Process Management

News 258 views last update:6 Aug 2012

Venky's profits under pressure

The dark clouds for Venkateshwara Hatcheries Group (Venky's, India) don't seem to be over, at least that's what its recent performance for the quarter ended September 2006 (Q2) indicates. While its net sales have grown 13.8%, profitability continues to remain under pressure.

Venky's operating margins have gradually declined, and for different reasons, from a high of 13.4% for quarter ended June 2005 to a negative 2.76% for Q2; excluding other income and one-time income.

For instance, while it was the bird flu outbreak in February 2006, the current decline in margins is led by higher input costs of maize and lower realisations for live poultry. Here, live poultry accounts for nearly 70% of revenues from poultry and poultry products (PPP) segment, which in turn accounts for 50% of total revenues.

Maize doubled in price
The company said that maize prices have almost doubled. And this rise is led by shortage of maize, which in turn is on account of increased exports. As a result raw material costs have jumped 33.8%.

On the income side price declined. Day old broiler chicks are down are down 40%, layer chicks down 18-20% and broilers down 8-10%. Given that broiler chicks account for a major chunk of live poultry segment, profits were impacted.

For the remaining 50% of the revenues, oilseed (solvent extraction; 25% of revenues) did extremely well with revenues rising 40% while segment profits rose 126.8%. This is a backward integration business initiative, where the de-oiled cake is used to produce poultry feed, while the refined oil is sold in the wholesale market.

The poultry feed business saw profits increase by 7.9%, while sales (10.9% of revenues) declined 25.2%.

It is expected that prices at the end of the year will improve with the beginning of winter season, although it is not foreseen that prices of maize will come down in the short term.

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