LT FOODS

This company is engaged in the milling, processing, and selling of branded and unbranded basmati rice, as well as the production of rice food items for the domestic and international markets. It has several rice brands such as Daawat, Royal, Devaaya etc under its portfolio.

Current Price on the date of publishing this report-: 68 Rs

Founded in the 1980s the primary activity of LT Foods Limited was is the milling, processing, and selling of branded and unbranded basmati rice, as well as the production of rice food items for the domestic and international markets.

It also conducts research and development to improve the value of rice and rice food items. In the ready-to-cook category, the Company’s rice product range includes brown rice, white rice, steamed rice, parboiled rice, organic rice, rapid cooking rice, value added rice, and flavoured rice.

Nature Bio Foods Limited (NBFL), a subsidiary of the Company, is the market leader in the ingredient-based organic food industry. It has evolved as a recognised brand, providing true organic ingredients to customers in the US and European markets.

Daawat, Royal, Heritage, Devaaya, Gold Seal Indus Valley, and 817 Elephant are among the rice brands owned by the corporation. Its flagship brands, “Daawat” and “Royal,” hold market share of 27 percent and 50 percent, respectively, in the basmati rice market in India and the United States.

Over the years, LT Foods has leveraged its brands to create a Global Consumer Food Company.  This has been done by developing/creating a portfolio of food brands that cater to current and emerging Consumer needs. And most importantly all this has been achieved without compromising company’s endeavour to be a Sustainable Global Consumer Food Company. 

Company’s biggest market is the US market which accounts for 37% of total revenue, followed by Indian market and the European Market which accounts for 35% and 14% of total revenues respectively.

Today company sells over 460,000 Metric Tons of packaged basmati rice every year across 60+ countries across India, US, Europe, Middle East, Far East and Rest of World. Company’s brands are featured at more than 118,000 retail outlets in India alone. LT Food supplies to over 6,000 food service outlets in India with its Flagship brands “Daawat” and “Royal” enjoying leadership position in India and US respectively.

Integrated Farm to Fork Model 

The Company is present across all aspects of the value chain and has an integrated “Farm to Fork” model. The Company has made investments across the value chain be it – Sustainable Farming, Procurement, Manufacturing Facilities & Supply Chain, Distribution, Sales & Marketing, Poeple, Processes, Digitalisation  etc. to create an integrated business model and to stay relevant to consumers. 

Business Products / Brands

A decade ago LT Foods brands only contributed 20% to total revenues. Today it accounts for over more than 70% of the revenues.

Basmati Rice and Specialty Rice 

The Basmati & Other Specialty Rice division is at the heart of LT Foods’ business, which includes both consumer and strategic private label products. This category accounts for 83 percent of total revenue and has grown at a three-year CAGR. Revenue increased by 8%, fueled by our main brands “Daawat” and “Royal,” as well as other brands like as Gold Seal Indus Valley, 817 Elephant, Heritage, Devaaya, Rozana, and others.

LT Food’s major brands, Daawat and Royal, command market share of 20%+ and 50%+ in India and the United States, respectively, and its brands also command market share in other locations, including Israel, Reunion Island, Mauritius, and Singapore etc. 

WHAT IS BROWN RICE?

Clientele

The company’s Global Supply Chain Network and Wide Distribution Network of 900+ distributors enable it to reach consumers in 60+ countries and 1,37,000+ retail locations in India. The Company has a presence across all price points and channels, including General Trade, Modern Trade, HORECA, and E-Commerce, which has allowed it to serve its loyal consumers without interruption during Covid’s difficult times. The rise in home consumption resulted in an increase in Consumer pack contribution from 84 percent to 86 percent and an increase in total small pack business of 8% compared to previous year.

LT Foods is also working hard to extend its product portfolio to fulfil the demands of its customers, and has entered the regional rice category with the introduction of Daawat Sona Masoori and Daawat Kolam.

Organic Food & Ingredients 

Consumers are rapidly incorporating more organic goods into their everyday meal routines as they prioritise personal health, convenience, and nutrition. LT Foods has been in the forefront of meeting customer requests by constantly monitoring its consumers’ evolving tastes in this market as well. In the organic food and ingredients industry, the Company primarily sells ingredients to reputable organic food producers while also marketing completed goods items in India and through its subsidiary firms in the United States and Europe.

Nature Bio Foods Limited (NBF), LT Foods’ organic subsidiary founded in 1999, has evolved as a valued partner over the years, providing real organic ingredients to customers in the United States and Europe. It provides a variety of organic products produced from Asia, such as rice, pulses, beans, and ancient grains. Organic soya meal and meal, a nutritious protein supplement, are also exported by the company from farms in India and African nations such as Togo and Uganda. With over two decades of expertise, NBF today collaborates with over 64,000 farmer families and over 94,000 hectares of organic villages across India, as well as farms in Africa and Thailand, to ensure excellent organic goods.

The company has a substantial presence in a number of countries, including Germany, the Netherlands, Italy, Austria, the United States, Canada, Australia, New Zealand, the United Arab Emirates, and Israel. The Company constantly maintains safety throughout its operations, allowing it to accomplish the unique feat of becoming the first company in India to be awarded the prestigious CII Food Safety Award.

