LTFoods - Overweight
Updated: Dec 7, 2018
"Our investments continue to be few in number and simple in concept: The truly big investment idea can usually be explained in a short paragraph. We like a business with enduring competitive advantages that is run by able and owner-oriented people. When these attributes exist, and when we can make purchases at sensible prices, it is hard to go wrong (a challenge we periodically manage to overcome). Investors should remember that their scorecard is not computed using Olympic-diving methods: Degree-of-difficulty doesn't count. If you are right about a business whose value is largely dependent on a single key factor that is both easy to understand and enduring, the payoff is the same as if you had correctly analyzed an investment alternative characterized by many constantly shifting and complex variables."
-Warren E Buffet
Chairman of the Board of Berkshire Hathaway
Chairman's Letter 1994
We have added LTFoods (at 45/share) to our growth value portfolios with an over weight rating and a target of 97/share. More commonly known as Daawat, LT Foods has a major market share of +28% market share in the Indian Rice Market and a +35% market share in the Indian Global Market Share.
What makes Daawat stand out
Currently trading at a basic PE of 11.525 x with a Net Profit of Rs 135 Cr (FY 18) and a Market Capitalisation of Rs.1,556 Cr, makes it cheaper than its closest competitor KRBL.
Daawat generates over 62% of its revenues from outside India.
LTFoods now has manufacturing capacities in Europe and the Americas. One of their brands “Royal” is the no one brands of the US. A strong export revenue makes the company work as a portfolio hedge to the falling rupee value. The company has reached 93% of the towns in India. The past year QIP has aided in reducing debt and adding a marquee investors to its list of owners.
Lean towards the new health conscious generation, LTFoods organic foods brand “ECOLIFE” has received a great acceptance in developed economies. Its range includes rice, pulses, oil seeds, cereal grains, spices, nuts, fruits, and vegetables. Organic business has been one of the fastest growing segments within the Company.
The company has made new acquisitions which have helped them expand market share across the Middle East.
The company targets revenues of over a billion dollar by 2022
Over the past 5 years
Daawat sales grew at 8% CAGR from 2459 Cr in 2014 to 3614 Cr in 2018, which is almost the same sales as KRBL.
Net profit for the same period almost doubled from 78 Cr in 2014 to 135 Cr in 2018.
However, the borrowings remained the same the company added over 782Cr to reserves from 365 Cr in 2014 to 1147 Cr in 2018.
The growing sales and the reserves act as a caution to our buy rating.
The fact that we are getting to buy a company at 2x Reserves with the growth potential of one of the largest rice players in a country of 125Cr population.
Especially when the 125 Cr population maintains rice as an integral part of their diet.
The way ahead
We strongly believe the increase in the spending power per capita in India and the drift towards an organised market would act as a catalyst to the company. The Company has launched premium rice based snacks brand “Kari Kari” in India from a JV with a Japanese snack food major Kameda Seika.
Dolly Khana holds close to 1.1%
Black Rock holds 5.2%
Societe Générale holds close to 1.26%
While we are actively investing and recommending this stock, we wish to clarify this post is not a buy recommendation.
Like what you read, feel free to share.