AGREE.
If they get their act right, which I hope they will, it can be a superstar.
did you see market share numbers for sundrop? how is it doing well?
Hi v4value,
Yes the mkt share has slipped wrt Saffola and to some extent Fortune. However its volumes are growing and the catageory ( premium cooking oils ) itself is showing good growth. ( bcoz of people upgrading to better oils ).
It is just that it is growing slower than saffola and hence the aberration in mkt share.
Hi @ranvir I also feel that branded cooking oil in all categories even bottom pyramid is replacing unbranded oil.
Even Pincon oil brand has shown very high growth, which surprised me.
Do you have some data source on this?
Here is one link- showing the growth in branded oils and fall in loose oil sales.
1 Like
Agro Tech management is focusing on food business. They have clearly said that they are happy if Sundrop, Crystal oil sales remain as it is â it is used to pay the bills of the company but focus is on the snacks business. So we should not invest in this company if your thesis is growth in branded oils. For the latter Marico is obvious choice.
disc - invested in AgroTech
1 Like
Bhaskar my worry is if Agrotech loses share in Sundrop, teh only bargaining chip they have at distribution, how will they compete with an ITC suite of products? They will be neither here (oil) nor there (food)
We should remember that as a company AgroTech was a pioneer and started the retail popcorns business with its Act2 brand. We donât have any other big competitor in this business. Then they started Sundrop Peanut butter, tortilla chips and other bag snack products. Though there are few big competitors in these businesses including Doritos,ITC, regional players like Tasty Bites etc.
They can also bring-in other products from its parent ConAgra in the future. As a strategy I would also want them to concentrate equally on both the oil and foods business but they are very clear that their focus is on ramping the food business.
We should not expect any short or medium term gains with this stock. This stock/company will test our patience. My thesis behind investing is captured in my blog - https://indianvalueinvestorblog.wordpress.com/2016/01/24/agro-tech-foods/
disc - invested in AgroTech
1 Like
Absolutely agree with Bhasksar.
Lets see how it goes. Patience shall be the key here.
Short Summary of Q3 conference call:
we have also prepared few other summaries. Sharing here: https://goo.gl/5RTk0o
To get mail alert for daily updated summaries, pls fill in mail id in form here: https://goo.gl/forms/rKVCPDBBdCSsUZHB3
Read disclaimer for summaries here: https://goo.gl/HELov8
Cycle seem to be turning in favour of the company
Agrotech foods was a Stalwart Advisors pick. They have now given exit recommendation because of lack of price movement was inflicting a loss of opportunity cost.
But technically, the stock is now under volatility compression on long term charts. A huge breakout seems to be inevitable in the next 2-4 monthsâŚ
I am given to understand that this has been a Prof Sanjay Bakshi pick tooâŚbut not sure.
Anyhow, i have purchased a good qty of Agrotech foodsâŚi find the downside risk to be quite limited to 450âŚand upside potential to be quite good. Fundamentally, the stock continues to remain a good pick.
1 Like
- ATFL has done nothing in last 5-7 years would be the first impression one will get at a quick glance.
- Peel the onion and one can see a very slow transformation towards Processed Foods business (focus area of ATFL).
- Processed Foods revenue contribution: Up from 14% in 2012 to 22% in 2017 (major revenue still comes from Edible oil segment - Sundrop and Crystal).
- ATFL intends to clock 50% of their business from Processed Food. Invested new capital in this segment.
- Snacks market size: Expected to grow from $2bn to $5bn in 5 years. ATFL plans to benefit from this consumption growth.
- Processed Foods: ATFL gaining traction in Sundrop peanut butter and Act II consumer segment.
- Processed Foods clocked ~175cr revenue in Fy17. Has capacity to do 450-500cr (<40% capacity utilization currently).
- Processed Foods segment growth numbers is not coming out at a quick glance. It is masked by significant drop in vending corn & tortia segment; down to ~10cr now (not much to lose going forward).
- ATFL intends to target both i.e. Western snacks (through Act II brand) and Indian snacks (through Sundrop brand).
- Western snacks have higher gross margin than Indian snacks. Unlisted Indian snacks co. (Balaji/ Haldiram/ Parle): EBIDTA 18% / PAT 7%.
- ATFL has total 5 plants. Sixth plant (between Bangalore and Chennai - strategic location) should be up in middle of next year.
- ATFL intends to widen the portfolio. Once you get mastery in this field, it is easy to widen.
- ATFL is almost debt free. Not much capex plan/required. P/B ~3.4. Will generate ~50-60cr cash in Fy18. Trading at ~1250cr MCAP currently.
- Do see Sundrop peanut butter and Act II consumer products gaining prominent rack space in supermarkets (my observation is limited to couple of large retail chain in Bangalore).
