Abakkus takes a bite of LT Foods. What is the investment case?

Also read: Next 2-3 years will see 'very high' FII inflows: Abakkus' Sunil Singhania

What is Abakkus possibly betting on?

Amit Doshi, Fund Manager at Care PMS, said LT Foods could be a big beneficiary as consumers turn brand conscious and demand shifts from unorganised players to organised players.

Daawat also has a growing US presence, where it owns around 50 percent market share in the basmati rice segment. In December 2007, LT Foods (LT Overseas) also acquired US rice firm Kusha, which has also added to its growth. Expansion into the Middle East in 2022, under the agreement with Saalic Saudi Arabia has also been beneficial for the company, Doshi said.

Also read: Sunil Singhania's Rs 326 crore stake buy drives Shriram Pistons to upper circuit

Strong Financials

In the December quarter of FY24, LT Foods reported 52.07 percent YoY rise in consolidated net profit at Rs 152.64 crore. Revenue grew 9.17 percent to Rs 1,941.72 crore.

In an August 2023 report, analysts at Ventura Securities estimated that during the FY2023-26E period, LT Foods revenue could grow at a CAGR of 10.7 percent to Rs 7,645 crore. EBITDA and PAT are also expected to grow at a CAGR of 14.7 percent and 16.1 percent to Rs 1,057 crore and Rs 628 crore, respectively.

According to analysts at BOB Capital (which has not rated the company), the management expects to double its revenue from India business in the next three-four years and is targeting a 300 basis points (bps) increase in volume market share “over the next 18 months to 33 percent via a focus on modern trade and e-commerce along with expansion of retail outlet reach".

"The company will continue to improve its product mix and expects gross margin to expand by 500bps in the next four-five years driven by premiumization,” they said.

One basis point is one-hundredth of a percentage point.

The improvement in the balance sheet has come post 2020, with gross debt halving from around Rs 1764 crore to Rs 980 crore, the brokerage said.

In FY20, the company's net debt to EBITDA ratio was 1.461, which has now fallen below 1 percent.

Valuation is also an advantage for the stock, Doshi said. Despite being the second highest preferred brand in India, after India Gate Basmati Rice, the current PE is around 10x, which, he said, makes the stock undervalued, especially when it comes to a company with growth and strong financials.

The company is also expanding into the ready- to-eat segment not only in India but also the US.

While it contributes a smaller percentage to revenue, this could be of advantage going forward, Doshi said. Cheaper valuations could be because till around 2000, the company’s financials were not as strong, which was also the case for others in the segment.

Shareholding Pattern

As of December 2023, promoter holding in the stock was a 51 percent. Apart from Singhania, another big-name investor in the fund has been Mukul Agarwal, who owns around 1.15 percent stake in the company.

Mutual fund holdings in the stock are around 4 percent, with 3 percent stake held by DSP Small Cap Fund and around a percent by Motilal Oswal Growth Opportunities Fund.

At 10.07 am, the stock was trading at Rs186.15 on the National Stock Exchange, up 3.56 percent from the previous day.

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