After more than doubling investor wealth in the last 1 year, brokerage house Geojit Financial Services has downgraded LT Foods (LTF) to a SELL rating due to expected pressure on margins in the near term. It has also revised the target price for the stock to ₹230, implying an almost 13 percent downside potential.
"LTF has a strong focus on strengthening brands, distribution, and region & product diversification for growth. We expect earnings to grow at a CAGR of 13 percent over FY24E-26E. LTF currently trades at 12x 1Yr Fwd P/E. We value LTF at 13x FY25E EPS and arrive at a target price of ₹230, and downgrade to SELL rating due to expected pressure on margins in the near-term," said the brokerage.
LTF is a global consumer specialty company with an explicit focus on basmati rice, organic foods, and ready-to-eat/ready-to-cook (RTE/RTC) products. LTF has a presence in over 80 countries with significant regional exposure in the US, Europe, Middle East, etc.
The stock has already surged over 101 percent in the last one year and gained 28 percent in 2024 YTD, rising in 3 of the 6 completed months so far of the current calendar year.
The stock jumped over 24 percent in June after a 4.4 percent fall in May. Prior to that, it rose 15 percent and 4.4 percent in April and March, respectively. However, the stock was in the red for the first 2 months of 2024, down around 9 percent in February and 3 percent in January.
The scrip also hit its record high of ₹274.90 last month on June 24, 2024. Currently, the stock is just a little over 5 percent away from its peak. Meanwhile, it has rallied 109 percent from its 52-week low of ₹124.35, hit on July 13, 2023.
It has also given stellar returns in the long term, soaring over 251 percent in 3 years from ₹73.95 and 525 percent in 4 years from ₹41.60.
Healthy topline growth aided by export volumes: Geojit noted that in Q4FY24, the company's consolidated revenue grew by 14 percent YoY. The basmati rice segment, contributing 87 percent of total revenue, grew by 15 percent YoY; the organic foods segment, 10 percent of total revenue, grew by 27 percent YoY; and the RTE/RTC segment, 3 percent of total revenue, rose by 55 percent YoY. For FY24, consolidated revenue increased by 13 percent YoY.
The company is optimistic about maintaining double-digit volume growth in the international basmati market, with LTF expanding to 1.4 lakh outlets, up from 86.9k in FY23. Market share in India rose to 30 percent from 29.8 percent in Q1FY24, while maintaining over 50 percent market share in the US. The RTE/RTC business has grown sixfold since FY20 and is expected to grow at a CAGR of 33-35 percent. The organic segment is recovering from losses due to anti-dumping duties on soya. The company is doubling RTE/RTC capacity in America, with a consolidated revenue CAGR of around 9 percent expected over FY24E-FY26E.
Higher freight cost and pressure on realisation to impact margins: Geojit reported that EBITDA margin improved by 100 bps YoY to 11.8 percent in Q4FY24, driven by lower freight costs, manufacturing efficiencies, and scale benefits. LTF plans to invest ₹45-50 crore in digital capabilities in FY25, which may impact margins short-term due to potential freight cost surges and pressure on realisation, it added.
However, long-term margins are expected to improve due to a focus on value-added products and cost efficiency. The RTE/RTC business, currently 3 percent of revenue ( ₹200 crore), is projected to break even at ₹370 crore by FY26-27E, predicted Geojit. LTF anticipates a consolidated EBITDA margin of 14-14.5 percent in five years and has received a favorable court order for ₹161.2 crore related to an insurance claim, with an appeal pending in the High Court, it further stated.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
