Lt foods (daawat)

L t foods @ Concall may 2022


=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.


=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

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.

= 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.

=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.


=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.

=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.


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.


=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.


=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.


My latest portfolio


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.


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


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.


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.


Disc: Invested and a significant part of my PF

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Does anybody have info on how LT foods related Global Foods Trading Group(GFT), there are few transaction between them listed under related party transaction - GFT companies, Buddha Gourmet Foods and Sidhu foods(part of GFT). Are they relative to promoters? I can see one of related party director has same surname (Bhandari)

Can a basmati rice variety grown in Madhya Pradesh can be called as Basmati. Since GI has been given to only few norther states and there are some court cases requesting GI for MP. Any news on status of case. Company has a decent size milling plant in MP


Abhishek Maheshwari: Okay. So overall basis, you are seeing it was a 10% volume growth. Okay. And going ahead, do you see this to maintain similar levels in FY’24 also 10% to 15% volume, sir?
Ashwani Kumar Arora: Next year, as we are optimistic and the category is growing across the geography we are working. So we are positive to deliver double-digit growth

Abhishek Maheshwari: And I’ll get back to this maybe later on. Secondly, sir, do you see that at 11.5% EBITDA margins, you are at the peak of the operating leverage, or there is still some potential that operating leverage will kick-in with higher volumes and EBITDA margins quite improve?
Ashwani Arora: If there is a potential, we have given the guideline that by year 2025 our return on equity will be, we are targeting 20%, return on capital employed 23%. So there is still a room for the margin expansion.

Mohammed Patel: It is very difficult to hear you. Second question is, is the freight cost only reason of improvement in margins? And if yes, do we see that we shall pass on the benefits in correcting prices downwards in coming quarters?

Sachin Gupta: Freight cost was one of the reasons for the growth in the margins in the quarter as well as year-on-year basis. So of course, certainly, certain part is to be passed on. But I think, the whole part will be passed on. So we are expecting a margin expansion in the going forward years as well. There was certainly the scale also kick in and I was able to have a 44% expansion in the profit on out of scale asset. And there was a GP also increased. So all these factors impacted to an increase in the overall EBITDA margin in this quarter.

Sunil Inani: Right, sir, and what are your capex plans going forward?
Ashwani Arora: So it will be similar in the range that we have done in the last year. So similar we will be increasing the production. Some will go in generation of power, and some will go in capex.

Amit Jeswani: A great set of number. My first question is, and my team has been asking you the same question multiple times, but sir your equity today is INR2,800 crores assuming you do a INR500 crores PAT next year, you’ll be at INR3,300 crores and broadly to achieve the 20% ROE okay, which you have guided, you’ll have to do INR660 crores of PAT that would be super. As of today, sir, we are – our market cap is INR4,000 crores. And you are now 40% bigger than the market leader, the old market is leader. If you reinvest this cash flow that you’re generating, I’m just seeing your last 4 year’s free cash flow is INR1,000 crores, right, your operating cash flow minus capex is INR1,000 crores. Sir, it makes no sense for you in our humble opinion, so why are we not doing buybacks at the INR4,000 crores market cap. You’re less than 9 PE, 10 PE your ROC will be north of 20%. If you can reduce your equity, you’ve been looking at a very large EPS. Our EPS today is INR12.5. You’re targeting closer to INR18 EPS and if you do a buyback of INR300 crores, INR400 crores, you’re looking at north of INR20. I’m just trying to understand, sir, you’re thinking about it. Because you’ve built a building business in the last 70 years. You’ve got one of the better auditors. Just trying to understand how you think about it.
Ashwani Arora: No, we have – as said in the last con call also, we are positive and because at that time, some deal was happening. And we are positive that in the next board meeting we may discuss about that.

Amit Jeswani: Got it. And Arora ji, typically, whatever you’re guiding, you’ve been able to achieve for last multiple years. How confident are you on the INR650 crores kind of PAT in FY’25 of the 20% ROE? That is the minimum PAT that you will have to achieve from INR420 crores PAT today.
Ashwani Arora: So we are very confident. That’s why we have given the guideline

Amit Jeswani: Sir, are you investing in power that KRBL doing. So now your margins will actually move higher from the 11% level closer to 14%, 15% in the next two years, is that the trade year? Ashwani Kumar Arora: That’s what the guideline is that we are targeting to have EBITDA margin, 13.5%. That’s what is one of the building blocks.

Ajay Rajguru: What is the size of distribution in India? And how many number of distributors and total outlet that you reach directly and indirectly?
Ashwani Kumar Arora: So in general trade, as you said, the retail outlet, we cover 171,000 outlets. And we are across all omnichannels and 110, distributors are at 1,200 distributors.


I wonder why LTfoods is available at such a cheap valuation(P/E - 10 or 11). Revenues are more than the market leader KRBL. Gaining market share in india + expanding into new geographies(Middle East). From past few years, Management is achieving the guided results. ROE can be improved, if they can do buyback. Open for acquisition with good reserves(looking for business with 30% margins). Good distribution network in India, US & Europe. Guiding for doubling revenues in the next 5 years. I am still bullish even after runup 5times from 2020. Atleast 4x from here

What could go wrong?

  1. Government restrictions on rice exports.
  2. Climate conditions(Drought/Heavy rainfall).
  3. Commodity business with slow growth(need lot of working capital).
  4. Guiding margins are 13%, sustained margins - 10 to 11%, increasing margins could impact sales.
  5. Demand slow down due to EU & US Geopolitical issues.
  6. Health, Convenience & Organic segments are not growing as expected.

OPM is less compared to KRBL, also promotor sold 5.81% holding

Hi Nitinsai,

Thanks for pointing this out.

  1. Yes you are correct. Ltfoods is playing on scale instead of OPM.

  2. Promoter holding 5% selling is a part of SALIC deal.
    No more promoter selling: LT Foods CEO after SALIC deal