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Gujarat Ambuja Exports – Kotak

March 18, 2008

Kotak Sec has initiated coverage on Gujarat Ambuja Exports Ltd [GAEL] with a BUY rating.

GAEL used to sell its entire oil in bulk form to other people who were packing it in small quantities and sell it as their own brand. A couple of years back GAEL started doing 20% branded sales while the rest used to go as bulk sales. Today, the company has already achieved almost 65% branded sales.

The company’s solvent extraction plant at Pithampur is the only plant which does not have facilities for refining oil. Thus, to bridge this gap to capture the entire value chain of refining, packing, and selling as branded product the company is setting up 200 TPD oil refinery at Pithampur. It is likely to incur a capex of Rs.150 mn

The prices of de-oiled cakes have been steadily going up. Current deals are happening at around $425 per MT, which recently were around $380 per MT. Last year, they were about $275 per MT.

Till last year the company used to procure almost 90% of its seeds from agents. However, now the company has got its license to procure it directly from mandis which results in 2% cost saving.

The company is in advanced stages of setting up a 500 TPD maize crushing capacity plant in Uttarakhand. The first phase of the plant with 300 TPD capacities has already commenced trial runs. The commercial operations are expected by first week of April 2008.

Financials
At Rs.42, the stock trades at 1.5x for FY08E, 1.2x FY09E to book value. It discounts FY08E and FY09E earnings at 6.4x, and 4.9x, respectively. Kotak recommends a BUY with a target price of Rs 85.

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