LT Foods scheduled to meet with Saurabh Mukherjea’s Marcellus Investment.
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Stick to the discussion on the company fundamentals.
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Dear Sidharth,
Interesting article on GI tag. Please go through!
India is facing increasing difficulties in securing Geographical Indication (GI) status for Basmati rice in the global market, which has an annual export value of about Rs 50,000 crores. Both India and Pakistan are staking claims over the GI of Basmati. Amid this dispute, New Zealand has rejected India’s trademark application for Basmati, following Australia’s earlier decision.
New Zealand’s stance is that other countries also cultivate fragrant rice, so no single country can exclusively claim it. The Intellectual Property Office of New Zealand (IPONZ) has refused to grant India a trademark certificate equivalent to a GI for Basmati. India’s Agricultural and Processed Food Products Export Development Authority (APEDA) had submitted the application on behalf of the country.
The dispute between India and Pakistan over Basmati has been ongoing for many years. In 2022, Pakistan applied for Basmati’s GI status in the European Union (EU). India, objecting to Pakistan’s application, demanded its cancellation. India’s own application for Basmati’s GI status has been pending with the EU since 2018. Pakistan claims it grows Basmati in 44 districts, including areas like Balochistan, where even normal rice is difficult to grow, and four districts in Pakistan-occupied Kashmir. Pakistan aims to increase its share in the global market for this premium rice by obtaining the GI status for Basmati.
To understand the global market issue of Basmati, we need to look back. In 2008, a group was formed in a joint meeting between India and Pakistan to address the GI status of Basmati. Joint secretary-level officials from both countries signed an agreement that recognized 14 districts in Pakistan and seven Indian states (Punjab, Haryana, Western Uttar Pradesh, Himachal Pradesh, Uttarakhand, Delhi, and Jammu & Kashmir) as Basmati production areas. It was decided that both countries would jointly apply for the GI tag for Basmati, but deteriorating relations shelved the matter.
In 2018, India applied to the EU for the GI tag for Basmati, but the EU put India’s application on hold. Pakistan applied in 2022, and the EU fast-tracked its application. According to the Geographical Indication (GI) application criteria, the product must be notified under a GI tag in its country of origin. India enacted a GI law in 1999, whereas Pakistan only did so in 2022, after which it granted the GI tag to Basmati and increased the number of Basmati-producing districts from 14 to 48, including four districts of Pakistan-occupied Kashmir. India was unaware of this until Pakistan’s EU application was made public for objections, revealing Pakistan’s strategy.
Upon learning this, the Indian government took swift action, and meetings were held between the Ministry of Commerce, Ministry of Agriculture, and scientists from the Indian Council of Agricultural Research (ICAR). Some officials suggested including new areas in India’s Basmati production area, but senior officials and agricultural scientists opposed this, stating that sticking to the already established areas based on specific geographical location, climate, and soil quality is in the best interest of India and its farmers.
At the Commerce Ministry, Ministry of External Affairs, and Prime Minister’s Office level, it was decided that India would oppose Pakistan’s Basmati application. The strategy is to initiate dialogue between the two countries after Pakistan’s application is rejected by the EU, adhering to the 2008 Joint Group agreement. Only 14 districts in Pakistan will be considered Basmati production areas, and India will produce Basmati in the fixed areas of the seven states.
Interestingly, three objections have been filed in the EU against Pakistan’s Basmati claim: by the Government of India, the Government of Nepal, and Madhya Pradesh. Many scientists and officials in India believe that Basmati production can be tripled within the already designated seven states, covering an additional 6 million hectares. For instance, Punjab currently grows Basmati in 600,000 hectares out of 3 million hectares of paddy, while Haryana’s 600,000 hectares can be doubled. Western Uttar Pradesh could also add 500,000 hectares.
A senior agricultural scientist emphasized that India should maximize its Basmati production within the designated states, as they meet the specific GI criteria. In contrast, Pakistan’s inclusion of new districts lacks legal and scientific basis. There is hope that India will successfully challenge Pakistan’s broad claim over Basmati.
Vijay Setia, former president of the All India Rice Exporters Association (AIREA), stated that the organization is opposing Pakistan’s claim and has presented its case through legal channels. While the EU’s decision is still pending, New Zealand’s recent rejection of India’s application has brought the issue back into the spotlight.
Moreover, Pakistan has captured much of the EU’s Basmati market due to its lower prices. India’s imposition of a minimum export price (MEP) on Basmati last year also negatively impacted exports. Most of India’s Basmati exports go to the UAE, Iran, and other Gulf countries. Therefore, securing the GI tag for Basmati is crucial for India, as it ensures better prices for millions of farmers in the seven Basmati-producing states due to the export market.
Amid dispute between India and Pakistan over Basmati GI tag, New Zealand rejects India’s application - Farmer News: Government Schemes for Farmers, Successful Farmer Stories)%20as%20Basmati%20production%20areas.
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Resolution 4 in the AGM - Re-appointment of Mr. Vijay Kumar Arora as MD - 86% (total 17% votes) of Institutional votes polled were against the resolution. Isn’t this weird and uncommon?
