Freshtrop Fruits Ltd


(chaitu) #21

Thanks Ravjit for informing us.

They did 70 crores business for Q1.

Considering Q2 - 10 crores and Q3 - 10 crores and Q4-45-50 Crores business. So for the current financial year they are on track for Which is good. This should be translated to a minimum EPS of 10 rs for current financial year excluding Q2 and Q3.

So projecting 30% growth for next financial year i.e 200 crore, which is aggressive.

Doubling the fruit processing is an good indication, this is giving little hope for Q2 and Q3.

Can you give more info about processed fruit segment unit details if your time permits.

Did they gave any clue about how they are going to improve the Q2 and Q3 performance?


(Ravjit Singh Bagga) #22

This year they can do 133-140 cr and net profit i think should be close to 8-9 cr.

The game here is all on profit increasing because of turn around in the fruit processing division. They are finding it difficult to expand their business as the sourcing of fruits is very difficult. There are businesses in their vicinity which have closed or are doing losses and have high debt. Companies like Mahindra Shubhlabh have overtaken them in sales but that has been by taking penalty by giving higher credits to customers and taking hit on profits.

Q2 and Q3 fruit processing would be more or less same as the Q1. If there are no losses then its a big positive.

If you read their this years AR, they right that with increase in 20% utilisation there would be increase of about 25% in operating profits and 40-50% in net profits. This statement again i dont know if any promoter would write in AR which shows being very bullish but we should take it with caution and see if they walk the talk.


(shak) #23

@ravjit, if at all the mgmt walks the talk and comes up with a decent positive quarter i think this could double from current levels.Any update on the meeting?


(Ravjit Singh Bagga) #24

Dear Shak,

Targets for me are far off but yes there could be upside if results are positive…

We could not get a direct meeting with the MD. They are very hesitant on giving the capacity utilization figures for the fruit processing and grape export figure in tonnes.

What i learnt is that for fruit processing utilization is in number of day utilized in a year rather than hours of day. I dont remember the days he said during AGM but was something close to 215-225 days.

Also they have started with Pomegranate arils export… Check online advertisement at alibaba.

Also check SHP of Sep Qtr… Some of the savvy investors have exited…


(shak) #25

A look at the shareholding pattern says the promoter increasing his holding -now stands a tad at 55.86%,i wont be worried about some investor exiting…yes checked alibaba, pomegranate, mango concentrate also on sale…one of the investor has met the management and they have clearly stated that losses in the food division is a thing of past and they are expecting very good numbers this year.Time to wait and check how things unfold.ban lifted this year…could that be the reason for big numbers in q1?


(Ankit Gupta) #26

Hi Shak,

European ban on imports of grapes from India was uplifted in FY12 itself. Higher sales during Q1 was on account of higher realisation of grapes. For me the important thing to note in Q2 results would be the continuing improvement in the food processing segment (fresh fruit segment hardly contributes anything during Q2 and Q3). I think management’s views should be taken with a pinch of salt at least in Freshtrop’s case.

Disc: I am positively biased towards the stock.


(shak) #27

thanks ankit, yes the import was lifted in fy12 but looks like the company never got really affected with the ban.Even the recent hailstorm in maharashtra did not affect the q1 results(both top and bottomline were good). Most of the other companies in the food processing sect have a pe of 25-45(that too with heavy debts) so there is a pe rerating too in store, a positive q2 should do that imho.


(Ankit Gupta) #28

Shak,

The company’s bottom line has shown a lot of inconsistency over the past 10 years. The good thing about the European ban was that lot of small players got wiped out and consolidation has happened in exports of grapes. They haven’t been able to get into export of mangoes and it wont contribute majorly even going forward.

There are not many listed companies in the food processing sector (Jain Irrigation has food processing segment but it is small in the overall scheme of things). I haven’t heard of any considerable success in the food processing sector by a company. It’s a tough sector to get into with considerable investments required in it. ‘Re-rating’ is not in investor’s hand. We should be more concerned about how the business is performing. Market will definitely reward a company which has been performing ‘consistently’. For that Freshtrop will have to consistent improvement in food processing segment (they are yet to break even in this segment on yearly basis) while growing their grapes business at a decent pace of around 15-20%.


(shak) #29

Ankit, Freshtrop has recently established a state-of-the-art juice processing plant at Nasik, Maharashtra, about 180 km from Mumbai.what does this mean? An increase in bottomline in their food processing sector?


