- Sensu Investor
- Posts
- LT Foods Ltd
LT Foods Ltd
August 8, 2024
FOLLOW-UP
September 26, 2024 | Total Return: +23.52%
ORIGINAL ARTICLE
FREE & PREMIUM
LT Foods Ltd
Ticker: LTFOODS.NSE
Addition to:
✅ SENSU Watchlist [INDIA]
Addition Date: August 8, 2024
Price per Share: 307.40 INR
TABLE OF CONTENTS
THE COMPANY
As I delve into the story of LT Foods, I'm struck by how this company has grown from humble beginnings to become a global player in the food industry. The roots of LT Foods trace back to 1950 when the Arora family started a small rice trading business in India. What began as a local venture gradually expanded over the decades as the founders recognized opportunities in the growing market for basmati rice.
A pivotal moment came in 1978 when the company launched its flagship "Daawat" brand of basmati rice. This move into branded consumer products set LT Foods on a new trajectory. No longer just a commodity trader, the company was now building a consumer-facing brand. I find it fascinating how this strategic shift positioned LT Foods to capture more value and develop deeper connections with customers.
The 1990s and 2000s saw LT Foods expand beyond India's borders. Exports to the Middle East, Europe, and North America grew rapidly as global demand for basmati rice increased. A key milestone was the acquisition of the "Royal" brand in the US in 2007, establishing LT Foods as a major player in the world's largest economy.
What impresses me about LT Foods' journey is how the company has built an integrated "farm to fork" business model over time. They work directly with farmers to source high-quality rice, process it in their own mills, package it under their brands, and distribute it globally through an extensive network. This vertical integration gives LT Foods more control over quality and costs.
Beyond basmati, LT Foods has diversified into other specialty rice varieties, organic foods, and convenience products like ready-to-heat meals. I see this as a smart move to capitalize on changing consumer preferences and expand their addressable market.
The company's business model today spans the entire value chain of the rice industry. On the sourcing side, LT Foods has strong relationships with farmers and works to promote sustainable agriculture practices. Their processing facilities in India, Europe, and the US use advanced technology to ensure consistent quality. A global distribution network of over 1,300 distributors and 60+ countries served gives them extensive market reach.
What stands out to me is how LT Foods has successfully transitioned from a family trading business to a professionally-managed multinational company, while still retaining its entrepreneurial spirit. The founding family remains involved, but the company now has a diverse leadership team and thousands of employees worldwide.
STOCK PRICE
The dynamic background color reflects overall market valuation, allowing you to quickly assess both stock-specific trends and market conditions at a glance.
Why logarithmic? It displays percentage changes uniformly, making price movements easily comparable across different ranges. A 100% increase appears the same whether from $10 to $20 or $100 to $200.
FINANCIAL ANALYSIS
⭐⭐⭐⭐⭐ Quality Score | ⭐⭐⭐⭐⭐ Value Score | ⭐⭐⭐⭐⭐ Growth Score |
LT Foods has shown a fluctuating earnings yield trend over the past 7 years. The yield peaked at 28.84% in 2019 but has since declined, reaching 8.54% in 2023. This suggests decreasing profitability relative to the company's market value. The recent downward indicates that investors are pricing in higher growth expectations. However, the current yield of 8.54% is still relatively attractive compared to many other investments.
Earnings Yield
LT Foods has shown a significant r in its price-to-book (P/B) ratio over the past few years, rising from 0.43 in 2019 to 2.06 in 2023. This upward trend suggests growing investor confidence and market valuation relative to the company's book value. With the trailing twelve months (TTM) P/B at 3.17, the positive momentum appears to be continuing.
Price-to-Book Ratio
LT Foods shows strong capital efficiency with its ROIIC improving from 15.62% over 10 years to 26.74% over 5 years, indicating better returns on new investments. Despite a slight dip to 22.73% in the 3-year period, the company maintains high percentile rankings (75-80%) across all timeframes, demonstrating superior performance compared to peers and effective capital allocation strategies.
10-Years | 5-Years | 3-Years | |
|---|---|---|---|
ROIIC | 15.62% | 26.74% | 22.73% |
Ranking | 75.74% | 80.61% | 75.49% |
MANAGEMENT ANALYSIS
Vijay Kumar Arora, Chairman and Managing Director of LT Foods, has been instrumental in the company's remarkable growth over the past four decades. Under his leadership, LT Foods has evolved from a local rice trader into a global food company.
Arora joined the family business in 1978 and made the pivotal decision in 1980 to export specialty rice under the "Daawat" brand. This move laid the foundation for LT Foods' international success. Today, the company's flagship brands "Daawat" and "Royal" command a 50% market share in North America.
