The story so far ………..
DFM Foods is a packaged snack food company which derives more than 85% of its Rs170cr revenues from a single snack product-CRAX, a non fried brand of corn rings made out of corn grits.
A 13.5% EBIDTA business with a very strong brand equity in North India operating out of its Ghaziabad facility made strong inroads into Western India last fiscal as capacity constriants got addressed with the commissioning of its second unit at Noida in November 2011.
The story ahead……..
The 10,000 MT snack food facility at Noida put up at a cost of Rs70crs virtually triples capacity and we expect revenues to grow at 35% this fiscal and the next as the company makes its foray into Eastern India in Q2 this fiscal buoyed by the encouraging response received for the product in Western India.
Despite increase in RMC, power costs, wage cost and finance costs,we believe DFM can sustain a 13% EBIDTA on our projected revenues of Rs230crs and net profit of Rs14crs this fiscal. The Crax brand basically operates in two price points of Rs5 and Rs10 per pack while the Natkhat brand of wheat puffs operate even at lower price points. DFM has over a dozen products in the Namkeen category which retail at a higher price point. The rationale for the low price point in Crax is the fact that the brand is primarily targeted at kids below the age of 10 which is reflected in the marketing strategies like free gifts inside the packs and brand promotion in cartoon channels of media. Our channel checks with trade and distributors suggest significant traction for the product in Western India too which clearly reflects on the potential of this regional brand towards becoming a Pan-India brand.
Q1 is prima facie a weak quarter and revenues pick up from Q2 onwards as kids get back to school after the vacation. DFM is now gaining distribution strength and is now present in close to 1.5lac retail outlets in India. We forecast DFM to grow its revenues and net profits at 35% during FY'13-14 and the stock trading at 12xFY'13-14E earnings of Rs19 can be accumulated by investors having the appetite for taking risks as DFM is an SME with a single product operating in snack foods and competing with large players with multiple products and deep pockets. We recommend BUY on DFM Foods with a one year price target of Rs360. Liquidity in the stock could be an issue as promoters own 69% of its equity which is listed only on the BSE
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