HONG KONG (Reuters Breakingviews) - Sacred cows are blessing India's chicken industry. Shares of midcap poultry specialist Venky's, part of a group that also owns British football club Blackburn Rovers, have risen around 440 percent this year fuelled in part by a campaign against beef consumption. Although the Supreme Court on July 11 suspended a recent government ban on cattle slaughter, the country's rising middle class will remain hungry for the birds.
Graphic: Venky’s has significantly outperformed all the major indices: reut.rs/2tORCJI
Cows are sacred in Hinduism. New Delhi's ban played to the hardline supporters of Prime Minister Narendra Modi and his nationalist government but implementing it would be an economic drag. India's leather industry is a supplier to international brands and hires millions of people. Last year the country exported almost $4 billion of buffalo meat, but "cow protectors" argue beef from cows slips into this market.
Banned or not, an increase in violence around this emotive issue has led to a number of high profile lynchings of people suspected of consuming and slaughtering cows. And so Indians with reasonable disposable incomes may look elsewhere for protein. In office canteens, chicken is the default non-vegetarian option. Pork is not eaten by practicing Muslims, the largest religious minority. Mutton and fish are more expensive.
India’s consumption of processed chicken meat is rising by as much as 20 percent a year, the USDA says. And appetite has room to grow. The average Indian consumed a mere 1.7 kilograms of poultry in 2015, according to the OECD. That compares with around 6.6 kilograms for Indonesia and 11.6 kilograms for China, where incomes are much higher.
Venky's is one of the only pure plays on this trend, although there are other factors underpinning the company's recent outperformance. For example, almost 80 percent of poultry production costs come from feed ingredients like maize and soya, prices for which have fallen after last year's good monsoon.
Despite a huge run-up in Venky’s price, the company still trades at a multiple of around 26 times current net income, compared to 24 times for the Nifty Midcap Index. Analysts at Kotak forecast a 42 percent compound annual rate of growth in earnings through to 2019. With or without cow protectors, India will be in a flap about chicken.
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