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Lakshmi Energy


Lakshmi Energy is in the business of processing and distributing rice to domestic and export markets.  It is also engaged in generating biomass fuel.

The company has reported growth in revenues and operating profits over the last five years reporting about 200cr in operating profits on about 1200cr of revenues in the last financial year (ending 30th September, 2010).  It operated with a relatively high net debt load of 780cr as at that date.

The business, however, generates weak operating cash flows as a result of high investment in its working capital.

The business is subject to adverse changes in government regulations/policies on procurement pricing, non-Basmati exports etc.  It is monsoon-dependent, subject to adverse changes in foreign exchange rates (for exports) and prone to heavy competition in its operations.

Dividends have been on a declining trend for the last five years (probably as a result of above cash flow problems).  Management appear to be making a valiant effort to declare any dividend at all when considering the cash flow situation.  The dividends, however, form a very small proportion of reported net profits.  This indicates an attempt to declare dividends for the sake of it rather than on a rational businesslike basis of either declaring no dividends at all (for conserving resources) or distributing a more generous dividend (after curtailing cash thirsty operations).
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Comments

  1. arvsinhaAugust 4, 2011 at 11:20 PM

    Rightly said, high debt and Government regulations make this stock very weak.
    However, there are some points in favor of this company -
    1. Knowing that there are low margins in the government procurement rate by FCI, they are going into retail segment and marketing Lakshmi Rice - Good quality PUSA basmati rice. This should improve the profit margins. But this is a long term call - at least 4-5 year call. Shows that the management is proactive.
    2. It is one of the largest rice producer. It may benefit from the Pet project of Sonia Gandhi - The Food Security Bill. If it comes through, it will ensure a massive increase in sales for the company. Again a 2-3 year long term call.
    However, for the near term, there are really no short term triggers in the near forseeable future.

    ReplyDelete
  2. AIAugust 4, 2011 at 11:39 PM

    You raise some solid points in favour of the company, which I didn't weigh sufficiently. I still wonder whether the retailing adventure and sales increases would ever ease its significant working capital burden that's more than eating up its operating cash flows ...

    ReplyDelete

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