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Published on 3/04/2020 1:09:29 PM | Source: SPA Securities Ltd

Update On ADF Foods Ltd by SPA Securities

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We recently met with the CFO of ADF Foods - Mr Anish Jhaveri and following are Key Takeaways from our meeting: ADF Foods Ltd. is a niche Indian player in prepared ethnic food with product offerings across ready-to-eat food, frozen snacks, frozen vegetables and meal accomplishments like pickles, sauces and pastes. Export contributes more than 95%of revenues, across the US, Canada, Europe, Australia, Middle East andAsia.

 

Investment Positives:

A niche player in global RTE market is estimated to grow at 7%+ providing substantial growth potential

Global RTE market is estimated to reach USD 172 bn in 2023 compounding annually at 7%. UK & USA - 2 of the largest markets for ADF contributing 2/3rd of overseas revenue - have an addressable ethnic food market of GBP 650 mn& USD 350mn growing at 6-8% annually.

 

Capacity expansion undertaken with 12 crs CAPEX in FY20

ADF has 2 manufacturing units in India at Nadiad & Nashik with total installed capacity of 26,000 MTPA. It has under taken further expansion at existing locations at a CAPEX of INR 12 crs. Estimated revenue from this expansion is estimated to be ~ INR 40 crs at peak capacityutilisation.

 

Inorganic growth potential

The company's debt free balance sheet & Free Cash Flow (FCF) generating nature of operations has enabled it to distribute dividends as well as buy back of equity shares consistently over the last couple of years. Consistent FCF generation should enable ADF to acquire companies engaged into processed foods business in domestic as well as overseas markets leveraging its existing distribution network. As & when inorganic growth opportunity is available to the company at right valuation, ADF is well placed to grab the same.

 

Recent Addition of lucrative agency business from HUL

It has recently added lucrative agency business of beverages of HUL in UK & USA enjoying segmental profitability of 18% in FY20. It has recently added lucrative agency business of beverages of HUL in UK & USA enjoying segmental profitability of 18% in FY20.

 

Outlook & Valuation

ADF is a niche company engaged into processed foods business & has added agency business from HUL in USA from FY20 beginning. FCF generating nature of business & debt free BS will enable the company to grab inorganic growth opportunities in addition to organic growth. Enriched product mix should lead to higher profitability going forward & based on TTM earnings (Dec'19), ADF is quoting at 10.4x earnings at INR 170.

 

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