Lt foods (daawat)

L t foods @ Concall may 2022

1…Performance

=Our consolidated revenue for Q4, FY’22, was up by 31% at INR 1,537 crore versus INR 1,169 crore in the Q4, FY’21.

=This is on account of increased sales from all three business segments, that is, Basmati and Other Specialty Rice, Organic Food and Ingredient Business and Convenience and Health segment.

=The Gross Profit was up by 27% from INR 404 crore to INR 515 crore due to change in product mix.

=The Company did an additional investment in brand and also there was increase in the freight cost by 3.5% that led to an increase in the other expenses by 40% versus last year.

=Our logistic cost during this year is INR 426 crore as against INR 287 crore last year. And in this quarter itself, our logistic cost is INR 140 crore. Last year, same quarter, it was INR 65 crore.

=The Company has generated significant free cash flows amounting to INR 373 crore up by 8% driven by strong performance in FY’22, that has led to decline in overall debt by 229 crore.

=The Debt-equity ratio improved from 0.7 to 0.5 times as the overall debt of the Company was down by INR 229 crore to INR 1,061 crore on yearly basis.

=Current ratio has also improved
significantly to 1.78 from 1.70 last year.

=Because of our continuous focus on the working capital optimization, our net working capital has reduced by 28 days to 207 days in financial year ’22 versus 235 days last year.

2…Growth

=Satisfying growth has come from all the businesses

=. Basmati and Other Specialty rice with a growth of 9%,

=Organic Food and Ingredient business with a growth of 19%, and

=Convenience and Health segments with a growth of 62% which is 2% of our revenue and has crossed a milestone of INR 100 crore and has reached to INR 121 crore.

=In terms of market share, our brands have grown at a faster rate than the market and there we’ve picked up market share. So in India, we’ve picked up almost a 1.5% share, and especially in the channels where the growth is coming.

=So in ECom, we have leadership share.

= In modern trade as well, in stores like Reliance and DMart. We are market leaders in E-Commerce channels like
Amazon.

3…ROC@20% -23% target

A…Product mix (margin)
B… scale.
C…optimizing the working capital.

=I think all these three initiative will take us to the ROC of 20%, which we are working towards – 23%.

4…New products

= It is currently 2% of total revenue. And we expect this to go to 10% in the next five yrs.That should drive 1.5% increase in our operating margin

=This is the first year of the big new product initiative going in the market, and the initial sign of consumer acceptance are very positive, and we are continuing our progress to achieving 10% of our revenue over the next five years from these new product lines.

=The new products will be requiring lesser of my working capital, the working capital cycle in the new products is comparatively less. It requires a working capital cycle of 90 to 100 days.

=Once that 10% of my total revenue comes from the new product, | will have a reduced working capital and 1.5% increase in margin in next 5 yrs.Both these things will be contributing to the ROC of more than 22%.

= We have ready to eat; we have ready to cook in our portfolio. And as | said we are getting a very good interest of the consumer. And the categories are large enough to give us a volume of that.

= We define ourselves as a Consumer Food Company, giving specialty food in terms of specialty rice and rice value-ads.So all the adjacencies where there is a consumer need, which we can, with our core competence satisfy, we are into.

Q=So would it be fair to say that you are trying to build on your core competence of rice and look at something adjacent into that rather than just being all over?

Ana=Absolutely. We are building on what Daawat as a brand stands for and where it extends. So certainly, we are not going to be all over, as you’ve rightly said.

5…Advertise
= Ad spend is 2.3% of revenue

=We will be increasing the ad
spend. But we also will have a synergistic impact because all of them are under the Daawat family brand. Overall, the ad spend will go up to close to 3% next year, from the 2.3% this year. But,
ad spending is something that you take a call on quarter-to quarter basis once you see what’s happening in the market and with the business.

6…Risk
=Risk is, as | explained — we have to pass on the price increase to customer. That’s the only risk.

=On the service level, on supply chain, we don’t foresee any short term risk.

7…Competitiors

=In different geography, different competition is there.

= In India, KRBL is our competitor in consumer space. So again, every different market has different competition.

=Kohinoor brand acquired by adani wilmar is in the market for the last 30 years, and the brand has its own strength. As in, last time when they were in the range of 3% to 4% market share.

Q=Wanted your view on the recent Adani Wilmar — Kohinoor acquisition, in terms of whether you think it’s going to put pressure on margins to grow market share in India, or you see something positive to come out from this.

Ans=: Kohinoor was present in the market for a long time. So we don’t see any big impact of that.

8…Acqusitions
=Our growth strategy is to grow organically and inorganically. And on that strategy, we have done that acquisition in USA of a very strong brand of Jasmine rice and we are open and we keep evaluating.

=Jasmine brand
…Jasmine rice is a direct synergy to our distribution in USA. And as far as brand is concerned that has market share around 10% in that market.

