Stock Pick From The Trading Sector
3/7/2013 9:00 PM Thursday
Low Priced Scrip is a hidden gem, today's underdog, a stock with future potential that is expected to fetch returns within 1 year. This is a stock picked carefully based on a fundamental analysis of the company.
The company recommended as the Low Priced Scrip for this issue is a leading company in the Trading sector.
HERE IS WHY:
- An expansion strategy that focusses on growth from new products and new geographies
- Entry into fast growing segments like organic foods and packaged snacks
- Robust revenue growth and good prospects of profitability
There was a time when foodgrains were just plain commodities. The local kirana store was your one-stop shop and the price points defined what you bought. But the ever changing nature of the markets brings about a change in the way certain goods and services are sold. We are recommending the stock of a company which has gone through this and evolved as a prominent player in a rather unorganised market.
Established in 1965, LT Foods has come a long way. Started as a small trading company, it moved on to becoming a partnership as Lalchand Tirathram Rice Mills, and further to milling, processing and marketing branded basmati rice in the domestic and international markets. Now that it has made a strong presence in the market with brands like Daawat, it is now looking at its next phase of growth by entering new segments.
LT Foods’ traditional business of basmati rice has been successful for years. It has grabbed the second position in domestic markets and more than a 40 per cent market share in US, Australia and Mauritius. Through various additions in brands (Chef’s Secretz, Devaaya, etc.), products (fast cook brown rice, pulav rice, etc.) and geographies (exports to over 50 countries), this division continues to expand its horizons. To fuel growth further, the company plans to add new blends of rice under its Royal brand to augment its core business in the US. In addition to this, it plans to add about a dozen countries to cater to in its geographical spread in FY13. Furthermore, its international trading business is set for expansion into procurement and supply of non-basmati rice and other staples.
|SHAREHOLDING PATTERN AS ON 31/12/2012|
|Promoters ||61.84 |
|FII ||14.7 |
|DII ||0.02 |
|Others ||23.44 |
|GRAND TOTAL ||100 |
Apart from this, it has also forayed into the organic foods segment, wherein it manufactures and sells products like rice, pulses, soya bean, cashew nuts and flaxseeds, among others, under the brand name Ecolife. In this segment too, LT Foods has expanded by entering geographies like Italy and France and launching niche products like millets, spices and baby foods. In FY12, its organic food exports saw a growth of 98 per cent. This is expected to grow further as the company expands into newer geographies and augments its product portfolio.
In 2011, the company soft launched a wide range of rice-based products under the brand name ‘My My’, offering low-fat baked rice cakes and rice chips. The pan-India launch of this brand is expected to take place any time soon. Considering the growth of this segment and the fact that LT Foods has an established network of over 400 distributors and over 80000 retailers, it would not be a difficult job for this brand to make it big.
|LAST FIVE QUARTERS (Rs/CR)|
|Dec '12||Sep '12||Jun '12||Mar '12||Dec '11|
|Sales ||583.87 ||434.48 ||585.39 ||507.73 ||440.87 |
|Operating Profit ||59.36 ||47.34 ||68.93 ||71.68 ||51.18 |
|Interest ||30.29 ||25.57 ||28.65 ||35.72 ||38.22 |
|Depreciation ||9.75 ||9.23 ||8.38 ||9.54 ||9.3 |
|Net Profit ||14.91 ||15.21 ||8.23 ||28.37 ||-8.24 |
|Equity Capital ||26.12 ||26.12 ||26.12 ||26.12 ||26.12 |
However, the rapid expansion that LT Foods has seen over the years has come at a cost. The company is operating at a debt-to-equity ratio of 4.54x. On a consolidated basis, although CAGR of revenues for the last five years has been 15.52 per cent, FY12 was a year where LT Foods posted a loss of Rs 2.02 crore (revenues of Rs 1421.76 crore). This loss was mainly due to the interest costs, which amounted to as much as 65 per cent of the EBITDA during the year. But with the kind of revenue growth the company has seen so far and the potential its two-fold expansion process offers, the debt level doesn't seem to be a big reason to worry.
With all the expansion plans in place, LT Foods expects to see a growth of 25 per cent in FY13. It has already achieved 90 per cent of this target, with one quarter of the financial year still to go. So far, it has also achieved profits of Rs 38.35 crore, thus ensuring a profitable FY13. Available with high growth momentum and at a TTM PE of 2.09x, the stock is a good buy with favourable prospects. Buy into it for at least 25 per cent returns over the next one year.
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