Recommendation From Food Processing Sector

 LT Foods Ltd.

SAVOUR THE FLAVOUR OF GROWTH WITH LT FOODS!

HERE IS WHY Growth prospects Revenue visibility Industry tailwinds

LT Foods (LTFL) is a branded specialty foods company. It is engaged in the milling, processing and marketing of branded and non-branded Basmati rice and manufacturing of rice food products. 

The company reported a weak operating financial performance in the fourth quarter of FY19. On the consolidated financial front, it reported revenues of Rs.1,008.7 crore in Q4FY19 as against Rs.1,070.6 crore in Q4FY18, marking a YoY fall of 5.8 per cent. EBITDA plummeted 5.1 per cent YoY to Rs.88.8 crore in Q4FY19 from Rs.93.6 crore in Q4FY18. Nonetheless, EBITDA margin showcased modest growth of 7bps to 8.8 per cent in Q4FY19 from 8.7 per cent in Q4FY18. PAT declined 38.4 per cent YoY to Rs.19.7 crore in Q4FY19 from Rs.32 crore in Q4FY18. 

The company reported consolidated net sales of Rs.3,890.4 crore in FY19 as against Rs.3,613.7 crore in FY18, posting a growth of 7.7 per cent. EBITDA surged 10.2 per cent YoY to Rs.397.2 crore in FY19 from Rs.378 crore in FY18. EBITDA margin came in at 10.2 per cent in FY19 as against 10.5 per cent in FY18. PAT declined 6 per cent to Rs.126.5 crore in FY19 from Rs.134.7 crore in FY18. The P/E multiple stood at 8.1x in FY19 in comparison to 7.6x in FY18. 



The bottom line in Q4FY19 was dragged down by higher depreciation, interest and one-off costs. Employee costs rose 79 bps to 4.4 per cent of sales while other expenses increased 92 bps to 10.8 per cent of sales, primarily on account of one-off loss of Rs.3.8 crore on account of write-off of JV with Geneva Rice Mill. Despite the subdued performance in the fourth quarter, we foresee an improvement in the margin and growth in the upcoming quarters. In order to enhance profitability, the company is likely to focus on higher margin businesses in India such as the premium segment of branded Basmati like Daawat. It will also shift its focus to geographies that yield greater profits. LTFL’s European business has scaled up in line with expectations and is expected to deliver a positive performance in FY20.

The risk factors that investors need to watch out for include the volatility in the prices of raw materials. Basmati paddy’s availability and prices are impacted by climatic conditions, monsoon, irrigation facilities and changing crop patterns. These factors could impact volumes as well as realisations. However, owing to a normal monsoon forecast this year, the production of Basmati is unlikely to suffer.

The growing share of premium branded business, emphasis on segments with better margins, ramp-up in European subsidiary and bounce-back in the organic foods segment is expected to drive growth and profitability moving forward. Strong industry tailwinds, particularly in the global organic F&B market, combined with the company’s attractive positioning in the global organic business, bode well for the growth prospects of LTFL. The company has planned capex of Rs.40 crore in FY20, which includes setting up of soya mill for NBFL, silos for storage of paddy and maintenance capex. Once the company operates on full capacity utilisation, the margins of its European business will improve. By virtue of these factors, we urge our reader-investors to BUY this stock.

 

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