Geojit's research report on LT Foods
LT Foods (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 60 countries with significant regional exposure in the US, Europe, and the Middle East. We revise our target price to Rs.120 (from Rs.132), considering the current margin pressure, but upgrade to Buy rating due to strong revenue growth and the recent correction in stock price. LTF’s revenue growth was robust at 30%YoY in Q3FY23, aided by price and volume growth. The main segment, basmati & specialty rice (82% of total revenue), grew by 29%YoY. Gross margin declined by 190bpsYoY to 31.3% (37.3%QoQ) due to higher input costs while a reduction in freight cost limited EBITDA margin contraction by 160bps YoY to 9.3% (10.0% QoQ). Higher input costs will impact margins in the short-term. However, input costs are expected to soften given growth in paddy acreage and rupee depreciation and reduction in freight rates support margins. Backed by strong focus on distribution & branding, LTF’s India market share has improved to 29.4% (28.5% QoQ), and retail outlets have increased to 1.78 lakhs (1.76L QoQ) which will support future growth. We expect earnings to grow at a 18% CAGR over FY22-25E. We value LTF at 8x FY25E EPS (5Yr Avg=8x).
Outlook
We value LTF at 8x FY25E (5Yr avg=8x) and arrived at a target of Rs. 120, (earlier Rs.132) upgrade to BUY rating due to recent correction in stock price.
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