DFM foods - poor man's FMCG play

(Mahesh Shah) #81

My Reply to an interestingquery on DFM on another forum :


Should we not compare the debt levels of both companies to get a better perspective on the valuation multiples? Do you have any info on Bikaji’s debt-equity ratio?

I am also analyzing DFMs expansion strategy and have a few points to make…

1). They are simultaneously expanding in the eastern as well as the western part of the country.

2). For a product such as Crax which has a very low value to weight ratio (Rs 5 pack for 17 grams), the farther the consumers are from the manufacturing plant, the higher will be the transportation costs and growth will be at lower margins.

3). Is it not better for the company to expand by taking on one territory at a time? Had they expanded only in the west or east, would they not have experienced some economies of scale? A denser distribution network in one territory would have led to reduced transportation costs as well as lesser overheads when compared to expanding in two territories that are geographically apart.

Let me have your thoughts.


Have provided info on Bikaji’s D/E ratio in my last post you can refer that.

On your points :

Yes…farther the manufacturing location higher will be the transportation costs…this is the reason why you find 9MFY14 EBITDA margins under pressure as contribution from West and East has increased as % of sales…

On was it better if co. would have expanded into one territory only and saturated the distribution presesnce there — theoretically Yes but practically NO ----I will explain you why ---- when you enter a new territory, you have to face new challenges not only on taste front but also competition and personnel front…so, if your goal is to expand aggressively you can’t spend undue time in expanding and gauging response in that territory before expanding to other — in such time business dynamics might change in the territory you left over to expand afterwards and you might face more difficulty in expanding there which was easier today…

Now, to explain you specifically, DFM would most probably have a single manufacturing presence for serving both West & East India…So, it was logical for it to expand in both the territories at the same time — Western market is having as larger scope as Northern India but there competitive intensity is far higher, especially in the form of Yellow Diamond – Eastern market is relatively small but competitive intensity is relatively lower too — channel checks suggest, CRAX has done relatively far better in Eastern Indian than Western India if we compare the same timeframe after launch — but, that doesn’t mean you can ignore one geography…

So far the company has done all right moves…key monitorable will be company’s sales & manufacturing expansion plans…remember South is still out of the picture…will be awaiting details on future CAPEX.


(ricky76) #82

Hi Mahesh,

Thanks for your response. Can’t disagree with anything you have written.

On marketing expenses just to clarify, I did not imply that they will be coming down soon or indeedshouldbe reduced to beef up margins, rather my point was that for the company to coast along and create wealth it should not be overly reliant ( not sure of their marketing spend to sales ratio) on marketing spend to drive sales once the initial period of base setting in a new region is over.

I am reminded of a situation when I was a consultant with McKinsey and asked to go to China to look at a leading consumer goods company that could not generate enough sales without advertising but when it used advertising the incremental sales generated did not generate adequate margins for the company to justify operating there.

Overall, I am also watching this story closely and hope it succeeds!

(Mahesh Shah) #83

Packaged salty snacks topped FMCG sales in 2013: Report

ByRatna Bhushan, ET Bureau | 29 Apr, 2014, 04.00AM IST

NEW DELHI: Indians consumed more packaged salty snacks than any other fast moving consumer goods (FMCG) in 2013, as they emerged as the fastest growing grocery category, according to data compiled by researcher Nielsen.

To drive growth in an otherwise uncertain consumption environment, snacks makers such as PepsiCo, ITCand Parle introduced low price points, stepped up distribution in smaller cities and towns and made their products to suit regional taste preferences. Others such as Haldiram, Balaji, Garden, Bikano, Yellow Diamond and DFM Foods’ Crax, on the other hand, are playing on low price points, local flavours and quick turnaround time in churning out innovations. Snack sales are usually immune to seasonal fluctuations, which often affect beverages.

“Conversion from loose to packaged, new formats, and convenient price points of Rs5 and Rs10 are key differentiators driving this category,” said ITC Divisional chief executive (Foods) Chitranjan Dar. According to him, ITC’s newer innovations under its flagship salty snack brands, Mad Angles and Tangles, have been key sales drivers.

