Millennials spur massive demand for ready-made foods
Ekansh Mittal of Katalyst Wealth explained that the packaged foods industry is at an inflection point in India. He gave detailed reasons in support of his proposition.
Prima facie, his logic makes sense. It does appear that the packaged foods business is a sunrise sector which will sparkle in the days to come given the insatiable demand for ready-made snacks from youngsters living in metropolitan cities.
We can already see the huge success of companies in the sector such as DFM Foods, Tasty Bite, Flex Foods, Lakshmi Energy Foods, LT Foods, ADF Foods etc.
However, given that the extent of scalability of the business is so immense in a Country like ours, these companies may have still only scratched the tip of the iceberg.
ADF Foods surges like rocket on the back of robust Q2FY18 results
ADF Foods, a micro-cap with a market capitalisation of only Rs. 700 crore, has the unique distinction of having attracted the crème-de-la-crème of stock pickers.
As of 31st March 2017, the stock boasts of luminaries like Dolly Khanna, Porinju Veliyath, Lashit Sanghavi, Aswin Kedia, Nirmal Arora etc in its roster of shareholders.
The position as of 30th September 2017 is not clear because the names of Dolly and Porinju don’t appear in the list of shareholders.
We can presume that the stalwarts have pared their holdings because they may have found better investing opportunities.
Anyway, the fact is that ADF Foods has been surging like a rocket on the back of robust operating performance.
Over the past 24 months, ADF Foods has given a return of 245%. The YoY return is 111%.
| ADF FOODS LTD – FINANCIAL RESULTS | |||
| PARTICULARS (Rs CR) | SEP 2017 | SEP 2016 | % CHG |
| NET SALES | 48.16 | 49.95 | -3.58 |
| OTHER INCOME | 4 | 1.73 | 131.21 |
| TOTAL INCOME | 52.16 | 51.68 | 0.93 |
| TOTAL EXPENSES | 41.97 | 44.91 | -6.55 |
| OPERATING PROFIT | 10.19 | 6.76 | 50.74 |
| NET PROFIT | 5.92 | 3.13 | 89.14 |
| EQUITY CAPITAL | 21.58 | 21.69 | – |
(Source: Business Standard)
LT Foods a.k.a. Daawat, also a favourite of Dolly Khanna and Porinju Veliyath
Porinju discovered the merits of LT Foods (Daawat) earlier than Dolly Khanna.
His Equity Intelligence PMS bought 438,011 shares of LT Foods on 11th July 2016 at Rs. 28.27 per share (adjusted for split).
Daawat at historic high today; had shifted from ‘IndiaGate’; found it more delicious 🙂 https://t.co/kc1xetkowt
— Porinju Veliyath (@porinju) July 20, 2016
As per custom, Porinju effortlessly pocketed 100% gains within a mere six months.
Daawat 100% more delicious in 6 mths? https://t.co/zz3dTekMrn
— Porinju Veliyath (@porinju) February 8, 2017
Inspired by Porinju, Dolly came rushing to Dalal Street and scooped up a massive chunk of 29,57,280 shares of LT Foods in the January-March 2017 quarter.
Her holding in LT Foods as of 30th September 2017 stands at 29,07,256 shares.
LT Foods will double revenue to $1 Billion by 2022: Ashwani Kumar Arora, CEO
Ashwani Kumar Arora, the CEO of LT Foods, appears to be a visionary.
He has clearly spelt out the roadmap for the Company and also explained how he plans to get it there.
“LT Foods expects revenue to double to $1 billion by 2022. We have a clear roadmap. We are leveraging our brands to build an export-driven global food company. Improvements in procurement, processing, sales and distribution should lift operating profit as a percentage of revenue to 15 percent in the coming years from 12 percent,” he said with ice-cool confidence.
He explained that the organic foods portfolio will be the growth driver, even as the core rice business provides strong cash flows.
| L T FOODS LTD – FINANCIAL RESULTS | |||
| PARTICULARS (Rs CR) | SEP 2017 | SEP 2016 | % CHG |
| NET SALES | 853.1 | 829.03 | 2.9 |
| OTHER INCOME | 1.58 | 16.08 | -90.17 |
| TOTAL INCOME | 854.68 | 845.11 | 1.13 |
| TOTAL EXPENSES | 755.83 | 751.14 | 0.62 |
| OPERATING PROFIT | 98.85 | 93.97 | 5.19 |
| NET PROFIT | 36.4 | 26.68 | 36.43 |
| EQUITY CAPITAL | 26.67 | 26.66 | – |
(Source: Business Standard)
New business categories, like organic staples, two-minute rice food (for US market), rice-based snacks and other value added products will spur revenue growth
LT Foods has launched a premium healthy snacks brand named ‘Kari Kari’ in joint venture with a Japanese company named Kameda Seika.
