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Expansion and diversification strategy supports re-rating.

LT Foods Ltd. (LTF) is a global consumer specialty company with an explicit focus on basmati rice, organic foods and ready to eat/ready to cook (RTE/RTC) products. LTF is having a presence in more than 80 countries with significant regional exposure in the US, Europe, Middle East etc.

* We upgrade to BUY rating with a revised target price of Rs.378 ( Rs. 230) considering the continued performance and recent expansion and regional diversification initiatives.

* Revenue grew by 17%YoY in Q1FY25, aided by 14%/34%/37% YoY, respectively, for Basmati rice segment (87% mix)/organic segment (10% mix)/ RTE/RTC segment (3% mix).

* Gross and EBITDA margins declined by 40bps YoY respectively due to higher input costs and freight charges. LTF expects higher freight costs due to disruption in the red sea to be limited to the next two quarters, and the expected decline in input costs with healthy growth in new crops will support margins.

* As part of regional diversification strategy, LTF has set up a new manufacturing facility in the UK (USD1bn market) and has appointed a distributer for Saudi Arabia market (largest basmati rice market in the world) which is long-term positive for the company.

* Expect earnings to grow at a 13% CAGR over FY24E-26E. LTF currently trades at 1Yr Fwd P/E of 17x, we value at 16x Sept 2026 EPS.

Healthy topline growth continues

Q1FY25 consolidated revenue grew by 17%YoY, basmati rice segment (contributes ~87% of total revenue) grew by 14%YoY while, organic foods segment (~10% of total revenue) grew by 34%YoY. RTE/RTC segment (3% of total revenue) rose by 37% YoY. The company is optimistic about maintaining double digit volume growth for Basmati international market. LTF has 1.4 lakh outlets (86.9k in FY23). Market share in India has risen to 30% vs. 29.8% in Q1FY24 while maintaining ~50%+ market share in the US. RTE/RTC business has grown 6x since FY20 and is expected to grow at a CAGR of 33-35% while the organic segment growth is recovering which was lost due to antidumping duties on soya. As part of regional diversification strategy, LTF has set up a new manufacturing facility in the UK (USD1bn market) and has appointed a distributor for Saudi Arabia market (largest basmati rice market in the world) which is long-term positive for the company. The company is also doubling the capacity of RTE/RTC in America. We expect a consolidated revenue CAGR of ~11% over FY24E-FY26E.

Expect higher freight cost due to red sea disruption temporary.

Gross and EBITDA margins declined by 40bps YoY respectively, due to higher input costs and freight charges. LTF expects higher freight costs due to disruption in the Red Sea to be limited to the next two quarters, but the expected decline in input costs with healthy growth in new crops will support margins. LTF is investing significantly in digital capabilities (45-50cr in FY25). LTF has a strong focus on value added portfolios and cost efficiency measures which will improve margins in the long term. The RTE/RTC business which is currently contributing ~3% of revenue (Rs. 200 cr) is expected to break even at a revenue of Rs. 400cr by FY26-27E considering current growth rate of more than 30%. LTF expects consolidated EBITDA margin of ~14%- 14.5% in the next 5 years. LTF 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 and the differential excess amount comes ~ Rs.150cr.

Valuation & Outlook:

LTF’s recent initiatives towards expansion & diversification strategy support a strong positive outlook and re-rating. LTF currently trades at 17x 1Yr Fwd P/E. We value LTF at 16x FY25E EPS and arrive at a target price of Rs. 378, and upgrade to BUY. 

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