In the Organic food and ingredients segment, the Company launched organic brand “Eco Life” across e-commerce platforms to cater to a rising consumer demand for chemical free and environmentally safe food products amongst the consumers. The Ecolife business in India saw a 26% growth in this financial year. 

Growth in exports from Nature Bio Foods India year on year basis 

Kari Kari 

Kari Kari is a novel premium rice-based snack that will be released in India’s Rs 800 crore snack industry in January 2020. Kari Kari sustained its growth pace, recording a 239 percent increase throughout the year, mostly driven by demand in metro centres and fueled by e-commerce distribution channels. The product has been effective in garnering customer acceptance.

In addition to a large presence in e-commerce, the distribution channel includes various contemporary trade chains and freestanding locations. The product is presently accessible in more than ten Indian states.

Apart from there are various different products which are manufactured and marketed under the Daawat brads which include 

Daawat Sehat -: A one of its kind in the current offerings, fortified everyday rice, fortified with iron, folic acid and vitamins B1, B3, B6 and B12. 

Daawat Cuppa Rice -: It which provides tasty and home style food instantly, launched last year in India. It is a ready to eat meals packed in dehydrated state, and reconstitutes in 10 minutes after pouring hot water. 

Daawat Sauté sauces -: These were launched to cater the emerging needs of consumer demand for culinary aids. 

Presence

Daawat is the present across following commerce platforms such as Amazon, Big Basket, Paytm, Flipkart and Zomato as well as it is market leader in most of the ecommerce platforms in India.

In Modern Trade channels company has presence across various outlets such as Big Bazzar, D-Mart, Reliance Retail , More , Walmart etc. Thus in total company has presence across more than 3600+ modern trade store in India, 95+ Cash and carry stores, 1200+ Mini markets, 800+ Hyper markets and 1200+ Super markets.

The Company launched innovative marketing campaigns around the flagship brands in key markets to strengthen the brand equity to gain market share and to increase the recall of its brands among its consumers. Thus company has been aggressively spending on increasing its brand presence as well pursuing the growth through unique marketing approaches.

Country Wise Business analysis has not been presented here due exhaustive nature of the content. Users who wish to dig deeper on geography basis can refer to the Annual report for the company.

Partnership

In May, 2020, Saudi Agricultural & Livestock Investment Company (SALIC) acquired 30% stake in company’s subsidiary Daawat Foods Ltd from minority interests at a price of 17 Million USD. This acquisition has evolved in a partnership among the Saudi agriculture giant SALIC and LT Foods Ltd. 

It is a leading partner of Sustainable Rice Platform (SRP), a UN Environment and International Rice Research Institute initiative. LT Foods has a score of 96/100 and is among the best growing companies as per Sustainable Rice Platform standards.

Financials

Q3 FY 22 Performance 

• Total Revenue at Rs. 1,369 crore; up 21% YoY 
• Gross Profit at Rs. 456 crore; up 15% YoY 
• EBITDA at Rs. 151 crore; up 10% YoY 
• Profit After Tax at Rs. 77 crore; up 11% YoY 
• Cash Profit at Rs. 107 crore; up 13% YoY 
• EPS at Rs. 2.23; up 8% YoY

9M FY 22 Performance

• Total Revenue at Rs. 3,913 crore; up 9% YoY 
• Gross Profit at Rs. 1,322 crore; up 10% YoY 
• EBITDA at Rs. 456 crore 
• Profit After Tax stood at Rs. 234 crore; up by 2% 
• Cash Profit at Rs. 322 crore; up 5% YoY 
• Free Cash flows stood at Rs. 159 crore 
• Finance Cost at Rs. 50 crore; down by 27% YoY 
• Book Value per share at Rs. 65.2; up 15% YoY 
• Announced Interim Dividend of Rs. 0.50 per share

• The Company’s Basmati and Other Specialty rice business was up by 23% led by strong growth in the Specialty segment which was up by 46%. 
• The Company has seen a strong growth in its Organic segment which was up by 17% on YoY basis.
• The Health & Convenience segment comprising of Daawat Sehat on the Health platform and Royal Ready-to-Heat (in the US), Daawat Cuppa Rice, Daawat Sauté Sauces and Kari Kari (Japanese Rice Snacks) on the convenience platform was up by 73% on YoY basis.
• The PAT was up by 11% on YoY basis.
• Gross Profit were up by 15% amounting to Rs. 456 crore and the Gross Profit Margin stood at 33.3%
• EBITDA was up by 10% amounting to Rs. 151 crore and the EBITDA Margin stood at 11%
• PAT was up by 11% amounting to Rs. 77 crore and the PAT Margin stood at 5.6%

INVENTORY

Basmati rice is aged upto 24 months to enhance and intensity taste , aroma and cooking characteristis. This requires company to maintain large inventory of paddy and rice.

