Recommendation From Food Processing Sector

This section gives a recommendation of a stock having stock price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon.
LT FOODS : AN APPETISING PICK 

HERE IS WHY
☛Dominant market position
☛Encouraging financial performance
☛Good growth prospects

LT Foods is one of the leading consumer food companies in India. Its specialty rice offering branded ‘Daawat’ is one of the renowned products in the market. The company offers premium quality Basmati rice, regional rice, rice-based snacks and other products. The company’s international business comprises various leading brands like Daawat, Royal and 817 Elephant across key international markets. The company reaches out to consumers in more than 60 countries including North America, Middle East, Europe, Far East and Rest of the World. The flagship brand, Royal, is the No. 1 selling Basmati brand in the United States. In addition, the company also offers Daawat in the US and Canada, targeted towards the South Asian diaspora as well as 817 Elephant in Canada.

All the three brands assist LT Foods in achieving more than 50 per cent market share of all Basmati imports into the United States. Royal has roughly 37 per cent market share of the US Basmati segment. It has well-diversified revenue from various geographies with India contributing 35 per cent, USA 37 per cent, Europe around 14 per cent and the Middle East roughly 9 per cent.

Its flagship brands Daawat and Royal enjoy leading positions in India and the US respectively with a market share of 29 per cent and 45 per cent, respectively, and have strong market share in other countries as well. Having a dominant market share in its biggest markets (India and the USA) is noteworthy as it helps in steadier revenue.

Of the total global rice industry, Basmati accounts for around 2.1 per cent, valued at USD 9 billion and is projected to grow at a CAGR of 7 per cent in the next four years and is estimated to reach USD 11 billion. Being a well-recognised company in Basmati rice will help the company share in this growth. In India only 40 per cent of the Basmati market is branded and thus the remaining portion also opens up huge opportunities for organised players like LT Foods to gain market share.

The company has shown growth in sales over the last three years. The net sales stood at Rs4,146 crore in FY20 as against Rs3,613 crore in FY18. The debt-to-equity ratio has seen improvement with better interest coverage ratio over the past three years. Debt-to-equity for FY20 stood at 1.00x as against 1.31x in FY18. The interest coverage ratio for FY20 stood at 3.12x as against 2.48x in FY18. For Q2FY21, the gross sales stood at Rs1,208.67 crore as against Rs971.65 crore in Q2FY20, showing an increase of 24.39 per cent. Operating profit for Q2FY21 stood at Rs160 crore as against Rs115.52 crore in Q2FY20, showing an increase of 38.5 per cent.

The net profit for Q2FY21 was Rs78.09 crore as against Rs47.80 crore last year same quarter, showing a growth of 63.37 per cent. The margins also saw an improvement. The PBIDT margin for Q2FY21 stood at 13.24 per cent as against 11.89 per cent in Q2FY20. PAT margin for Q2FY21 stood at 6.46 per cent as against 4.92 per cent last year same quarter. The company is trading at PE ratio of 6.49x, which is less than its 10 year median of 8.39x . The current PB is 0.99x which is a bit higher than the 10-year median of 0.93x. By virtue of these factors, our recommendation to reader-investors is to BUY this stock.