Stock Review: Jayant Agro

The opportunity for the company is very big mainly because of a very important statistic which is that India produces about 60% of the global production of castor seeds. That will give castor companies in India a big competitive advantage.

Jayant Agro is probably the only listed player in the castor sector. That is what excites us. The user industry for castor oil and castor based chemicals ranges from lubricants to pharma, food to fragrances, telecom to paints and coating. So they are used in a variety of industry segments.

If you look at the financials for FY10, sales were close to Rs 900 crore, whereas the profit after tax is about Rs 12.5 crore. In the first half, their sales are up by close to 55% to about Rs 580 crore. PAT is up by more than 100% to about Rs 13 crore which is more than PAT for the full year FY10.

We do not have any peer group as far as the listed space is concerned. But there is also a very big company in the castor business which is Biotor Industries. Biotor Industries is a private company. Not much information is available about this company in the public domain. Two years back, this company gave a minority stake of about 25% to Morgan Stanley Private equity for about Rs 182 crore, which got Biotor close to Rs 700-800 crore.

There are some press reports which suggest that Biotor maybe planning an IPO of about Rs 500 crore. Even if we assume 50% dilution, it will give Biotor a marketcap of about close to Rs 1,000 crore. Biotor is slightly bigger than Jayant Agro. A marketcap of Rs 1,000 crore for the number one company and Rs 150 crore for the number two company will see the disparity narrow down.

Jayant Agro has also formed a joint venture with Mitsui Corporation where Mitsui holds about 24% stake to manufacture high value added products. Once earnings from that venture start to kick in, we can see a substantial rise in the earnings of Jayant Agro. I find the stock looking undervalued.