Q2FY10 update from CRISIL
Lakshmi Energy and Foods Ltd
Changing grains
Fundamental Grade 3/5 (Good fundamentals)
Valuation Grade 5/5 (CMP has strong upside)
Industry Food Products
Fair Value Rs 130
CMP Rs 71
November 29, 2010
Despite a significant fall in non-basmati rice sales, Lakshmi Energy and Food
Ltdâs (Lakshmiâs) Q4FY10 revenues exceeded CRISIL Equitiesâ expectations
thanks to higher basmati sales. Margins and earnings were lower than
expected due to high advertising and marketing costs, and reduction in
contribution from the high-margin power segment. Decline in non-basmati rice
sales (4% contribution in Q4FY10, lowest historically) remains a concern, but
we retain the positive outlook on prospects of basmati and maintain the
fundamental grade of â3/5â.
Q4FY10 and FY10 results analysis
â Lakshmiâs Q4 revenues grew 112.6% y-o-y (13% q-o-q) to Rs 3,978 mn,
thanks to the three-fold increase in the basmati segment. This was
partially offset by 70.2% y-o-y decline in the non-basmati segment, as
there were no sales to FCI. Revenues for FY10 grew 73.6% y-o-y to Rs
12,048 mn, above our estimate of Rs 10,981.7 mn.
â EBITDA margins declined 1,856 bps y-o-y (up 66 bps q-o-q) to 14.6%. For
FY10, EBITDA margin declined 1,440 bps to 17.2% mainly due to the
38.4% y-o-y revenue decline in the high-margin power segment.
â In line with a decline in EBITDA margin, PAT margin also dropped 1,123
bps y-o-y to 5.9% in Q4FY10. It declined 580 bps y-o-y to 7.4% in FY10.
Earnings estimates revised downwards; introducing FY12 numbers
Due to insignificant contribution from the erstwhile core, non-basmati rice
segment, during Q4FY10, we revise our revenue estimates downwards by
4.3% for FY11. Considering the launch of âLakshmi Foodsâ brand and inventory
costs for basmati, we revise earnings estimates downwards by 9.4% for FY11.
We expect FY12 revenues to increase 20.4% y-o-y to Rs 18,145 mn, EBITDA
margins to dip 60 bps to 17.4% with an EPS of Rs 21.4.
Key development: Lakshmi Foods brand to be launched in Q1FY11
â The company is expected to launch Lakshmi Foods brand in Q1FY11.
â Power sales declined 70% y-o-y to Rs 90 mn in Q4FY10 as heavy rains
during the quarter impacted conveyor belt operations.
â The FCI did not lift damaged stocks lying in godowns in Q4FY10. Hence,
Lakshmi was unable to mill rice for the FCI impacting non-basmati sales.
Valuations: Current market price has strong upside
We have rolled forward our projections by one year and continue to value
Lakshmi based on the sum-of-the-parts method, with a revised fair value of Rs
130 per share (rice â Rs 86; power â Rs 44, based on DCF) from Rs 136. We
use P/E of 5x for the rice business, lower than 6x used earlier, factoring in the
loss of business from FCI and change in preference for basmati rice. We
maintain the valuation grade of â5/5â.
KEY FORECAST*
(Rs mn) FY08 FY09 FY10P FY11E FY12E
Operating income 16,050 6,942 12,056 15,067 18,145
EBITDA 3,279 2,195 2,073 2,712 3,153
Adj PAT 1,617 916 886 1,176 1,351
Adj EPS-Rs 25.6 14.5 14.0 18.6 21.4
EPS growth (%) 168.1 (43.4) (3.4) 32.9 14.9
Dividend yield (%) 0.7 0.8 0.8 0.8 0.8
RoCE (%) 29.2 18.6 15.2 18.1 19.1
RoE (%) 30.8 17.8 14.7 16.8 16.5
PE (x) 2.8 4.9 5.1 3.8 3.3
P/BV (x) 0.9 0.8 0.7 0.6 0.5
EV/EBITDA (x) 2.6 4.3 4.0 3.4 3.0
Source: Company, CRISIL Equit ies est imate
CMP: Current Market Price, *Company has September year-ending
this stock is 10% of my folio