Recommendation Review: LT Foods

LT Foods, the company popularly known for its branded basmati rice ‘Daawat’, aimed for 25 per cent growth in FY13 and went on to achieve as much as 55 per cent growth. Our recommendation of this stock was based on our expectation of a robust outperformance from the company.

This company has been a strong player in the food industry because of its dominance in the domestic rice market, its robust performance in the international markets, popular brands and wide range of products. LT Foods is making the most of its present strengths to further expand its rice business in terms of brands, products and geographies. It was also taking steps to expand its international trading business, organic foods segment and rice-based snacks business.

LT Foods posted a loss of Rs 2.02 crore in FY12 on account of high interest costs (65 per cent of EBITDA) which resulted from this rapid expansion. We had estimated the interest component of LT Foods to come down considering the stage of expansion and future prospects. In line with this, it saw its interest cost come down to 50 per cent of the EBITDA and its net profit shoot up to Rs 60.07 crore in FY13.

We had recommended LT Foods in Dalal Street Investment Journal, Vol 28, Issue # 7 (dated March 24, 2013), when it was trading at a price of Rs 52 per share. Since our recommendation, the stock has moved up by 16.64 per cent to Rs 60.65 per share. This takes the annualised returns on the stock to 55.44 per cent, which should be enough for investors to book profits at.