ffee2ecf-c67f-4edd-9c58-76e429f4ebe6.pdf (bseindia.com)
Per this clarification, the MNC promoter Conagra is looking to possibly sell their stake in company. This will be a interesting development to watch out for, might result in re-rating based on the quality of brands they have. The sales performance has been disappointing for the time being.
Latest Update:
Overall not good for non promoter, since there is no favorable exit price. Is the price incorrect? Maybe experts can weigh in on this.
Open offers take time to complete, and think this one might have some twists and turns 
Link - Open Offer Announcement
This entire sale and purchase looks very very quick and strange to meâŚgenerally these things take long time after first news in public but this time it was lightening fast!
Secondly do not understand why only PE was involved and no intereset either came or not taken/entertained from other FMCG firms
The sale valuation looks like throw away proce considering the Sales as well as some brands of Agro tech food
Also not sure about the COnagra brands, its royalty etc. which Agro tech holds
Any idea what Rare enterprise is doing with its big stake?
Overall I am not concerned much about open offer price as its mandatory one and need not be successfulâŚbut the valuation of sale and hence the low open offer price is very strange to me.
Any idea on credentials of buyersâŚdo they have any experience on running and turn around of any business in India or elsewhere?
Sharing a few articles post the change of management
This looks like an interesting special situation where the Current valuations donât seem to factor in much optimism of mgt change and the possibilities which could arise in an under-utilised franchise
Disclaimer
There were announcements in March about the stake sale by Conagra. Is there any further development on this front? Has the ownership already changed hands? Does that result in an open offer?
such management changes need regulatory, exchange, court, shareholder approvals and other formalities like the Open Offer, etc. This will take 10-14 months on a average to complete, so wait till year end for better clarity.
any new update regarding the take over ?
Open Offer was closed last week - Post Offer Document link
Now new mgmt just has to take care of the business, and hopefully share some updates with investors on future plans.
ATFL has renewed their licensing of ACT-II (exclusive and in perpetuity).
Harsha Raghavan (Managing partner of Convergent Finance) & Manish Mehta (Managing director and co-CIO of Samara Capital) have joined the BoD.
Will be interesting to see how the new mgmt. takes the company forward.
Seems the Company is now embarking towards a major change in strategy. Updates as of today:
Synopsis
Private equity firm Samara Capital and Convergent Finance-backed Agro Tech Foods Limited (ATFL), on Thursday announced the 100% acquisition of Del Monte Foods Private Limited (DMFPL), a joint venture between the Bharti Group (59.29%) and Del Monte Pacific Limited which owns 40.71%.
The size of the deal is estimated at over Rs 1,300 crore. With the transaction, both Bharti and DMPL will receive shares of ATFL as consideration and will become public shareholders of ATFL post the transaction. Additionally, ATFL (through DMFPL) will acquire an exclusive, perpetual license for the Del Monte brand in India.
ATFL is a significant player in the packaged food and edible oils sectors, with brands such as ACT II popcorn and Sundrop edible oil. The company will rebrand itself as Sundrop Brands, a company statement said.
ET first reported in its March 1 edition that Bharti Enterprises is looking to exit its joint venture with the Singapore-listed packaged foods company Del Monte Pacific Limited, which both entities had formed to set up Del Monte Foods to sell juice fruit drinks, olive oil, pasta, mayonnaise, ketchup and dried and canned fruits in India. In its March 21 edition, ET had first reported that Samara Capital, which owns ATFL, was in talks to acquire Del Monte Foods from Bharti Enterprises.
The transaction adds an established portfolio of food products under ATFLâs umbrella, marking a significant step forward in the companyâs expansion plans, the statement added.
As part of this transaction, ATFL also gains access to Del Monteâs manufacturing and R&D facility in Hosur, Tamil Nadu and in Ludhiana, Punjab.
To lead the platform, the company has appointed Nitish Bajaj as group managing director. He was previously in key roles at the consumer products division at Piramal, CEAT tyres, and before that with Reckitt Benckiser, Ranbaxy Global Consumer Healthcare, and Heinz India, the statement said.
Asheesh Kumar Sharma, CEO and executive director, ATFL, said: âWe intend to deliver maximum value to all stakeholders through our mission of creating innovative and convenient food solutions for the modern consumer.â
Harjeet Kohli, joint managing director of Bharti Enterprises stated: âLeveraging significant synergies on the back of a profitable business model, this transaction is set to bolster the scale and margin profile of the platform, potentially accelerating shareholder returns and offering a more diverse portfolio of products.â
Del monte valuation seems to be at 2.3 price to sales( 550 crore sales, 1300 crore deal size )
ATFL valuation is around 2.5 sales considering 800 crore yearly revenue for last 3 years (approx)
Combined entity sales - 1300 crore. Price to sales of 2.3= 3200 crore and based on p/s 2.5 is 3500 crore rupees
combined entity Macap based on share issuance 2.4( existing share count) + 1.3(new share count)=3.7 crore share* 900= 3500 crore rupees. ( unless market decides to bring share price down )
So it seems like based on 2.3 to 2.5 p/s valuation is between 3200 to 3500 crore .
Any valuation below P/s of 2 should be a good opportunity ? As per ChatGPT fmcg companies valuations range between P/s of 2 to 11 from bad to great companies. So this seems like fair valuation ?( at this point , I donât know earnings of delmonte so p/s seems like good ratio to consider for now )
Delmonte has come on share price of 975 rupees , and they are now 35 % shareholders of new company , so they make money only above 975.
Samara cap deal with agro tech was less than 1.5 sales ( really good deal)
I am still figuring out the details, any calculations above may have inaccuracies, happy to take feedback.
