Recommendation From Food Processing Sector
Sanket Dewarkar / 28 Apr 2016
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.
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.
HERE IS WHY
Low Debt (Virtually Debt Free)
Hiked promoter stakes
Continued operating margin expansion driven by product mix
In today's world driven by hectic daily routine, tough working schedules and massive changes in dietary preferences, the need and demand for frozen food and processed food products has become inevitable and increasing. Boom of urban population and rise in number of working women has led to the demand of packaged food market to greater heights. As per the Ministry of Food Processing Industry data, total investment in the food industry is growing at CAGR of 20 per cent. Currently, it is 32 per cent of the country’s total food market, 14 per cent of Gross Domestic Product (GDP) and 13 per cent of India’s exports. Therefore we have picked a stock from this space.
ADF Foods is a manufacturer of processed food items like pickles, pastes, chutneys, ready-to-eat curries, frozen parathas, frozen snacks and frozen vegetables, etc. It generates around 90 per cent of revenue from exports. It has different brands for different geographies – Soul in india and the US, Camel in middle east, Nates and PJs in US.Company has historically acquired brands like Camel in Middle East and Elena in the US. We believe the company will continue to grow inorganically to expand its reach in geographies and diversify its product offerings. ADF expects to increase its revenue to the tune of Rs 500 crore from currently Rs 20 crore on TTM basis. We believe ADF will continue to grow inorganically to expand its reach in geographies and diversify its product offerings.
On the financial front, the company’s revenue grew by 13.78 at Rs 153 crore. Operating profit reported 13.78 per cent growth of 13.78 per cent at Rs 13.37 crore along with operating margin expanded by 81 bps at 8.74 per cent. Cost cutting, change in product mix and slight price pull up which helps to increasing operating margins. While net profit after minority interest de-grew by 41.7 per cent at Rs 4.81 due to lower other income, exception income in the previous year and higher tax payment. It a debt free company at net debt level and promoter holding increased by 262 bps to 52.35 per in last one year which giving us the trust of future growth and its endeavour to constantly innovate in food processing space.
On valuation front, it’s being traded at a price to book ratio of 1.2 times with BVPS of Rs 69 as on Dec 31, 2016 whereas other packaged foods companies traded above more than 2 multiple. We recommend BUY for the scrip with expectation of around 25-30 per cent from the current market price in the next one year.
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