Salty snacks were the fourth fastest growing category in 2012, but last calendar year they topped all other fast-growing categories such as packaged rice and diapers. Pace of growth, however, slowed down from 29 per cent to 25 per cent over the past two years. That still was far quicker than the 9.4 per cent growth in 2013 sales posted by the overall FMCG sector, where the pace has slowed from the previous year’s 18 per cent, according to Nielsen data.

The salty snacks market was worthRs12,679 crore last year. A low-cost business compared with those like chips or biscuits, salty snacks operate on limited barriers to entry. Five of the top six fastest growing FMCG categories in 2013 were foods â snacks, chocolate, atta, non-refined oil and rice â all in excess of 20%. Popular items such as biscuits posted just 7 per cent growth, while detergent sales rose 10 per cent and soaps expanded 4 per cent.

“Snacks isn’t a me-too product… there’s a value addition,” said Shirish Pardeshi, executive director of investment banking as well as head of consumer and consumer services practice at Anand Rathi Advisors. PepsiCo, the market leader for salty snacks, had launched several local flavours under popular brand Kurkure. Chief executive Indra Nooyi projects about twothirds of PepsiCo’s revenue growth to come from snack sales, driven by emerging markets. PepsiCo’s senior director, foods marketing, Vidur Vyas said affordable indulgence and convenience were boosting growth in the category.

“Traditional namkeens and localisation have been a crucial factor in driving category growth,” said Parle Products group product manager BK Rao. Parle’s first attempt to enter the category over three years back wasn’t successful but it re-entered a year later and has met with good response, Rao said. The maker of Hide & Seek and Monaco biscuits sells namkeens under the brand Parle and FullToss.

The unorganised snacks market remains undocumented, but industry players conversion from loose to branded is happening rapidly. Three years back, Pepsi-Co restructured its foods division to set up a mass-priced, low-cost traditional business model under its Lehar brand, mainly to fight off smaller brands.

The salty snacks market was worthRs12,679 crore last year. A low-cost business compared with those like chips or biscuits, salty snacks operate on limited barriers to entry. Five of the top six fastest growing FMCG categories in 2013 were foods â snacks, chocolate, atta, non-refined oil and rice â all in excess of 20%. Popular items such as biscuits posted just 7 per cent growth, while detergent sales rose 10 per cent and soaps expanded 4 per cent.

“Snacks isn’t a me-too product… there’s a value addition,” said Shirish Pardeshi, executive director of investment banking as well as head of consumer and consumer services practice at Anand Rathi Advisors. PepsiCo, the market leader for salty snacks, had launched several local flavours under popular brand Kurkure. Chief executive Indra Nooyi projects about twothirds of PepsiCo’s revenue growth to come from snack sales, driven by emerging markets. PepsiCo’s senior director, foods marketing, Vidur Vyas said affordable indulgence and convenience were boosting growth in the category.

“Traditional namkeens and localisation have been a crucial factor in driving category growth,” said Parle Products group product manager BK Rao. Parle’s first attempt to enter the category over three years back wasn’t successful but it re-entered a year later and has met with good response, Rao said. The maker of Hide & Seek and Monaco biscuits sells namkeens under the brand Parle and FullToss.

The unorganised snacks market remains undocumented, but industry players conversion from loose to branded is happening rapidly. Three years back, Pepsi-Co restructured its foods division to set up a mass-priced, low-cost traditional business model under its Lehar brand, mainly to fight off smaller brands.

(Mahesh Shah) #84


Attached is the link to 23-pages report covering 'Industry & Competition Analysis' w.r.t. DFM Foods Ltd.

Key Takeaways from the Report â Industry Perspective :

  • 'Indian Branded Sweet & Savoury Snacks' segment has grown at a CAGR of 26.2 % over 2008-2013 (in value terms) to become the third fastest growing segment of Indian Packaged Food Industry.

  • The segment is categorised into 'Western Snacks' and 'Traditional Snacks' which together give it a ( 2013 ) market size of ` 110.68 bn. 'Western Snacks' comprises of Chips/Crisps & Extruded Snacks (like Rings, Puffs, etc.) whereas 'Traditional Snacks' comprises of Namkeens, Bhujia, Papad, Khakhra, Nuts, Sweets, etc.

