Unlisted Shares

Rydak Syndicate Limited is a Company with business in manufacturing of black tea. The company has also commenced operations commercially as a Tea Tourism operation in Dooars Region in the name of Baradighi. The company has been around for over 100 years and is led by Mr. Rajvinder Singh, who has 25 years of experience in the tea industry.

Financials: In FY23, the company experienced a decrease in revenue by Rs. 6 cr., primarily due to a 7.1% loss in production. Additionally, the operating profit declined by 54% in FY23 compared to FY22. This drop was attributed to a 17% increase in Cost of goods sold expenses and a 16% rise in power and fuel expenses. The combination of higher operating costs and lower revenue resulted in a significant 50% decrease in net profit for FY23 compared to FY22.

Ratio Analysis: With a Debt-to-Equity (D/E) ratio of 0.15, the company relies minimally on external debt. Moreover, its current ratio saw a notable improvement of 36.6% in FY23 compared to FY22, indicating enhanced short-term liquidity.

Expansion Plan: The company plans to set up four new irrigation units in the Dooars region, spanning approximately 300 hectares across three estates. This initiative aims to boost crop production, particularly during unusual weather conditions.

Investment Thesis: The company experienced a significant decline in revenue and net income in FY23 due to a loss of production and an increase in operating expenses.
The company appears undervalued with a P/E ratio (5.1x) below the industry median (7.8x). The stock price is currently trading at Rs.605/share and the intrinsic value through relative valuation came to Rs.1,017 which signifies huge potential in stock.

However, we kept this recommendation neutral because despite being in the tea industry for over a century, its revenue growth has been relatively modest, with a 5-year compound annual growth rate (CAGR) of only 4.7% vs the industry’s 5-year CAGR growth of 6%. Additionally, there is a 15% hike in labour costs which has drastically impacted the margins of the company. The labour cost is expected to rise further in future and at present this matter is subdued at Calcutta High Court.