Company Profile
Flex Foods Ltd. is a company promoted by UFlex Ltd. was incorporated in 1990 and is into the business of Food Processing. FFL is a 100% EOU engaged mainly in the business of cultivation and Freeze drying of Mushroom, Herbs and fruits and vegetables. It exports approx. 70% of the production to Europe and the US market.
Business Understanding & Scope
FFL is into the business of processing foods of many varieties. The company cultivates/sources Mushroom, fresh vegetables & fruits and herbs and processes them through different technologies viz. freeze dried, air dried or individually quick frozen (IQF). This not only preserves the quality of the vegetables & fruits but also increases the shelf life of the product offering it good saleability. Such products are in huge demand in the international market and will be in huge demand domestically going forward. The international business should continue to do well, however increase in standard of living of people in India and increase in modern retail can bring a major thrust for the company in the domestic markets.
Product Lines
Major selling product of the Company is Processed Mushrooms. The global Mushroom market demand is primarily driven by increasing demand for Organic- Products. The global mushroom market is driven by factors such as increasing development of high yield systems, rising saturation in demand and consumer shift towards value-added products. The increasing demand for organic products, rising health awareness and the increasing power of supermarkets will also act as drivers for the global mushroom market. Some of the factors inhibiting the growth of the market are short shelf life of mushrooms and the use of harmful ingredients. Increasing competition and the rising power of supermarkets will serve as an opportunity, fuelling the growth of the global mushroom market. Apart from Mushrooms the Company also sells other fruits and vegetables like Onions, Cauliflowers, Green French beans, Garlic Dice, Papaya, Fenugreek, Spinach and many others. It also sells herbs and spices such as Lemon Grass, Parsley, Oregano, Mint, Thyme, Basil etc.
New Product Lines
The Company has developed following new products, both for domestic and international markets:
Air Dried & IOF Stevia, Air dried Sugar Beat, Freeze Dried Jalapeo Pepper Red and Green, Freeze Dried Banana, Freeze Dried Green Capsicum.
Expansion in 2014
The Company has expanded its Freeze drying capacity by adding freeze dried cabinets. As per the reports by ICRA on credit rating, we understand that there is high visibility of cash flow for the expanded capacity since the whole capacity has been booked by existing major customers.
Outlook
We feel that the company is on a right track and has got the right kind of experience and customer relations to absorb higher level of growth. While client concentration is a bit high, long term relations with these clients ensure repeat orders and stability in cash flows. Companyâs focus on highly value added viz. freeze dried mushrooms and herbs will lead to healthy profitability going ahead. The companyâs plant is also favourably located where it has access to cheap power, favourable weather conditions and proximity to all major input raw materials.
Risk Factors
1. Controversial promoter history
2. High Client concentration and geographic concentration
3. Regulatory Risk related to overseas market
4. Competition from low cost Chinese producers
5. Adverse Foreign exchange fluctuation.
6. High Working capital
Financial Analysis
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Flex Foods Analysis |
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Particulars |
H1 FY15 |
FY14 |
FY13 |
FY12 |
|
Sales |
38.32 |
66.17 |
52.83 |
50.47 |
|
RM Cost |
4.64 |
10.67 |
10.22 |
8.07 |
|
Gross Profit |
33.68 |
55.50 |
42.61 |
42.40 |
|
Gross Margins |
88% |
84% |
81% |
84% |
|
Operating Profit |
9.14 |
12.46 |
6.11 |
6.39 |
|
Operating Profit Margin |
24% |
19% |
12% |
13% |
|
Finance Cost |
1.41 |
2.03 |
1.65 |
1.43 |
|
Other Expenses |
10.72 |
19.27 |
15.6 |
14.55 |
|
Other Expeses to Sales |
28% |
29% |
30% |
29% |
|
PBIT |
9.07 |
13.57 |
7.39 |
6.72 |
|
PAT |
6.42 |
10.35 |
5.58 |
4.18 |
|
Shareholdersâ Funds |
64.17 |
58.23 |
51.17 |
48.48 |
|
Long Term Borrowings |
6.93 |
8.02 |
2.15 |
1.89 |
|
Short Term Borrowings |
17.82 |
15.66 |
11.45 |
11.96 |
|
ROE Annualized |
20% |
18% |
11% |
9% |
|
ROCE Annualized |
20% |
17% |
11% |
11% |
|
Market Capitalisation (INR Crs) |
92 |
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|
P/BV |
1.43 |
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|
PE |
7.17 |
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|
D/E (Incl. Short Term debt) |
0.39 |
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|
Dividend Yield |
3% |
|||
|
Credit rating upgrades |
BBB |
-BBB |
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|
Free Cash Flows |
NA |
-0.99 (capex) |
4.29 |
2.16 |
|
Export Sales % |
NA |
73% |
70% |
64% |
|
5 year Sales CAGR |
12% |
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|
5 year Profit CAGR |
22% |
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|
Inventory Days |
61.55 |
|||
|
Debtors Outstanding Days |
82.38 |
|||
|
Creditors Outstanding Days |
18.42 |
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|
Cash Conversion Cycle |
125.50 |
I have vested interest in the stock, so I ought to be positively biased on the stock.