  • Only Twenty Seven organised players contribute to 95 % of the segment sales with Nine Players controlling ~71 % of the marketshare. These Nine players include :

    Pepsico, Haldiram, Balaji Wafers, ITC, Bikaji Foods,

    Bikanervala, Prataap Snacks, DFM Foods & Apricot Foods.

    [ Note :- Financial Profile of each of these nine companies is included in this report ]

  • Extruded Snacks as a category stands out amongst all other categories having registered highest volume growth over 2008-2013 ( CAGR = 21.9 % ) and its projected 16.9 % ( CAGR ) volume growth over 2013-2018 which is again highest in the segment.

  • Only Six companies control 82 % of the Extruded Snacks market. Pepsico is the leader in the space whereas Prataap Snacks, DFM Foods and Haldiram are noteworthy marketshare gainers over last ten years.

  • Opportunity is huge ahead of every serious player in Indian Branded Sweet & Savoury Snacks segment because of the fact that Indians are natural snacks' consumers, and entire 124 crore Indian public is served by only Twenty Seven major branded savoury snacks players atpresent. Rural markets are still unpenetrated and lower price points ( ` 2, ` 5 & ` 10 ) prevalent in the segment could drive aggressive sales in rural India.

  • Competition is likely to intensify going forward as more of the organised business groups enter into this space ( recent entry of Tobacco major Gopal Corporation is a case in point ) to grab their share of opportunity as also existing players make a dent in peers' stronghold by offering similar products with superior distribution and marketing reach.

Key Takeaways from the Report â Company Perspective :

CRAX Brand Key Marketshare Figures

Sweet & Savoury

Snacks Segment

Western Snacks Segment

Extruded Snacks Segment

Corn-based Extruded Snacks Segment

CRAX MarketShare

( 2013 )

2.03 %

2.79 %

5.61 %

9.19 %

Source :- Exemplar Research, Channel Checks, Euromonitor International, Company Reports

  • DFM Foods Ltd. via its 'CRAX' brand is a key player in Extruded Snacks category of Indian Branded Sweet & Savoury Snacks segment.

  • Over last five years, company has gained significant marketshare of the category.

  • If we consider 3 Years' ( FY10-FY13 ) CAGR in Sales, then, DFM has outperformed industry as well as almost all of its peers quite handsomely :

3 Years' CAGR in Sales

( 2010-2013 )

Sweet & Savoury Snacks Segment



Balaji Wafers

Bikaji Foods


Prataap Snacks

DFM Foods

25.26 %

19.93 %

25.82 %

33.15 %

28.39 %

17.29 %

30.56 %

46.13 %

  • Its main product offerings ( CRAX Corn Rings ) are targeted towards children of age group 6-12 years --- an isolation strategy which has done wonders for the company so far.

  • If we take into consideration DFM's key product offerings and its target audience, then, key competitors for it are Pepsico, Haldiram ( Extruded Snacks ), ITC, Prataap Snacks & Venkataramana Food Specialities.

  • As per our analysis, Prataap Snacks ( via its brand YD Rings ), as a peer, poses an immediate threat to DFM Foods because of its almost similar marketing strategy, same target audience, identical product USP and low margin business model.

  • Prataap has recently ( in 2013 ) commenced its Rings manufacturing plant ( technology from American Extrusion ) and is going all out to make a dent into DFM's ( CRAX Corn Rings ) marketshare. Aggressive marketing strategy is adopted by Prataap by getting associated with popular children tv show 'Chhota Bheem' and Mr. Amitabh Bachchan starrer children-oriented supernatural movie 'Bhootnath Returns'.

  • Medium-term Revenue Growth is not under threat for DFM because of an aggressively expanding market size itself as also unsaturated nature of company's Western & Eastern Sales presence. However, for this to happen, company has to expand its manufacturing capacities intime, fill the many gaps prevalent in its distribution network as also design a wise consumer-pulling marketing strategy.

  • EBITDA margins of the company might not show a significant improvement considering the fact that all its peers ( except Balaji Wafers ) operate at a lower EBITDA margin as also likely intensification of the competition in the space.


