LT Foods Gets A 'Buy' As Motilal Oswal Initiates Coverage, Sees 36% Upside

Motilal Oswal Report

LT Foods Ltd. has been a prominent player in the Indian basmati rice market for decades, with brands like Daawat, Devaaya, and Rozana. Daawat's market share in India has risen to 30%, while the Royal brand leads the US market with over 50% share.

The company has achieved a robust CAGR of 15% in revenue and 19% in Ebitda during FY19 to FY24, bolstered by innovative products and a focus on organic offerings.

With a presence in key consuming regions, LT Foods aims to enhance its market share through strategic marketing and distribution, particularly in the Middle East.

Over the last five years, LT Foods rerated from ~eight times P/E (average of the last five years; one-year forward) to ~21 times (in FY25), fueled by strong cash flow generation (cumulative free cash flow of Rs 17.7 billion), consistent performance (36% PAT CAGR) due to product and geographical diversification, and improved RoE/RoCE (of 19%/16% in FY24).

Transitioning from a commodity to an FMCG model, these factors position LT Foods nearer to its FMCG peer valuation. We estimate LT Foods will record a revenue/Ebitda/adjusted profit after tax CAGR of 14%/15%/19% over FY24-27.

LT Foods is currently trading at ~21x/16x/13x FY25E/FY26E/FY27E EPS with an FY27E RoE/RoCE of ~20% each.

We initiate coverage on the stock with a Buy rating and a target price of Rs 520, based on 18x FY27E P/E.

Key downside risks:

1. climate risk for rice production and volatility in rice prices;

2. competitive business environment; and

3. geopolitical and foreign currency risks.

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