Agro Dutch Foods accounts for 60 per cent of the processed mushroom exports from India and is the main beneficiary of the anti-dumping levy imposed by United States on Indonesia, China, Chile and India. Agro Dutch Foods is one of the very few companies which have attracted a low duty of 6-7 per cent. This coupled with the fact that the company has a low production cost, bodes well for Agro Dutch Foods. The company has been striving to bring down costs and has recently developed a technology for increasing production and, at the same time, bringing down cost by 20 per cent within the next two years.

According to the agreement with the US company, Agro Dutch Foods will export 6000 tonnes of mushrooms per year (i.e., 50 per cent of its total capacity) for the next three years. US-based Kanan group will be the importing agency. Although direct sales would have been a better option (it would have lead to a considerable improvement in margins), the fact that the Kanan group is also picking up an equity stake in Agro Dutch Foods will ensure that the latter gets a good price. Agro Dutch Foods will be making a preferential offer of 10 lakh shares to the Kanan group at a high premium. This, in itself, will give a shot in the arm to the stock. Post-offer, the company's equity is likely to rise marginally to Rs 14.77 crore and this will be more than compensated by the rise in net profit in the full-year. The preferential allotment at a high premium will enable the company to improve its reserves (by adding to its share premium reserve). As on March 31, 1999, reserves were low at Rs 10.59 crore. In fiscal 1999, AgroDutch Foods enhanced its capacity from 9,736 tonnes of mushrooms per annum to 12,000 tpa through internal accruals. The production capacity will be further increased to 26,000 tpa by September next year in a phased manner. The financing pattern is not known. However, the low gearing of 0.65 should enable Agro Dutch Foods to tap the debt route, if necessary, for the expansion programme. There should also be a substantial addition to Agro Dutch Foods' profit-and-loss account reserves at the end of fiscal 2000 if the management does not fall prey to the dividend game.

The company's management has, so far, maintained that cash accruals invested in expansions and technology innovations give a much higher intrinsic value to the shareholders than a nominal dividend. In fact, the director's report for FY 1999 states, ``By ploughing all the cash accruals to the company, we have managed to increase production by 6836 tonnes from FY 1996 at an added investment of only Rs 17 crore, thus bringing down the interest component of capital interest in the production cost from $ 2.59 to $ 1.38 per case in 1998-99.''

On the bourses, the Agro Dutch Foods' stock has started looking up after a 48 per cent retracement from the Rs 142-level. The correction to the Rs 96 level was a healthy sign. Investors can enter the counter at current levels and hold the stock for the long-term. Rs 200-250 level could be the likely target for the stock in the long-run. The current market price of the stock at Rs 119.85 discounts the annualised EPS of Rs 9.92 by a compelling price earning multiple of 12.