(Manish Vachhani) #85


You are wasting forum space with too much blank lines. Request you to take care while copy-pasting and make sure you delete the blank space before posting. Admin please take a note and issue necessary caution.

(Mahesh Shah) #86

Board to consider Dividend

DFM Foods Ltd has informed BSE that a meeting of the Board of Directors of the Company will be held on May 12, 2014, inter alia, to consider the following:

1). To consider the accounts and recommendation of dividend on the equity shares for the year ended March 31, 2014.

2). To consider and take on record the audited financial results for the year ended March 31, 2014.

(Mahesh Shah) #87

My Reply to a query on DFM & Prataap on another forum :

Thanks for the additional industry info Mahesh,

One thing that immediately catches the attention is the revenue per distribution outlet of DFM vs Prataap. Prataap’s distribution reach is almost 2.3x that of DFM and you have mentioned higher visibility strategy of Prataap. However when I am comparing the FY’13 sales of the two companies, Prataap’s sales is only 1.5x of DFM.

Are the distribution outlet numbers as on March 2013 or are they the latest numbers?

Based on the above, I feel DFMs distribution is more efficient in terms of revenue per outlet but one needs to understand the cause of the same. Is it because they have advertised more compared to Prataap and have higher brand pull? Or Is it because of absence of competition which will now increase going forward and thus one needs to monitor the revenue per distribution outlet?

Yes …the outlet nos. are of 2013 for Prataap and latest Dec.'2013 for DFM…As at March’2013 retail outlet reach of DFM was 1.96 lakh outlets…

Now, rgdg. revenue per outlet, there will be difference, because, DFM’s focus is a single product CRAX Corn Rings and it is arelatively old player in the space so brand mindspace is higher, especially in North India…The difference that you notice is because of North India only – to give specific nos. for FY13 :

from 1,15,000 outlets in North India it garnered 191 cr. revenues

from 64,000 outlets in West India it garnered 28 cr. revenues

from 17,000 outlets in East India it garnered 6 cr. revenues

For Prataap, although regionwise spread is not available, but, its overall per outlet revenue is higher than DFM’s West & East India nos. but is lower than North India nos… Second point to note is Prataap is more of a diversified player wherein it has significant portion of revenues coming from Chips (~40 %) and even Namkeens contribute ~7 % to FY13 revenues…third point to note is that Prataap has already invested heavily in building up capacities for each of its product lines and as on date it has the capacity to generate 700 cr. p.a. revenue without any new CAPEX…

Hence, over last few years what Prataap did was it significantly ramped up its distribution and saturated each area in which it is present…Although theoretically higher revenue per outlet seems a good thing but for an expanding company its not that much significant…this is because, what it has to do is have a significantly large distribution network inplace so that on subsequent launches of its new products, this distribution network can givethem asignificant headstart…Launch and part success of YD Rings is a case in point for Prataap…

To add, DFM never tried to compete with Pepsico or ITC but Prataap from the beginning took them head-on…to counter the distribution reach of Pepsico, Prataap had to have significant presence and thats what it did so far…YD Rings is only recently introduced, but Prataap’s Chips is competing with Lay’s since last 10 years and its Chulbule is competing with Kurkure since last6 years…

To explain in more direct and simpler way…DFMin a way soft launchedKruchoids quite recently and post launch it went for an IMRB survey-report…Today if you will do a ground check you will not find krunchoids presence on shelves in a significant way…Its not that the launch has failed or something but there are two constraints — first, capacity is not that huge to support an aggressive launch ----second, distribution reach is not that high to give the product a significant headstart…In contrast, if DFM had a distribution reach and capacities like Prtaap, krunchoids would have garnered significant mindspace to offer a support to its main product CRAX Corn Rings…

To conclude, although current efficiency of DFM is good optically, but, in the long run it poses danger to aggressive revenue growth…what i will prefer is continued expansion in distribution, exploring of modern retail channel and expansion of capacities to let DFM grow aggressively as it has done in the past…

Brand pull is there in the market for CRAX and the marketsize itself is expanding aggressively but grabing of opportunity at the right time has to happen and I am sure it will happen…12th May results will be interesting to watch and post result concall commentry will be key.

