Export Expansion And Product Diversification Will Drive Long Term Earnings Resilience

Catalysts

About Foods and Inns

Foods and Inns is a diversified food processing company specializing in fruit pulps, tomato products, frozen foods, spray dried powders, spices and innovative packaged formats for global and domestic FMCG customers.

What are the underlying business or industry changes driving this perspective?

• Strengthening export opportunity in mango pulp, tomato and frozen products as India becomes more price competitive versus traditional supplying regions, supporting sustained tonnage growth and higher absolute revenue.
• Scaling tomato and guava lines after securing sizeable volume commitments and recovering crops, which should deepen product diversification and improve earnings resilience across seasons.
• Capacity-led expansion in spray dried powders using low incremental capital and underutilized utilities, enabling higher value addition per kg and operating leverage benefits for EBITDA and net margins.
• Ramping up Tetra Recart and health-focused new product offerings in markets like Russia, Canada, North America and Europe, positioning the company to capture rising demand for convenient, better-for-you packaged foods and drive medium term earnings growth.
• Acceleration in frozen foods and a more digital, younger-consumer oriented strategy for Kusum Spices, which, if successful, should lift branded and higher margin B2B and B2C sales, supporting margin expansion and improved profitability.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Foods and Inns's revenue will grow by 10.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.1% today to 6.6% in 3 years time.
• Analysts expect earnings to reach ₹887.6 million (and earnings per share of ₹12.24) by about December 2028, up from ₹314.9 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 12.3x on those 2028 earnings, down from 17.2x today. This future PE is lower than the current PE for the IN Food industry at 19.4x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.76%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Management is targeting sustained 20% annual volume growth across categories, supported by strong export demand in mango, tomato, frozen foods and emerging health-focused products. If this is delivered, it could drive a structurally higher earnings trajectory and lift the share price through compounding revenue and EBITDA growth.
• Capacity additions in spray dried powders, higher in-house processing under the PLI scheme and better utilization of existing utilities are already reducing production cost per kg. Any continued operating leverage would expand net margins and earnings and could support a re-rating rather than a flat share price.
• Secured long term tomato paste volume commitments, recovering guava crops with expected growth of more than 100% and a robust frozen foods pipeline, including Russia, Europe and North America, all indicate rising product and geographic diversification that can smooth volatility and structurally increase revenue and absolute EBITDA.
• Traction in newer, higher value formats like Tetra Recart with potential to scale from a few crores of revenue toward tens of crores, alongside joint development of vegan, gluten free and low sugar products with major retailers in Canada and the U.S., could shift the mix toward premium, value added offerings and lift gross profit per kg and net margins over the long term.
• If digital marketing and B2B initiatives finally unlock growth in Kusum Spices after several flat years, adding a scalable branded component on top of the existing cost plus export engine, this could create a higher quality earnings profile and support sustained earnings per share growth rather than a stagnant earnings base.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of ₹74.0 for Foods and Inns based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be ₹13.4 billion, earnings will come to ₹887.6 million, and it would be trading on a PE ratio of 12.3x, assuming you use a discount rate of 12.8%.
  
• Given the current share price of ₹73.9, the analyst price target of ₹74.0 is 0.1% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.