Venky’s Group of Hatcheries to buy 100% of English Premier Football League Club,Blackburn Rovers for Pounds 46 Million => Rs 325 crs…That’s literally Chicken Feed for them !…it now becomes the first big Indian fan of this Club by default and virtue of owning it !

Venky’s Share Price dropped 9% today from Rs 900 + levels to Rs 832 close……why?…..perhaps the market is skeptical that the Group’s just announced Investment of £ 46 Million or Rs 325 crs for the Price that the Pune based Rao Family owned Venky’s Hatchery Group will pay to pick up 100% of English Premier League Football Club,Blackburn Rovers…this will be applied to pay £ 25 m to the current owners,Walker Family Trust,£ 15 m to cover the club’s debt obligations and £ 6 m for an Investment Pool to strengthen the Team by buying/leasing new players….will come out from the Listed Company’s balance sheet…..highly unlikely…it should be through another group overseas company keeping in mind existing investment,cash flow,legal,domicile and tax stipulations,compliances and efficiencies

Just ten days ago another top English Club,Liverpool Football Club, was taken over by the American Group, New England Sports Ventures for £ 300 Million….so Venky’s Group are getting Blackburn relatively much cheaper…but then Blackburn always finishes mid table or at bottom of the table,except for that historic 1995 League Title win,while Liverpool have won the Premier League several times and start of as one of the Cup Contenders every single year…..India has growing legions of young Fans of top English Clubs like Manchester United,Chelsea,Liverpool,Arsenal…even Manchester City…but none for Blackburn Rovers…so in a sense Venky’s Group will become the first big Indian Fan of Blackburn Rovers by default and virtue of it becoming their Owner !  

However put in perspective,this takeover of Blackburn Rovers is literally Chicken Feed for the Venky’s Group….Clearly the Purchase of Blackburn Rovers has cost the Venky’s Group merely a month and half of Group Sales and less than a Year of Group Profits!….have a look at the Financials below….In fact media reports suggest the Group Sales and Profits last year were a Billion Pounds and 118 Million Pounds respectively….that’s Sales of over 7000 crs and Profits of over Rs 800 crs !…I’ve been conservative in my estimates as i reckon the media is talking EBIDTA and I’m talking PAT 

The Group’s listed Company is Venky’s…it was traded at Rs 910 + this morning but closed 9% lower at Rs 832…these are some of it’s financials as at March 31,2010 

Rs Crs

Venkys

Listed Group Company

Group that includes unlisted Rao family held flagship Venkateshwara Hatcheries Ltd

Equity

9.39

 

Reserves

197

 

Networth

206 +

 

 

 

 

Sales

706

Estimated 3000 crs

Profit after Tax

54

Estimated Rs 400 crs

 

 

 

EPS in Rs

58

 

Book Value in Rs

220

 

 

 

 

Share Price 27/10/2010 closing

Rs 832

 

Market Cap

782

 

P/E Multiple

14.3

 

P/BV Multiple

3.5

 

The Networth of this Venky’s Group surely will run into several Thousand Crores if one includes the Value of the unlisted flagship Venkateshwara Hatcheries Pvt Ltd and the market value of all the Properties this Group owns across India….Set up over 30 years ago by the late Padmashri Dr B V Rao and now managed by his daughter Anuradha Desai and her two brothers,Venkatesh and Balaji Rao,this Group has demonstrated commendable philanthrophy too….an illustration of this is the Tirumala Temple that they have replicated at an hour’s drive from Pune City 

A few years ago the Group was hit by Global Fears of the Bird Flu…Chickens were not being sold but were being gifted away!…matter of expression really….Venky’s Profitability skydived as did it’s Share Price….In fact the 52 Week High/Low of Rs 1012/161 tells the story quite vividly….on regaining fortunes,the share price has skyrocketed in the past twelve months

Venky’s has been Sponsoring Tennis,Cricket and Football….It sponsored the Trinidad & Tobago T 20 Cricket in the Airtel Champions league recently in India….the Russian tennis Star,Elena Dementieva also sported the Venky’s logo on her dress at the US Open….Venky’s exports to Russia and the Caribbean Islands…so there is a clear business methodology in the sponsorships too…..recently Venky’s stepped in to sponsor the AIFF India National Football Team friendlies with Hong Kong,Vietnam and Yemen in Pune earlier this month …and now it will own all of a Premier English Football Club…ground too !

Last Bonus of listed Venky’s was way back in 2001 in a 1:3 ratio….With already strong reserves of Rs 197 crs at 31/3/2010 expected now to cross Rs 250 crs at 31/3/2011 and with a small Equity of just Rs 9.39 crs,a Bonus is surely due……Despite an EPS of Rs 58 in FY 10,the Dividend was just 40% or Rs 4/share…that’s less than 7% dividend payout…..so look out for a better dividend payout and even a Bonus this year !