(Ankit Gupta) #30

Shak,

They already have a food processing unit at Nasik since past 3 - 4 years where they have capacities to process juice concentrates, purees and pulp. They have installed second line in the unit towards the end of FY14 which is operational now and can be one of the reasons for improvement in the performance of the food processing segment going forward.

Please go through their ARs to understand the company better.


(onefoothurdle) #31

Hi Ankit, Ayush and other experts. I went over the management and directors comments in last 2-3 years annual reports and I dont see any concrete plans which might lead us to believe something is changing dramatically to improve the business. but i could be wrong and meanwhile stock has jumped signficantly dont know when the earnings will be out but it will interesting to see if we will get the kind of growth stock price seems to be indicating.

These are the quotes from AR to me the comments seem like general bullishness that management and promotors expect to have.

AR 2011

Freshtrop has undertaken a gradual shift towards marketing to EU retailers directly with predetermined prices as compared to earlier model of 100% consignment sales to intermediate service providers. This has helped strengthen customer relationships and also backward linkages where associated growers are better prepared towards meeting the requirements of the EU retailers.

Freshtrop initiated supplies of Table Grapes to the domestic market â both organized as well as unorganized sector. This has enabled in utilizing our infrastructure for a longer period as grapes availability for domestic supplies is much longer than the exports season. This is likely to see a significant and rapid growth in the coming years.

Freshtrop has made some inroads in supplies to the other markets such as CIS countries and fareast and intends to further increase presence in these markets.

AR 2013

The year under report shows a growth in the total income from 619 million to 935 million an increase of 51%, while the profit after tax has grown from 5.4 million to 35.37 million. The increase in the Income has come from growth in both our business segments, fresh fruits exports and processed food business. We feel both these segments have a large potential and will continue to grow and contribute to the profits of your company in the coming years

During the year under report our Income from this segment grew from 154.44 million in 2011-12 to 218.70 in 2012-13 a growth of 41.65%. We expect to continue this growth rate for the coming few years.

AR2014

The year under report shows a growth in the total income from 935 million to1147 million an increase of 22.76%, while the profit after tax has grown from 35.37 million to56.45 million an increase of 59.59%. The increase in the Income has come from growth in both our business segments, fresh fruits exports and processed food business. We feel both these segments have a large potential and will continue to grow and contribute to the profits of your company in the coming years.


(Ankit Gupta) #32

Hi,

Its an opportunistic bet for me and I am betting more on the turnaround in food processing business which would improve the prospects of the company. Food processing is a difficult business and hardly any company has been able to generate profits consistently. It would be very important to track the company on quarterly basis and keep an eye on the regulations from EU for import on grapes. I agree that the business has lot of variables and management has a track record of going overboard on the prospects of the company. Also, the valuations have risen over the past 2 - 3 months.

Disc: I am positively biased towards the company


(Varadharajan Ragunathan) #33

I am not able to see what’s the “moat” in this business - food processing gets constrained on the supply side beyond a certain point unless it’s a branded play. Plus there are always regulations - for eg., government keeps changing rules on export of milk, milk products etc.

Unless it’s a cigar butt, I would be sceptical of investing in this - for analogy, look at any global food processing company in the west - you would be hard pressed to find companies above a $ 1 Bn in turn over - if companies struggle to scale up in the west where agricultural market is relatively free from government interference, it would be a bigger struggle in India where inflation, pro-poor policies, infrastructure etc. are consistent hurdles to be overcome.


(Ravjit Singh Bagga) #34

For me this is some thing to discuss further

From the AR FY2014…

8). To consider and, if thought fit, to pass, with or without modification(s), the following resolution as a Special Resolution: “RESOLVED THAT pursuant to section 197 read with Section II of Part II of Schedule V and other applicable provisions, if any, of the Companies Act, 2013, (including any amendment/modification thereof) and subject to the Companies (Appointment and Remuneration) Rules 2014 such other necessary
approval(s), consent(s) or permission(s), as may be required, and on recommendation of Nomination and Remuneration committee and as agreed, by the Board of Directors (hereinafter referred to as the Board, which term shall unless repugnant to the context by the Board in this behalf) the consent of the Members of the Company be and is _**hereby accorded to the payment of remuneration @ 5% of the net profit of the company to Mr. Ashok V Motiani (DIN: 00124470), Chairman & Managing Director for
the period commencing from August 1, 2014 till the expiry of his present term as Managing Director i.e. ****July 31, 2016 and in case of absence or inadequacy of profits, he be paid a minimum remuneration of `84,00,000/- P.A., **_as may be decided by the Board of Directors of the Company on recommendation of the Nomination and Remuneration Committee of the Board of Directors of the Company.” “RESOLVED FURTHER THAT the Board of Directors be and are hereby authorized to take all such steps as may be necessary, proper and expedient to give effect to this resolution.”

