We invested in Gujarat Ambuja Exports about five years ago when the annual profitability was around Rs 150 Cr while the market cap was around Rs 1,450 Cr. The company ended FY22 with a net profit of Rs 475 Cr and market has duly rewarded this remarkable execution by bidding the market cap higher to Rs 6,850 Cr. We were lucky to not only spot this promising opportunity early but we ensured we held this tight throughout the rough patch while maintaining our conviction and as a result have been rewarded with almost a 5-bagger.

The company continues to execute well and many growth projects are underway which will increase the installed capacity in the profitable maize processing segment and we continue to remain bullish on its long-term prospects.

However, it is important to note that the recent profit margins earned by the company are on the higher side versus the long-term average. This is a result of disruption in supply chains globally first due to pandemic and then Russia-Ukraine war. While we expect the volume growth to continue led by new capacity, the impact of incremental volumes on profitability may get negated initially if there was a mean reversion (contraction) in operating margins as normalcy gets restored globally.

Keeping in mind the incremental risk-reward, we find it prudent to trim our investment by two-third while continuing to hold the remaining one-third. Accordingly, the sizing guide is being downgraded from 'medium' to 'low'.