Agro Tech Foods can move to Rs 550: PN Vijay

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Agro Tech Foods can move to Rs 550: PN Vijay

Agro Tech Foods can move to Rs 550 in the next 15 months, says PN Vijay, Portfolio Manager.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See previous views by PN Vijay See what other Experts & Brokerages are saying about Agro Tech Foods See messages about Agro Tech Foods

Agro Tech Foods can move to Rs 550 in the next 15 months, says PN Vijay, Portfolio Manager.

Vijay told CNBC-TV18, "Agro Tech Foods is a multinational company which is in the area of production and sale of branded and packaged foods. Its main product is Sundrop Oil and it also has Crystal and it has recently gone into the line of peanut butter. Till recently, Agro Tech Foods was a 48% associate company of ConAgra, the multi national food major, but recently ConAgra has taken over majority stake which is a huge positive for Agro Tech Food. Last year, it divested off its Vanaspati business and so its profitability has improved."

He further added, "In the last quarter, the sales went up by about 14% and EBITDA margins also improved. The company had been incurring a loss in the third quarter of 2011 which has now turned positive. The ad spend has also gone down dramatically from 9.4% to 5.2% and the company has turned into net profit after a long time. This has been achieved by a strong price increase they have taken about four months back to offset the price of raw materials."

"Going forward, I feel that the triggers for this stock are opening of the peanut butter manufacturing line where it's a world leader. Its plant is expected to get commissioned in the next three months and that's a high margin business for the company. Also most importantly with the reduction in food inflation the raw material prices of grain and raw edible oils will come down substantially for the company, while it will be able to reduce the price reductions or probably not go for price reductions. So the EBITDA margins, which are already turned from negative to positive, are expected to go up pretty dramatically."

"In the case of Agro Tech Foods, it is now quoting around Rs 415 or Rs 420 and it is not cheap. It is trading at about 28 times its 2012 expected earnings per share, but it is still at a discount to Nestle which is the closest competitor to Agro Tech Foods. Since the market perception of it is not yet a multinational company, it's not getting the type of valuation that Nestle gets."

"The big triggers, namely the opening of peanut butter and the fact that food inflation has really come off to negative should improve the profitability of Agro Tech Foods dramatically. One is expecting an EPS growth of about 35-40% in the coming year. So from the current price of about Rs 415-420, I am anticipating a price of about Rs 550 for the share in the next 15 months."