KS Oils (KSO) is setting up five new processing facilities in the rich oilseed growing belt of Rajasthan and Madhya Pradesh, is on course to meet its scheduled capacity expansion targets.
It intends to add 4,000mt/day of crushing capacity, 3,000mt/day in solvent extraction and 1,000mt/day refining capacity during its ongoing capacity addition program.
Backward integration initiatives are expected to reduce raw material costs and boost profitability in the ensuing years.
The company also targets to further increase the proportion of branded products in its total sales. This is expected to improve profitability going ahead. Branded mustard oil sales are expected to grow at a CAGR of 52% over FY2008-10E.
At the CMP of Rs49, the stock is trading at 9.4x FY2009E and 6.3x FY2010E earnings. We upgrade the stock from Neutral to BUY, with a 12-month target price of Rs63, on account of the introduction of FY2010 estimates.