Recommendation from Consumer Food company

This section gives a recommendation of a stock having a stock price below Rs 150 with sound fundamentals and expected to give handsome returns over a one-year time horizon.

L T FOODS: MAINTAINING LEADERSHIP POSITION

HERE IS WHY
✓Impressive market share
✓Diversification into health-related rice products
✓Profiting from acquisition

I ndia is one of the world’s top exporters of agricultural goods. The Indian agricultural sector is expected to grow to a value of USD 24 billion by 2025, according to Inc 42. With 70 per cent of sales coming from retail, India has the world’s sixth-largest food and grocery market. The nation’s overall production of food grains is predicted to be 149.92 million tonnes, according to First Advance Estimates for FY23, kharif alone. The sector is primarily driven by India’ rapid population growth. The rising income levels in rural and urban areas, which have contributed to an increase in the demand for agricultural products across the nation, provide additional support for this growth.

Given this scenario, our low price scrip for this issue is L T Foods Ltd. The company is primarily engaged in milling, processing and marketing branded and non-branded Basmati rice and manufacturing of rice food products in the domestic and overseas markets. It is also engaged in research and development to add value to rice and rice food products. The company’s rice product portfolio comprises brown rice, white rice, steamed rice, parboiled rice, organic rice, quick-cooking rice,value-added rice and flavoured rice in the ready-to-cook segment.

The company’s subsidiary, Nature Bio Foods Limited (NBFL), has emerged as a trusted brand, offering authentic organic ingredients to consumers across the markets of the US and Europe. The company owns several rice brands such as Daawat, Royal, Heritage, Devaaya, Gold Seal Indus Valley, among others. Its flagship brands such as Daawat and Royal Heritage enjoy leadership positions in the market of Basmati rice in India and North America with a market share of 25 per cent and 50 per cent, respectively. 

In FY22, USA constituted 36 per cent of the company’s revenue while India contributed 32 per cent and Europe 18 per cent with the balance from the rest of the world. In March 2022, LT Foods acquired a 51 per cent stake in Golden Star Trading through its subsidiary LT Foods Americas Inc. The acquisition entails strengthening the share of company in the branded Jasmine rice segment. Jasmine rice is approximately three times bigger than Basmati. Golden Star is one of the strongest brands in the Jasmine rice market.

In Q3FY23, L T Foods’ consolidated revenue rose by 29.98 per cent YoY to ₹1,778.48 crore compared to ₹1,368.22 crore from the previous year’s same quarter. On a sequential basis, revenue grew by 3.11 per cent. PBIDT, excluding other income, increased by 10.11 per cent YoY to ₹165.77 crore compared to ₹150.55 crore from the previous year’s same quarter, while sequentially dropping by 3.42 per cent. The PBIDT margin decreased by 168 bps YoY and 63 bps QoQ and stood at 9.32 per cent.

Net profit stood at ₹92.23 crore compared to ₹78.19 crore, a YoY growth of 17.95 per cent, while sequentially it decreased by 2.65 per cent. At TTM, L T Foods is trading at a PE of 11.1 times, which is slightly higher than its threeyear median PE. The company has maintained a healthy three-year average ROE and ROCE of 15 per cent and 14.28 per cent, respectively. LT Group is a globally renowned rice player with a strong brand portfolio. It has diversified into organic and rice-based health and convenience foods, which have growth potential. Considering all these factors, we recommend BUY.