Company Update: K S Oils

Company Update: K S Oils

KS Oils (KSO) has acquired a 500 metric tonnes per day (MTPD) port based refinery in Haldia Port in East India for Rs125 crore. The plant that has a total refining capacity of 500MTPD with a vanaspati unit of 150MTPD is located within the Haldia Port with a direct pipeline access to ships.

The acquisition will help the company in setting up a manufacturing base in Eastern India, which is one of its key markets.

Moreover with this acquisition, KSO currently is using only the ports in western coast due to the presence of its existing plants in western and central India has access to eastern coast thereby reducing its geographic risks.

The refinery is expected to give a boost to the company’s refined oils product strategy and will produce refined oil under the current brand name of KS Refined and KS Gold Refined for consumers in North East, West Bengal, Orissa, Bihar, Jharkhand and Uttar Pradesh.

The acquisition is expected to facilitate logistics efficiencies and significantly reduce the time to market KSO’s products to its consumers in East India.

We believe this acquisition will bring in incremental sales of Rs180 crore and Rs540 crore in FY2009 and FY2010 respectively. The net profit too is expected to increase by Rs9 crore and Rs27 crore during the same time periods.

We believe this acquisition is EPS accretive and hence we maintain a BUY on the stock with a revised target price of Rs52 (Rs47).