LT Foods surges 14% in two days on heavy volumes; stock nears 52-week high

Ratings agency CRISIL believes organic business profitability of LT Foods should lead to higher consolidated EBITDA in the fourth quarter of 2022.

Shares of LT Foods were up 4 per cent to Rs 89.40 on the BSE in Tuesday’s intra-day trade. The stock rallied 14 per cent in past two trading days in an otherwise a weak market on the back of heavy volumes.

In comparison, the S&P BSE Sensex was down 0.37 per cent at 58,508 points at 10:37 am. The trading volumes on the counter nearly doubled as a combined 8.9 million equity shares changed hands on the NSE and BSE. The stock quoted close to its 52-week high level of Rs 90.40, touched on May 24, 2021. Earlier, it had hit a record high of Rs 110 on January 9, 2018.

LT Foods is a leading player in specialty rice, rice food products, and organic business across the globe. The company's portfolio include a range of power brands like 'Daawat' - one of India’s most loved and consumed basmati brands, 'Royal' - North America’s number one basmati player, and other regional leading brands.

However, in past one month, the stock has outperformed market by surging 30 per cent as compared to 5 per cent rise in the S&P BSE Sensex. It gained 14 per cent in the past three months as against 4 per cent decline in the benchmark index.

For the first nine months of financial year 2021-22 (9MFY22), LT Foods had reported flat profit after tax (PAT) of Rs 234 crore against Rs 229 crore in 9MFY21. Operating income increased to Rs 3,883 crore from Rs 3,499 crore, aided by healthy revenue growth across all product segments (basmati rice and other specialty rice segment, organic and health & convenience segment). However, the operating margin declined by 110 basis points (bps) to 11.7 per cent from 12.8 per cent due to substantial increase in freight and input costs.

In a February report, CRISIL Ratings revised its outlook on the long-term bank facilities of LT Foods to positive from stable. The rating agency believes operating performance of the company should improve as revenue increases at compound annual growth rate of 12-15 per cent over the medium term, supported by healthy volume sales and realisations in branded rice business both in the domestic and export markets.

However, volatile raw material prices, trade policy changes of importing nations, and high working capital intensity in consumer specialty rise and food products business can partially dent the business strengths.

Highlighting rationale behind the ratings upgrade, CRISIL said, "Revenue is projected at more than Rs 5,000 crore in fiscal 2022 and operating margin at 12%, supported by stabilisation in the overall freight cost and change of product mix towards high-margin products in the organic business segment. Organic business profitability should lead to higher consolidated EBITDA in the fourth quarter of fiscal 2022 along with better bargaining power with brands such as Daawat and Royal."