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SYNOPSIS

Agro Tech Foods Ltd (ATFL) is a public limited company engaged in the business of marketing food and food ingredients to consumers and institutional customers. The company is affiliated to ConAgra Foods Inc. of USA, which are one the world’s largest food companies.

The company is engaged in the production of agricultural products. It operates in three segments: Sourcing and Institutional Business, Branded Foods and Others.

Net Sales and PAT of the company are expected to grow at a CAGR of 10% and 19% over 2010 to 2013E respectively.

During the quarter, the company has reported Net Profit increased to Rs.109.80 million from Rs.87.50 million in previous year same quarter.

The Company has recommended a dividend of Rs. 1.75/- per equity share for the year ended March 31, 2011.

Years Net sales EBITDA Net Profit EPS P/E

FY 11 7207.10 518.30 317.80 13.04 30.80

FY 12E 7927.81 601.78 371.08 15.23 26.37

FY 13E 8720.59 687.18 425.85 17.47 22.98

Stock Data:

Sector: Food Products

Face Value Rs. 10.00

52 wk. High/Low (Rs.) 410.80/259.00

Volume (2 wk. Avg.) 3012

BSE Code 500215

Market Cap (Rs.In mn) 9786.99

Share Holding Pattern

1 Year Comparative Graph

Agrotech foods Ltd BSE SENSEX

C.M.P : Rs.401.60 Target Price : Rs.454.00 Date :19th July 2011 BUY

AGRO TECH FOODS LTD Result Update: Q4 FY 11

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Peer Group Comparison

Name of the company CMP(Rs.) Market

Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

Agro Tech Foods 401.60 9786.99 13.04 30.80 5.51 17.50

Gujarat Ambuja Ex 28.25 3901.50 6.82 4.13 0.77 30.00

Nagarjuna Agri Tech 4.09 38.30 - - 0.53 0.00

Kohinoor Foods 49.80 1404.00 - - 0.76 0.00

Investment Highlights

Q4 FY11 Results Update

Agro Tech Foods Ltd disclosed results for the quarter ended March 2011. Net

sales for the quarter moved up 4.36% to Rs.1779.80 million as compared to

Rs.1705.40 million during the corresponding quarter last year. During the

quarter, the company has reported Net Profit increased to Rs.109.80 million from

Rs.87.50 million in previous year same quarter. The Basic EPS of the company

stood at Rs.4.51 for the quarter ended March 2011.

Quarterly Results - Standalone (Rs in mn)

As At March-11 March-10 %change

Net sales 1779.80 1705.40 4.36

PAT 109.80 87.50 25.49

Basic EPS 4.51 3.59 25.49

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Basic EPS of the company stood at Rs.4.51

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FY11 Performance

Net profit of the company has increased at 26% yoy Rs.317.80mn from

Rs.251.40mn of same period of last year. Total revenue for the year stood at

Rs.7207.10 mn from Rs.6527.70 which is 10% increased than that of a year ago.

EPS for the year stood at Rs.13.04 per equity share of Rs.10.00 each.

Operating profit of the company stood at Rs.518.30mn. OPM for the year stood at

7.19%. Expenditure of the company increased 8% YoY to Rs.6738.10 mn. Interest

expenses for the year stood at Rs.1.30mn.

Board recommends Dividend

Agro Tech Foods Ltd has recommended a dividend of Rs. 1.75/- per equity

share for the year ended March 31, 2011.

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Company Profile

Agro Tech Foods Ltd (ATFL) was incorporated on November 21,1986 and obtained the

certificate of commencement of business on January 9,1986. The company has been

promoted by C.N. Balu.

Agro Tech Foods Ltd (ATFL) is a public limited company engaged in the business of

marketing food and food ingredients to consumers and institutional customers. The

company is affiliated to ConAgra Foods Inc. of USA, which is one the world’s largest

food companies.

ConAgra is one of the leading food services company in the US with a variety of

popular brands which cater to the consumers in retail packaged form as well as

through the catering industry. The food service business in India is supplying food

products such as Lamb Weston, oils, popcorn to the hotels, restaurants and catering

establishments.