Feel free to get back in case of any further query.


(Mahesh Shah) #88

DFM Foods Limited Q4 & FY14 conference call to be organized on Wednesday, 14thMay, 2014 at 11:30 a.m. IST

New Delhi:****DFM Foods Limited,a pioneer in the Indian snacks food market, will be hosting aconcall for investors and analysts on Wednesday, 14thMay; at 11:30 a.m. ISTfor the fourth quarter and year ended 31stMarch, 2014 announced on Monday, 12thMay.

The call will be initiated with a brief management discussion on the earnings performance followed by an interactive question and answer session.The management team will be represented by Mr. Rohan Jain, Executive Director, Mr. Rajiv Bhambri, CFO & Mr. Rajiv Raina, COO.

Wednesday, 14th May, 11:30 a.m. IST

Conference Dial-In Numbers

Mumbai (Primary No.) 6746 5894
Mumbai (Secondary No.) 3938 1094

Delhi, Bangalore, Chennai, Kolkata,
Ahmedabad, Hyderabad* 6000 1221
Gurgaon (NCR), Bangalore, Kolkata,
Cochin, Pune, Lucknow, Ahmedabad,
Chandigarh** 3940 3977

(Mahesh Shah) #89

Q4 Results out…top line at 63.14 cr. inline with our estimates…Ebitda at 4.48 cr. lower than our estimates…PAT suffered on account of trademark amortisation charge worth 2.43 cr. rs…

Looking at the balance sheet, debt down to ~38 cr. from FY13’s 54 cr…

ICD seems to be have been fully repaid which is a good sign…

Debtors at just 1 lakh down from 4 lakh of FY13 despite 17 % rise in revenues which suggests continued brand pull in marketplace…

Overall, P&L is ok on expected lines but balance sheet shows some early signs of strengthening…

Maintained dividend payout at 2.5 rs. Per share a good sign…

Tomorrow’s concall commentry will be interesting to watch…


(srinivasan) #90


What is this Trademark Amortization all about ? Why suddenly a change in acc policy ? Profit has gone down 2.4 cr coz of this. Will it be a continuing phenomenon. ?

FOr the first time in many years, debt-to-equity below 1.

Taxes have gone down, even though profit have remained same…Is it a tax holiday for new facility ?

Market is very euphoric about this business valuing at 41 times eps of 7.1(LTP is 290) ROE is 18%. ROCE is 22 %. Sales increased 17% yoy. Net Profit increased 13% YoY. Assigning a very rich valuation of 30PE, I thought prices should settle at 220(currently 290). Can’t really understand market fundamentals here. Your comments pls…

(Mahesh Shah) #91

Hi Srinivasan,

Trademark amortisation charge worth 2.43 cr. should be a one time hit as it has amortised 100 % of the value this fiscal…this things will happen once PE player is in as it will clean up the books…AR2014 will be an interesting read.

Yes…D/E has improved as also ICD is fully repaid so if you look closely at the balance sheet then net debt is down to just 25 cr. which is great. Also, management has indicated a 12 cr. p.a. repayment schedulefor debt which if implemented will be good…however, in case of expansion this fiscal and no equity dilution, debt might remain at current level…

There is no new facility and no tax holiday…it might be because of refund of something which we will come to know once AR is out…however, expect the full 33-34 % tax rate going forward.

If market price comes down to your suggested level it will be great accumulating opportunity…however, as I have saidin my previous postsalso, I value this business more on EV basis-- specificallyon EV/Sales basis and on that count EV/Sales (FY14) of 1.19 at CMP of 290 doesn’t look that expensive to me…but thats my personal opinion…whenever sales growth again picks up or equity funding comes it should be at more than this valuation thats what I believe as its after all a negative working capital business…

Based on the concall commentry and recent results, I think there might be a short term negative reaction but between 255-270 I will look to add more.


Discl. - Hold

(Mahesh Shah) #92

Key Takeaways from the concall :

(1) Crax Corn Rings contributed 80 % to FY14 revenues â a YoY growth of 11.3 %

Namkeens contributed 12 % – flat YoY

Natkhat contributed 5 % – a YoY growth of 163 %

Krunchoids contributed 3 % to FY14 revenues.

