SKM Egg Products Q2 Results and Strategic Expansion

Q2 Profit After Tax: Rs 16 Crore (Down from Rs 24 Crore YoY)
Full Year Profit Target: Rs 100 Crore+

Reader Takeaway: Capacity expansion and backward integration drive long-term growth, though volatile feed costs currently pressure quarterly margins.

What just happened

SKM Egg Products Export (India) Ltd reported a decline in quarterly profit to Rs 16 crore for Q2, compared to Rs 24 crore in the same period last year. While quarterly sales saw a modest improvement to Rs 184 crore from Rs 179 crore, profitability faced headwinds from increased prices of raw feed materials. Turnover for the first half of the year reached Rs 363 crore, slightly trailing the Rs 380 crore reported during the corresponding period last year.

Why this matters

The company is currently undergoing a significant investment phase aimed at long-term scaling. Management has committed to an expansion project costing Rs 180 crore to increase capacity from 7,000 to over 10,000 tons, slated to be operational by the second half of next year. Furthermore, the second phase of their poultry farm expansion, targeting 20 lakh birds, is set for completion by September 28.

What changes now

To support a broader capital expenditure plan of Rs 400 crore, the board has approved a Rs 300 crore term loan, with Rs 200 crore coming from State Bank and Rs 100 crore from Access Bank. Management noted the effective interest cost is approximately 5.25% due to subvention, justifying the move to leverage debt rather than liquid reserves. Additionally, the company is working to merge its subsidiary, Universal (UMC), into the listed entity by April next year to streamline operations.

Risks to watch

Investors should monitor raw material price volatility, specifically for soya feed. While the company is exploring imports to mitigate costs, input price fluctuations remain a primary risk to operating margins. Global supply chain and freight cost pressures continue to be monitored by leadership.

What to track next

The focus remains on the completion of the 10,000-ton capacity expansion and the successful integration of UMC. Management has reiterated a strong positive outlook for the next three to five years, betting on increased domestic egg consumption.