FARMAX - A defensive bet in turbulent times

FARMAX headquatered in Hyderabad, started out as a small business firm, and under the innovative entrepreneurship of Mr.M.Srinivasa Reddy at the helm, FARMAX emerged into a successful business enterprise.

Farmax is into manufacturing and marketing of FMCG products. The company manufactures Personal Care and Food Products. The company has made deep penetration into rural and semi-urban areas.

Some of the brands of Farmax are Today toothpaste, Today FX Gel, Monsoon Non Sticky Coconut Oil, D’lite Pasta, Cas Lime Soap, CAS Sandal Soap, Premium Deo Beauty Soaps, DU Detergent Bar & Powder, Deevena Chakki Atta and Deevena Sugar. The company also proposes to sell Farmax Toned Milk very shortly.

The company has excellent distribution network and a broad product range backed by state-of-the-art manufacturing facilities. Though the company faces tough competition from the MNC’s and local biggies, FARMAX has exhibited its ability to take on the giants by generating steady sales on a q-o-q basis.

Sales in 2009-10 Rs. 64.52 crores [ previous financial year Rs.19.89 crs ] and PAT of Rs. 2.44 crores. [ previous financial year Rs. 0.42 crs ]

Farmax’s Sales increased by 16 per cent during HYFY11 to Rs.36 crores as against Rs. 31 crores in HYFY10. PAT increased by about 79 per cent to Rs.2.56 crores as against Rs. 1.43 crores during the same period.

Though Farmax’s Debt Equity ratio is less than 1 and Net Margins are pretty low at 3.79 per cent, working capital management appears to be improving as is evidenced by lower Inventory holding days and Receivables Days.

The stock is currently trading a low of Rs.11.46. Even at this low price Farmax is the costliest FMCG stock available on the bourses. But as the company is moving in the right strategic direction by focusing its strengths in the rural and semi urban area, the stock can go up in the weeks to come and can even double or triple from current levels since FMCG stocks are the best defensive picks in these turbulent times.

Kishor S. Khot, [Kishor@hbjcapital.com], Equity Strategist, HBJ Capital Services Pvt Ltd