LT Foods Q1 FY27 strength reinforces growth and margin recovery outlook

Investment View and Valuation

Motilal Oswal Financial Services reiterates its Buy rating on LT Foods after strong Q1 FY27 execution reinforced its growth visibility. The broker has raised its FY27E and FY28E earnings estimates by 9 per cent each, supported by better-than-expected operating performance, continued market-share gains and an expected gradual recovery in margins.

The target price is Rs 520, based on 17x FY28E EPS, compared with the current market price of Rs 410.

Q1 FY27 Financial Performance

LT Foods reported Q1 FY27 revenue of Rs 31,518 million, up 28 per cent year on year and 8 per cent quarter on quarter, ahead of Motilal Oswal's estimate of Rs 29,458 million. EBITDA grew 33 per cent year on year and 31 per cent quarter on quarter to Rs 3,539 million, versus the broker estimate of Rs 3,146 million. EBITDA margin normalised to 11.2 per cent from 10.8 per cent in Q1 FY26 and 9.3 per cent in Q4 FY26, above the 10.7 per cent estimate. Adjusted PAT was Rs 1,825 million, up 9 per cent year on year and 35 per cent quarter on quarter.

Segment Performance and Market-Share Gains

Basmati and Other Specialty Rice, which contributes 90 per cent of revenue, grew 34 per cent year on year to Rs 28,400 million, including Golden Star. Normalised growth was 24 per cent, while total volumes and branded-business volumes rose 11 per cent and 10 per cent, respectively. Segment gross margin was 33 per cent against 34 per cent a year earlier, while EBITDA margin remained at 13 per cent.

Organic Foods and Ingredients, which accounts for 8 per cent of revenue, declined 13 per cent to Rs 2,500 million because of the ongoing business remodelling. Its EBITDA margin fell to 4 per cent from 10 per cent. Ready-to-Heat and Ready-to-Cook revenue grew 13 per cent to Rs 530 million, although the segment recorded an operating loss of about Rs 48 million.

Geographic Performance

North America, which contributes 50 per cent of revenue, delivered 49 per cent growth, or 27 per cent normalised growth. Royal retained around 60 per cent US market share, while Golden Star remained the number-one Jasmine rice brand in the US.

India, which contributes 29 per cent of revenue, grew 19 per cent in the reported segment analysis. Daawat's market share increased to 23.1 per cent from 22.4 per cent a year earlier. Management said household penetration reached 6.4 million and e-commerce market share exceeded 40 per cent.

Europe and the UK revenue fell 12 per cent due to a reduction in non-strategic B2B business. Elevated freight costs and geopolitical disruptions hurt profitability. Middle East and Rest of World revenue grew 44 per cent, but higher shipping costs could not be fully passed on because of competition.

Management Outlook and Growth Initiatives

Management reiterated FY27 revenue-growth guidance of more than 12 per cent. It expects the Basmati and Organic businesses to grow 10-12 per cent, while Ready-to-Heat and Ready-to-Cook could grow at a 15-20 per cent CAGR.

• Organic Foods margins are expected to improve to 7-8 per cent by the end of FY27 and return to double-digit levels over the next 18 months.
• The new US Ready-to-Heat facility is expected to commence operations during the current quarter.
• Biryani Kits grew 42 per cent year on year.
• Core Basmati EBITDA margin is expected to remain broadly in the 13-14 per cent range.
• Management expects to pass raw-material inflation on to consumers.

Earnings Drivers and Balance Sheet

Motilal Oswal expects profitability to improve through operating leverage from higher volumes, the US Ready-to-Heat ramp-up, recovery in Organic Foods margins and premiumisation. It forecasts FY26-FY28 revenue, EBITDA and adjusted PAT CAGRs of 14 per cent, 22 per cent and 31 per cent, respectively.

Balance-sheet indicators improved, with inventory days declining to 187 from 221 and the working-capital cycle improving to 170 from 195 days. ROCE was 21.1 per cent, net debt to EBITDA was 0.48x and net debt to equity was 0.15x.

Key Execution Concerns

• Elevated freight costs in Europe and the Middle East.
• Intense competition in the Middle East, limiting the ability to pass on higher shipping costs.
• The transition of Organic Foods to a direct consumer packaged goods model.
• Fluctuations in commodity prices.