LT Foods is a specialty food company with a presence in more than 60 countries. The company is one of the leading consumer food companies in India in specialty rice offering Daawat, one of the most renowned brands in the market. The company offers premium quality basmati rice, regional rice, rice-based snacks, saute’ sauces, and other products on the health and convenience platform. It has established a prominent presence through brands including Daawat, Rozana, Chef Secretz, and Heritage across different price points. Leveraging its wide distribution network, LTF has strengthened its presence across various trade channels including General Trade, Modern Trade, HORECA, and e-commerce.
In the International market, the company’s business comprises various leading brands like Daawat, Royal, Indus Valley, Devaaya, Daawat Rozana, and 817 Elephant. The flagship brand Royal is the #1 selling Basmati brand in the United States. LTF commands more than 50% market share of all Basmati imports into the United States. Royal has roughly 37% market share of the U.S. basmati segment as measured by Nielsen. The company’s business operations are divided into three segments which are the Core rice business of Basmati Rice & Other Specialty Rice, the Organic Food business, and the New Product business.
NUMBERS THE LATEST:-
Market Cap: 1991 Cr Apx. Book Value: 51.3 Apx
Promoter holding: 56.8 % Sales : 4697 Cr TTM
TTM Net Profit: 272 Cr. CMP on 4Th Apr 2021: Rs 62
POSITIVES:-
- Sales have been growing at 15% CAGR and Profits have been Growing 22% CAGR from the Past 10 Years.
- Debt to Equity Ratio has Reduced from 1.1 times in 2018 to 0.87 times in March 2021, Trend is on the lower side and can expect to be in the range of 0.3-0.5 in the Next 3-5 Years aiding Free Cash Flow Generation Over Medium to Long Term.
- PAT margin was 2% in 2010, Now as of 9MFY21 their PAT Margins have Increased to 6.7 %, this has happened because the company has transitioned itself from being a commodity rice player to a consumer food player and also lowered finance cost due to debt reduction. Going forward with new product launches, With Premiumisation playing in, Margins can move towards 7-8%
- Zero Shares Pledged by Promoters.
- Receivable Days has come down from 51 Days in 9MFY20 to 41 Days in 9MFY21
- Working Capital Days have Came Down from 260 Days in 9MFY20 to 235 Days in 9MFY21
- Networth of the Company has Grown from 712 Cr in FY17 to 1821 Cr in 9MFY21
INTERESTING INFO:-
- In Jan 2020 LT Foods picked up a 30% Stake in Netherlands-based packaged foods company ‘Leev’. It has an option to pick another 21% at the end of 5 Years. This deal will help LT Foods to enter into branded Snacks Market.
- LT Foods has recently launched premium products such as Daawat Quick Brown rice and Daawat Sehat under the health segment and Daawat Sauté Sauces, Daawat Cuppa Rice, Royal Ready-to-heat. Cuppa Rice Tie-up with Indian Railways is a big future for Daawat.
- Its Flagship Brands “Daawat” and “Royal” enjoy leadership positions in the market of basmati rice in India and the US with a market share of 27% and 50% respectively.
- LT Foods has become the first company globally to be certified with the highest level of verification-L3 by UN-backed Sustainable Rice Platform(SRP) Ecolabel, this will enable the company to use the sustainable Rice Platform(SRP) verified logo on the packs of rice produced by verified 1000 farmers growing sustainable Rice.
NEGATIVES/POSSIBLE RISKS:-
- Raw Material Price Fluctuation Affecting Profitability if Company is unable to pass on the price rise to consumers. But as this company is moving from a commodity player to a branded consumer food brand, this risk is lowering as the company is moving ahead in the value chain
- Company Receives more than 60% of its revenue from Exports, So it is susceptible for exchange rate fluctuations. However, the company is keeping a check on it, by having better hedging practices.
MY TAKE:-
LT Foods which started its operations in the early 1980’ and been in business for a long, they have learned the art of playing and enhancing the game. Its foray into the organic food business way back in 1999 shows that this company is Futuristic. From being a commodity rice player, it has been transforming itself into a branded rice player over the past 10 years, and certainly, it has paid them well as margins have expanded from 2% to 6% until recently.
Going well into the future as they are deploying more value-adding products to their product portfolio will increase the margin profile further. Currently, the market is treating it as a commodity player, however, beneath the commodity name, it’s emerging as a branded consumer food play story. As the story unfolds they shall reach the 10% margin profile over the next 3-5 Years. The company has been in the growth phase for the past 10 years, so they are maintaining reasonable debt on its balance sheet, however, I believe they will be deleveraging it, to aid free cash flows, leading to a significant jump in EPS over the next 3- 5 years.
The company is well poised to do a net profit of anywhere between 400-450 Cr by 2025 aided by margin expansion and decent revenue growth of 8% CAGR. With low debt on its balance sheet, Free Cash Flows, being Emerged as a Fully Consumer Food Company, the stock will face a severe rerating as Mr. Market understands its Potential.
Technical View :
Daawat is nearing an Upflag Breakout on weekly charts, Upon Clean Breakout with Volumes, It will open up the upside till 96 Rs in the next 2-3 Months. Disc- Holding, May add more on Clean Breakout with Suitable Stop Loss.
LT Foods- Daawat is thus a play on Premiumisation, Deleveraging, and a Transformation story of a Rice Brand to a Consumer Food Brand. Time will only tell how much money we have made here. With enough patience and conviction, we will be able to see levels of 90, 140, 200, 250 over the next 3-5 Years.
This is my Third Post on Daawat, If you interested to read my past blogs
1) Daawat A Potential TechnoFunda- June 2020 Blog
https://strategicalpha.blog/2020/06/17/technofunda-opportunity-daawat-cmp-34-5-stop-32-potential-upside-45-risk-reward-15/
2) BSE Power Index and LT Foods (Daawat ) Assessment- March 2021 Blog
https://strategicalpha.blog/2021/03/05/bse-power-index-breakout-daawatlt-foods-assessment/
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