Rs.11 per share for FY12, resulting in a dividend yield of 4.8% at the current market
price of Rs.227 per share.
Annual financial statistics FY08 FY09 FY10 FY11 FY12
Income statement (Rs. crore)
Total income 290.5 351.6 372.8 455.2 546.7
Net sales 289.5 350.1 370.9 453.7 542.2
EBITDA 9.0 10.2 18.4 13.8 22.7
Depreciation and amortisation 2.9 2.6 3.8 4.6 4.6
EBIT 6.1 7.6 14.6 9.2 18.1
Interest 2.9 3.5 3.2 3.2 3.4
PBT 4.2 5.0 12.7 6.7 15.9
Ordinary PAT 2.6 3.2 8.3 4.5 10.5
Adjusted PAT 2.5 3.0 8.2 4.5 10.4
Balance sheet (Rs. crore)
Adjusted networth 26.7 28.0 32.6 33.4 39.7
Total debt 19.8 30.0 29.2 9.4 7.2
Cash and bank 5.3 4.4 8.6 3.5 5.8
Investments 0.0 0.1 4.1 0.1 0.1
Net fixed assets (incl. CWIP) 29.4 38.4 39.9 37.8 35.8
Net current assets (excl. cash, cash equivalents) 13.2 16.9 11.6 2.8 6.6
Per share data (Rs.)
Adjusted BVPS 83.4 87.6 101.8 104.2 124.1
Diluted EPS* 7.5 9.2 24.2 12.4 30.9
DPS 3.5 5.0 10.0 10.0 11.0
Growth (Y-o-Y) (%)
Growth in total income 21.1 6.0 22.1 20.1
Growth in net sales 20.9 6.0 22.3 19.5
Growth in EBITDA 12.8 81.2 NM 64.8
Growth in adjusted PAT 22.1 170.4 NM 132.0
Growth in EPS* 22.6 164.1 NM 148.2
Key financial ratio
EBITDA margin (%) 3.1 2.9 5.0 3.0 4.2
Adjusted PAT margin (%) 0.9 0.9 2.2 1.0 1.9
RoCE (%) 10.7 16.4 12.9 27.1
RoE (%) 11.7 27.3 13.7 28.6
Gross debt - equity (times) 0.7 1.1 0.9 0.3 0.2
Net debt - equity (times) 0.5 0.9 0.6 0.2 0.0
Interest coverage (times) 2.1 2.1 4.5 2.8 5.3
Current ratio (times) 2.8 2.9 2.6 1.2 1.3
Inventory days 24.2 24.0 22.6 26.4
Receivable days 0.4 0.3 0.2 0.1
Source: BSE, Capitaline and CARE Research

4 Initiative of the BSE Investors’ Protection Fund

 DISCLOSURES

 Each member of the team involved in the preparation of this grading report, hereby affirms that there exists no
conflict of interest that can bias the grading recommendation of the company.
 This report has been sponsored by the BSE Investors’ Protection Fund.

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