Flex Foods- Value play on export Foods

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

Flex Foods Analysis

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

P/BV

1.43

PE

7.17

D/E (Incl. Short Term debt)

0.39

Dividend Yield

3%

Credit rating upgrades

BBB

-BBB

Free Cash Flows

NA

-0.99 (capex)

4.29

2.16

Export Sales %

NA

73%

70%

64%

5 year Sales CAGR

12%

5 year Profit CAGR

22%

Inventory Days

61.55

Debtors Outstanding Days

82.38

Creditors Outstanding Days

18.42

Cash Conversion Cycle

125.50

I have vested interest in the stock, so I ought to be positively biased on the stock.

thanks for the idea - the company has never set up a plant outside of uflex’s mother land - noida. Given his obvious political connections and that such a project could have benefited from government largesse which is not scalable/sustainable, I would stay away from it.

I would consider this if there was a change of management (ala satyam - now bought over by tech M) but without that, no institutional investor will ever touch this stock. I do not see that great an upside for me to invest at 7 x PE with 3 % yield - I can invest into Hyderabad industries which is growing EPS at 15-20% which is also at 7 x PE -

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Who is SUNITA SANTOSH GOENKA ? She has increased her holding in this qtr.

Regards,

I don’t know much but I am a resident of Haridwar and on my way to dehradun have seen its plant.

The promoter quality is questionable. See the discussion on this thread Aseptic Packaging (like TetraPak)

Sighting great earning fluctuations and inability to scale up I have sold my positions.

Should we start tracking this again?..

in my view we should be tracking this company, with their new plant in hosur, there will be substantial increase in its revenue, just need to see whether they are able to maintain the operating margins, in the listed space and in this sector, i am not sure are there any peers to compare. with expansion in place, we should keep a watch.

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Yes , they are already running it at 70-80% expansion and new CEO has been appointed

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Stock is witnessing small and staggered buying from promoter groups with 21K shares added in last 3 months. Looking at yesterday’s price action in particular, appears some intense speculative play happening in the stock. A positive break out with higher volumes can take the stock to fresh all time highs.

Without any major news flows, adding at current levels may not be a good idea.

Disc: Invested and intend to hold for longer term.

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