McLeod Russel (MRIL) is an old-world company, that is into growing tea. It has been doing so now for more than a century. And it shows. Currently, it is the largest producer of tea in the world. It manages over 50 tea estates including the recent foreign acquisition of Phu Ben Tea Company of Vietnam, which happened in March, 2009.
MRIL has stuck to its core business, and taken advantage of two big players divesting their interest in tea plantations, and now it is in an enviable position to reap the harvest of its acquisitions.
From a loss of Rs 19.7 crore in FY2005, MRIL has grown its net profits at 57 per cent to reach Rs 88.8 crore at the end of FY2009. While at the same time, revenue has grown at 27 per cent compounded annual growth rate (CAGR) to Rs 829 crore at the end of FY2009.
With a plan to reduce its debt:equity ratio to 0.3-0.4.over the next few years, it has let institutional investors buy a 6.95 per cent extra stake in the company in the first two quarters of FY2010. The fund industry’s interest in it has also gone up from 9 funds to 20 funds (as at the end of October, 2009) over the past six months.
At its current price, the stock is trading at 15.21 times its earnings which is still slightly below its historic valuations of 15.66. But the run up in the stock in this rally has been quite astounding, its year-till-date gain is 423.84 per cent. Hence, fresh positions can be taken only at dips.