The company is engaged in the production of agricultural products. It operates in

three segments: Sourcing and Institutional Business, Branded Foods and Others.

Sourcing and Institutional Business segment includes oils and agricultural raw

materials procurement, crystal and rath bulk packs, the seed buying and processing

operations, food service and poultry feed ingredients. The Branded Foods segment

includes products

Businesses

Branded Oils & Foods

Sourcing & Institutional Business

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Functions

Sales & Distribution

Research, Quality and Innovation

Manufacturing

Logistics

Vending

Human Resources

Finance

Products & Services

Sundrop

Sundrop is the largest brand in the premium segment of the refined oil consumer

packs. Sundrop was launched in 1989 as sunflower oil, in a predominantly groundnut

and mustard oil market. From being one of the first players in the sunflower market,

to one of the largest selling refined edible oil brands, Sundrop has come a long way.

The brand stands on the following four pillars, which have been built over the years

through its strong differentiated positioning, “the healthy oil for healthy people”, a

high recall value, consistency in quality and supplies.

Health

Taste

Lightness

Vitality

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Sundrop is available in 4 variants in order to meet the varied needs of the consumer:

Sundrop Superlite

Sundrop Superlite is a 100% Sunflower oil and is synonymous with the brand

Sundrop. It is the market leader in the premium category of Refined Oils.

Sundrop Superlite enjoys a wide base of loyal customers.

Sundrop Nutrilite

Sundrop Nutrilite was launched in 2001 as a blend of Soyabean & Sunflower

oils, and was re-introduced in 2004 as 100% Soyabean oil. Sundrop Nutrilite is

fortified with Vitamins A & D to provide upto 25% of daily requirements.

Sundrop Heart

Sundrop Heart was launched in 2003 in the fast growing Heart care category.

Sundrop Heart is a scientific blend of high quality, specially processed rich Rice

Bran (80%) and Sunflower (20%) oils. It is rich in a special nutrient called

'Oryzanol', which is known to reduce bad cholesterol (LDL) levels.

Sundrop Goldlite

Sundrop Goldlite was relaunched in 2009 in the fast growing blends category.

Sundrop Goldlite is an amazing blend of 60% Sunflower and 40% Corn oils. It is

very low in its saturated fats content which makes it stick less to our foods.

Sundrop Peanut Butter

Agro Tech Foods recently forayed into bread spread segment with the launch of

Sundrop Peanut butter - the bread spread which is “the tasty way to grow strong”.

ACT II Instant Popcorn is a very innovative offering, enabling the consumer to make

his or her own hot and fresh popcorn in just 3 minutes, whether or not the person has

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a microwave oven at home. This innovation was triggered due to the understanding of

the consumer infrastructure.

ACT II Microwave Popcorn, when launched, was the only microwave popcorn in the

market. Till then, popcorn as a snack existed in the consumers’ minds only as an

outdoor snack.

Healthy World Dried Green Peas is the first and only offering of dehydrated, long

shelf-life (24 months) green peas in the Indian market. This allows consumers to have

their delicious green-peas laced food 'Whenever they want'.

Snack Pack is the only shelf-stable pudding, made so healthy, nourishing and

wholesome because of its contents, available in India.

Swiss Miss Hot Cocoa Mix is the only indulgent chocolate treat in the Indian market.

SWOT Analysis

Strengths

The company engaged in the business of marketing food and food ingredients to

consumers and institutional customers.

The company is affiliated to ConAgra Foods Inc. of USA, which is one the world’s

largest food companies.

Sundrop is the largest brand in the premium segment of the refined oil consumer

packs

Weakness

These prices vary on factors like good monsoons, weather conditions, demand

and supply scenario, foreign exchange fluctuations and government policy both

at domestic and international level.

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Opportunities

In the Edible Oils category the Company continued to work on the increasing

health consciousness of the Indian consumer and significantly increased the

distribution and display of Sundrop while supporting the brand with a higher

level of media investments.

