Buy ADF Foods Ltd For Trarget Rs. 239 - Sushil Finance
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STRONG BRAND PRESENCE IN THE INTERNATIONAL MARKET COUPLED WITH CAPACITY EXPANSION TO PROPLE GROWTH
ADF Foods Limited (ADF) is one of the leaders in the manufacturing and distribution of food and has a strong brand presence spanning over nine decades. The company has an international presence with over 55+ countries, 180+ distributors, and over 400 SKUs. The company has 8 brands under its umbrella in the frozen foods, ready-toeat/ready-to-cook items, and meal accompaniments. Currently, the company has an installed capacity of 28,000 MT; however, the company is undergoing a capex for capacity expansion. The capex is divided into 2 parts: greenfield capex (Rs. 60 cr) and brownfield expansion (Rs. 15 cr) until FY26. The debottlenecking activity done by the company has unlocked a potential of ~Rs.100 cr additional revenues.
HEALTHY FINANCIAL
PROFILE ENABLES THE COMPANY TO STRONG ARM ANY ADVERSE MARKET TAILWINDS. The company’s revenues have grown at a CAGR of ~18.1% from FY19 to FY23 and were at Rs. 450.3 cr in FY23 from Rs. 231.4 cr in FY19. The EBITDA margins have significantly improved to 17.9% in FY23 as compared to 12.5% in FY19. Subsequently, the net profit margins have improved from 10.9% in FY19 to 12.4% in FY24. The company is a net-debt-free company with investments of Rs.104 cr as of March 31, 2023.
OUTLOOK & VALUATION
The company has launched a number of products in FY23 & FY24 and the same have gain traction during H1FY24. The company is expanding its installed capacity and debottlenecking its existing capacities can yield higher revenues in the near to medium term. Hence, we have forecasted annual sales growth of 17%, 18% and 20% in FY24E, FY25E and FY26E derived a revenue of Rs. 746 cr for FY26E. We expect the PAT margins to remain in the range of 13%-14% through FY24E to FY26E and EPS of Rs. 9.2 in FY26E. As we assign a P/E multiple of ~26X we arrive at a price target of Rs. 239 which gives us an upside of ~26% from CMP of Rs. 190. Hence, we initiate coverage on ADF Foods Ltd with a BUY rating over an investment horizon of 24-30 months.
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Member : BSE/ NSE/ MSEI. SEBI Registration No.-INZ000165135.
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