The stock of Lakshmi Energy and Foods, which processes non-basmati rice for domestic and export markets and generates power from rice residue, is down nearly 64 per cent in the last one year. The stock's decline all the way from Rs 145 a year ago has been sparked, both by a slippage in the company's sales and profits and by a shrinkage in its PE multiple. After scaling up substantially in the four years to 2007-08, Lakshmi Energy reported a sizeable blip in its sales in 2008-09 (year ending September), from Rs 1,026 crore (annualised) to Rs 691 crore. That was accompanied by a decline in net profits from Rs 106 crore (annualised) to Rs 92 crore.

In 2009-10, while sales have recovered substantially, profit margins have still been under siege with net profits dipping by about 26 per cent. A dip in FCI procurement in 2009, the erratic monsoon the same year and the fluid policy on rice exports in an inflationary environment have all contributed to a volatile business scenario for Lakshmi Energy. After the good monsoon of 2010, though foodgrain prices have moderated to an extent, policy and procurement uncertainties do remain.

The company's plans to expand its capacity to generate more renewable energy does expose its profits/ revenues to policy changes in the offtake of renewable energy as also fluctuating short-term power tariffs. The volatility in earnings apart, it is noteworthy that a good part of the decline in this stock is also attributable to a de-rating of the stock's price-earnings multiple from nine times to less than four now. Volatile earnings coupled with the lack of fancy for power stocks seems to have whittled down valuations.

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