Buy Jagatjit Industries

Jagatjit Industries has a turnover of over Rs 700 crores and is ranked as a third largest IMFL (Indian Made Foreign Liquor) producer in the country, JIL's main focus of business lies in manufacture, distribution and sale of IMFL (brands ARISTROCRAT and BINNIES).

JIL is also into food business with manufacturing unit at Hamira, Punjab. They manufacture food products like Malted Milk Food Products, Dairy Products and Malt Extracts. JIL is one of the few breweries in the country who have their own glass container manufacturing facilities. JIL exports its own products as well as other products to countries like UAE, Oman, Saudi Arabia, Bangladesh, UAE, Sri Lanka & Malaysia, U.K., Japan, Portugal, Belgium. Arrangements for export to Australia, Vietnam, Philippines are in progress and will be commenced shortly.

More than 50% of the production of UG is consumed for distilleries. Remaining is used for soft drinks (Pepsi, Coke and others), Food Products and Pharmaceuticals. This adds to the top line for the company.

In quest for use of nonconventional energy source, JIL has installed a Bio-methanation plant followed by Aerobic Treatment Plant for the Treatment of Trade Effluent. The biogas generated is used in their boilers replacing conventional sources of energy i.e. Husk/ Coal.

RECENT RESULTS ARE A SIGN OF STRONG EARNINGS IN FY11-12: Net profit of Jagatjit Industries rose 2509.23% to Rs 33.92 crores in the quarter ended June 2010 as against Rs 1.30 crores during the previous quarter ended June 2009 [Operating profit rose from Rs 8.31 crores to Rs 22.3 crores (q-o-q) ]. Sales rose 49.02% to Rs 233.80 crores as against q-o-q Rs 156.89 crores. Q-o-Q, EPS jumped from 28 paisa to Rs 7.35, a jump of 2525%. Interest payment went down.

VALUATION AND OUTLOOK: The company has a debt:reserve ratio of less than 1 (0.61:1), which is quite healthy and a book value of nearly 51. Even after a recent run-up, a P/E of Rs 13.4 shows that there is lot of room for further up moves. The 2008 recession had no impact on its top line, but in 2009, high raw material costs (molasses price had shot up in 2009 due to poor monsoons) had taken a large dent on its bottom line (net margin). With molasses price set to remain low for the remainder of this financial year and with the current boom in the liquor and food processing industry, JIL should be doing quite well on earnings for the rest of FY11.

One can buy JIL near 110 for a medium term 6 month target of 148 (+34.5%).