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Agro Tech Foods - ATFL IN, INR 360, Non Rated
Q3FY11 Concall: Key Takeaways (Market Cap: INR 9250 mn)
·
· Sales: Sales rose 12% Y-o-Y in Q3FY11. This can be attributed to 6% growth from
volumes and 6% from price.
· EBITDA loss: Company initially waited before taking a price hike as initial expectation
was that prices of raw materials for edible oils will not rise so much. Prices hike have
now been taken to cover for the raw material inflation and company expects margins to
improve Q-o-Q. Need to see if there is an impact on volumes, however as per the
management the volumes are not significantly impacted.
· Price increase in edible oil: Due to raw material inflation, company took a price hike in
Sundrop Superlite from INR 105 to INR 128 now.
· Popcorn (Act II): This segment is the fastest growing in Foods on a low base growing
upwards of 50%. Company will continue to invest in this business. A major part of
overall ad spends are going into this. Company currently not seeing any significant
impact from me too players in spite of the fact at INR 10, the other players are offering
10-15% higher grammage. There are 10-12 me too players which are largely regional.
They are not present in the INR 2 and INR 5 price point. The main difference is the brand
equity of Pop corn and huge distribution.
· Huge scale up in distribution: Company’s distribution has been increased 6x in the
past 3 years from 54,000 outlets to 0.35 mn now. Company eventually plans to target
1.5 mn over the longer term.
· 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. Company expects Value added foods to become 25% of its
sales over a longer term.
· Edible oil: Only Sundrop brand is getting ad support. Sundrop now has a 49.5% share
(48% share in Q2FY11). In this segment, Gross margins are the main focus from a
medium/long term perspective. Overall Healthy oil is 8% market share of edible oils.
Company remains confident of volume growth as per capita consumption of edible oil in
India is one fourth of USA.
· Crystal brand: Company will not sell this brand. This brand is present in just two states
Andhra Pradesh and Karnataka. This product does not have much pricing power, but
Company won’t sell as it is produced from same factory and therefore provides operating
leverage.
· Ad spends: Company continued to invest into pop corn as winter months are peak
season and growth continues to be sharp. Capital from Rath divestiture was also
deployed for Sundrop heart promotions, most profitable brand in Sundrop segment in
terms of margins.
· PAT: Net profit of Agro Tech Foods rose 26% Y-o-Y to INR ~98 mn in Q3FY11.
· Sale of Rath: Rath used to do annual sales of INR 1200 mn with a gross margin of INR
30-40 mn. There was an amortization cost of ~ INR 5 mn. Company continued to book
sales from Rath in Q3FY11 but with no margins post 15h Dec when the sales to Cargill
happened). Company will continue to book sales from Rath without any margins till
Q4FY11 end post which Cargill will have its own distribution. Post tax profit from Rath
was ~ INR 120 mn.
· Peanut butter: This segment has done well. Company has got possession of land in
Gujarat and civil work will start in the next 6 weeks. Peanut factory based in Gujarat as
the raw material is based there. Company remains quite confident of this product. The
product has done well in USA. Company will introduce prices at a much lower price point
at INR 50 (from the current levels of INR 120 as it is imported).
Issue of Import Duty on Popcorn: Popcorn is a special variety of maize which can be
imported without having to pay anything as duty, as per the Tariff Rate Quota scheme.
An importer can avail of the duty-free benefit provided the cereal is meant for individual
consumption and not for commercial purpose. The DRI has found that some popcorn
companies avail of the above scheme but subsequently sells the product in malls and
multiplexes.
The company is confident that there is no liability from this as the popcorn imported is
processed before selling it to malls and multiplexe s and has therefore not provided
anything in Q3FY11. It expects a show cause notice from the regulatory authorities and
company believes that even in a worst case scenario, there will not be any material
impact even if it is calculated for the past five years. Company has stopped bulk sales
post 14th Dec, so that there is no further issue on this. This is unlikely to have a large
impact as bulk sales were in single digits as a % of pop corn sales.
· New products: New products will be from ConAgra stable and company will not venture
into any product in which it does not have a pricing power. So will not go into Oats,
noodles, biscuits etc. Company plans to launch 1-2 products every year (from ConAgra).
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.
· Strategy: Company plans to increase share of value added foods in the overall portfolio.
It plans to launch all new products with at least 30% gross margins.
n About ConAgra
ConAgra Foods, Inc., (NYSE: CAG) is one of North America's leading food companies,
with brands in 97% of America's households. The company is a Fortune 500 company,
with net sales totaling USD 12 bn in FY10 (may year end), while employing more than
24,000 people. ConAgra brands are present in grocery, convenience, mass merchandise
and club stores. The company also has a strong business -to-business presence,
supplying frozen potato and sweet potato products as well as other vegetable, spice and
grain products to a variety of well-known restaurants, foodservice operators and
commercial customers.
The company’s consumer foods segment (66% of FY10 sales) manufactures and markets
leading branded products to retail and foodservice customers in the US and
internationally. The commercial foods segment (34% of FY10 sales) manufactures and
sells a variety of specialty products to foodservice and commercial customers worldwide.