Known for his innovative and adaptable leadership style, Arora has consistently pushed for product diversification and expansion into new markets. His commitment to quality and sustainability has been key to building consumer trust worldwide.
An interesting fact about Arora is his hands-on approach to understanding consumer preferences. He personally visits international markets to gain insights into local culinary habits, helping LT Foods tailor its products to diverse global palates.
Meet the Employees: Reviews
LT Foods seems to offer a supportive and friendly work environment based on many positive employee reviews. Employees appreciate the great learning opportunities, cooperative team members, and approachable senior management. The company provides good benefits and pay, with room for growth and development. Employees enjoy the work-life balance and find the work culture to be relaxed yet professional. Many cite LT Foods as a good place to start and build a career, especially for freshers, due to the exposure and experience gained. The management hears employee feedback and the company has an open communication culture.
However, some employees feel the salary is lower compared to similar companies and that pay increases and promotions are slow. A few mention high sales pressure and work on weekends. Some feel the appraisal and confirmation process is weak without consistent criteria. Certain employees cite poor processes, lack of vision/strategy, and a need for technological advancement, especially in the Europe plant. A couple reviews mention politics and a toxic work environment. Career growth seems to be a concern for some tenured employees.“The management hears feedback from every employee, the managers were supportive. Overall good experience”
“Great Learning. Fast paced transformation in Business processes to maintain competitiveness with competitors. Implementation of practices at par with leading MNCs. Employee's growth is very slow in terms of promotion and increment.”
MOST SIGNIFICANT MOATS
LT Foods has built powerful brands like Daawat and Royal over decades. These brands command consumer loyalty and allow the company to charge premium prices. For many consumers, Daawat is synonymous with quality basmati rice. This brand strength creates a barrier for new entrants and gives LT Foods pricing power. It's like how people reach for Coca-Cola instead of a generic cola - the brand carries weight.
LT Foods controls the entire process from farm to fork. They work directly with farmers, have their own processing facilities, and manage distribution. This vertical integration gives them better quality control, cost efficiencies, and supply reliability compared to competitors who may rely on third parties. It's similar to how Apple designs its own chips - it gives more control and margin.
The company has built an extensive distribution system across 60+ countries. This network took years to develop and would be challenging for a new player to replicate quickly. It allows LT Foods to reach consumers efficiently worldwide. Think of it like Amazon's logistics network - it's a huge advantage that's hard to match.
MOST SIGNIFICANT RISKS
Risk: Fluctuations in rice and other raw material prices
Impact: Could significantly affect profit margins and financial performance
Mitigating Factor: Strong brand equity allows some ability to pass on price increases; diversified product portfolio helps balance risks
Risk: Exposure to currency fluctuations due to global operations
Impact: May impact revenues and profits from international business
Mitigating Factor: Natural hedge from both imports and exports; use of financial instruments to hedge currency risk
Risk: Intense competition in the packaged food industry
Impact: Could lead to loss of market share and pricing pressure
Mitigating Factor: Focus on brand building, product innovation, and expanding distribution network to stay competitive
CATALYSTS FOR GROWTH
LT Foods recently opened a new facility in Harlow, United Kingdom. The company expects this facility to generate annual revenue of around 50 million pounds (over Rs 500 crore) in the next 2 years, with a target of reaching 100 million pounds (over Rs 1,000 crore) within 5 years. This marks a significant push into the European market for LT Foods and could substantially boost its international business, which already contributes a major portion of its revenue.
LT Foods has been delivering robust growth in recent years. In FY23, its consolidated revenue grew 28% year-on-year to Rs 6,979 crore, while profit after tax surged 37% to Rs 423 crore. If the company can maintain this strong growth trajectory, especially in the face of an uncertain economic environment, it could lead to positive sentiment and re-rating of the stock by investors.
LT Foods is a leading player in the basmati rice segment with strong brands like Daawat, which has over 29% market share in India, and Royal, which has over 50% share in North America. The company has also been diversifying into fast-growing segments like organic food, convenience products and healthy snacks. This balanced portfolio across geographies and categories makes LT Foods well-positioned to tap growth opportunities.
Disclaimer: The information provided in this newsletter is for educational and informational purposes only and does not constitute financial, investment, or legal advice. The content is solely the opinion of the author, who is not a qualified financial advisor, investment professional, or legal expert. All investments involve risk, and past performance does not guarantee future results. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions. The author of this newsletter is not liable for any losses or damages arising from the use of the information provided. This newsletter is not intended for distribution to, or use by, any person in any jurisdiction where such distribution or use would be contrary to local law or regulation.
Reply