Agro Tech Foods - Carving Out a Niche; Initiating Coverage :: Edelweiss, link

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Agro Tech Foods (ATF), a subsidiary of global food major ConAgra Foods (ConAgra) and a well-entrenched player in the domestic organised edible oil market, is looking to leverage its strong INR5bn Sundrop brand on the health proposition. Management envisages scaling up ACT II to INR5bn brand (from INR1.0-1.5bn currently) over the next 3-5 years. It aims to reach this goal by leveraging ConAgra’s portfolio, ramping up distribution and bolstering capacity. ATF is also on path to improve share of food business to 50% (currently 22%) and overall gross margin to 40% (currently 26%) in a phased manner, riding superior product mix and cost rationalisation. A resilient business model, strong brands, focus on food business and capacity expansion place ATF in a sweet spot to post PAT CAGR of 17.8% with RoE and pre-tax RoCE of 18% and 24%, respectively, over FY14-17E. These, coupled with robust free cash flow, portend strong re-rating potential over the long term. Initiate coverage with ‘BUY’ and TP of INR715, based on 25x FY17E EPS and implying 20% upside from current level.

Superior product mix to drive ‘healthy’ growth in edible oil

Sharp focus on fast-growing ‘healthy’ edible oil segment has seen ATF’s flagship oil brand, Sundrop Heart,enhance its share within the segment. Going ahead, this superior offering will drive edible oil revenues and overall gross margin.

Transforming into food player: Rustling up growth recipe

Over the next 3-5 years, ATF targets to enhance share of its food business to 50% of net sales (from current 22%) propelled by new product launches (by accessing parent’s portfolio), ramping up its distribution network and augmenting capacity. Currently, the business is posting 15-20% CAGR, which ATF envisages to catapult to 40% underpinned by higher advertisement spend and introduction of new variants/products. We estimate the segment to post 25.2% revenue CAGR over FY14-17.

LINK

https://www.edelweiss.in/research/Agro-Tech-Foods--Carving-Out-a-Niche;-Initiating-Coverage/27953.html