In the Snacks Category the Company continued its focus on ACT II Popcorn,

through sustained national media presence for the brand, significant increase in

retail distribution and increasing awareness of the category.

Favorable government policies will ensure that the organized edible oil industry

grows significantly.

The biggest opportunity is the consolidation that is taking place in the edible oil

industry; as leaders and organized players, the company is set to gain most from

this consolidation

Threats

A macro threat is that of vegetable oil seeds being diverted for non-food

production like bio-fuel and other alternate energy.

Rising crude oil prices and volatility in international prices are the other sources

of concern.

Macro economic and global issues like inflation, recession, political and social

upheavals, in adequate or excessive rainfall, acts of God and nature will have an

effect on the industry as a whole

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Financial Results

12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in million) FY10A FY11A FY12E FY13E

12m 12m 12m 12m

Description

Net Sales 6527.70 7207.10 7927.81 8720.59

Other Income 73.30 49.30 46.84 50.58

Total Income 6601.00 7256.40 7974.65 8771.17

Expenditure -6238.70 -6738.10 -7372.86 -8083.99

Operating Profit 362.30 518.30 601.78 687.18

Interest -0.80 -1.30 -1.43 -1.57

Gross Profit 361.50 517.00 600.35 685.61

Depreciation -30.40 -46.00 -50.60 -55.66

Profit before Tax 331.10 471.00 549.75 629.95

Tax -79.70 -153.20 -178.67 -204.10

Profit after Tax 251.40 317.80 371.08 425.85

Equity Capital 243.70 243.70 243.70 243.70

Reserves 1262.90 1531.10 1902.18 2328.03

Face Value(Rs.) 10.00 10.00 10.00 10.00

EPS 10.32 13.04 15.23 17.47

*A=Actual, *E=Estimated

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Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in million) 30-Sep-10 30-Dec-10 30-Mar-11 30-Jun-11

3m(A) 3m(A) 3m(A) 3m(E)

Description

Net Sales 1889.30 1953.10 1779.80 1690.81

Other Income 13.20 14.30 8.70 9.14

Total Income 1902.50 1967.40 1788.50 1699.95

Expenditure -1787.20 -1803.90 -1623.80 -1564.00

Operating Profit 115.30 163.50 164.70 135.95

Interest -0.10 -1.00 0.20 -0.20

Gross Profit 115.20 162.50 164.90 135.75

Depreciation -12.30 -13.10 -9.80 -10.29

Profit before Tax 102.90 149.40 155.10 125.46

Tax -33.60 -51.70 -45.30 -41.40

Profit after Tax 69.30 97.70 109.80 84.06

Equity Capital 243.70 243.70 243.70 243.70

Face Value(Rs.) 10.00 10.00 10.00 10.00

EPS 2.84 4.01 4.51 3.45

*A=Actual, *E=Estimated

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Key Ratio

Particulars FY10 FY11 FY12E FY13E

EPS (Rs.) 10.32 13.04 15.23 17.47

EBITDA Margin (%) 5.55% 7.19% 7.59% 7.88%

PAT Margin (%) 3.85% 4.41% 4.68% 4.88%

P/E Ratio (x) 38.93 30.80 26.37 22.98

ROE (%) 16.69% 17.91% 17.29% 16.56%

ROCE (%) 22.03% 26.61% 25.69% 24.56%

EV/EBITDA (x) 27.01 18.88 16.26 14.24

Book Value (Rs.) 61.82 72.83 88.05 105.53

P/BV 6.50 5.51 4.56 3.81

Charts:

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Outlook and Conclusion

At the current market price of Rs.401.60, the stock is trading at 26.37 x FY12E and 22.98 x FY13E respectively.

Price to Book Value of the stock is expected to be at 4.56 x and 3.81 x respectively for FY12E and FY13E.

Earning per share (EPS) of the company for the earnings for FY12E and FY13E is seen at Rs.15.23 and Rs.17.47 respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 10% and 19% over 2010 to 2013E respectively.