A joint venture company named Daawat Kameda India (Pvt.) Ltd has been formed in which LT Foods will hold 51% while the rest will be held by the Japanese collaborator.
Kameda Seika is a behemoth in the rice crackers business. It has reported net sales at 98.2 billion Japanese Yen ($871 million) in the year to 31 March 2017. It has presence in Japan, Thailand, Vietnam, China and US.
Huge growth in consumption of savories
According to a report by market research firm Euromonitor International, the savory snack food market in India is projected to grow at a compounded annual growth rate of 12% between 2016 and 2021 to reach Rs445 billion.
‘Kari Kari’ Brand will reach Rs. 100 crore revenue by 2022
Arora explained that the branded rice business accounts for about Rs2,700 crore. By 2022, the target is to get about Rs4,500 crore from the core rice business, and the remaining would come from new business categories, like organic staples, two-minute rice food (for US market), rice-based snacks and other value added products.
He added that Kari Kari alone is estimated to have sales of Rs100 crore by 2022.
It was also revealed that the products will be available in four flavors including Spice Mania, Salt Pepper, Wasabi and Chili Garlic. Kari Kari snacks will be exclusively available across three cities in packs of 70 and 150 grams with a pricing of Rs. 50 and Rs. 99 respectively. LT foods will roll out a 360 degree communication campaign which will include digital marketing campaigns, in-store promotions and interactive in-store POS material.
LT Foods is “A Royal Daawat for investors”: Angel Broking
Angel Broking has issued an initiating coverage report in which it has recommended a buy of LT Foods without further ado.
The logic is irrefutable:
“LT Foods Limited (LTFL) is a branded speciality foods company engaged in milling, processing and marketing of branded and non-branded basmati rice and manufacturing of rice food products in the domestic and overseas markets. Its geographical segments include India, North America and Rest of the World. The major brands of the company are Daawat, Gold Seal Indus Valley, Rozana and 817 Elephant.
Market leadership with strong brand visibility:
LTFL’s flagship brand Daawat enjoys 22% market share in the branded rice market of India. The company has strong market share in North America selling Basmati rice under the brand name ‘Royal’. Historically, the company has been focusing on strong brand visibility, and in order to enhance brand visibility it spends on ad spends.
Wide distribution network:
Currently LTFL has an access to 1,40,000 traditional retail outlets and reaches to 93% of towns with over 2 lakh population and 3,000 wholesalers. Further, the company sells its products to premium hotels & restaurants (~50% share) and has an access to 6,000 foodservice outlets i.e. ‘DawatChefs Secretz”. Moreover, it has an access to 2,500 modern trade stores including 121 hypermarkets, 298 supermarkets and 1,462 mini markets. It is the 1st Rice Company to place Brown Basmati Rice in Medical Chains.
Diversified product portfolio catering to varied customers:
LTFL has a well diversified product basket, which caters to consumers of all income groups. The company is present in segments like Basmati rice, Speciality rice (non-Basmati) and Other food products. It is also consistently working on adding new products to its portfolio. LTFL has done JV with Japanese Snack Food major Kameda, which would launch rice based snacks in India. LTFL has recently introduced ‘Daawat Rozana GoldPlus’ brand.
Strong global footprint:
LT Foods is now an emerging global Foods Company with a focus on basmati and other speciality rice, organic foods and convenience rice based products. LT Foods has a global footprint, selling their flagship basmati rice brands i.e. Royal and Daawat into 65 countries. The company has established on ground presence in the US, Europe and Middle East in order to unlock the full potential of these territories.
Outlook and Valuation:
Going forward, we expect the company to report healthy top-line CAGR of 13.5% over the next two years on the back of strong distribution network & brand, continuous expansion, wide product basket and addition of new products in portfolio. On the bottom-line front, we expect ~20% CAGR on the back of robust improvement in operating performance. We expect margin expansion on the back of better manufacturing efficiency, increase in scale and change in product mix. We initiate coverage on the stock with a Buy recommendation and Target Price of `96 (15x FY2019E EPS), indicating an upside of ~29% from the current levels.”
