Domestic brokerage firm Ventura Securities has initiated coverage on LT Foods with a 'buy' and a target price of ₹244, representing an upside of 47% from the current market price of ₹166 apiece over the next 24 months.
LT Foods is a 70-year-old Indian-origin global FMCG company in the consumer food space. It is a leading player globally in the speciality rice and rice-based foods business. Its flagship brands, Daawat and Royal, command leadership position in India and the US.
Daawat, along with other regional brands, also holds leadership positions in other geographies, such as Israel, Reunion Island, Mauritius, and many more. The company has ventured into the convenience and health segments by launching Daawat Biryani kits, Royal Ready to Heat, Daawat Cuppa rice, and Kari Kari rice-based snacks.
Ventura highlights that LT Foods has demonstrated consistent compounding growth over the last decade, achieving a 12.1% CAGR in revenue and an 21.6% CAGR in profitability. The brokerage anticipates this growth trajectory to continue in the future, based on the following key growth drivers:
Diversifying product portfolio: LT Foods is strategically broadening its product range across all business segments to extend beyond rice, aiming to capitalize on emerging market prospects and evolving consumer preferences.
This expansion includes the introduction of ready-to-eat meals, rice-based snacks, sauces, and cooking oils. The broader product range enables LT Foods to tap into the growing demand for convenient and healthy food options, thus boosting revenue streams and enhancing customer loyalty.
Widening distribution reach across all channels: Another significant growth driver for LT Foods is the focus on widening its distribution reach across all channels. The company is actively strengthening its distribution networks, both domestically and internationally, to ensure wider market penetration.
Building economies of scale and unlocking synergies: The company leverages its global presence and supply chain capabilities to consolidate purchasing power, optimize production processes, and negotiate favorable agreements with suppliers. This leads to cost efficiencies, improved profitability, and increased margins. Strategic collaborations and acquisitions further enhance margin expansion potential.
Driving premiumisation: LT Foods strategically aims to offer high-quality, value-added rice products to cater to consumers seeking premium options. Innovative packaging, speciality rice variants, and investments in brand building and marketing initiatives allow the company to command higher prices and achieve premium positioning.
Organic and inorganic growth avenues: LT Foods is committed to growing its market presence and solidifying its position through a combination of organic and inorganic routes. The company continues to invest in research and development, product innovation, and brand building to enhance its competitive edge.
Additionally, LT Foods actively explores strategic acquisitions, partnerships, and joint ventures to gain access to new markets, technologies, and distribution networks. These expansion efforts allow the company to strengthen its position in the global rice-based food products market and accelerate its growth trajectory.
Strategic partnership with SALIC for growth: In 2020, SALIC (Saudi Agricultural & Livestock Investment Company) acquired a stake in Daawat Foods Limited (a subsidiary of LT Foods Ltd) through its subsidiary United Farmers Investment Company.
The partnership with SALIC will give LT Foods access to SALIC's expertise and resources, which will help the company to improve its operations and grow its business.
Projections: Ventura expects the company's revenues to grow at a CAGR of 10.9% to ₹9,464 crore over the period FY23–26. It expects this revenue growth to be driven by 10.9% CAGR growth in the rice segment to ₹7,645 crore (5-6% growth by value and 5-6% volume growth), 11.6% CAGR growth in the organic segment to ₹1,089 crore, and 30.7% CAGR growth in the health and convenience segment to ₹366 crore.
The brokerage expects the company's EBITDA and PAT to grow at a CAGR of 14.7% and 16.1% to ₹1,057 crore and ₹628 crore, respectively, while it projects EBITDA and PAT margins to improve by 110 basis points to 11.2% and 50 basis points to 6.6%.
Subsequently, it expects the return ratios of RoE and RoIC to improve by 30 basis points to 14.9% and 320 basis points to 18.5%, respectively, by FY26.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
