20th April, 2010

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Himalya International Ltd.

BUY
INDUSTRY:
FoodProcessing

STRONG RESERVES, EXPANSION OF CAPACITY, FORRAY

INTO NEW SEGMENTS AND INCREASE IN MARKETING NETWORK WILL IMPROVE TOP

&

BOTTOMLINE OF

HIMALYAINETERNATIONAL
Himalya International Ltd. (Himalya) was incorporated in the year 1992. It is a rapidly growing, food processing company in India. It owns a world class, FDA approvedandGMPcompliantfacilityspreadover15acresof primelandlocatedinPaontaSahib,HimachalPradesh. At present Himalya is involved in the activities of mushroom growing and processing, potato and vegetable processing,cheeseproduction,appetizers,bread,andyogurt production, as well as contract farming. The company is known to be the first ever frozen food manufacturing company in India as well as an ecofriendly firm which recyclesallofitseffluents.Thecompanywentpublicin1995 andcurrentlyhasover500employees. InvestmentRational o The Himalaya International Limited has entered into the rapidly expanding nutraceuticals and dietary supplements market with the launch of its product underthebrandname1Daily.Companyhastiedup with the US Global Reliance Inc. for technical collaborations and has launched four products under the brand name 1 Daily in accordance with internationalstandards. o Netprofit of HimalyaInternational rose39.01%toRs 5.63 crore in the quarter ended Dec09 as against Rs 4.05 crore during the previous quarter ended Dec08. Sales rose 36.88% to Rs 22.38 crore in the quarter ended Dec09 as against Rs 16.35 crore during the previousquarterendedDec08. o Himalya International will be setting up a export orientedMegaFoodProcessingPlant with initialcost ofrupees130croreinMehsanadistrictofGujratwhich will start commercial production by the September 2010.TheCompanyhasalreadytiedupitsfinancesby wayofwarrantsissuedlastyear,internalcashaccruals and term loans of Rs 90 Crores from Its existing Bankers..
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Price:Rs.44
BSECode:526899 NSESymbol: ParValue:Rs.10 SharePriceData PaidupEquity(Rs.Cr) MarketCap(Rs.Cr.) 52weekHigh(Rs.) 52weeklow(Rs.) BookValue(Rs.) EPS P/E ShareholdingPattern(%) Promoters FIIs Institutions Public&Others NonPromotersCorp. 19.97 30.1 3.47 40.55 5.92 37.43 159.08 47.05 13.05 24.41 4.69 9.06

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Largesavingsinfreightexpenseswillbeincurredfromthis project as all exports will take place from Gujarat as opposed to their Himachal production unit. This will provide a big upside to the top line as well as the bottom linefortheCompany. o Himalya is also setting up a production unit in Rajasthan and it shall process almonds, cereals and health bars. This project aims to provide the younger generation with American style health and convenience foods. The state of the art plant will be imported from the USA and some inputslikealmondsanddriedberrieswillalsobeimported fromthere. o HimalyaInternationalalsohasagreementswithmajorretail storesinIndiaforsellingitspackagedproducts(underthe brand name of Himalya Fresh). As the organized retail market expands in the coming days, this will increase visibility of the Companys products thereby fuelling revenuegrowth. HimalayaInternationaltoentercannedsoupmarket. Himalaya International has drawn up plans to setup a large canned soup plant at Vadnagar in Gujarat in technical collaboration withUSGeorgiabasedWayneFarmsInc.theplantwouldbeimported atacostofUS$1.8millionandoncetheplantgetsoperationalcanned soupwouldbeintroducedinIndianandoverseasmarketsbyJanuary 2011underHimalayaFreshandUnoItalianobrands. The plants production capacity is expected to be 1100 cans per minuteandwouldholdanannualcapacitytoproduce150millioncans, makingitthelargestsuchfacilityinthecountry.Thewholeunitwould involve an investment of $ 2.5 million and would create employment forabout100people. Theplantwouldhaveacapacitytoprocess50tonsofvegetables perday,whichincludemushrooms,tomatoesandothervegetables.The companytargetsarevenueofRs120croresby2014fromthisplant. Worldwide canned soups were preferred over powder soups due to healthier profile and as much as 75% of world soup market worldwidewasdominatedbycannedsoups. Incomparison,inIndiawasstillpredominantlyamarketwhere driedsouppowderswerebeingsold.

