Tuesday, December 19, 2017

LT Foods : A Royal Basmati Daawat for investors.

LT Foods Limited is a branded specialty foods company. The Company is engaged in milling, processing and marketing of branded and non-branded basmati rice, and manufacturing of rice food products in the domestic and overseas market. Its geographical segments include India, North America and Rest of the world. Its operations include contract farming, procurement, storage, processing, packaging and distribution. Its rice product portfolio comprises brown rice, white rice, steamed rice, parboiled rice, organic rice, quick cooking rice, value added rice and flavored rice in the ready to cook segment. The Company's brands include Royal; Ecolife, an organic food brand that includes rice, pulses, oil seeds, cereal grains, spices, nuts and fruits and vegetables; Devaaya, which offers branded Basmati rice, with staples, such as Atta, Suji, Besan, Dalia, Poha and Maida, and Heritage, a basmati rice brand. Its brands also include Daawat, Gold seal Indus Valley, Rozana and 817 Elephant.

Research report by Angel Broking

LT Foods Limited (LTFL) is a branded specialty 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.

In latest news on 1-Dec-2017,
Leading basmati rice firm LT Foods will invest USD 20 million for branding and expansion in Europe, as it eyes a six times increase in sales from the branded segment over the next four years.
The company is extensively working on expanding its geographical footprints and product portfolio in these markets and plans to invest USD 20 million with increased sales from the current 5,000 tonnes to 30,000 tonnes in the branded segment over the next four years, it said in a statement.
LT Foods, which sells basmati rice under Daawat brand, has been focusing on Europe as the next growth region and has recently opened a new plant in Rotterdam, Netherlands to cater to both Europe and UK.
"In the next two years we are eyeing to gain 5 per cent market share in the branded segment of this region with distribution expansion and continuous brand investments. This will help to take the growth to the next level and achieve the aspired targets," LT Foods Chairman Vijay Kumar Arora said in a statement here.

It will also introduce new packaging across all its Daawat rice variants for a fresh shelf presence by March 2018 in the region.LT Foods to invest $20 mn for branding, expansion in Europe
Mumbai, Dec 1 (PTI) Leading basmati rice firm LT Foods today said it will be investing USD 20 million for branding and expansion in Europe, as it eyes a six times increase in sales from the branded segment over the next four years.
The company is extensively working on expanding its geographical footprints and product portfolio in these markets and plans to invest USD 20 million with increased sales from the current 5,000 tonnes to 30,000 tonnes in the branded segment over the next four years, it said in a statement.
LT Foods, which sells basmati rice under Daawat brand, has been focusing on Europe as the next growth region and has recently opened a new plant in Rotterdam, Netherlands to cater to both Europe and UK.
"In the next two years we are eyeing to gain 5 per cent market share in the branded segment of this region with distribution expansion and continuous brand investments. This will help to take the growth to the next level and achieve the aspired targets," LT Foods Chairman Vijay Kumar Arora said.It will also introduce new packaging across all its Daawat rice variants for a fresh shelf presence by March 2018 in the region.
The company which has presence in 65 countries, clocked a consolidated revenue of Rs 3300 in financial year 2016-17.           

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 Rs 125+ (15x FY2019E EPS), indicating an upside of ~35% from the current levels.

Research report by Karvy

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.125+, which gives 35% potential upside.

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