L T Foods Ltd Stock Analysis June

L T Foods Ltd. – Farm to Fork

Incorporated in 1990, LT Foods Ltd. is a global consumer food company specializing in basmati and other specialty rice, organic foods, ingredients, and ready-to-eat/ready-to-cook segments. It is the leading rice brand in India and the No. 1 specialty food brand in the US, with flagship brands like ‘Daawat’ and ‘Royal’. The company holds a market share of over 29% in India and nearly 50% in the US basmati market, distributing its products across 80+ countries.

Products and Services

• Rice Portfolio: Includes brown, white, steamed, parboiled, organic, and quick cooking brown flavored rice under brands like Daawat, Royal, Heritage, Gold Seal Indus Valley, 817 Elephant, Devaaya, and Rozana.
• Organic Foods: Comprises rice, soya, pulses, oil seeds, cereal grains, spices, and nuts.
• Rice-Based Convenience Products: Sauté sauces, cuppa rice, ready-to-heat products, fortified rice, and rice-based premium snacks.

Subsidiaries: As of FY23, LT Foods has:

• 15 subsidiaries
• 3 associate companies
• 3 joint ventures

Growth Strategies

• Established Brand: Strong portfolio with brands like Daawat and Royal; domestic market share at 30.1% with a volume growth of 11% in FY24.
• Global Market Dominance: Expanding product portfolio and efficiency; significant growth in the US and Middle East markets.
• Strategic Deals and Expansion: Entered new markets and strategic deals, including with SALIC and in countries like Tanzania and Zambia.
• New Facility: Upcoming facility in the UK to enhance production capabilities.

Financial Highlights

Q4FY24

• Revenue Growth: 14% YoY increase to Rs. 2,092 crore in Q4FY24 from Rs. 1,835 crore in Q4FY23.
• EBITDA Improvement: Grew by 25% to Rs. 262 crore in Q4FY24 from Rs. 210 crore in Q4FY23.
• EBITDA Margin Expansion: Increased by 110 bps to 12.5% due to lower input costs, higher realisation, and normalised freight costs.
• Net Profit Increase: 14% rise to Rs. 150 crore in Q4FY24 from Rs. 132 crore in Q4FY23.

FY24

• Revenue Growth: ₹7,822 crore, an increase of 12% YoY
• Basmati and Specialty Rice Segment: Grew by 17%
• Ready-to-Eat and Ready-to-Cook Segment: Grew by 23%
• Operating Profit: ₹988 crore, up 33% YoY
• Net Profit: ₹598 crore, an increase of 41% YoY

Financial Performance (FY21-24)

• Revenue and PAT CAGR: 18% and 29% respectively, over three years.
• Average ROE and  ROCE: Approximately 18% for FY 21-24 period.
• Capital Structure: The company maintains a robust capital structure with a debt-to-equity ratio of 0.27.

Industry outlook 

• The Indian food processing sector is a priority under the “Make in India” initiative.
• Accounts for 32% of the country’s total food market, ranked fifth globally.
• Significant potential for value addition, with exports of 11.1 Mn Tonnes of non-basmati rice and 5.2 Mn Tonnes of basmati rice in FY 23-24.
• Growing demand for organic products, expected to rise with a CAGR of 25.25% from 2022-27.

Growth Drivers

• FDI: 100% FDI permitted under the automatic route in food processing industries.
• Budget Allocation: ₹3,290 crore allocated for the Ministry of Food Processing Industries in the Interim Budget 2024-25, a 13% increase.
• Market Size: Projected to reach US$ 1,274 billion by 2027 from US$ 866 billion in 2022.

Competitive Advantage

KRBL is the only listed competitor of LT Foods at a comparable market cap and range of operations.  LT Foods shows higher return ratios and stable revenue growth, indicating better financial stability and efficiency.

Outlook

• Brand Presence: Focus on brand building, innovation, and international expansion.
• Growth Targets: Aiming for a 5-year revenue CAGR of 10-12%, with a plan to increase the 5-year EBITDA margin by 140-150 basis points.
• Return Ratios: Targeting ROCE of 23% and ROE of 20% by FY24-25.
• Challenges: Navigating issues like anti-dumping duty in the soya market and margin pressures from freight costs.

Valuation

LT Foods Ltd. has robust growth prospects given its strong focus on strengthening brands, distribution, and region & product diversification. We recommend a BUY rating in the stock with the target price (TP) of Rs. 315, 11x FY26E EPS.

Risks

• Forex Risk: Exposure due to significant operations in foreign markets.
• Socio-Economic Risk: Potential impact from socio-economic instability leading to increased input costs.

Note: Please note that this is not a recommendation and is intended only for educational purposes. So, kindly consult your financial advisor before investing.

Recap of our previous recommendations (As on 14 June 2024)

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