=Golden Star acquisition.
…We are in the phase of completion. This is information is confidential, but maybe in the next call we will be able to explain more on it.

9…Capex plan

=It’s a very normal, we will be spending in the range of INR 80 crore to INR 100 crore.

10…Valuation

Q=We from a INR 1,000 crore revenue. to INR 5,000 crore brand, and you’ve grown very consistently with very consistent margins and ROCs, which are very much decent. I’m just trying to get in my head around why we trade at such valuations. Why do we trade it around 7, 8x? Maybe 5x are cash flow from operations

Ans= Actually, wnen we started LT Foods, the revenue was INR 3 crore. And where we are, we are very proud of as an LT Foods. And on the valuation front, | think you are, you people are the better people to guide us or address on that.

= But for sure we understand as per competitive landscape as a Consumer Food Company, we as a Company is undervalued, very undervalued.

Q=. If you buy back the stock, your ROC would be significantly higher than what you’re getting in the business.

Anz=Yes. We are evaluating this option.

11…Payment to farmers

=In Punjab and Haryana ,payment to farmers would be through Mandis and in MP, UP it would be directly through farmers

=So over here, whenever we are making payments to farmer, It’s completely through banking.

12…Why less focus on middle east unlike other companies e.g krbl

=Every Company has its own strategy and play from their own strength. And we’ve chosen to play from
India, Europe and America. Middle East is a little mature market. And as a strategic call, we thought let’s focus on the other market first and this we can take later from.

13…MOATS

=I’d like you say that we have strong distribution channel built over many, many years

= The other big strength that we have in these markets is our brands.

=So these two become very strong leveraging point for us, coupled with our backend strength that we are able to supply from India. We are certainly using this distribution network
and the brand.

A…Brand

=Our brands are recognized in these
markets for premium and consistent quality. They have very good imagery.

B…Distribution channel

=We’ve launched, RTH, Royal RTH in the U.S., which is doing very well. This year we’ve launched Daawat Cuppa Rice in India, in the Middle East, in markets like Australia, we’ve launched Daawat Sauté Sauces and Biryani kits.

= These are all riding on our distribution network, which therefore, do take the Daawat brand across consumption occasions and formats, and further strengthen the brand.

=Kari Kari is a snack that we’ve come in, which is again, doing well, and is again, riding this network.

=And the distribution helps us to get it there, far more quickly than somebody else would be able to. And also provides us the efficiency and skill to our distribution

14…Horeca segment

=HORECA roughly contributes to our portfolio, if you talk about India it is 40% sales, but globally it is in the range of 15% sales from horeca

15…Recently launched New products

A=We just launched a few products, biryani kit and biryani gravies , that we will be scaling up.

B=We also have launched a Cuppa rice, which is doing well, and there is therefore again, we are scaling that up.

= So if we see the next sort of three to six months, we’ve just got two of these big initiatives in the market, which need to be taken across both India
and internationally. And they are doing very well internationally as well.

C=We also have, RTH in the U.S. and

D=Daawat Sehat in India.

=So Royal RTH and Daawat Sehat, which are really big contributors at this point in time to our revenue, but the potential for both of them is much higher.

=We certainly going to be putting brand investment against all these four initiatives. | mean, exact
details of that, we cannot disclose right now, but there would be significantamount of marketing and
promotion spends on all of these.

Disc…invested

My latest portfolio

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lowest debtor days since 2011. inventory days are as low as 2016/17 levels (stock had a massive rally from 2014-2018) Days payable are highest (are they paying late because they have a better market position) Cash conversion cycle is lowest since 2011 and working capital days is lowest since 2011.

how do you these numbers, they look quite promising.

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1…Basmati require 18 to 20 months of aging for aroma n quality so it require high working capital

See krbl have avg inventory days 330 days compared to lt foods having 230

2…Otherwise Working capital is improving

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If any one using dawaat products,please share experience

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Great rice quality,
Am in UK, there distribution is not much developed here. You can get them only in bigger cities or areas with asian presence.
I live in a small countryside english town and I see other brands like Tilda, Laila, Akash, Kohinoor in stores.
The quality of daawat is much better imho

Discl: invested

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Days payable have slowly crept over the day’s sales outstanding. this has never happened in the history of the company. this helps them have a better cash conversion cycle, which is at 209 (the lowest in its history). if the CCC can come down to 180 days, they will be in a sweet spot. that wat they can churn their capital twice in one year and generate more profits

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How does this benefit existing shareholders? Also why is that the stock is going downwards from the time the announcement came out?

Quite a few institutions are interested to know about LT foods as per the below press release.

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The institutional holding (especially from FII) is seeing decent increase in Q3. Given the stock price have remained more than Rs.110, most FII who bought in Q3, would have purchased it largely at the CMP, if not at higher price than that.

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Disc: Invested and a significant part of my PF

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