Since company maintains large amount of inventory this opens up to the risk of Inventory – existence and valuation . Thus in order to overcome this risk below mentioned are the few measure adopted by the Independent auditors to verify the same and minimise the risk associated with the inventory. Please find the details in additional notes attached to the report.

Managements Comments and Future Outlool

Managements aspiration for margins going forward over next 5 years is that revenue across all the streams will be improving in the range of 150 bps because of the new line of business. However there would be negative EBITA for this new line of business in early stage but the Basmati and organic businesses will continue to improve yoy basis.

Debt to EBITA for the Company has fallen recently to 1.4. Thus company has an earnings yield of 14% while its post tax cost of debt is around 5%. This opens up a huge opportunity for the management to create wealth for the shareholders in the form of buyback. So going forward it could be a possibility.

With the opening up of HORECA which had just doubled up for the company in recent times management expects that the basmati categories will keep on growing in the coming period.

Sectorial Outlook

By the end of 2021, the global health and convenience food business is predicted to increase even more. From 2020 to 2027, it is expected to grow at a stable CAGR of 6% to $1 trillion. The United States is the largest market, accounting for 29 percent of the worldwide market with an estimated market value of $221.2 billion. Europe, Canada, and China are continuing to develop their presence in this market and are likely to have a significant share by 2027.

RICE

Rice is one of the most significant consumer foods, and it will be a staple diet for half of the world’s population by 2020-218. 2020-21 In 2020-21, the typical person is predicted to consume roughly 549 kilogrammes of 2019-20 rice, a slight increase over the previous year. While the worldwide rice market is forecast to increase at a CAGR of 1.2 percent 10 between 2021-26, the India rice market is likely to grow at a higher pace of 2.7 percent 11 over the same period in 2018-19.

After China, India is the world’s second largest producer of rice. Basmati Rice is the market leader in the Specialty Rice area. The total Basmati market is 9 million metric tonnes (MT), of which India produces approximately.8 million MT and Pakistan produces approximately.1 million MT. Consumption in both the domestic and international markets is increasing.

Furthermore, we have seen a movement in the international market among ethnicities other than Persians, Iranians, and South Asians, with Indian food, particularly Basmati Rice dishes, gaining appeal. As a result, there is a significant chance for the Basmati Rice category to develop further across countries.

Organic Food Industry 

Organic food is grown without the use of pesticides, preservatives, or other potentially dangerous chemical additions. With rising consumer health awareness, the worldwide organic food industry reached 106 billion euros in 2019, expanding at a 9 percent CAGR over the previous five years.

India leads the globe in the number of organic farmers, accounting for roughly one-third of all organic growers. India accounts for 2.1 percent of worldwide organic product exports, mostly to the EU, the United States, and the United Kingdom, with key export goods being flax seeds, sesame, soybeans, tea, medicinal plants, rice, and pulses. By 2025, the Indian organic food business is anticipated to be worth $10.75 billion USD. The retail sale of organic packaged food is expected to expand at a quicker rate as a result of increasing knowledge about healthy eating, mostly as a result of the recent pandemic.

Conclusion

LT Foods limited an almost 30+ years old company engaged in milling, processing, and selling of branded and unbranded basmati rice, as well as the production of rice food items for the domestic and international markets. It has several rice brands such as Daawat, Royal, Devaaya etc under its portfolio. Company has gross after tax debt at 5% while the earnings yield stands at around 14% thus opening up a host of opportunities for the management to create wealth for the share holders. Additionally over past 5 years net profit for the company has grown at a cagr of 30%+ . Also on account of Russia-Ukraine commodity prices all over the world have increased dramatically including prices of foodgrains. Thus LT Foods has a proven track record of increasing sales and management committed towards sustainable growth of the company simultaneously investing in the Brand of the company, LT foods available at Price to Sales of 0.46 is worth exploring for long term.

Additional Notes

This opens up to the risk of Inventory – existence and valuation . Thus in order to overcome this risk below mentioned are the few measure adopted by the Independent auditors to verify the same and minimise the risk associated with the inventory. Please find the details in additional notes attached to the report.

• Auditors Assessed the appropriateness of the accounting policies relating to valuation of Inventory by ensuring their compliance with Ind AS 2 (“Inventories”) and Ind AS 23 (“Borrowing Costs”); 
• Auditors Obtained inventory records and results of management conducted count and reviewed reconciliation of differences, if any, between management physical count and inventory records. Tested the necessary adjustments, if any, made in the inventory records by the management; 
• Auditors have Reviewed reconciliation of inventory quantitative details in general ledger/ valuation workings with reports obtained from the management, as retrieved from SAP i.e., the integrated ERP used by the Company. Understood and tested the reconciling items, if any; 
• Auditors have Obtained independent confirmations, on sample basis, for inventory lying with third parties as at year-end; 
• Auditors have Observed physical verification done by the management as at year-end and also, independently verified few items physically on sample basis for locations scoped-in, basis materiality of stock lying at such locations to overall inventory balance of the Company as at year-end; 
• Auditors have Corroborated the results of our physical verification procedures, on sample basis, with valuation workings obtained from the management; and 
• For more detailed procedures please check the Annual Report page number 115 .