LT Foods has huge opportunities to scale up business: Karvy
Karvy has also recommended a buy of LT Foods on equally sound logic:
“Robust Plan to Expand Business Internationally
Stronger Quarter with Improved Margin:
LT Foods Ltd has delivered strong set of consolidated numbers having recorded revenue in Q2FY18 at Rs.8531 Mn as against Rs.8290 Mn in Q2FY17 registering growth of 2.9% on YoY basis. The shares of basmati, organic and private label businesses as % of total revenue are on rise which stand at 62.0%, 10.0% and 18.0% respectively. EBITDA of the company in Q2FY18 grew 26.8% on YoY basis to Rs.988 Mn against Rs.779 Mn during the same quarter period last year thereby marking an improvement in EBITDA margin by 219 bps on YoY basis.
Increased share of branded business has helped EBITDA to improve. PAT of the company in Q2FY18 came in at Rs.364 Mn as against Rs. 267 Mn in Q2FY17 exhibiting growth of 36.4% on YoY basis and profit margin expansion by 105 bps on YoY basis. Improvement in PAT growth and PAT margin could be attributed to improvement in EBITDA and reduction in interest cost. From H1FY18 performance perspective, the company has come out with great showing having registered revenue/EBITDA/PAT growth of 5.4%, 15.0% and 22.4% respectively on YoY basis. In the process, it recorded improvement in EBITDA margin by 100 bps and PAT margin by 61 bps on YoY basis.
Revenue proportion of export and India business stood at 55: 45 which points to an improvement in India business. The company has been expanding its geographical reach in Europe and Middle East through commencing operations and acquiring popular brands in the region. The company has consistently been working on adding new products to its portfolios. It has entered into JV with Japanese Snack Food major Kameda to manufacture and market rice based snacks by the name of Kari Kari and has ambitious plan of generating revenue of Rs.1000 Mn in next five years leveraging on brand equity and distribution.
Valuation and Outlook
LT Foods Ltd, with strong brand and broad distribution platforms, has been able to gain share in branded business in India, Europe, USA and Middle East.
Its organic business has been growing fast in USA and Europe. Further, JV with Kameda for rice-based snacks Kari Kari and likely basmati rice export to Iran that is to begin from Dec.2017 provides for huge opportunities to scale up business.
Considering all these unfolding opportunities, we have upwardly revised our target price on stock for next 9-12 months at Rs.87, which gives 24% potential upside“.
Reopening exports of basmati to Iran will be catalyst?
Iran is said to be one of the big importers of basmati rice from India.
However, it periodically restricts imports to reduce its inventory held by its traders and safeguard the interests of its local farmers.
Ashwani Kumar Arora revealed that the exports to Iran will be restarted from December 2017.
If this happens, it can provide the much needed catalyst to send LT Foods and the other basmati stocks surging into orbit and shower some gains upon us!
LT Foods will definitely sore high and be a multibagger from here.Just look ar KRBL valuations.
Market cap less than the sales and company also improving the debt equity ratio.
Which rate I want to buy lt food
Next will be Sanwaria Consumers__/
kindly view your fundamental logic for buying the stock
This could be big gainer in 2018 highly undervalued .Royal is a great brand in US.
Sales of close to 4000 Crores,Net profit of 130 Crores and Market cap only of 1800 cores. Good Earnings yield, ROE,ROCE and ROIC. The debt is a bit too high and i see management has started the balance sheet clean up.Most of the marquee investor are saying this balance sheet clean to be the next big thing as most of growth stock are at high valuations. Looks like a good bet and limited downside as most of the capex is done
Please look at the receiveable for sanwaria aganst sales and comapre the numbers with DAWAAT and others. They have a huge receivables which si approx 28% of sales
Adf food has excellent products with good demand internationally. Its undervalued in context to its earnings & would quote in four figures in the near future. Its ready to eat meals are easily available overseas as i myself on my trip last month tried them in sydney ( australia ) .
ADF Food is now expensive CP. Compare its ROE,ROIC,Earning yields with LT Foods ya. Where i get gittery with ADF foods now is that the promoter holding is quite low.Look at LT foods it has 67 percent promoter holding. So comparatively if i have bet na my money will be on LT Foods now.Agree it was bargain earlier ya.
swathi ji !
Adf is good & LT food is also good. please dont try to analyse a company by just looking at promoter holding. so many times the promoters hold in other persons name. Also look at the big picture a few of the good food companies will quote at quite a premium to their ratios. happy investing !
Raghuvansh agro farms is into organic foods and A2 milk. These are the NEXT big thing. Subsidary also makes organic fertilisers for replacement of urea and pesticides. Trading at low valuations. High growth trajectory. Have a look at it.