The Shareholding pattern shows 56.12 % Promoter stake holding through 21 shareholders at September 30,2010 ….Venkateshwara Hatcheries Pvt Ltd itself holds 50.06% or 4701276 Equity Shares,just short of the 51% that would require consolidation of accounts of Venkys in it’s books….IDFC Small & Midcap Fund owns 3.19% or 299985 shares…..Being a Hatchery Group,you will not find Jains and Marwaris,that largely constitute the Broking Community,either holding shares of Venky’s or even recommending it to their clients..there may be a few exceptions though in the near 20000 shareholders of Venky’s 

If Business Fortunes Continue to dazzle for the next few years this already strong Group will have extremely high Networth Ammunition to go in for even bigger acquisitions for Investments…so far it’s profits have come from it’s domain poultry monopoly of breeders and broilers…it’s buyout of Blackburn Rovers should be viewed as a Investment with a long term gestation…its more a Branding exercise than seeking return on Investment….what next ?…Manchester United maybe !? 

Venky’s Group has hatched a tremendous success story in India…by buying out a Premier Football Club it has now laid an egg in England….hoping it will hatch and grow to become a tremendous success story too

A last thought….just imagine this…. if the Group wants to pursue bigger and more famous targets,it will need a war chest of atleast a billion dollars….as a de-risk measure it would then surely be tempted to consider listing it’s wealthy flagship Venkateshwara Hatcheries Pvt Ltd ….this may happen through an IPO or a reverse merger with already listed company Venky’s…..just a thought

So should you be buying Venky’s at Rs 830+ for your Equity Portfolio ?….understand the risks associated with the Broiler and Hatchery Industry before you do so….Operations and Revenues and Profitability look great now…but they were not always so….Industry has been showing cyclical trends with good and great years followed by slowdown years…and the great years are on currently…..if you yet want to lay an Investment egg with Venky’s then look out for a further drop in the Share Price…a Lower Price to enter at will mean a Lower Risk too

Cheers !      

  

8 thoughts on “Venky’s Group of Hatcheries to buy 100% of English Premier Football League Club,Blackburn Rovers for Pounds 46 Million => Rs 325 crs…That’s literally Chicken Feed for them !…it now becomes the first big Indian fan of this Club by default and virtue of owning it !

  1. Yes Madhu,

    there is nothing fishy…maybe chickeny!… in this deal…VH Group will not be stretched at all to fund this deal…they have the funds in their networth and may not even have to borrow any part….methinks the listed Venkys will again cross it’s 52 week high of Rs 1012 shortly…it is doing great and a liberal bonus is overdue…its PAT this year should cross Rs 70 crs,up from Rs 54 crs in FY 10

  2. Nick you are technically right…Liverpool has never won the Premier League after it was launched in 1993/4…Prior to this it was the First Division of the English league and Liverpool has won this a record 18 times,including in 1992 the last year for this format and before the Premier league was started….I had to consult my 21 year old son on this…he’s a die hard Liverpool Club Fan and has all this data logged in his Memory Cells !…have not bothered to recheck though….Cheers !

  3. gaurav bhai,

    at CMP of Rs 392, Venkys looks good, what’s your take for a consumer business with some cyclicality and depressed results for Dec-2011 due to raw material prices. What’s your view on entering this now for 12 month type of horizon.
    Regds

    1. Hi Niranjan,

      Venkys may enjoy a relative monopoly but it’s been a bad 2011/12 year for them with several operating pressures…In FY 11 they earned a net of Rs 73 crs on a Equity of Rs 9.39 crs (FV Rs 10) prompting a dividend rise to 50% from 40%…In FY 9 the PAT was Rs 21 crs which rose smartly to Rs 54 crs in FY 10…In FY 12 the PAT has reversed sharply from Rs 73 crs and the company should announced a subdued performance with a PAT of @ Rs 35 crs…The Share Price has reacted from a 52 Week High of Rs 757 in April 2011 to levels of below Rs 400 and most of FY 12 has seen the Share Price simply pivot around Rs 400…Currently it’s Rs 388 and near its 52 week October 2011 low of Rs 363…The Networth should move past Rs 300 crs with FY 12 results giving a Book per share of over Rs 320….that’s an attractive book multiple of just over 1.20 an an Earnings Multiple of 10+…I would be tempted to recommend this Scrip for a year hold,if I was convinced FY 13 would see a bounceback in Earnings…would prefer to keep it on Scripwatch as FY 13 may turn out to be as lack lustre as FY 12…will try and confirm with Company on sales pricing and volumes and operating margins….Cheers

  4. Thanks Gaurav bhai for your detailed reply. Pretty much confirms my view of a good company going thru a bad phase. Pressure on operating margins is largely due to increased cost of feed (raw material) but i believe most of these negatives are priced in at present. Now the issue is whether it can regain some of the pricing power since revenue growth has been intact for most of FY2012. I haven’t seen any management speak on this but given their market standing and retail expansion thro Venkys Xprs, I think they’ll overcome this phase. Cheers.

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