Part 2
July 2013
Now lets think its July, 2013, the annual results are out.
Sales seem to have doubled and the trend (Vannamei to Black tiger) seems to be playing. However, the margins are still squeezed. It seems some industry wide competition has not allowed the company to pass on the increase in raw material cost.
OR
It could be otherwise too as the company is in the process of expanding, it may be incurring additional cost without additional sales. (As of now there is no additional information to increase odds of one side of the arguement)
There is nothing odd in balance sheet too, comparing the increase in sales (Working Capital has increased in approx same proportion)
There is slight increase in borrowings, however, this seems to be due to increase in additional capex being done. But this needs to be kept in check.
What to Do?
At this point of time, The P/e is still around 7. Market is waiting for the company to show increase in margins. The decrease in margins may be a negative sign too or may be due to increase in capex. This only time will tell.
We think we may slightly increase our allocation but not significantly (Considering the margin squeeze).
What happened to share price?
There is considerable volatility it tossed around -50% and then came back. One would have needed heavy conviction to continue holding it. As in quarterly results the company’s margin was hit
(PLEASE CLICK ON PAGE 3 MENTIONED TOWARDS THE LOWER END OF THE POST TO SEE WHAT HAPPENED)
Argha Investment Advisers 