I think that if the MD thinks that the company can do higher profits and take 5% salary which as per current year projected profits is on the lower side and hence minimum salary of 84 lakhs. But in coming year of 2016 if he thinks that he can get higher salary then 84 lakhs with 5% of net profit then that is a very good indication of things to come…

Also how should we rate the management on this resolution. Is it okay for MD to take 5% of net profit as salary?

Hiteshbhai, Donald, Ayush and other [email protected]@


(Rajesh Rajput) #35

Hi Ravjit,

This pt shouldn’t be much of a worry because:

1). He has already taken a salary last yr of about 15% of PAT :slight_smile:

2). During the tough yrs, he did not increase his salary.How many promoters do you know who haven’t taken a hike for 5-yrs.

Rgds

Rajesh

Disc: Invested.


(Ravjit Singh Bagga) #36

Hii Rajesh,

FY15 projected net profit should be abt 8-9 cr so that salary is about 10% and wont think of FY 16 numbers as yet but if 5% is based on FY16 then there is something to be happy about.

1). What i wanted to understand is that do other companies follow that trend of passing resolution for paying 5% net profits as salary? It could have been just a figure of 1cr. Why percentage of profits? Does it signal anything?

2). Does it speak about Management quality/intentions for us investors or we should just leave it and not think much about it?


(Rajesh Rajput) #37

Vardharajan,

To me the Moat looks to be:

1). The no. of certifications the company has, which it has been renewing for many years.

2). Its long standing direct relationships with big clients like ASDA, Tesco, etc.

3). Its long standing relationships with its suppliers - payables have been consistently higher than receivables and growing more than receivables.

4). Improving Sales/Invested Capital with improving margins, is another excellent indicator of improving competitive advantage and therefore, presence of moat.

The first three are not easy for a new company to accomplish.

And as long as the company can maintain and build the first two, it will always be able to monetize these investments by having more business from existing customers and new business from additional customers.

Rgds

Rajesh


(Rajesh Rajput) #38

Ravjit,

1). I would like to believe that most companies seek similar resolutions defined in percentage terms as well as absolute terms in absence of profits. So this isn’t new.

2). Yes, it is extremely important but needs to be seem in the overall context e.g. - as a trend, absolute values and not just percentages, size of the company, importance of the MAN in a company (where it becomes like a royalty - you take the name COLAGTE out and nobody will touch the toothpaste…maybe same here), promoter holding, increase in promoter holding.

Seen alone can sound like an alarm but seen in the overall context can sound like a melody :slight_smile:

Rgds

Rajesh


(shak) #39

“I agree that the business has lot of variables and management has a track record of going overboard on the prospects of the company.”@ankit)- why do you say overboard? Have they not walk the talk so far?..promoter holding has increased significantly over the years. from the annual report 2013-2014

3.Expected increase in productivity and profit in measurable terms:

_The capacity utilization of the plant shld in increase by over 20% resulting in revenue increase of over 25% and profit before tax increase by 40-50%- _

what is aggressive in this ?..my thinking is that the management being an IIT can deliver it.

@ varadha -latest news about food processing

http://articles.economictimes.indiatimes.com/2014-10-31/news/55631594_1_mega-food-park-fpi-sector-food-processing-industries

food processing is growing at a good rate in India contributing-9-10% GDP growth

http://articles.economictimes.indiatimes.com/2014-03-31/news/48735350_1_jain-irrigation-systems-stake-sale-internal-operational-policies

However its not an easy business to be in, I will say one thing if the management has held itself so well during tough times, then it will do significantly well going ahead…I am bullish on this stock at least for the next 2-3 years. Most of its competitors listed are saddled withvery high debt, take for example foods and inn(deals with fruit syrups and concentrates). so if management continues to walk the talk shareholders may benefit.

disc: invested and will continue to.


(shak) #40

http://timesofindia.indiatimes.com/india/EU-may-lift-ban-on-import-of-Indian-mangoes-this-month/articleshow/45346445.cms dated 2 dec 2014

This is good news for freshtrop holders.