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Karuturi Global Limited (KGL): A Rosy Future

Dated: 31st July 2009

“Flowers… are a proud assertion that a ray of beauty out-values all the utilities of the world”

Dated: 31st July 2009

“Flowers… are a proud assertion that a ray of beauty out-values all the utilities of the world”

Think of greeting your near & dear ones: think of flowers.  Flowers: express feelings when sometimes the written words fall short to convey; bring smile to a sad face; pay gratitude; honor the respectable and keep value even to bid adieu during the unfortunate demise. They have a universal value spreading
fragrance in everyone’s life. Flowers sound synonymous to the occasion of Valentines Day but even the upcoming event i.e. Friendship Day (which is common among the youths) holds the importance of this beauty.

Share Holding Pattern as on 30/06/09  
  % Holding
Indian Promoters 23.84
Banks Fin. Inst. and Insurance 0.33
FII’s (Foreign Institutional Investors) 15.20
Private Corporate Bodies 12.55
NRI’s/OCB’s/Foreign Others 24.23
Govt 0.03
Others 0.29
General public 23.08
   
52-Week H/L 28/ 6.40
ROCE (Return on Capital Employed) 3.96
P/E (Price earning ratio) 76.06
Market Cap (Rs cr) 630.10

About Co.:

Promoted by Mr. Ramakrishna Karuturi in 1994, KGL is world’s largest organized player in the floriculture industry. It is a global market leader in production and export of cut roses. It caters to the domestic and the international markets through its Indian, Ethiopian and Kenyan operations, producing about 650 million
stems on approx 254 hectares (ha) of land.[1 ha=2.5 acres] The company exports cut roses to Europe, South East Asia, Middle East, North America, Australia, Japan, New Zealand, besides sales in India; exports constitute about 90% of revenues. 

Floriculture:

Indian Floriculture Operations: The Indian facility of KGL has 10 ha of land under cultivation with the capacity to produce 18 million stems per year. The company grows 18 varieties of roses of various colours at its Indian facility. KGL has also opted to forward integrate into the flower retail business
by floating a separate subsidiary, Karuturi Flower Express Pvt Ltd, under the brand name FlowerXpress. The company currently has 23 retail outlets in and around Bangalore and plans to expand its network across India. The company is adopting the franchise model for its expansion activities and has already tied up with retail networks across the country. 

Ethiopian Floriculture Operations:
KGL entered into the Ethiopian market in 2005 in consideration of its several advantages as a production base, including proximity to the European market, resulting in lower freight cost; exemption of custom duties on imports of equipment and inputs; favourable climatic conditions; income tax exemption for 5 years and availability of low-cost land and labour. The Ethiopian facility has around 100 ha of land in Holeta (40km from Addis Ababa) of which 70 ha is covered by green houses. Around
90% of its total production ( 92 million roses) is of Hybrid Tees, which are of higher realisation. KGL has been allotted a further 366 ha of Land in Wollisso for expanding its rose cultivation in Ethiopia. The company plans to cover around additional 190 hectares of land by green houses in this land, which is expected to be fully operational by 2011-12. The Ethiopian facilities serve the markets in Australia, European Union, Middle East and North America. 

Kenyan Floriculture Operations:
KGL entered Kenya in October 2007, with the acquisition of Sher Agencies Limited (Sher) with more than 6 times the revenues of KGL (standalone) in 2007-08. Pursuant to Sher acquisition, KGL has a 229 ha facility in Kenya with 150ha under greenhouses, 55 ha under open cultivation and the balance for housing, hospitals and schools. The company has effectively integrated its

operations. The facility produces around 400 million stems of roses of 40 species, mainly intermediates and the sweet hearts variety. ‘Sher Karuturi’, its brand name for Kenyan operations, enjoys good brand recognition in the European auction market.  

Apart from establishing strong presence in Floriculture, KGL has diversified itself in different sectors. 

Food Processing
New venture for diversification of operations

KGL has entered into the food processing industry, with the commissioning of its food-processing unit for gherkins near Tumkur, Karnataka in February 2008 with an installed capacity of 6000 tonnes per annum. It has entered into contracts with local farmers to ensure uninterrupted supply of gherkins. The company exports processed

gherkins to international processed food firms and super markets in major consuming nations such as European Union, Japan, Russia and the United States. In 9M 2008-09, the food processing business contributed to approx 3-4% of the total revenues of KGL. 

Internet Service Provider – relatively modest division with stable revenues

KGL provides internet services through its subsidiary, KTPL. The company has taken over an All India ISP, Estel Communications Private Limited, giving it a pan-India presence. KTPL provides internet services across the country to large and medium-sized companies including MNCs like Ericsson, Microsoft and Nokia. Besides,
the

company also provides VOIP (Voice over Internet Protocol) services and software applications. 

Agriculture – lined up aggressive expansion plans

In a pursuit to diversify its
operations, the company is diversifying from floriculture to become a fully integrated agriculture company. KGL has lined up aggressive expansion plans in Ethiopia, wherein the company plans to move into the cultivation of cereal crops, sugar cane, vegetables and palm oil.

 

Key Concerns

  • Political risks arising from KGL’s large presence in Ethiopia and Kenya
  • Likely pressure on sales volumes and realisations of cut roses on account of the overall slowdown in economic activity
  • Susceptibility of profitability to climatic conditions, adverse movements in foreign exchange and withdrawal of tax benefits.
  • The ROA (Return on Assets) for the company is on a constant decline – The ROA has declined from 33% in FY 06 to 12% in FY08.

 

The Bright Future Prospects: 

KGL has recently ventured into the agro-based and food processing business sector with exports of bulk and bottled gherkins to international processed food firms and super markets in major consuming nations such as Europe, Russia and the United States. It has been allotted 3, 36,000 ha of land (almost 7 times the
size of Mumbai) on long-term lease at a competitive rate by the Government of Ethiopia for agriculture in order to promote employment and economic growth in Ethiopia. The company plans to bring the entire mass of land gradually under cultivation by 2014-15. Exploring the possibility of foraying into bottling of baby corn, jalapenos and green ball peppers, for which a huge global demand exists.  

Recommendations: Spread aroma of returns of this multibagger by accumulating at the levels of 13-11-9. A right pick for those who have high risk appetite and want to go for a fundamentally sound stock at very low price and thus avoiding so called penny stock tips from tipsters. 

My Risk Meter: HR

  • (VHR- Very High Risk/ HR-High Risk / MR- Medium Risk/ LR- Low Risk /VLR – Very Low Risk)

Disclaimer :

The content of this information is for general informational & reference purpose only. 

Article provided by
Amol Dhake,
Managing Director,

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