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Tuesday, September 2, 2008

Good stock for long term investment-Aries Agro

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Aries Agro

Industry : Agriculture
BSE / NSE code : 532935 / ARIES
Company P/E : 6xFY'10E
52-Week H/L (Rs) : 265 / 85
Market Cap. (Rs) : 1400mn
Avg. Daily traded volume : 20,500 / 21,800
Face Value (Rs) : 10 Dividend (FY08) : 12%


LKP Shares has maintained its buy rating on Aries Agro with a 12-month target price of Rs 200 in its August 28, 2008 research report. "Aries operates in an India centric rural domain space and we remain confident of the management's ability to ramp up the business model and achieve traction going forward.

Despite scaling down of margins in our updated forecasts, we project a three year CAGR of 43% in profits on the back of a 33% growth in revenues over FY'08- 11 in a business with healthy margins and return ratios. We reiterate BUY on the stock with a 12-month price target of Rs 200," says LKP Share' research report.

• Aries Agro is the only listed organized national player in the 2.5lac MT Micronutrients market wherein the unorganized sector accounts for 60% share. The other two organized players - Ranade Nutrients and Karnataka Agrochem are regional players. Chelated micronutrients form 15% of the total market and Aries
has a dominant 50% share of this market.

• Aries with a presence in 85% of the top fertilizer consuming states in India has forged a marketing alliance with the UK based Yara Phosyn the world's largest soluble fertilizer company to market the latter's speciality micronutrients in India. The alliance covers about fourteen products over a three-year time frame
and the first product-Teprosyn has already been launched in India.

• We expect Aries to double its volumes this fiscal as the Hyderabad facility which went on stream during the last week of March 2008 and the Ahmedabad facility which went on stream during the third week of August 2008 would spur volume growth.

• With shrinking land area for farming becoming a reality, farmers are focusing on productivity improvement through micronutrients, which can also enhance fertilizer uptake by crops. Aries products sold in different stock keeping units can be administered through various routes including spray and drip irrigation which
can help reduce product wastage.

Conclusion:

Aries operates in an India centric rural domain space and we remain confident of the management's ability to ramp up the business model and achieve traction going forward. Despite scaling down of margins in our updated forecasts, we project a three year CAGR of 43% in profits on the back of a 33% growth in revenues over FY'08-
11 in a business with healthy margins and return ratios. We re-iterate BUY on the stock with a 12-month price
target of Rs200.

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