Gelatin has become an indispensable commodity in daily life but not many consumers are aware about consuming it. Medicines, vaccines, processed foods and certain agricultural products contain gelatin that is made from animal bones, tissues and skin.
Global production of gelatin is 400,000 tons per annum while India accounts for 5% of the total production at 20,000 tons. In India, bulk of the gelatin is consumed by pharma industry but worldwide, it is more consumed by the food industry. The global market is growing at a rate of 4% per annum while in India it is growing at a rate of 10%.
Animal bones (usually cattle and pigs) gathered from slaughter houses and crushed to make ossien (the collagen of bone), an intermediate product in the making of gelatin. The collagen, natural protein is derived by boiling the connective tissues, tendons and bones of animals. India produces and exports ossein, gelatin and products derived from it.
Amidst the growing market for gelatin in emerging nations due to rising urbanisation and disposable incomes, here is a look at the prospects of three listed players.
Nitta Gelatin Ltd was established as Kerala Chemicals and Proteins Ltd, a joint venture between Kerala State Industrial Development Corporation (KSIDC) and Nitta Gelatin Inc, Japan. Initially the company produced and exported ossein and gelatin plant was commissioned in 1998. The company name was changed to Nitta Gelatin India Ltd (NGIL) following consolidation of stakes by Japanese promoters.
The company has a good record of profit making despite the local issues it faces at its Thrissur plant in Kerala where a group of people have tried to disrupt the smooth functioning of the company by causing damage to its 900-metre effluent pipeline used for diverting waste water to the Chalakudy River. Except for 2013-14 when the Kerala plant was mostly shut down due to disruptions and posted a net loss of Rs 4.95 cr, the company has seen its income and profits show good growth.
Sales has fallen to Rs 321.10 cr in 2016-17 compared to 347.06 cr in 2015-16 while net profit has risen from Rs 16.68 cr to Rs 17.50 cr.
The company has lost 15 days of production due to disruptions this year and Q2 results show a decline in profit 22.43% year-on-year (YoY) at Rs 4.60 cr while sales has fallen 0.77% at Rs 80.67 cr. Earnings per share (EPS) has fallen sharply to Rs 5.07. Nitta Gelatin holds 43% stake while KSIDC holds 31.53% stake. The company has two subsidiaries (Bamni Proteins Ltd in Maharashtra and Reva Proteins Ltd in Gujarat. The later has sufficient space for expansion and strong R&D strength may help them launch new products as per market demand. Also since the company continues to face production disruptions in Kerala, the greenfield facility Gujarat provides de-risking and contingency support.
It scores well on financial ratios with a return on equity of 9.33%, net profit margin of 3.52% and liquidity and cash flow ratios are also good enough.
On technical charts, Relative Strength Index (RSI) of 54.91 indicates neutral to bullish trend, while MACD line has witnessed a bearish crossover indicating sell signals while Average Directional Index (ADX) of 15 indicates tight range bound trading. Stochastic indicators are also bearish. It is currently trading above 50 DMA.
Target: 225 Duration : 4 weeks Strategy: Hold/Sell
Indian Gelatines and Chemicals was started in 1973 and two years later it started production and export of Ossein under technical collaboration with M/s Konica Gelatin Corporation of Japan. From 1997 onwards, the company started making gelatin from ossein. It is now exporting to USA, EU, Japan, Korea, Middle East, Indonesia and has won several awards for export performance.
Financial statements reveal that the company has slipped in net profit growth in the past two financial years at Rs 2.66 cr in 2016-17, Rs 3.66 cr in 2015-16 compare dot Rs 8.22 cr in 2014-15. Sales has fallen from Rs 122.08 cr in 2014-15 to Rs 81.37 cr in 2016-17.
The company has stated that reduced availability of bones have caused fall in production and sales of gelatin and this has prompted India Government to allow crushed bone imports in view of rise in raw material costs.
In September quarter, the company has posted a profit of Rs 0.72 cr while sales rose 60.88% to Rs 25.27 cr. On a returns perspective, it has given returns of over 12% on quarterly and half-yearly basis but presents a mixed performance on financial ratios-return on equity of 2.30%, assets of 2.31%, net profit margin of 3.77% while it does well on liquidity and cash flow ratios with zero debt. It is trading at a Price Earnings Ratio (PE) of 15 indicating moderate valuation by market.
On technical charts, RSI of 53.76 indicates neutral to bullish trend, while MACD has seen a bearish crossover, while ADX of 20 indicates range bound trading and stochastic indicators are bearish.
Target: 125 Duration: 3 weeks Strategy: Hold/Sell
#Narmada Gelatines Ltd (BSE: 526739 NSE: ) Category: Small Cap
Narmada Gelatines Ltd was established in 1961 as Shaw Wallace Gelatines Ltd and located in Madhya Pradesh. It pioneered the manufacture of ossein and gelatine in India, has good R&D facility and won several awards for export performance. The company is a pioneer in utilizing vermiculture technology for organic solid waste and production of biogas from gelatine effluent.
In 2016-17, the performance of the company has fallen with sales falling from to Rs 121.28 cr as against Rs 140.73 cr the previous year while profits fell sharply from Rs 12.98 cr to 5.49 cr.
In September quarter net profit has risen 32.25% toRs 0.90 cr while sales has risen 4.40% to Rs 28.95 cr.
On a returns perspective , it has provided 20.42% on a half-yearly perspective but short term gains are negative. It doesn’t fare well on return on equity of 3.69%, assets of 4.30%, net profit margin of 3.60% and liquidity presents a mixed picture while it remains debt free. Foreign promoters hold 75% stake.
On technical charts, RSI of 43.94 is bearish while MACD line has witnessed a bearish crossover and ADX of 15 indicates tight range bound trading and stochastic indicators are negative.
Indian gelatin industry had been impacted by environmental issues which were addressed to an extent by investing in effluent treatment and disposal while availability quality raw material (crushed bones) and cheaper bone prices abroad makes puts pressure on export pricing of ossein and gelatin. The gelatin industry consumes 18,000 tons of crushed bone per month but availability is only 15,000 tonnes. There are concerns that gelatin production may fall from 20,000 tons to 15,000 tons this year due to paucity of raw material. With ban on cattle movement and slaughter in some states, availability of domestic raw material is also a concern for producers from time to time.
The global demand outlook for gelatin and ossein looks bright with faster growth in emerging nations powered by pharma and food industry demand.