(2) Retail Outlet reach has increased to 2,20,000 from FY13’s 1,96,000.

(3) Gross debt as at 31stMarch 2014 is at 41 cr… Debt repayment schedule is 12 cr. p.a.

(4) ICD is fully repaid and 14 cr. are parked as ‘Current Investments’.

(5) Company has launched ‘Natkhat’ in Rs. 5 pack during the quarter and expects to increase its focus on this product line in FY15. New variants are planned to be launched in ‘Natkhat’ as well as ‘Corn Rings’ this fiscal.

(6) Krunchoids sales were below expectation and company is looking at fixing the gaps and relaunching the product line this fiscal.

(7) Next round of CAPEX will be planned depending on the sales growth this fiscal.

(8) Company is running at 78 % utilisation level in its existing capacities.

(9) EBITDA margin improvement can be expected starting FY15.

View post Concall :

If we read between the lines, then, company management has set for itself two choices â first, if sales pick up and go to historical 20 % + YoY levels then it will go for geographical manufacturing expansion â whereas â if sales show modest 15-20 % YoY growth then it will go for expansion at its existing plant at Noida in the current fiscal. As mentioned in our recent note too, competitive intensity is increasing in the segment but channel checks suggests good brand pull for ‘CRAX Corn Rings’. As was evident from the channel checks, Krunchoids was almost out of shelves during Q4FY14 and management’s commentary of below expected response to the product concurs with that. However, we feel Krunchoids is not a major setback as every new product takes its time to get accepted in the marketplace. Good thing is that management accepts the failure and is proactive in taking corrective steps. This approach will yield good results in long run.

Management seems to be working on new products and we can expect couple of launches this fiscal. Its the response to these products that will drive next phase of expansion for the company. Management seems to be playing safe and doesn’t want to burden its balance sheet.

Based on recently declared results and management commentary post results, there might be short term negative reaction in the market but at just 1.2 times EV/Sales (FY14) and 13.9 times EV/EBITDA, every dip will offer an opportunity to accumulate the stock for the long term.

Discl .- Hold & looking to accumulate on dips.

(Mahesh Shah) #93

Link to Anand Rathi Q4FY14 Update Report on DFM Foods Attached – Maintains Buy



(Naman) #94

Mahesh Bhai,

Excellent analysis of the business and the industry.

Topline growth does not seem like a big issue going forward with the strong brand, niche customer (kids) focus, differentiated product (with free gift),well setup and expanding distribution network, and of course the market moving from unorganized to organized. I also do agree with you that Westbridge coming on board, should definitely help the business expand.

Regarding margins, Balaji Wafers seems to have a significant advantage over the other players? How has it been able to sustain such high margins in this competitive market? Also Prataap Snacks aggressive strategy and entry into similar products could possibly keep margins under check.

What could be the drivers for higher margins for DFM going forward? Given that it is looking to expand into newer territories beyond North India, margins would be taking a hit I presume…Topline growth without margin improvement over the next 3 years could potentially limit the gains that this Company could provide…

Westbridge has taken 24.99% stake to avoid an open offer which gets triggered at 25% stake. Given that the Company needs to undertake capex of INR 180 crore over the next 3 years, it seems besides some internal cash generation (which I presume would be limited), debt would be the key alternative. This is a key risk to limiting net margin and hence rapid EPS growth.

Would love to know your views.

(Mahesh Shah) #95

Hi Naman,

I believe FY15 should be a year of consolidation as far as distribution goes…If you look at distribution breakup closely, then, as against 1.20 lakh outlet coverage of North India, in West India DFm has already reached 60,000 outlets and in East India has reached 40,000 outlets…there might be some closing down of outlets in West India and coverage getting deppened in East India, but, I don’t see distribution reach in FY15 expanding aggresively till capacity augmentation plans are drawn up…If you observe other impulsive category results closelylike Dominos & Mcdonald, there seems to be visible slowdown in the category in Q4…situation on ground seems to have improved in Q1FY15…In this backdrop, unless growth picks up substatially what i see is DFM concentrating more on new product launches and expanding offerings in existing products to utilise its distribution fully in FY15…noida plant is capable of delivering this at fraction of greenfield cost, 30 % capacity can easily be added there to tackle this…on distribution front there can be an attempt to explore untapped channels like modern retail as also institutional sales (like Railways) can be tapped…

