Multibagger Biofuel Stock Hits All-Time High. Zooms 10% on Massive Biodiesel Tender

The investing community has been fascinated with different types of renewable energy fuels for years.

Some of the interest was primarily driven towards ethanol as it provided a sustainable opportunity for sugar producers, while also helping India move towards its ethanol-blending goals.

Another fuel that's yet to become a mainstream talk of the town is Biodiesel, a form of Biofuel.

Biofuels are liquid fuels produced from renewable energy sources such as plants and algae. Some of the biofuels are ethanol biodiesel, green diesel, and biogas.

They provide solutions to the challenges of solar, wind, and other alternative energy sources.

Given the tremendous availability of potential biomass in India, there's a huge opportunity for companies involved in the production of biofuels.

On Monday, 11 December 2023, share price of Kotyark Industries spiked around 10% after reports stated that government has cleared the Biodiesel tender for Rs 77.7 billion (bn) for supply of 89 crore litres of fuel.

A Word About Kotyark Industries

Kotyark Industries is engaged in the manufacturing of biodiesel and its by-products, such as glycerine.

It has a manufacturing capacity of 500 KLPD of biodiesel from multi-feedstock and other raw materials such as vegetable oils, alcohols, and catalysts.

Kotyark Industries sells its products to OMCs and bulk buyers. It also sells to retail customers through its mobile retail outlets.

At present, the company has 25 outlets across the country, which it plans to expand to 100 in the next two years.

Clients

Biodiesel Tender

The government announced that public sector undertaking (PSU) OMCs intend to procure Biodiesel produced from all feedstocks except used cooking oil.

Here's the notice for inviting tender.

According to this notice, the bidding submission started last week on Saturday and the last date for submitting bids is 18 December 2023.

The bids will be opened on 19 December 2023.

The notice says that the Biodiesel tender is for a whopping Rs 77.7 bn for supplying 89 crore litres of the fuel. That'll come to Rs 87.32 per litre inclusive of GST.

Biofuel stocks will be in focus in the coming days as they could fetch some amount of the big order worth Rs 77.7 bn.

How Kotyark Industries Stands to Benefit

The company has the advantage of being a pure-play biodiesel entity listed on the stock exchange in India.

Given its healthy track record, Kotyark could possibly get a part of the tender. Even if it gets 10%, it will amount to a healthy Rs 7-7.5 bn worth of orders.

Coming to its financials, the company has displayed a remarkable show in the first half of FY24.

Compared to previous year, Kotyark Industries has reported a 156% growth in sales while EBITDA and net profit for the same period is up 145% and 124%, respectively.

The company has already surpassed the entire previous financial year's sales in just the first half of FY24.

Commenting on the performance, its MD and Chairman said that this growth was seen despite a delay in the receipt of purchase orders from certain Oil Marketing Companies (OMCs).

The company is currently in the process of amalgamating its business with Yamuna Bio Energy. Yamuna Bio Energy has also secured some tenders recently which could add to Kotyark's numbers as and when the companies are amalgamated.

In the last five years, the revenue and net profit of the company have grown at a CAGR of 34.5% and 87.1% on account of growth in volumes of biodiesel and glycerine.

Financial Snapshot

Rs m, standalone	FY19	FY20	FY21	FY22	FY23
Net Sales	376	258	652	1,560	1,136
Growth (%)	-	-31%	153%	139%	-27%
Operating Profit	8	20	30	131	179
OPM (%)	2%	8%	5%	8%	16%
Net Profit	6	5	10	86	115
Net Margin (%)	2%	2%	2%	6%	10%
ROE (%)	34.9	25.6	39.2	58.0	27.5
ROCE (%)	16.8	11.8	13.0	51.2	33.6
Dividend (Rs)	0.0	0.0	0.0	2.0	5.0
Debt to Equity (x)	1.7	6.3	4.3	0.1	0.2

Data Source: Ace Equity

Europe is the current leader for biodiesel production and consumption in the world, and India merely accounts for 1% of the world's production.

However, India aims to increase its production and consumption of biodiesel in the next few years.

As biodiesel adoption gains momentum in India, manufacturers like Kotyark Industries are poised for growth.

Currently, the company's capacity utilisation is 10%. This gives the company an added advantage to expand without any additional capex.

The government is also supporting biodiesel production through initiatives such as the National Policy on Biofuels and compulsory blending of 5% biodiesel in diesel by 2030.

All these show that the company is set to become a major player in the biodiesel industry as the adoption of biodiesel increases in the country.

How Kotyark Industries Share Price has Performed Recently

In the past five days, Kotyark Industries share price has gained 23% while in the past one year, the stock is up 141%.

Shares of the company spiked around 10% today to hit a high of Rs 975 following the tender announcement.

Kotyark Industries has a 52-week high of Rs 975 touched today and a 52-week low of Rs 262 touched in April 2023.

Here's a table comparing Kotyark Industries with its peers.

Comparative Analysis

Company	Kotyark	Mangalam Seeds	Shree Oswal Seeds	Upsurge Seeds
ROE (%)	27.5	21.8	11.9	19.1
ROCE (%)	33.6	21.7	12.9	12.8
Latest EPS (Rs)	13.1	12.2	0.6	6.7
TTM PE (x)	66.5	18.2	105.3	55.6
TTM Price to book (x)	13.4	3.9	11.1	6.8
Dividend yield (%)	0.6	0.0	0.0	0.0
Industry PE	23.2
Industry PB	2.7

Data Source: Ace Equity

In Conclusion

Not all the technologies that are hyped for their growth make their way into mainstream usage.

In case of Biofuels, the research and development (R&D) that goes into producing biofuels isn't cost-effective.

Moreover, the cost of setting up one biofuel plant is also expensive. This can limit the profits of companies involved in producing biofuels.

There are also regulatory risks... what if government goes slow on clean energy and blending targets? Just recently it gave a shocker to ethanol stocks after setting some curbs.

Hence, it is important to do your research and due diligence when considering biofuel companies for investment.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...