Why KS Oils makes a good BUY?

K. S. Oils Limited (NSE: KSOILS, BSE: 526209) is engaged in the business of extraction and marketing of edible oil. Some of its popular brands includes Kalash, Double Sher, KS Gold etc. It is headed by Ramesh Chand Garg, a Promoter Chairman and MD of the company.

Its businesses are divided into 3 divisions;

i)      Solvent/Oil Division which produces Mustard oil, Refined oils and de-oiled cakes. (Brands: Kalash and Double Sher)

ii)     Vanaspati Division which produces Vanaspati Ghee (Brands: Kalash Soyabean,  Kalash Sunflower and KS Gold Palmolein) and

iii)        Power Division which is focussed on generation of power through windmills.

The company operates 5 manufacturing plants with the main plant at Morena district at Madhya Pradesh. It employs around 3,000 employees across its plants and Head-Office at New-Delhi. It also has a wholly owned subsidiary KS Natural Resources Pte. Ltd. Singapore and 7 step-down subsidiaries at Malaysia, Singapore and Indonesia.

Financials and ratios

Compared to last years’ net profits of Rs. 212 crores, KS Oils posted a net loss of Rs. 369 crores for a 15-month period ending June 30, 2011.  The reason for loss was primarily due to a 100% increase in finance costs(interest paid on term and working capital loans). However, total income has increased by 11% after adjusting the 15-month period against a 12-month period for last year.

As on January 20, 2011 market price of each share is Rs. 6.95. However, the equity shares of KS Oils commands a Book Value per share (Net worth to nos. of outstanding shares) of Rs. 27.06.

Conclusion

The demand and consumption of edible oils has shown a compounded growth of 4.5% over the last 10 years. KS Oils is one of the few leading edible oil companies in India along with fellow competitors Ruchi Soya and Agro Tech Foods .It is in need of further capital and is in talks with a few FIs for raising securities.

Comparing the Book value of Rs. 27 with market value of Rs. 6.95 per share, I recommend KS Oils shares are undervalued, and hence, recommend a BUY.