Multi bagger - Agro Tech Foods Limited
UAE Exchange Etrade
Company Bankground
Incorporated in 1986, Agro Tech Foods Ltd is engaged in the business of marketing food and food ingredients to consumers and institutional customers. The company has a dominant market share and value leadership in the premium refined oil segment.
The company operates under two segments namely Branded Foods & Sourcing and Institutional business. The Company's product categories include edible oils, snacks, spreads, puddings & desserts and hydrogenated vegetable oils. Branded food segment includes products sold under the brands of Sundrop (oil, peanut butter and snack break), Act II (popcorn), Crystal (oil) and Healthy World (dried green peas). The company's edible oil business constitutes major portion (~85%) of this segment. ConAgra Foods holds a majority stake of 52% in the company through CAG Tech Holdings, Mauritius.
During FY11, the Company sold its Vanaspati brand Rath to Cargill India Private Limited. Sundrop Foods India Limited is its wholly owned subsidiary.
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Key Financials |
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Y/E March |
FY10 |
FY11 |
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Net Sales (Rs. Cr) |
650 |
719 |
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% chg |
-16 |
10.6 |
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EBITDA |
25 |
27 |
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Margin (%) |
4 |
3.8 |
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Net Profit (Rs. Cr) |
25 |
19 |
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Margin (%) |
3.9 |
2.7 |
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EPS (Rs) |
10.3 |
9 |
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P/E (x) |
33.6 |
38.9 |
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P/BV (x) |
6.9 |
5.9 |
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ROE (%) |
18 |
12 |
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Trading Data |
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CMP |
434.85 |
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Price Objective |
550 |
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Upside Potential |
22% |
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Face Value |
Rs 10 |
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Market Cap (Cr) |
1043 |
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Free Float (Cr) |
469 |
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52 Week High/Date |
483.6/25 Jul 11 |
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52 Week Low/Date |
291.05/9 Feb 11 |
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Shareholding Pattern |
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Promoter |
51.77 |
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FII |
2.47 |
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DII |
8.51 |
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Others |
37.25 |
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Key Q3FY12 highlights
The company reported 7.2% YoY decline in revenues in Q3FY12. However as the company sold its Rath brand in FY11, adjusting for this divesture, revenues grew by strong 13% yoy. With the recent increase in raw material prices especially edible oil in the past three quarters, the company hiked its prices aggressively by approx 15-20% which in turn led to flat volume growth during the quarter.
The company posted significant performance at operating level as its EBITDA for the quarter stood at Rs 14.7 Cr as against loss of 3Cr same quarter last year. EBITDA margin improved drastically from -1.5% in Q3FY11 to 8.1% in Q3FY12. The company expanded its margin on back of price hikes, better revenue mix and cost management. With no new launches and re-launches, ad-expenses reduced sharply. Ad-spend as percent of net sales reduced from 9.4% to 5.3% yoy.
Net profits improved from loss of ~Rs 1.8Cr in Q3FY11 to an Rs11.2 Cr profit in Q3FY12. This improvement was primarily on account of robust operating performance and decline in effective tax rate from 29% to 22% YoY.EPS for 9MFY12 stood at Rs 9.81 a growth of 15% on a YoY basis.
Strengths
Robust improvement at operating level
After adjusting for Rath brand sale, the company reported 13% revenue growth. EBITDA also improved substantially. EBITDA margin improved sequentially from 4.5% in Q1FY12 to 6.6% in Q2FY11 and 8.1% in Q3FY12 posting strong operating performance. Moreover the company�s parent company ConAgra acquired additional 3.7% stake in Agro Tech Foods, raising its holdings from 48% to 52%. With being a majority holder, Agro Tech will benefit from better sharing of brands, technology and manufacturing process know-how going forward.
Commencement of peanut butter factory next big trigger
The company's new plant to manufacture peanut butter is on track and is expected to commence production from Q1FY13. Considering the success of Sundrop peanut butter, launched in 500gms pack, launch of the product on a large scale with various added nutrients shall further boost revenue to a great extent in 2HFY13.
Key Concerns
Delay in commencement of peanut butter plant
to affect its revenue visibility for the coming fiscal.
Operating margins to be under pressure in medium term on back of increase in
raw material prices especially edible oil.
Outlook & Valuation
At the CMP of Rs 430, the stock is trading at 29x its FY12 EPS of 14, which is at a premium to its peer Ruchi Soya (engaged in edible oil) but at a discount to Nestle (engaged in packaged food business). The company is gradually transforming itself as a branded packaged food player. The company plans to increase its share of non-oil foods business to 50% going forward from its current 22% as it has relatively higher margins as compared to edible oil segment. Thus owing to strong parental support, dominant position in premium sunflower oil market, cash rich and debt free balance sheet, a Buy rating is recommended with a price target of Rs 550 over the next 12-15 months.