ConAgra sells nearly 13 mn packages of food products each day, including 3 mn frozen
food packages.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Agro Tech Foods - ATFL IN, INR 360, Non Rated
Q3FY11 Concall: Key Takeaways (Market Cap: INR 9250 mn)
·
· Sales: Sales rose 12% Y-o-Y in Q3FY11. This can be attributed to 6% growth from
volumes and 6% from price.
· EBITDA loss: Company initially waited before taking a price hike as initial expectation
was that prices of raw materials for edible oils will not rise so much. Prices hike have
now been taken to cover for the raw material inflation and company expects margins to
improve Q-o-Q. Need to see if there is an impact on volumes, however as per the
management the volumes are not significantly impacted.
· Price increase in edible oil: Due to raw material inflation, company took a price hike in
Sundrop Superlite from INR 105 to INR 128 now.
· Popcorn (Act II): This segment is the fastest growing in Foods on a low base growing
upwards of 50%. Company will continue to invest in this business. A major part of
overall ad spends are going into this. Company currently not seeing any significant
impact from me too players in spite of the fact at INR 10, the other players are offering
10-15% higher grammage. There are 10-12 me too players which are largely regional.
They are not present in the INR 2 and INR 5 price point. The main difference is the brand
equity of Pop corn and huge distribution.
· Huge scale up in distribution: Company’s distribution has been increased 6x in the
past 3 years from 54,000 outlets to 0.35 mn now. Company eventually plans to target
1.5 mn over the longer term.
· 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. Company expects Value added foods to become 25% of its
sales over a longer term.
· Edible oil: Only Sundrop brand is getting ad support. Sundrop now has a 49.5% share
(48% share in Q2FY11). In this segment, Gross margins are the main focus from a
medium/long term perspective. Overall Healthy oil is 8% market share of edible oils.
Company remains confident of volume growth as per capita consumption of edible oil in
India is one fourth of USA.
· Crystal brand: Company will not sell this brand. This brand is present in just two states
Andhra Pradesh and Karnataka. This product does not have much pricing power, but
Company won’t sell as it is produced from same factory and therefore provides operating
leverage.
· Ad spends: Company continued to invest into pop corn as winter months are peak
season and growth continues to be sharp. Capital from Rath divestiture was also
deployed for Sundrop heart promotions, most profitable brand in Sundrop segment in
terms of margins.
· PAT: Net profit of Agro Tech Foods rose 26% Y-o-Y to INR ~98 mn in Q3FY11.
· Sale of Rath: Rath used to do annual sales of INR 1200 mn with a gross margin of INR
30-40 mn. There was an amortization cost of ~ INR 5 mn. Company continued to book
sales from Rath in Q3FY11 but with no margins post 15h Dec when the sales to Cargill
happened). Company will continue to book sales from Rath without any margins till
Q4FY11 end post which Cargill will have its own distribution. Post tax profit from Rath
was ~ INR 120 mn.
· Peanut butter: This segment has done well. Company has got possession of land in
Gujarat and civil work will start in the next 6 weeks. Peanut factory based in Gujarat as
the raw material is based there. Company remains quite confident of this product. The
product has done well in USA. Company will introduce prices at a much lower price point
at INR 50 (from the current levels of INR 120 as it is imported).
Issue of Import Duty on Popcorn: Popcorn is a special variety of maize which can be
imported without having to pay anything as duty, as per the Tariff Rate Quota scheme.
An importer can avail of the duty-free benefit provided the cereal is meant for individual
consumption and not for commercial purpose. The DRI has found that some popcorn
companies avail of the above scheme but subsequently sells the product in malls and
multiplexes.
The company is confident that there is no liability from this as the popcorn imported is
processed before selling it to malls and multiplexe s and has therefore not provided
anything in Q3FY11. It expects a show cause notice from the regulatory authorities and
company believes that even in a worst case scenario, there will not be any material
impact even if it is calculated for the past five years. Company has stopped bulk sales
post 14th Dec, so that there is no further issue on this. This is unlikely to have a large
impact as bulk sales were in single digits as a % of pop corn sales.
· New products: New products will be from ConAgra stable and company will not venture
into any product in which it does not have a pricing power. So will not go into Oats,
noodles, biscuits etc. Company plans to launch 1-2 products every year (from ConAgra).
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.
· Strategy: Company plans to increase share of value added foods in the overall portfolio.
It plans to launch all new products with at least 30% gross margins.
n About ConAgra
ConAgra Foods, Inc., (NYSE: CAG) is one of North America's leading food companies,
with brands in 97% of America's households. The company is a Fortune 500 company,
with net sales totaling USD 12 bn in FY10 (may year end), while employing more than
24,000 people. ConAgra brands are present in grocery, convenience, mass merchandise
and club stores. The company also has a strong business -to-business presence,
supplying frozen potato and sweet potato products as well as other vegetable, spice and
grain products to a variety of well-known restaurants, foodservice operators and
commercial customers.
The company’s consumer foods segment (66% of FY10 sales) manufactures and markets
leading branded products to retail and foodservice customers in the US and
internationally. The commercial foods segment (34% of FY10 sales) manufactures and
sells a variety of specialty products to foodservice and commercial customers worldwide.
ConAgra sells nearly 13 mn packages of food products each day, including 3 mn frozen
food packages.
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