Update(26/5/2018) : The company issued bonus shares to the shareholders in 3:1 ratio which has diluted share price but the returns is not effected.

Name: Coastal Corp Ltd

Recommendation: Buy

CMP: 97.30 (After bonus issue of 3:1) the price is for may 7 when the stock was recommended is 24.32

Time Frame: Buy and Hold for more than a year

Stock: BSE:501831

Sector: Consumer Defensive

Industry: Consumer Food

Company Profile: Coastal Corp Ltd is a seafood processing and exporting company. It manufactures shrimp and exports processed seafood to America, Europe, Middle East and Japan. Its brand includes Coastal, Coastal Gold and Coastal Premium. The company also produces in buyer’s brand for direct supply to consumer markets all over Europe. The group’s product includes Farmed products and Ocean products. It supplies raw, cooked and value-added shrimp.

Analysis:

Coastal Corp Ltd screams value, the overall export of shrimp during 2016-2017 was at 4,34,484 MT worth USD 3,726.36 million and has grown 23.33% from the year 2015-2016. India exported seafood worth USD 5.78 billion in 2016-2017 against USD 4.69 billion. Frozen shrimp is the top item of export accounting for 38.28 % in quantity and 64.50% in earnings. The sector and industry are in a robust growth stage.

The company earnings grew 69.4% from RS.7.91 crores to Rs.13.4 crores in the FY 2016-17 there has been an increase in revenue growth by 42% in the same period.

Asset-based Valuation:

With Asset-based valuation, I conducted with the help of reproduction cost of the assets the value for a single share is 162.62 per share, accounting book value of a share is 271.47 per share. The valuation was done in a very conservative manner without increasing the value of the Fixed asset such as land but adjusting value for plant and machinery and other depreciating Fixed assets. The company also has two wholly owned subsidiaries Continental Fisheries India Private Ltd and Seacrest Seafood Inc. in the USA.

Asset-based Value per share: 162.62

Earnings Power Value:

The company has a compounded profit growth of 46.47% for 10 years and 25.48% for the last 5 years also there has been a compounded sales growth of 40.14% for 10 years and 44.06% for the last 5 years. In EPV valuation model we are trying to find the value of the company with no forecasting and assumptions but with adjusted cash flow relevant to the current period.

EPV that Coastal Corp ltd project is a value of 259.6 per share.

The difference between the asset value and EPV of 97 (259.6-162.62) can be seen as the franchise of the company.

*Formulae used here is (EBIT + Non-cash expenses (Depreciation, Amortization) – Capital expenditure)/Number of shares

Discounted Cash flow :

DCF being what it is there is a need for intelligent use assumptions and forecasting very conservatively and with the company having EPS 65.79 and ROE of 40.4% TTM and 25.48% for the last 5 years and an average Earning growth of 15.60% for the last 6 years so there is a sufficient margin of safety even with the assumptions but as a value investor being a little conservative never hurts so with the constant cash flow with no growth and a discount factor of 12% we get a figure of 291.15 per share value.

*Figures used

Cash flow per share – Rs.38.98 constant for all the years

Period: 20 years

Discounting factor: 12 %.

PROS CONS EPS is 65.79 per share Promoter holdings are only 32.67% All three valuation methods used to value the company gives a significant margin of safety Has the attributes of a cyclical company which depends on the Shrimp catch and environmental factors Trading at .33 times the book value ROE for the last 3 years is 27.05%

Catalyst :

The company is not one that is ignored by the market but is one that is ignored mostly out of radar because of the size of the company is small with a market cap of 23.47 Cr, The company screams value and has given a 50.14% returns from the start of the year 2018. There is no need of any special catalyst the market has identified the value of the company and is catching up to it.

Time period Returns 1 year 157.75% 2 years 669.17% 3 years 660.16%