Once the distribution which is currently underutilised (in West & East) improves utilisation you will see visible improvement in margins…however, don’t expect dramatic improvement ; as I have said before also, till FY16 expect EBITDA margins to remain in the range of 8.5-10.5 %…at the same time margins are unlikely to move substantially lower, say below 7 %, as we seem to have seen worst of margins already in FY14…

Rgdg. your point on gains, DFM is a clear long term story in which when rerating initiates it should be sharp and substantial…I believe once the expansion plans are drawn up, first phase of rerating should begin with real rerating happening before the delivery of expansion plans…you see Naman, markets will always value this business more from EV perspective rather than earnings perspective and so if markets sense aggressive revenue growth coming then rerating has to happen that is my assessment…atpresent, markets are still clueless as no plans are still revealed…

Rgdg. your query on expansion funding, I believe it will be a mix of equity and debt…its not that Westbridge only has to participate in case of equity dilution…from the network westbridge has, I see no problem in getting equity as well as cheap debt funding for DFM…Infact, I had tracked this company since last two years and it was this funding uncertainity which had made me avoid investment into this company and so once westbridge entered I made investment into it…the sector is great and the brand pull for CRAX is also good…the problem was expansion and with westbridge’s entry I see that thing getting tackled efficiently…I don’t see DFM’s gross debt getting above 90-100 cr. at any point in next 3 fiscals…


(Naman) #96

Thanks a lot for your detailed views. It would be good to see some improvement in margins from FY15 onwards.

Interestingly, Balaji Wafers has shelved its plans to raise funds from Capital International, possibly due to differences in valuation (http://www.vccircle.com/news/food-agri/2014/05/27/gujarat-based-balaji-wafers-opts-out-pe-funding-sets-eyes-ipo). Balaji now plans to do an IPO (when that happens is still a question), and will certainly seek valuation of atleast 3.5x-4x sales, compared to 1x sales of DFM Foods. Any thoughts on why Balaji Wafers is able to earn such high margins compared to every other player in the market?

DFM Foods could do a lot of good to improve its profile and valuation by bettering its investor relations, and sharing more details on the business and growth plans with the investor community. Hopefully, Westbridge will bring this positive change going forward.

Have taken a tracking position in the recent fall at ~ Rs 235.

(Mahesh Shah) #97

First step towards CRAX’s Southern region penetration started…team appointed for setting up distribution presence in South India… W/o ramping up capacity why southern region feelers are sent thats unclear but in case company expands in South this FY then revenue growth should be intact.


Discl. - Hold

(Hemant V Bhatia) #98

Con Call Key highlights by Capital Mkt;

  • The mgmt said that discretionary spend across consumer category remains subdued. Inspite the tough conditions, the company have been able to maintain a positive volume growth for the first nine months. Benign input cost and judicious marketing & ad spend led to an expansion in margins during the quarter. With improving macros the mgmt are hopeful of growth transcending to the consumer segment going forward.
  • The net sales for Q3 FY15 decreased by 2% to Rs 68.82 crore while net profit inclined by 138.17% to Rs 3.12 crore.Namkeen sales were down during the quarter. The company’s 80% of revenue comes from Rings while Namkeens and Natkhat each contributes remaining 10-11%.
  • The company’s 85% of revenue come from North region, 8% from West and 7% from East.The company saw expansion in gross margin during the quarter due to lower packaging cost and edible oil.In FY15, the company has expanded in few cities of Bihar, Jharkhand and Orissa.
  • The mgmt said that it will continue to invest in brands and geographical expansion. Distribution of Crax Rings into newer geographies is well on track as it simultaneously improves retail penetration in the existing markets. The focus will be to drive growth through larger towns by bringing about higher efficiency in distribution system through better market servicing
  • The company’s renewed focus on Natkhat has delivered positive results. The Rs 5 pack introduced during Feb 2014 has worked in the favor and it plan to drive further growth from this price point.This quarter the company created the necessary infrastructure to start distribution in Chennai and Bangalore which shall happen during the next quarter.Total borrowing of the company is Rs 30 crore and surplus cash is Rs 20 crore.
  • The mgmt said that the number of outlets it cover will expand by 15-20% next year.

