Agro Tech Foods

Sector – Edible Oils & Solvent
Extraction
Agro Tech Foods Ltd. (ATFL)
13th August 2020 CMP – `672/- View – ACCUMULATE ON DIPS
Company Background Important Statistics

Affiliated to ConAgra Foods Inc, one of world's largest food companies, Agro M.Cap (` mn) `16,121
Tech Foods Ltd (ATFL) is engaged in the business of marketing food and food 52 Week H/L (`) 738.1/350.0
ingredients to retail and institutional customers. The company operates in three NSE Code ATFL
segments: Sourcing and Institutional Business, Branded Foods and Others. BSE Code 500215
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 sold under the brands of Sundrop, Crystal etc.
Investment Thesis Financials

(` mn)
 Edible oil though defocused will be continued – ATFL, largely an Particular FY20 FY19
edible oil company, plans to become a profitable “Total Food Company‟
Total Revenue 8355 8237
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and has diversified its revenue from edible oil. Given low double-digit gross
EBITDA 584 647
margin in the edible oil segment, the company envisaged pressure from
PAT 338 343
rising competition and its inability to justify the premium pricing for its
EPS 14.35 14.63
edible oil offering. So, it has gradually been reducing its focus on edible oil
P/E 46.8 45.9
(~69% of revenue now); consequently, its performance has been muted in
EV/ EBITDA (x) 27.6 24.8
the last few years.
RoE (%) 8.3% 9.1%
 Strategic focus on driving non-edible oil segments to aid margin ROCE(%) 9.5% 12.6%
expansion – In its quest to become a Total Food Company, ATFL has Net Debt/Equity 0.0 0.0
expanded its non-edible oil coverage and aims to expand its presence in
strategic segments such as peanut butter, ready to eat snacks (bagged Shareholding pattern (%) June’20
snacks; growing healthy), ready to cook snacks (mainly popcorn),
Promoters 51.8
breakfast cereal (forayed in FY19) and chocolate (entered into peanut-
FII 8.5
based chocolate in FY20). Led by steady expansion in the non-edible oil
DII 3.0
segment, EBITDA margins expanded from 2% in FY10 to ~8% in FY19. In
Public & Others 36.8
the last 10 years, its non-edible oil portfolio grew at a CAGR of ~15%,
below the management’s expectation of 20-25%; but on an expanded
portfolio, the management is confident of acceleration in growth.
Management aims to push this food business to over 50% of its total
revenue which will help margin expansion as it has high margin products.
 Strong growth in Popcorn combined with roll out of Sweet Corn
provides a platform for robust category growth for ATFL –
Company’s ready to cook category “Act 11” has already evolved as a brand
with offerings like Nachoz, Bakes, and Diet Popcorn that range from the
sunrise to new-age snacking categories.
The Act II Popcorn ‘Tub With The Trailer’, in association with Zee Studio
and Dharma Productions has also been launched in 2020, is synonymous
with enhancing people’s movie-watching experience at their homes. We
believe these offerings will further strengthen company’s core product
offering. RTC (high margin business) coupled with Peanut butter segment
recorded strong volume growth in Q1FY21 which led to 16% YoY growth
in foods business.
 Scaling up packaging capacities coupled with launch of new and

innovative categories to help improve performance – In FY20,
company entered Extruded cereals and Granola categories with launch of
Sundrop Popz and Sundrop Nutrify and countline segment of chocolate
Confectionary with launch of Sundrop Duo. Management stated it has been
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Extraction
received well by consumers and company is planning to scale up

packaging facility for these categories, which we feel will help improve
financials. Also the RTE category which was hit due to packaging issues in
H1FY20, due to packaging issues to be sorted with restart of Unnao plant.
 Diversified product basket + expansion of distribution base to

improve return ratios – As of FY20, company’s distributor reach stood
at 1200 with retail outlets at 500,000 however management is focused and
targeting 1mn outlets going ahead. Company launched products across
categories and price points in last few quarters which would increase its
distribution reach.High margin products such as sweet corn, Coca nut
spread, Coconut Duo will expand its MT presence while low priced
products will expand its GT reach. We believe, its diversified product
basket with new launches receiving good response coupled with increased
distributor reach will improve return ratios.

