Venky’s stock has given handsome returns for shareholders with a nearly 60% gain this year. B Venkatesh Rao, MD of Venky’s-India, in an interview to CNBC-TV18, said that financials improved as market conditions improved after a long time.
Talking about poultry prices, he said, “There is overproduction and overproduction over last one-and-a-half month and there is little bit glut in the market though its summer now and the growth will be slow so it will compensate with the production.”
On business front, he said that he is seeing growth potential for poultry products in Uttar Pradesh and Bihar.
Edited Excerpts:
Your EBITDA in months of FY 18 is about 5% more than last year. If you look at the net profit, Rs 148 crore in the nine months, it is about 20% more than the previous year. This is an extraordinary growth in profit and EBITDA. What is going right?
A: After a long time there was a glut as I have been telling and its after long time that the market opened up and all the individual companies have come into production, basically the oil seeds. Now it’s a win-win situation, but again there is little bit of overproduction and you can see the rates coming down from broiler sector. It is a temporary thing, of course, but this is what is happening. It is nothing very special but after a long time of three-four years the market has opened up and all new products have ventured into the market, especially fast food.
What is your thoughts on poultry prices as well because you spoke about excess supply. Has that put a lot of pressure on prices and is that something that we can expect in quarters to come?
There is a bit of overproduction over last one-and-a-half month and there is little bit glut in the market. Its summer now and the growth will be slow so it will compensate with the production but eventually two-three months before the festival season starts its going to look normal.
In the layer industry, if you are talking about eggs, still in the rural area we have to develop a lot of market. The consumption is only 75% in the urban area. Infrastructure in rural area has to be developed.
What is the split? How much it comes from chicken, how much is animal health, how much is oil seeds in terms of revenue?
It’s a mix combination of three different parts and if you go into depth its 50:40; 50% should come from chicken and 40% from the other areas.
What is your volume growth in poultry? You said the supply is now in place. What was the volume growth in FY18 and what can you guess for FY19?
The parameters are 10% in broiler and 12% in layer, but the problem here is everybody is looking at expansion plans including our competitors, the small and the big farmers. The percentage goes anywhere between 20% and 30%. In the last six months, it expanded of 35%. So we also keeping a benchmark, it’s a learning story because if you overproduce no one is going to win. I think they are understanding the situation and that’s how you see the change but still a lot of things have to come in this line.
Talk a bit more about your new products. You spoke about soybean extract, fast food, you have some nutritional health products as well. Tell us where the next growth trigger could come in from?
In the poultry sector a lot of growth is still there, especially in Uttar Pradesh and Bihar because chicken is accepted in all sectors and being one of the most protein diet. The National Institution of Nutrition is recommending 180 eggs and we are producing 66 eggs. So there is a huge gap still to fulfil in India. So you have to concentrate on your production and marketing. In rural areas, we are getting support from the government but we need more support to provide midday meals to Anganwadi and schools in rural areas. We are getting help in Andhra Pradesh, Karnataka, Tamil Nadu, Odisha and Jharkhand. If other states also come up with the help then we can improve the rural consumption and child’s nutrition. So it’s a big task ahead.
What is the share of business to business (B2B) and the retail consumer outlets for you?
Government gives us concessions basically to Anganwadi and government schools. It is a win-win situation. And some kind of price interference in India benefits the small farmers or big farmers.
Has goods and services (GST) helped you. Would more of this big businesses prefer sourcing from you?
GST, in a way is stabilising because we do not have the small taxes. It’s just one tax and done.
You have spent about Rs 100 crore to expand your oil seed plant and the eggs plant. Did you take on any debt for that expansion and what kind of revenue growth do you see now?
Revenue is stabilising. The expansion that we have done, most of is through internal sources and that is not going to affect anything but the results will talk before I speak and it should be a win-win situation for all the shareholders.
Will FY19 be as good as FY18?
Very difficult to tell. It depends on livestock, productions, rain. We have to develop market in the rural areas.