- Investment thesis: Green shoots in Processed Foods number to gain momentum going forward. While maintaining current revenue in Edible Oil business. PAT has bottomed in Fy16; on gradual up move now.
Risks:
- The anticipated growth in Processed Foods fail to materialize (medium probability).
- Rapid de-growth in Edible Oil revenue (low probability).
Disc: Invested recently (minor allocation). Have been patiently nibbling around 500-520 level.
11 Likes
I share the views. The stock is cheap with low downside but capped upside till it actually is able to deliver on numbers. It has fatigued investors patience to a dropping point. The competition is hotting up with domestic and other foreign brands already establishing market presence. The management commentary during con call has always been positive but the realization in numbers is key to watch out for. My guess still a long way to become a visible FMCG player. Odds still in favour of the company for the price is still a bargain at CMP.
- Flat sales in Q2Fy18. Operating Profit up 19.5% YoY. Net Profit up 23.4% YoY.
- Improvement in OPM and NPM (best in last 10 quarters).
Source: http://www.bseindia.com/xml-data/corpfiling/AttachLive/7dfa5598-a304-404e-99bc-e32d9b9036a0.pdf
4 Likes
Isnât flat sales a bit concerning? after all the capex it is doing for so many years, top line is not moving, not just this Q but for last several years. Why all this capex not generating sales?
Growth in Operating Profit also due to cut in advertising which means future sales are likely to be flat as well.
2 Likes
Couple of reasons (Source: Management commentary) -
- ATFL clocked growth in traditional trade and in modern trade. However, alternate channel trade was down by 500 bps in Q2Fy18. What is alternate channel? The channel that service government employees or ex-govt employee and receive benefit prior to GST which they donât receive today. Or they receive today but are in process to figuring out how they are going to walk the whole system. In short, this channel is working through their own transitional pains. Will return to normalcy shortly.
- GST: âAccountingâ impact on sales growth. Around 150 bps impact. Comparable sales growth > Reported sales growth. This applies to all FMCG companies. Can look at HUL/Nestle slides to understand better. In Q2Fy18 companies are reporting revenue net of GST while Q2Fy17 it was gross.
- Softer oils prices in H1. Sundrop oil volume was down 1% but revenue was down 5% YoY. Crystal oil volume was down 2% but revenue was down 7%.
- Edible oil is a commodity business. Has low entry barriers. Any new entrant can spend money on advertising and gain market share. Couple years back Adani did it (Fortune Oil). Then Emami. And now Patanjali doing it. Also absolute amount of space edible oil command today in modern trade is significantly lower than 5 to 10 years ago. Number of shelf devoted to edible oil has halved. It is only going to reduce further. There is growth but at bottom. Migration from loose oil to packaged oil. Canât smell money there. You can make money through scale. But canât make money too much. Also consumption pattern is changing. With increase prosperity, cooking is coming down. People consume lot of ready to eat snacks today, but consume less packaged oil. In short, canât smell much money in edible oil.
I think ATFL should be judged on how they perform in foods business. Peanut butter revenue up 70% and Act II Ready-to-Eat revenue up 46% YoY in Q2Fy18. Foods business reported growth of 20% this quarter. Foods share of the business rise up to 27% this quarter. More Indian snacks coming under Sundrop brand in next 6 to 12 months. ATFL has increased distributors by 20% in last six months. If they are able to do the same in next 6 months means 35-40% increase in a year. That is a biggie. Basically, as product portfolio increases, distributor traction increases. More distributor, means more city/town coverage. Ultimately wider coverage will result in sales growth in days to come.
Advertising and Promotion expense is lower by 3 cr this qtr YoY. 10.8cr v/s 13.8 cr. This reflect two things -
- Prior year includes service tax. This year the tax has been passed on. 1 cr gap on account of this.
- The balance is media spending reduction as a consequence of the lower sales in the alternate channel. Basically moderated it because this is certainly the business that is not going to come this quarter. As and when alternate channel business recovers, ATFL will reinstate this money. We can expect to see that the gap will start to close as we go forward.
13 Likes
Only thing they can vouch for so far is their RTE popcorn a far cry from what it could have done in past 6 to 7 years. Stock languishing as the management is bz with Conagra losing marketshare in US. It did create good infrastructure but ITC after selling this business has moved up the ladder chain much faster than Agro tech. It has potential will it create the magic only time will tell.
1 Like
Hi, Is there any concrete news for move for more of 40% in recent months?
Or it is just discovery of the stock having a huge potential in packaged food segment. Next frontier of FMGC
Still below <2000 cr market cap and subsidiary of one of largest American food companies.