 Q1FY21 numbers better than expectation – Company reported
topline of `2034mn up 2.8% YoY driven by 16% YoY volume and value
growth in foods business contributing to the extent of 31% to the total
revenue. The Company’s food business growth was driven on the back of
increased in-home consumption in Ready to cook snacks and Spreads
business while cereals & confectionary (new Portfolio) also contributed to
the food business in 1QFY21.
Company’s edible oil business which comprises of Sundrop edible oil

degrew by 10% YoY in volumes while value declined by 3% YoY.
EBITDA margin of the company expanded by 293 bps to 10.4% YoY led by
reduction in Ad & P expense and other expense which were degrew by
17% and 15% YoY in the quarter. PAT grew by 78.5% YoY to `125mn
while PAT margin stood at 6.2% in the quarter.
In confectionary business, company is in process of maximising its learning

wrt category performance, supply chain and other factors and will take
some time to understand the category.
 Key Risks – Sharp rise in cost of its raw materials, intense competition in
its key categories, 2nd or 3rd wave of Covid-19.
View
ATFL posted strong EBITDA and PAT growth of ~48% YoY and ~78% YoY due
to decline in other expenses, A & P spends. Going forward Ready to Cook,
Spreads, chocolate spreads, Cereals and Confectionary are expected to post
good numbers led by increased in home consumption. We expect the company
will continue A & P spends but at a reduced level while savings in other expense
and lower fixed costs will ensure EBITDA expansion. We believe company will
achieve higher growth on the back of its focus on high margin Ready to cook
and peanuts category, increased distribution reach and new launches in niche
categories. At CMP of 672, company is trading at ~46x P/E FY20 which
is at discount compared to listed peers and thus recommend the stock
as “Accumulate On Dips”.
Extraction
Financials
(` mn)
Particulars Q1FY21 Q4FY20 Q1FY20 YoY QoQ
Net Sales 2,034 2,048 1,977 2.9% -0.7%
COGS 1,369 1,437 1,329 3.0% -4.7%
Employee Cost 145 143 129 11.9% -1.6%
Other Expenses 309 363 372 -16.8% -14.7%
Total Expenditure 1,823 1,942 1,830 -0.4% -6.1%
EBITDA 211 106 147 43.5% 99.7%
EBITDA Margin 10.4% 5.2% 7.4% 293bps 521bps
Depreciation 43.2 49.9 46.8 -7.7% -13.4%
EBIT 168 56 100 67.5% 201%
EBIT Margin 8.2% 2.7% 5.1% 318bps 552bps

Other Income 3.9 4.5 11 -64.5% -13.3%
Interest 4.2 4.3 4.5 -6.7% -2.3%
PBT 167 56 107 57.0% 199.6%
Tax 41.9 16.6 36.3 15.4% 152.4%
PAT 125 39 70 78.5% 219.6%
PAT Margin 6.2% 1.9% 3.6% 261 bps 425 bps
EPS (`) 5.30 1.66 2.98 77.9% 219.3%
Source: Company Data, Way2Wealth Inst Equity
Extraction
Disclaimer
Analyst Certification: I, Yogita Desai, the research analyst and author of this report, hereby certify that the views expressed in this research report
accurately reflect our personal views about the subject securities, issuers, products, sectors or industries. It is also certified that no part of the
compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research.
The analyst(s), principally responsible for the preparation of this research report, receives compensation based on overall revenues of the company
(Way2Wealth Brokers Private Limited, hereinafter referred to as Way2Wealth) and has taken reasonable care to achieve and maintain independence
and objectivity in making any recommendations.
It is confirmed that Yogita Desai, the author of this report has not received any compensation from the companies mentioned in the report in the
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To enhance transparency, Way2Wealth has incorporated a Disclosure of Interest Statement in this document. This should, however, not be treated as
endorsement of the views expressed in the report.
Disclosure of Interest Statement Agro Tech Foods Ltd (ATFL) as on August 13th, 2020
Name of the Security Agro Tech Foods Ltd (ATFL)
Name of the analyst Yogita Desai
Analysts’ ownership of any stock related to the information NIL
contained
Financial Interest
Analyst : No
Analyst’s Relative : Yes / No No
Analyst’s Associate/Firm : Yes/No No
Conflict of Interest No
Receipt of Compensation No
Way2Wealth ownership of any stock related to the information
NIL
contained
Broking relationship with company covered NIL
Investment Banking relationship with company covered NIL
This information is subject to change without any prior notice. Way2Wealth reserves at its absolute discretion the right to make or refrain from
making modifications and alterations to this statement from time to time. Nevertheless, Way2Wealth is committed to providing independent and
transparent recommendations to its clients, and would be happy to provide information in response to specific client queries.

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Sector – Edible Oils & Solvent

Company Background Important Statistics

Investment Thesis Financials

W2W Lighthouse – A Quick Perspective

 Scaling up packaging capacities coupled with launch of new and

received well by consumers and company is planning to scale up

 Diversified product basket + expansion of distribution base to

W2W Lighthouse – A Quick Perspective

Company’s edible oil business which comprises of Sundrop edible oil

In confectionary business, company is in process of maximising its learning

W2W Lighthouse – A Quick Perspective

W2W Lighthouse – A Quick Perspective

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