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Strong performance continues… LT Foods Ltd. (LTF) is a global consumer specialty company with an explicit focus on basmati rice, organic foods and rice-based convenience products. LTF is having a presence in more than 80 countries with significant regional exposure in the US, Europe, and the Middle East.

• We upgrade our rating to Accumulate with a revised target price of Rs.226 considering strong earnings growth and recent correction in valuation.

• Revenue grew by 9%YoY in Q3FY24. Basmati rice segment (83% mix) grew by 11%YoY, organic segment (10% mix) declined by 6%YoY due to anti-dumping duty in the US, but the value-added segment grew by 28%YoY (2.6% mix).

• EBITDA margin improved by 300bps YoY to 12.3%, mainly aided by lower input costs, higher realisation, normalization of freight costs. The current disruption in the Red Sea is impacting cost of transport. However, the company expects the actual impact to be in Q1FY25.

• LTF is actively expanding its distribution to 1.4 lakhs outlets (86.9k in FY23) and market share in India has risen to 30% vs. 29.8% in Q1FY24).

• Expect earnings to grow at a 12% CAGR over FY24E-26E. LTF currently trades at 1Yr Fwd P/E of 11x, we value at 11x FY26E EPS.

Healthy topline growth aided by export volumes. Q3FY24 consolidated revenue grew by 9%YoY, basmati rice segment (contributes ~83% of total revenue) grew by 11%YoY while, organic foods segment (~10% of total revenue) declined by 6%YoY on account of anti-dumping duty on organic Soya imports in the US. However, convenience & health segment (~2.6% of total revenue) rose by ~28% YoY. Last year, LTF acquired 51% stake in Golden Star Trading Inc. to strengthen market share in US (Jasmine rice segment, the brand has ~10% share in US market) and plans to acquire the remaining shares in June 2025. The 9MFY24 revenue and operating profit for Golden Star were ~Rs. 480cr and ~Rs. 75cr, respectively. LTF’s India market share has improved to 30% vs. 29.8% in Q1FY24. and outlets is expected to increase to 1.4 lakhs (86.9k in FY23). The ban on export of non-basmati white rice aided export demand for basmati rice from India. India basmati rice export volume grew by 16%YoY in FY23 vs de-growth of 15% in FY22. However, the growth has moderated to 10% YoY in 8MFY24 vs. 14% in 8MFY23, while the price growth has moderated to 8% vs 22% YoY. We expect a revenue CAGR of ~8% over FY24E-FY26E.

Normalisation of freight cost aids margin improvement. EBITDA margin improved by 300bps YoY to 12.3%, mainly aided by normalization of freight costs and scale. The current disruption in the Red Sea is impacting cost of transport. However, the company expects the actual impact to be in Q1FY25 to the tune of ~Rs.4cr/month. The basmati rice production in India rose by 9% YoY in 8MFY24 (8% de-growth in 8MFY23). However, paddy prices increased by ~14%YoY in Q3FY24. LTF has strong focus on value added portfolio and cost efficiency measures to improve margin in the long-term, doing a capex in power generation, warehouse, and capacity expansion (~1 lakh tons) and targets 5Yr EBITDA margin expansion of 150bps. Recently, the company has got a favorable court order for Rs.161.2cr related to insurance claim, along with interest @ 6% p.a for which the LTF has already provided for Rs. 134.1cr.

Valuation & Outlook: LTF has a strong focus on strengthening brands, distribution, and region & product diversification for growth. We expect earnings to grow at a CAGR of 12% over FY24E26E. LTF currently trades at 11x 1Yr Fwd P/E. We value LTF at 11x FY26E EPS considering improving RoE and reducing debt going forward. We arrive at a target of Rs. 226, and recommend Accumulate rating.

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