Though the Supreme Court recently suspended a government order that outlawed trade in beef, buffalo and other meats for slaughter, its enactment in May led to soaring factory-gate chicken prices to the tune of 25%
The move, which has also featured a crackdown on illegal meat shops, led to the Hindu-nationalist government being accused of being motivated by religion in a secular country, though the ban’s subsequent suspension has given relief to the multi-billion dollar beef and leather industries.
Despite lacklustre revenue growth over the last five years, Venky’s has cashed in on the elevated poultry prices, and is shares are expected to sustain their rally regardless of the long-term position of the Supreme Court.
Until the cattle restrictions were suspended, average broiler chicken prices in Mumbai jumped by around 50% to INR100 (US$1.55) per kilo—the first time they have sustained this level over a period of time.
“Near-term earnings visibility is high, especially following a sharp rise in poultry prices in the first quarter of FY18. On a two-year investment horizon, assuming trailing multiples are sustained, Venky’s stock can potentially double with a high likelihood of strong gross margins running through till FY19,” analyst Kotak Securities said in a recent note.
A year-on-year drop of around 30% in soya prices, and a 10% fall in the cost of corn—both important poultry inputs—have also sharpened the Maharashtra-based business’s bottom line.
Soymeal and corn prices usually rise during the summer months as supplies dwindle, but bumper harvests and sluggish exports this year have kept prices in check. Feed typically makes up two-thirds of poultry production costs.