(Sambath) #100

Thank you Mahesh for your detailed work.You have written elaborately about the whole snack industry and DFM's position in this space.All the aspects of the business has been covered in-depth.

FY15 has been an year of consolidation for DFM foods.They are in a wait and watch policy of how products offtake in other regions happening especially in South.Being a one product,one manufacturing facility company,They are a strong player in the North and hence reached a stupendous sales growth until last year.Now they are almost saturated in the North,their future lies on how quickly they are able to replicate the success in other regions.

Until last year,they have no problems in achieving 25% + growth ,now their sales are stagnant .It is the time to spread their wings to become a pan-India player and they are taking some calculative steps to move towards that.

1.Considering their foray into south and With the current capacity supporting upto Rs.325 crores sales only,most likely this year they will reach their max capacity utilization,Can we expect some announcements about CAPEX or outsourced manufacturing in this year AGM?

2.Do you think their product would receive similar traction like in North considering the taste preferences?

3.Did a quick DuPont analysis and if leverage is eliminated, their RoE is not that enticing:

Net Profit Margin

Asset Turnover

Financial leverage






















Here,if we eliminate the leverage assuming the company pays off its debt fully and the margin goes upto 6%,still RoE is not that great.Now,the only other lever here is Asset Turnover.In case if the company comes up with new CAPEX plan,Asset Turnover would not go much from here for another few years.

4.With their sales growth being in single digit this year,how about other players in this industry?

Especially Bikaji,Pratap and Balaji.Could you please provide their latest figures? I could not find these numbers in their websites since they are not listed.This is just to understand how other players sales are this year given that economy is subdued.

5.They have been talking about Institutional sales and modern retail sales for a while.Why are they not pursuing it aggressively?

6.They have clearly mentioned they donât have pricing power,since their packets are sold at Rs.2,Rs.5 and Rs.10.At the most,they would reduce the weight of the packet to offset the raw material price increase.How long can they adopt this strategy?

7.What happened to their plan of doubling their distribution outlets from 2 lakhs to 4 lakhs by FY 15?You have a niche brand,you very well know you are maxing out your existing capacity soon,you are also expanding your geographical reach,then why there is a delay in announcing the plans for ?If economy comes back on track,you cannot build a manufacturing facility overnight and expand the distribution network.

8.In case,if they are in wait and watch policy for a while,why not leverage the existing distribution network by introducing some more products?


(Mahesh Shah) #101

Hi Sambath,

Firstly, I have no hesitation in admitting that I am very much disappointed with the management as also passive attitude of PE investor…frankly speaking, I had not anticipated this…

Now, coming to the company & sector, you need to understand one thing that only expanding panIndia will not serve any purpose except of further lowering profit margins…what you need to do is increase the number of SKUs as snacks is a segment in which buying is generally impulsive and one never knows at a particular point of time which SKU will catch-up demand…therefore, unless you have strong presence in all categories like namkeens, extruded snacks,chips, etc.you are bound to suffer…at a smaller scale dependence on one product is ok but if you want to scale up presence across categories even if you are serving one segment like savory snacks is very important…when Westbridge took entry in this company, what I thought was this weakness of the company will be eliminated…however, instead, what we are seeing is company is only expanding its presence geographically and doing nothing on actual manufacturing front…forget manufacturing, as even that can be tackled by outsourcing but atleast augmenting its presence in various categories was key but even that is not done…

its peers are comfortably growing in double digits and in this segment time lost is opportunity lost…unless there is some initiative soon, I see this company more to be a target of a dynamic player like Prataap snacks (with whom westbridge enjoys close proximity) and nothing else…when such thing happens, this company will be worth watching and not now…however, this company merits close monitoring by an investor.


Discl. - Negligible Holding