During the quarter, the company has reported Net Profit increased to Rs.109.80 million from Rs.87.50 million in previous year same quarter.

The Company has recommended a dividend of Rs. 1.75/- per equity share for the year ended March 31, 2011.

On the basis of EV/EBITDA, the stock trades at 16.26 x for FY12E and 14.24 x for FY13E.

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We expect that the company will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs.454.00 for Medium term investment.

Industry Overview

The Indian food market is estimated at over US$ 182 billion, and accounts for about

two thirds of the total Indian retail market. Further, according to consultancy firm

McKinsey & Co, the retail food sector in India is likely to grow from around US$ 70

billion in 2008 to US$ 150 billion by 2025, accounting for a large chunk of the world

food industry, which would grow to US$ 400 billion from US$ 175 billion by 2025.

Exports

Exports of agricultural products from India are expected to more than double to top

US$ 20.6 billion in the next five years, according to the commerce ministry.

According to estimates by the Agricultural and Processed Food Products Export

Development Authority (APEDA), the share of India's farm product exports in the

global trade will grow from 2 per cent now to over 5 per cent.

Exports of fresh and processed vegetables, fruits, livestock and cereals rose 10 per

cent to US$ 8.67 billion in 2008-09.

Spices

Despite a global slowdown, Indian spice exports are growing. India exported 470,520

tonnes of spices valued at US$ 11.68 billion—an all-time high—in 2008-09.

During the 2007-08, 444,250 tonnes valued at US$ 11.01 billion were exported.

Compared with 2007-08, exports had shown an increase of 19 per cent in rupee value

and six per cent in dollar terms.

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Food Processing

The Indian packaged processed foods industry is estimated at US$ 10.87 billion – US$

13.05 billion, including biscuits, chocolates, ice-cream, confectionery, snacks, cheese

and butter. Growing at a healthy 14-15 per cent over the past two-three years, major

players in the sector include Britannia, Nestle, Amul, ITC Foods, Parle, Kellogg’s,

GlaxoSmithKline, Wrigley and Frito-Lay, among others.

The industry received foreign direct investments (FDI) totalling US$ 143.80 million in

2007-08 against US$ 5.70 million in the previous fiscal. The cumulative FDI received

by the industry from April 2000-August 2009 stood at US$ 878.32 million.

However, India’s share in exports of processed food in global trade is only 1.5 per cent;

whereas the size of the global processed-food market is estimated at US$ 3.2 trillion

and nearly 80 per cent of agricultural products in the developed countries get

processed and packaged.

In order to further grow the food processing industry, the government has formulated

a Vision-2015 action plan under which specific targets have been set. This includes

tripling the size of the food processing industry from around US$ 70 billion to about

US$ 210 billion, raising the level of processing of perishables from 6 per cent to 20 per

cent, increasing value addition from 20 per cent to 35 per cent, and enhancing India’s

share in global food trade from 1.5 per cent to 3 per cent. This would require an

investment of US$ 20.6 billion.

According to an Ernst and Young (E&Y) presentation, the food processing industry in

India will grow 30-40 per cent as against the present 15 per cent in the next 10-years.

Prime Minister Dr Manmohan Singh on October 6, 2009 laid out a blueprint for rapid

growth in the country’s food processing sector. The Prime Minister said that this can

be achieved by simplifying the tax structure, formulating a National Food Processing

Policy and improving rural infrastructure.

Moreover, according to Union Minister for Food Processing Industries, Subodh Kant

Sahai the central government is envisaging an investment of US$ 21.50 billion in the

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food processing industry over the next five years, a major chunk of which it plans to

attract from the private sector and financial institutions.

Snacks and Confectionery

The Indian market holds enormous growth potential for snack food, which is

estimated to be worth US$ 3 billion, with the branded snack market estimated to be

around US$ 1.34 billion, growing at 15-20 per cent a year. While the growth rate of

the US$ 1.56 billion unorganised sector is 7-8 per cent.