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Products

Mushroom

Potato

Cheese

Sweets& Appetizers

CompanyFundamentals: o Net sales for Himalya International has increased from 16.71 CroreinFY2005to58.71CroresinFY2009.Duringthesame periodtheoperatingmargin,grossprofitmarginandnetprofit marginhaveshownsignificantimprovement.ForFY2009,the EPSstoodatRs.4.68. o Himalya International has been generating good operating cash flow during the last few years. At the same time the company has made significant capital expenditure. This is expected to translate into higher revenue growth for the Companyinthefuture. o On the balance sheet front, the Company has expended its equitybasein the last fewyears.Thishaslead toanearterm decline in efficiency ratios such as the ROA and ROE. However, as this expanded capital base gets employed in operations, one can expect significant improvement in the efficiency ratios. Himalya International also has a very low leverage.TheFY2009debtequityratiofortheCompanystood at 0.44. This gives room for the Company to significantly leverageitselfinfutureincaseoffundingneeds.

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KeyFinancials QuarterlyResults: Net profit of Himalya International rose 39.01% to Rs 5.63 crore in the quarterendedDec09asagainstRs4.05croreduringthepreviousquarter ended Dec08. Sales rose 36.88% to Rs 22.38 crore in the quarter ended Dec09asagainstRs16.35croreduringthepreviousquarterendedDec08. % 2ndQtr 2ndQtr % 1stQtr 1stQtr % QuarterEnded 3rdQtr 3rdQtr Dec09 Dec08 Change Sep09 Sep08 Change Jun09 Jun08 Change NetSales 22.38 16.35 36.9 19.05 13.69 39.2 15.01 12.62 18.9 PBIDT 7.32 5.91 23.9 6.5 4.55 42.9 5.12 4.27 19.9 PBIDTMargins 32.71 36.15 34.12 33.24 34.11 33.84 PAT 5.63 4.05 39 5.01 3.33 50.5 3.78 3.13 20.8 25.16 24.77 26.3 24.32 25.18 24.8 PATMargins EPS(UnitCurr.) 1.5 1.4 7.1 1.73 1.21 43 1.31 1.14 14.9 YearlyResults YearEnd 200405 200506 200607 200708 200809 200910E 201011E Netsales 16.71 21.99 30.77 46.76 58.71 72.00 140.00 PBIDT 2.57 8.58 6.82 12.95 19.31 21.60 44.80 PBIDTM 15.38 39.02 22.16 27.69 32.89 30.00 32.00 PAT 0.93 5.99 4.38 8.3 13.51 18.00 32.20 PATM 5.57 27.24 14.23 17.75 23.01 25.00 23.00 EPS(Basic)Rs. 0.52 2.72 1.99 3.03 4.68 4.81 8.60 PE 16.09 6.62 6.88 6.58 2.56 9.15 5.11 Dividend(%) 0 0 0 0 0 KeyRatios
YearEnd PricetoBookValue(P/BV) MCap/sales ROCE(%) RONW(%) InterestCoverRatio DebtEquity CurrentRatio
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200703 6.88 0.98 11.65 14.32 5.92 0.46 2.24

200803 6.58 1.19 17.24 18.29 4.93 0.38 2.6

200903 2.56 0.59 17.79 20.79 5.9 0.44 2.57

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80.00 60.00 40.00 20.00 0.00 200405 200506 200607 200708 Gr ow th% 200809 3.15 39.93 31.60 25.56 51.97 60.00 50.00 40.00 30.00 20.00 10.00 0.00

N etSales

2 5 .0 0 2 0 .0 0 1 5 .0 0 1 0 .0 0 5 .0 0 0 .0 0 2 0 0 4 0 5

39.02 2 2 .1 6 15.38 2 7 .6 9 32.89

5 0 .0 0 4 0 .0 0 3 0 .0 0 2 0 .0 0 1 0 .0 0 0 .0 0

2 0 0 5 0 6

200607

200708

2 0 0 8 0 9

PBIDT

PBIDTM (% )

15.00 10.00 5.00 0.00 200405 5.57

27.24 17.75

23.01 14.23

30.00 25.00 20.00 15.00 10.00 5.00 0.00

200506 PAT

200607

200708

200809

APATM(%)

