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MacVisit – Agro Tech Foods
Transformational opportunity
We highlight Agro Tech Foods’ (ATFL IN, Not Rated), an affiliate of ConAgra
Foods Inc, transformation from a pure edible oil company to a branded
packaged and convenience food player. ATFL aims to achieve 50% sales
from branded food products (~15% now) with a gross margin of ~40%
(currently 23%) over next 4-5 years. Management believes ATFL’s transition
has been on track and it is well poised to be a key convenience and packaged
food player in India.
Stratagem of changing product mix yielding results
Agro Tech’s transition from a pure edible oil player to a branded value added
food products company started four years back. As a result, sales contribution
of edible oil has come down to 85% now. ATFL’s strategy to launch food
products from ConAgra portfolio such as popcorn (ACT II, growing at 40%+),
peanut butter (Sundrop), chocolate pudding (Snack Break) and exiting
commodity businesses such as crushing, trading, poultry feed and low-end
edible oil segment is paying off as its profit margin improved 2.5x since FY07.
Management expects gross margins to increase 2-3x
ATFL has set a medium and long term goal to achieve 30% and 40% GM
(gross margin) respectively through high margin (35-40%) product launches,
pursuing margin expansion in premium edible oil portfolio (Sundrop) and start
of value added product such as peanut butter manufacturing in India. GM
expansion from sub-10% to ~23% in 3-years through combination of factors
like shedding low margin business (sales declined ~40% since FY07) and
sales mix change (15% sales from value added food products) provide
comfort to its margin strategy.
Strong ConAgra portfolio to help improve mix
ATFL is planning to launch 2-3 products from ConAgra stable every year to
increase value added food products share in sales to ~50%.The company is
focused on new launches in low penetrated categories with total market
potential in excess of Rs2bn and GM >30% to support annual brand building
expense of ~Rs0.4-0.5bn for every product and new product launches. We
see little dearth of new launches for ATFL given large product basket and
innovation pipeline of its parent ConAgra.
Focus on increasing distribution reach
ATFL has increased its direct distribution reach to 0.3mn outlets from 0.1mn
in last 2.5-years and their popcorn product ACT II reaches all 0.3mn outlets.
Company is planning to further improve their direct distribution reach to 0.5mn
outlets and total distribution reach to ~1mn outlets in the next 1-2 years.
Management believes distribution expansion will help them capitalize on new
product launches.
Trading at 20x FY12E Bloomberg consensus earnings
Management feels ATFL is well positioned to benefit from growing consumer
need and will for convenience and packaged food in India. They also believe
that margin expansion strategy will fructify and new product launches will help
them gain greater consumer traction. ATFL is currently trading at 20x and
15x to its FY12E and FY13E Bloomberg consensus earnings, respectively; at
~30% discount to FMCG peers
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
MacVisit – Agro Tech Foods
Transformational opportunity
We highlight Agro Tech Foods’ (ATFL IN, Not Rated), an affiliate of ConAgra
Foods Inc, transformation from a pure edible oil company to a branded
packaged and convenience food player. ATFL aims to achieve 50% sales
from branded food products (~15% now) with a gross margin of ~40%
(currently 23%) over next 4-5 years. Management believes ATFL’s transition
has been on track and it is well poised to be a key convenience and packaged
food player in India.
Stratagem of changing product mix yielding results
Agro Tech’s transition from a pure edible oil player to a branded value added
food products company started four years back. As a result, sales contribution
of edible oil has come down to 85% now. ATFL’s strategy to launch food
products from ConAgra portfolio such as popcorn (ACT II, growing at 40%+),
peanut butter (Sundrop), chocolate pudding (Snack Break) and exiting
commodity businesses such as crushing, trading, poultry feed and low-end
edible oil segment is paying off as its profit margin improved 2.5x since FY07.
Management expects gross margins to increase 2-3x
ATFL has set a medium and long term goal to achieve 30% and 40% GM
(gross margin) respectively through high margin (35-40%) product launches,
pursuing margin expansion in premium edible oil portfolio (Sundrop) and start
of value added product such as peanut butter manufacturing in India. GM
expansion from sub-10% to ~23% in 3-years through combination of factors
like shedding low margin business (sales declined ~40% since FY07) and
sales mix change (15% sales from value added food products) provide
comfort to its margin strategy.
Strong ConAgra portfolio to help improve mix
ATFL is planning to launch 2-3 products from ConAgra stable every year to
increase value added food products share in sales to ~50%.The company is
focused on new launches in low penetrated categories with total market
potential in excess of Rs2bn and GM >30% to support annual brand building
expense of ~Rs0.4-0.5bn for every product and new product launches. We
see little dearth of new launches for ATFL given large product basket and
innovation pipeline of its parent ConAgra.
Focus on increasing distribution reach
ATFL has increased its direct distribution reach to 0.3mn outlets from 0.1mn
in last 2.5-years and their popcorn product ACT II reaches all 0.3mn outlets.
Company is planning to further improve their direct distribution reach to 0.5mn
outlets and total distribution reach to ~1mn outlets in the next 1-2 years.
Management believes distribution expansion will help them capitalize on new
product launches.
Trading at 20x FY12E Bloomberg consensus earnings
Management feels ATFL is well positioned to benefit from growing consumer
need and will for convenience and packaged food in India. They also believe
that margin expansion strategy will fructify and new product launches will help
them gain greater consumer traction. ATFL is currently trading at 20x and
15x to its FY12E and FY13E Bloomberg consensus earnings, respectively; at
~30% discount to FMCG peers
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