Health Food

Recognising the growth potential of the branded health food sector in India, fast

moving consumer goods (FMCG) majors are foraying into this sector in a big way. As

Hindustan Lever Ltd (HUL) is test marketing its health food brand, Kissan Amaze, in

three southern states in India, Godrej Hershey Foods & Beverages Ltd (GHFBL), a joint

venture between Godrej Beverages & Foods Ltd and Hershey Company, is planning to

introduce select brands from its international portfolio in the domestic market.

Dairy

According to Dairy India 2007 estimates, the current size of the Indian dairy sector is

US$ 62.67 billion and has been growing at a rate of 5 per cent a year. The dairy

exports in 2007–08 rose to US$ 210.5 million against US$ 113.57 last fiscal, whereas

the domestic dairy sector is slated to cross US$ 108 billion in revenues by 2011.

India continues to be the largest producer of milk in the world. It produced 110 million

tonne of milk in 2008-09.

Beverages

According to industry experts, the market for carbonated drinks in India is worth US$

1.5 billion while the juice and juice-based drinks market accounts for US$ 0.25

billion. Growing at a rate of 25 per cent, the fruit-drinks category is one of the fastest

growing in the beverages market. Sports and energy drinks, which currently have a

low penetration in the Indian market, have sufficient potential to grow.

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The market for alcoholic beverages has been growing consistently. 'The Future of

Wine', a report on the state of the wine industry over 50 years, suggests that the

market for wine in India was growing at over 25 per cent per year.

Major investments

Private investment has been one of the key drivers for growth of the Indian food

industry. The 'India Food Report 2008', reveals that the total amount of investments in

the food processing sector in the pipeline for the next three years is about US$ 23

billion.

• The government has received around 40 expressions of interest (EoI) for the

setting up of 10 MFPs with an investment of US$ 514.37 million.

• Reliance Industries Ltd has invested US$ 1.25 billion in a dairy project.

• Focusing on India as a rapidly growing market, US soft drinks giant Pepsico

would pump in an estimated US$ 152.30 million to set up four new food and

beverages projects by 2012.

• Geneva-based food service chain Global Franchise Architects (GFA) aims to

open 250 stores around the world by March 2010, of which 100 will be in India.

Government Initiatives

The new trade policy places increased focus on agro-based industries.

• Food processing industries have been put in the list of priority sectors for bank

lending. The Centre has also announced a series of new initiatives which

include a separate policy at the state level, thrust on contract farming and

making the sector tax-free.

• The government plans to open 30 mega food parks by the end of the 11th five

year plan (2007-2012).

• Fruit and vegetable processing units have been completely exempted from

paying excise duty.

• Automatic approval for foreign equity up to 100 per cent is permitted for most

of the processed food items.

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• Items like fruits and vegetables products, condensed milk, ice cream, meat

production have been completely exempted from Central Excise Duty.

• Excise duty on ready to eat packaged foods and instant food mixes has been

brought down to 8 per cent from 16 per cent.

• Excise duty on aerated drinks has been reduced to 16 per cent from 24 per

cent.

• The Ministry of Food Processing Industry would assist in the setting up of more

food processing units so that the industry could create 10 million jobs by 2015,

according to Mr Subodh Kant Sahai, Union Minister for Food Processing.

Looking ahead

According to the India Food and Drink Report Q3 2008 by research analysis firm

Research and Markets, by 2012, India’s processed food output is likely to grow by 44.2

per cent to touch US$ 90.1 billion, while packaged food sales will increase by 67.5 per

cent to reach US$ 21.7 billion. On a per capita basis, per capita packaged food

spending is expected to grow by 56.5 per cent to US$ 18.06 by 2012.

Moreover, according to a FICCI-E&Y study on the Indian food industry, investment

opportunities in the Indian food industry are set to shoot up by a huge 42.5 per cent

to US$ 181 billion in 2015 and to US$ 318 billion by 2020.

_______________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

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