REI Agro had announced its Q3 results today. The company reported 960 crore in revenues and around 81 crore in net earnings for the Q3. While the numbers are significantly higher than the year ago period, the numbers show a gradual increase when compared with the Sep Qtr.The interest expenses have once again increased from the previous quarter. The company has reported interest expense of around 73 Crore in Q3 compared to around 53 Crore in Q2. We expect that this spike is due to the increase in procurement that would happen at the peak season. The company has so far procured around 3.57 lac tons in the current peak season and aims to procure around 7 lac tons.
We expect the interest expense to moderate once the peak season procurement is over.
The company has also phased our of its leased capacities already and is completely moving towards operating only Own capacities. We expect the company to have Own capacities of 1.03 million tones by Apr 2011. The advantage of Own capacity against leased capacity is that the company will have absolute control over the Quality and the technology being used in the processing phase. As a result of this, the Head rice yield usually goes up.
The Head rice yield is usually 46% for leased capacities and around 52% for Owned capacities. With the Owned capacities coming in and with the leased capacities moving out, we expect the Head rice yield to move up by 3% in the Fiscal year FY '12. A 1% increase in Head rice yield directly adds 5 million USD to the bottom line, since the procurement cost of the paddy would remain unchanged.
The company has already reported a diluted EPS of around 2.4 and is well on course to meet our expectations of Rs 3 for the full year.
While everything with respect to the company looks promising, the only cause of worry comes from the point that the Basmati production in India and Pakistan has taken a hit. However, we continue to be bullish on this counter.
$Team TMP