25 20 15 10 4.3 5 0 4.92 200405 4.1 200506 200607 200708 RONW(%) 200809 4.6 11.65 14.32 17.24 18.29 17.79 20.79

ROCE(%)

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DUPONTMODEL PBIDT/Sales(%) Sales/NetAssets PBDIT/NetAssets PAT/PBIDT(%) NetAssets/NetWorth ROE(%) 200703 22.13 0.59 0.13 64.32 1.44 14.32 200803 28.25 0.63 0.18 64.12 1.34 18.29 200903 32.91 0.52 0.17 69.93 1.51 20.79

CashFlowSummary CashandCashEquivalentsatBeginningoftheyear CashFlowFromOperatingActivities NetProfitbeforeTax&ExtraordinaryItems Adjustments(PBT&ExtraordinaryItems) Trade&0therreceivables Inventories Loans&Advances TradePayables InterestPaid(Net) NetCashfromOperatingActivities CashFlowfromInvestingActivities PurchasedofFixedAssets CapitalWIP NetCashUsedinInvestingActivities CashFlowFromFinancingActivities ProceedsfromIssueofshares(inclsharepremium) ProceedfromIssueofDebentures Proceedfrom0therLongTermBorrowings ProceedfromShortTemBorrowings ShareApplicationMoney Cash/CapitalInvestmentSubsidy PaymentsOftheLongTemBorrowings PaymentsOftheshorttermBorrowings InterestPaid NetCashUsedinFinancingActivities NetInc/(Dec)inCashandCashEquivalent CashandCashEquivalentsatEndoftheyear
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200706 0.06 5.99 1.82 1.53 0.09 0 0.49 0.78 3.38 9.67 1.92 11.59 6.81 0 0 4.4 0 0 2.24 0 0.78 8.19 0.02 0.04

200806 0.07 8.3 2.17 1.97 0.18 0.64 1.11 2.19 9.12 4.57 14.95 19.52 7.29 0 4.18 0.77 2.34 0.63 2.32 0 2.19 10.7 0.3 0.37

200903 0.37 13.51 2.69 9.02 8.21 1.54 1.1 2.82 1.35 33.47 7.85 25.62 4.33 9.4 4.82 8.17 1.92 0.75 0 2.45 2.81 24.13 0.14 0.23
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BalanceSheet SOURCESOFFUNDS: ShareCapital ReservesTotal EquityShareWarrants SecuredLoans UnsecuredLoans TotalLiabilities APPLICATIONOFFUNDS: NetBlock CapitalWorkinProgress CurrentAssets,Loans&Advances Inventories SundryDebtors CashandBank LoansandAdvances Less:CurrentLiabilitiesandProv. CurrentLiabilities Provisions NetCurrentAssets Misc.Expensesnotwrittenoff NetDeferredTax TotalAssets ContingentLiabilities 200703 22.03 14.13 0 9.15 6.75 52.06 26.74 7.19 8.94 9.39 0.07 1.29 2.83 0.01 16.85 0.03 1.25 52.06 10.76 200803 27.43 24.96 2.34 11.01 7.52 73.26 29.16 22.13 8.76 10.74 0.37 2.83 1.7 0.03 20.97 0.02 0.98 73.26 4.62 200903 28.87 41.14 5.23 33.4 5.07 113.71 59.94 14.28 16.98 15.65 0.22 8.74 2.79 0.04 38.76 0.01 0.72 113.71 12.63

Conclusion: Himalyahasbeeninthebusinessforthepast20yearsandinrecent times have seen exponential growth. The management has growth plans for Himalya, including production facilities at Gujarat and Rajasthan. Himalya has strong reserves, is building up new plants in Gujarat and Rajasthanandissettingupamarketingnetwork,whichislikelytoprovide filliptoitstoplineaswellasbottomlineincomingyears. At the current price, Himalya is trading at 9.15x 200910 and 5.11x 201011earnings.Basedonearnings,wevalueHimalyaatRs77/share(9x of201011EPS).HencewerecommendaBUYcallforHimalyaformedium tolongtermperspective.
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MaheshBabaria
maheshb@ghallabhansali.com

MittalChheda
mittald@ghallabhansali.com

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InformationSource:
Capitaline HimalyaInternational

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