After 1,100% gain in 2 years, rally in Venky's India stock may halt for now

Kotak Securities analysts have downgraded Venky's (India) to 'sell' citing the sharp rally seen over the past few months

Over the past few years, this company has not only satiated the hunger of consumers of its products, but also investors who had an appetite for risk. 

In the past two years, Venky’s (India) has jumped nearly 1,100 per cent from Rs 376 levels to around Rs 4,500 levels now, ACE Equity data shows. In comparison, the S&P BSE Sensex has moved up 36 per cent during this period. In the last one year alone, the stock has gained an impressive 323 per cent. 

The stock has been one of the top three best performers in terms of returns in the BSE 500 index over the last two years, ACE Equity data shows, only behind HEG Ltd and Indiabulls Ventures that have gained nearly 1,842 per cent and 1,700 per cent respectively during this period.

The surge, analysts say, came on the back of strong earnings that led to better perception among investors, aiding a re-rating. This rally, they now suggest, could be nearing an end for now. 
 

In their latest report on the company, analysts at Kotak Securities have downgraded Venky’s (India) to ‘sell’ citing the sharp rally seen over the past few months amid growth concerns. In the last three months alone, the stock has appreciated 85 per cent on the back of. In this backdrop, Kotak has cut the target price to Rs 3,700 (Rs 4,600 earlier), which is around 20 per cent lower from the current levels.

Compiled by BS Research Bureau; Source: Exchange

Established in 1976, Venky's (India) Limited, formerly known as Western Hatcheries Limited and a VH Group company, produced day-old layer and broiler chicks for north Indian markets. The company's portfolio now includes animal health products, pellet feeds, processed and further processed chicken products, solvent oil extraction, and Specific Pathogen-Free (SPF) eggs.

“The company operates in a niche segment where there are not many players, especially in the listed space. Stocks from this segment were under-owned. Given the prospects of the sector, investors latched on to the stock in a hope of making healthy returns,” explains an analyst with a Mumbai-based brokerage.

And the company did not disappoint. In the financial year 2016 – 17 (FY17), Venky’s net sales grew nearly 150 per cent to Rs 24,755 million from Rs 9,924 million in FY12. PAT during this period surged from Rs 410 million in FY12 to Rs 1247 million in FY17, ACE Equity data show.

Ritwik Rai, an analyst tracking the company at Kotak Securities believes that there are a number of headwinds that the company may have to grapple with going ahead, which could dent the near-term performance. 

“Industry sources indicate that there may be an excess supply in the poultry market (supply has risen faster than anticipated demand growth), which could affect medium-term earnings. Our FY19 / FY20 earnings estimates are cut by 15 per cent/16 per cent. Given the weakness in poultry prices over the past six weeks, the run-up in the stock over the past month has likely been excessive, and takes for granted a significant rise in poultry prices. We believe there is a high likelihood of a significant decline in Venky’s stock over the next year,” Rai says.

Despite the headwinds, Krish Subramanyam, co-head for equity advisory at Altamount Capital remains bullish on the counter from a long-term perspective. Though he also does not rule out a near-term correction given the sharp rally, he says there is a lot of appetite for the stock at lower levels, which should keep prices buoyant over the medium-to-long term.