If anyone was able to get hold of management / have nuanced views, would be great to discuss
Disclosures- existing shareholder
Puneet
Yes @PuneetNandwani it is a great valuation below 2.5 ps but there is also a reason why it is valued below 2.5. Agro tech foods sales growth and profits have been negative by checking out their past performance. But after acquiring DelMonte I guess their statements will start to improve. Also I checked out Convergent and Samara capital they have great portfolio and they taking the finance and changing the board members can be a turn around for Agro tech foods. They also focused on expanding their Margin levels by Supply chain optimisation.
But their product portfolio is no very much attractive according to my views, I can be completely wrong but what I suggest is to wait for 2-3 quarters to see how company is showing their turnaround and is their P&L statement improving or not.
This is a very difficult business and Conagra could not make much profit⌠maybe merger can yield something⌠but still medium risk low returnâŚ
Convergent bets on some ideas - some work some dont. Camlin Fine has gone terribly wrong for them. Even Borosil Renwable was not a great investmentâŚ
There are about three pointers which I sort of wanted to mention on why I am bullish on Sundrop Brands apart from the usual management, undervaluation and underperformance as compared to other FMCG companies.
1. Growth and Margin Expansion Theory for FMCG Multibaggers:
I stumbled onto a very interesting podcast off-late by SOIC, it featured the CIO of Persistence Capital, Siddhant Bhandari. I really like to listen to Siddhant and invariably end up learning something. Iâll attach the link of the podcast here: https://www.youtube.com/watch?v=p1J-J5CDwYI
He specially spent a long period of time talking about consumption led stocks. And he pointed to how getting the consumption story right is all about getting growth elevation and margin expansion right.
Let me explain both of these elements and which factors affect them in detail.
1. Growth: Double digit growth in core portfolio, introduction of new fast growing product, increase in distribution
2. Margins: Low starting margins- ability of margins to go up
Growth is the most important piece of the FMCG puzzle. To figure out growth, a company needs to grow its core business in double digits, it is fine if this is 10-12% growth. Primarily, the penetration and distribution expansion has been the factor driving core business growth for these companies. Secondly, they need to introduce a fast growing new product.
You can see that this has been the path followed by consumption led multi-baggers in the past. It also describes my thesis for how it can play out similarly in Sundrop Brands
Similarly on the margin front, the companyâs margins are the most depressed they have ever been in any cycle. And to me, I think the reason is not some problems with the product portfolio, I sensed that the previous promoter wasnât as interested in running this India business.
I have two pieces of evidence here: One, the fact that fixed assets increased but the revenues remained constant over the past 12 years.
Fixed assets went up 4X in the 12 years since March 2013
However revenues remained constant
Second, look at the quality of the investor presentation these guys made. It seemed as if there was no value creation happening in the core listed entity and the entire investor relations department was coasting at their job
This one above seems like some internal document which they just took and pasted onto the deck. Does this happen when a promoter genuinely wants to make money through a listed entity?
SME stock presentations are much better than this. I think there was some sort of incentive misalignment in terms of private entities being present or some other thing which we are not privy to.
2. Promoter Buying in the Stock
Again, one thing which people havenât mentioned here is the very recent promoter buying which the stock saw:
The price here was higher than the price the company currently trades at
3. Interesting hiring patterns:
When I saw that Ashish Kumar Sharma has been appointed the CEO and ED of Agro Tech line of the business, I tried to find out who took his place in the team as the Marketing Head and it turns out, he is somebody who has returned to the companyâs fold after 5-6 years.
He was part of the company when Sundrop was in the hyper growth phase and led the West India Marketing efforts
All in all, these three things make me feel like a lot is changing in the business. Weâll know the full impact of it in a few quarters, but the interesting bit is that financials are a lagging indicator to company performance, things like the ones Iâve mentioned above invariably tend to be forward looking indicators. Where will these changes take us, I really donât know- but what provides me a lot of comfort is ironically, how badly this business has been run till now.
All great points and definitely changes are afoot.
That said the best case EBITDA margins that management has guided for is 10% (and that would take some doing). So the stock doesnt particularly looks cheap given the execution lies ahaed.
Say topline reaches 1800crs-1850crs by FY27 (after accounting for Del Monte acquistion) and on that 10% EBITDA margins results in EBITDA of ~180crs.
Even on those fairly optimistic/uncertai numbers, the stock is already 16x EBITDA.
Just trying to understand from investment/valuation perspective what am I missing?
Thank you for your reply, Saket. Your post forced me to model the different scenarios again. So there are a few takeaways I have:
Youâre right in saying that for a company which makes 180 Cr EBITDA in FY27 in a bull case, the valuations sort of donât make that much sense. No forward projecting can help that part of the financial piece make sense.
However, if we do a P2P comparison on FMCG sales and fixed assets multiples, Sundrop Brands is far behind as compared to other Indian and MNC FMCG companies as shown in the exhibit below:
Probably, just probably these companies should get a higher valuation than warranted by just the multiple calculations because of their nature of having defensible cash-flows? I donât want to make that assumption, its just a hypothesis I have.
I feel that considering that Sundrop will slowly become a better FMCG brand, its sales multiple should move up north of 2X.
My views on Sundrop:
FY24 revenue: 1300 Cr
Management guidance:
Assuming this is achieved in 3 years from now.
FY28 projections considering above assumptions:
This is of course assuming management delivers as per guidance. I have my doubts, given:
Also, winning in new age channels will be margin dilutive given high competition from insurgent brands.
FY28 conservative projections:
So, 3 year returns can potentially range b/w 10% and 100%.
The key metric to track here will be margin expansion. If the management can deliver on that in next 2-3 quarters, then achieving the higher end of projections might be possible.
