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Our Take:

LT Foods is one of the leading branded Basmati rice company. It has been one of the most successful Basmati rice player in the US & EU markets. The company is amongst very few players in this space to invest behind setting-up a rice processing facility in Europe (Rotterdam) and a packaging unit with Ready to Heat facility in US. It has dominant market share of 50%+ in US while in the Indian market it holds 27% share.

It mainly operates in 4 business segments – (1) Consumer- B2C Branded Basmati business under company’s two flagship brands – a) “Daawat” Basmati and its sub-brands in India and Overseas markets b) Its brand “Royal” is No. 1 selling basmati brand in US and commands a 37% market share. (2) Institutional- B2B is company’s oldest business wherein the company caters to the HORECA (Hotel/Restaurant/Catering) segment and has strong private label partnerships with large global retailers. (3) Organic portfolio in which the company manufactures and exports organic Agri ingredients like rice, pulses, oil seeds, cereal grains, spices and nuts to Europe and US under the brand “Ecolife” and has also launched these products in Indian market. (4) Value added products which includes the company’s health and convenient foods business under which it sells products like Ready to Heat “Daawat Cuppa Rice”, Brown rice and “Daawat” saute sauces.

Going forward, the company aims to further enhance its product mix with higher focus on margin accretive premium basmati export business and plans constant scale-up of new launches in value-add segment.

Valuations & Recommendation:

LT Foods earnings grew at a CAGR 18.7% over FY13-20. Going forward, we are positive on the future growth prospects of LT Foods which is mainly on the back of its robust distribution network, strong brand equity and constant endeavor to enrich their product portfolio by expanding into newer categories. In our view, LT Foods revenue and PAT is likely to record a growth of 8.8% and 21.5% CAGR over FY20- 23E

The stock is currently trading at valuation of 6.3x FY23E earnings. We feel the base case fair value of the stock is Rs. 78 (7.5x FY23E) and bull case fair value is Rs. 88 (8.5x FY23E). Investors willing to take risk can buy the stock at current levels of Rs. 68 and add on dips in the price range of Rs 58.

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