Food testing business is seeing significant traction due to rising awareness about food safety, recent enforcement and activism by FASSI. There is also more increase in third party testing rather than in-house testing which will further be more beneficial for company. Hence the company has decided to set-up 9 more food testing labs across the country. Out of this labs at Bhimavaram, Kochi, Nellore, Pune and Visakhapatnam obtained required accreditations & commenced commercial operations. Accreditations for Ahmadabad, Bangaluru, Kolkata & Indore are under progress and commercial operations are expected to commence in third quarter which will further add to revenues and would be a major revenue driver for company in coming years.
VLL has also not leveraged itself and the debt on books is mainly taken to fund the expansion of food testing labs. With the expected strong growth in business fundamentals coupled with operating leverage over next few years profitability is expected to improve significantly. Therefore we recommend to BUY.