Agro Tech Foods Q2FY11 Concall: Key Takeaways :: Edelweiss,

Visit http://indiaer.blogspot.com/ for complete details 􀂄 􀂄


Agro Tech Foods Q2FY11 Concall: Key Takeaways
(ATFL IN, INR 300, Not Rated)
• Agro Tech Foods (ATFL) net sales increased 16% Y-o-Y. Gross margins declined 120 bps
Y-o-Y following higher input costs.
• Higher commodity costs were offset by 280 bps reduction in Advertising and Sales
Promotion (A&P) spend Y-o-Y. Net profit increased 29% Y-o-Y.
• ATFL plans to achieve 40% gross margin through branded foods business – no guidance
on time line provided.
Strategy
Company plans to increase share of non-edible oil through value added foods. It plans to
launch all new products with at least 30% gross margins. Non edible oil business has now
become a growth driver.
Packaged Foods - The market size in India is USD 10-12 bn and is likely to be USD 25 bn in
the next 5-7 years.
New launches - Company plans to launch 1-2 products every year (from Con Agra). A new
product breaks even at ~INR 1 bn. Company is in much better shape to scale up new
products now as it has a reasonable distribution and has a better understanding of Indian
consumer. Company has not seen any failure in new products in past 3 years.
Sundrop: Sundrop’s market share in premium edible oil is ~48%. Rest is Marico’s Saffola.
Premium edible oil is ~8% of the packaged edible oil category. Input cost inflation has been
~20% in last 6 months. Company has taken price increases to offset the cost inflation.
GoldLite prices have been increased from INR 65 to INR 70 (~8% price increase) while
Nutrilite prices have been increased from INR 99 to INR 105 (~6% price increase). Company
will take further price increases, if need be.
Peanut butter: This segment has done well. Company is building the manufacturing
capability for this which will come in 12 months. Peanut factory based in Gujarat as the raw
material is based there.
Chocolate Pudding: This segment has met initial expectations.
Hot cocoa mix: Not yet taken national.
ACT II: Non institutional business offers higher margins and is growing faster. ATFL will
continue to invest in the brand with higher A&P.
Depreciation: Due to up gradation of office in Hyderabad and Delhi, Depreciation will further
increase as company is executing IT infra project.
Tax rate: Company will be moving to normal effective rate gradually and does not have any
more tax credit entitlements.
+ve read across for Marico
Marico has already taken ~2-4% price increase to offset commodity cost inflation. Though
inflation will demand further price increases, we are convinced that there is no immediate risk
from competition. Price increase in Sundrop and reduction of A&P by ATFL, is a positive
for Marico’s Saffola brand.