KARUTURI NETWORKS

CURRENT PRICE: 100
EPS:35 (06-07)....60(07-08)...CONSERVATIVE BASIS
TARGET:250

TWO BUSINESS: A) FLORICULTURE.......B)TECHNOLOGY
the company had started its business with floriculture but then diversified into tech too......its debt free...dividend paying.....2nd largest in the world.....its 3rd n 4th quarters r the best considering the nature of its business...the it business is also growing by 42% on year on year basis...ofcourse the main business drivers being the florichem one

1) Wal-Mart will pluck roses in Bangalore and expected to place an order of 4-5 million roses this year. ASDA, the large UK retail chain owned by top US retailer Wal-Mart, has placed an order for one million cut roses with Karuturi Networks Ltd last year.2)The company is also preparing to enter the US market in a big way with the expansion of their operation in Ethiopia. It has promoted a dollar 6 million cut rose farm on the outskirts of Addis Ababa, the Ethiopian capital.A subsidiary, RoseBazaar PLC, has been incorporated for this purpose. Zemedeneh Nagatu, managing partner of Ernst & Young (Ethiopia) has a 30 per cent stake in the venture which will be in production by mid 2005-06.3)Making efforts to increase capacity in Ethiopia and India to ensure that they are ready to take bigger orders from companies like Wal-Mart.3)The company has chosen Ethiopia not just to expand capacity but also to gain a quicker and an easier entry into the US market.Ethiopia currently enjoys a 10-year tax holiday for exports to Europe and a 25-year tax holiday for exports to the US. This is as per the Africa Growth Opportunity Agreement signed by President George Bush over a year ago to boost Africa's chances of agri-exports into a developed economy like US.4)The cost of airfreight out of Africa is dollar 1 per kg of rose as against Dollar 2.5 per kg out of India, a 60 per cent cost saving.By setting up operations in Ethiopia, Karuturi will avoid a customs duty of 28 per cent levied on goods entering the US. Karuturi's newly-acquired 25 hectares of land in Ethiopia will be ready for production by Mid 2005. Around the same time Karuturi will also have nearly 20 hectares of land ready for cultivation in India.5)Last year, Karuturi shipped 4.8 million rose stems. They will ship seven million by the end of this year. With the recent acquisitions as well as land in Ethiopia, production capacity will go up by 150 per cent.6)Karuturi finds that it is more viable to hire charters for its shipments to the US, Japan, Singapore, Italy and Germany. It costs Rs 2 to grow a rose and Rs 4 to ship it. A charter pegs the landed cost at Rs 5 per rose. "We still manage to make a significant profit as they are sold at Rs 30 per rose," Karuturi said.When the company was looking at newer options to diversify and derisk its rose export business, it came up with a novel idea of exporting rose plants.
Company will have projected turnover on completion of project (Ethiopia0 in excess of 60 Cr (SIXTY Cr). The full production capacity will be available in 07-08. the Q4 of 05-06 will see contribution from ethiopian offshore initiative in addition to Indian operation. This is the forecast by the company. Assuming min. 60 Cr turnover (05-06 or 06-07), EPS min. expected around 25.


Looking to the future, the company is looking forward to increased revenues both from existing Floriculture and ISP business as well as increased earnings from off shore initiatives. The Ethiopian initiative of growing roses in 50 acres land with a planned output of 75 million roses in stages will significantly contribute to the bottomline. With Prudent financial management the company has been able to fund the acquisitions and joint venture through internal accruals and does not plan to increase share capital •The company has rewarded the shareholders with an interim dividend and a final dividend The management is transparent and very professional