Institutional votes would be from mutual funds holding this, but would not include SALIC?
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And for “Resolution 5: To increase remuneration of Mr. Ritesh Arora, CEO- India & Far East Business, of the Company.” as well, 85% of institution voted against. And since promoter group’s vote is nil, the total vote against is ~40%.
to me it is …LT foods is doing good and yet this. experts in this group may have a more say.
what would be the impact on management morale and shareholders ?
Hey, is there any rule for remuneration resolutions which states that promoter entity cannot vote ? Weird that they did not vote on this resolution but voted on the rest of them.
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I am not happy with this resolution also-
RESOLUTION 6: Approval for giving of loans, guarantee or security to any person in whom any
of the Director of the Company is interested under Section 185 of the Companies Act, 2013
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is there any rule for remuneration resolutions which states that promoter entity cannot vote ? Weird that they did not vote on this resolution but voted on the rest of them.
Not an expert on this but I don’t think there is any rule against voting (based on a web search). I guess they decided to not vote on principle as they are an interested party.
I am not happy with this resolution also-
RESOLUTION 6: Approval for giving of loans, guarantee or security to any person in whom any
of the Director of the Company is interested under Section 185 of the Companies Act, 2013
Yes I thought this was a bad sign but then I saw the details of it in the AGM notice. It states allowing giving loan or guarantee for any loan taken specifically by M/s Kameda LT Foods (India) PL upto Rs.20 Crores, only for business activities. This seems okay to me.
Page 4 of https://www.bseindia.com/xml-data/corpfiling/AttachHis/b5baa352-2627-4167-8be6-b360ca3649bc.pdf
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Liquidity is drying up in the market and stocks are going to get sold off even if they just produce decent results. So one should expect 20-40% correction in stocks, regardless of the results, that have gone up one way in last 2 years thanks to almost unlimited liquidity in the market. And I won’t mind that kind of correction if I am sitting on 2-3x gains.
LT foods still has only corrected 20% from the top which is still not significant when many small-mid caps have gone down by 30-40% and I expect some more selling in the counter especially given the average results. And that should give opportunity to those still bullish on stock to average up.
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In this video last few minutes Ishmohith ji mention s LT Foods as an example of value pick in the current market situation…
Entire video is like a master class
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LT foods:
- Trigger1: Insurance amount has to be reflected in financial statements within next quarter.
- Trigger2: Next quarter can have a impact due to freight cost, this can be normalized(passing to customer) after 2 quarters.
- Trigger3: Rice procurement at lower cost, can increase the margins in the future after aging the rice probably in FY25 & FY26.
- UK new plant & US expansion, adding revenues in FY25.
Cons:
- US & India consumption slowdown can impact the revenues.
- Next quarter will be similar + insurance amount.
Any points which I am missing?
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Nice 
covered all points…
Expecting peak margins next year…
What happens in after that?
Does the commodity cycle plays out …that to be seen…
Am I correct?
In my opinion:
- Usually sales growth will always be nominal, cannot expect huge growth because it is a staple business.
- Only gross margins can be changed if they change the product mix with Organic, Snacks, RTC & RTE. Otherwise, after 2025 they will come back to normal margins which is 10 to 11%.
- Sales growth can increase only if they are going to new locations like UK, increasing distribution points.
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To be honest I really don’t give much importance to commodity noise
A stock is commodity based only if it’s margin fluctuates massively that’s the reason it commands lower pe
Also for people who are worried about commodity cycle need to understand we are at lower end of commodity cycle
Paddy prices have plummeted effect will be seen after 2 qtrs
Lt foods has maintained consistent margins plus new entry in UK saudi etc
Also things improving in IDF hezbollah which will ultimately result in resolution of red sea conflict which will boost margins
I believe re rating will happen soon.
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LT Foods has come a long way from being just a rice company to a FMCG company having built a diverse portfolio to meet needs for all meal occasions and is a pioneer in the organic food sector (over two decades of presence), accounting for 9% of total revenue, with plans to achieve double-digit growth.
Exact words from Motilal oswal report
So even market is thinking of its as a FMCG
We have long way to go but my point is be optimistic rather than only saying commodity commodity and stock will de rate when cycle will end
Cycle is not even started
End ka dekhenge bad me 
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Yeah true, lot of marketing efforts went into building the Daawat/Royal brands… In US it is already popular FMCG basmati rice brand
Partnership with SALIC is expected to help in next leg of growth … With the shareholder friendly and capable management, execution remains key especially related to jasmine rice & organic food segment
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Also once Tanzania factory starts production
Degrowth in organic in usa will be taken care of
Degrowth is because of anti dumping duty on soy and soy products from india
I think we will see a very significant rally in next 2 years
If we trust packaged food FMCG story stay invested
Tbh there are not much better value buys so better to stick with this
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Just a Small doubt!! Does anybody have any details on individual product wise margins of the company?
The downsides of commodity business are nullified in case of LT Foods because of brands that LT foods has developed. Brands give it the pricing power and thereby help it maintain margins unlike other commodity businesses wherein they have to compete based on lower prices which drive down margins . So LT foods should not be seen as commodity business even though rice is a commodity.
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