Costco And Tesco Listings Will Unlock Global Markets

Key Takeaways

• Expanded global retail presence and capacity investments are expected to drive export growth and support higher margins through automation and operating leverage.
  
• Brand-building and focus on health-oriented products position the company to capture higher-margin segments and benefit from industry consolidation and organized retail trends.
  
• Export concentration, regulatory challenges, and rising costs threaten margins, growth, and revenue stability amid volatile trade, compliance, and supply chain environments.

Catalysts

Produces and exports ethnic and convenience food products in India and internationally.

• Significant new listings in major international chains (Costco, Tesco, and supermarket chains in the US, UK, and Australia) are set to drive ADF Foods' future export growth, leveraging the increasing global demand for ethnic and ready-to-eat foods, which should materially increase revenue over coming quarters.
  
• Launch of the Surat Greenfield facility, expected to begin operations in H2 FY26, will expand capacity (adding new product lines including frozen foods), allowing the company to address rising demand while benefiting from enhanced automation and cost efficiency-supporting both top-line growth and potential improvements in net margins over the medium to long term.
  
• Recent and ongoing investments in brand-building (refreshing brands like Truly Indian) and expansion into D2C and e-commerce channels are aimed at capitalizing on cleaner-label, premium, and health-focused product trends, which should help ADF capture higher-margin consumer segments and grow overall earnings.
  
• Increased penetration in global retail and online channels, including expanded distribution rights in the US and rapid scaling of presence in modern trade and quick commerce in India, position the company to benefit from consolidation in the processed foods industry and rising organized retail, boosting both market share and revenue visibility.
  
• Current high marketing and promotion spend as a percentage of sales is expected to normalize as sales scale from new listings and capacity, creating operating leverage that should enable net margins and earnings to expand over the longer term.

ADF Foods Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming ADF Foods's revenue will grow by 15.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.6% today to 14.2% in 3 years time.
• Analysts expect earnings to reach ₹1.3 billion (and earnings per share of ₹12.14) by about August 2028, up from ₹694.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 27.0x on those 2028 earnings, down from 36.1x today. This future PE is greater than the current PE for the IN Food industry at 22.0x.
• Analysts expect the number of shares outstanding to decline by 0.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.73%, as per the Simply Wall St company report.

ADF Foods Future Earnings Per Share Growth

Risks

• Escalating trade tensions and the threat of higher tariffs in key export markets like the US and Australia could force ADF Foods to absorb a portion of the increased costs or lose competitiveness, potentially squeezing net margins and impacting revenue growth.
  
• Slower-than-expected growth in key brands (e.g., Ashoka and Soul) due to distribution restructuring, operational hiccups, or inability to meet prior growth forecasts exposes ADF Foods to risk of stagnating top-line growth, impacting long-term earnings projections.
  
• Heavy reliance on export markets and a concentration in a few major global retail chains (such as Costco, Tesco) increases vulnerability to shifts in trade policy, changes in retailer strategies, or supply chain disruptions, which could affect both revenue stability and future profitability.
  
• Rising input costs, ongoing high marketing spend (7-8% of revenue while in investment mode), and potential freight cost volatility present a risk of continued margin pressure, particularly if competitive dynamics prevent full cost pass-through to customers.
  
• Regulatory actions (e.g., environmental or food processing compliance issues such as the GPCB notice impacting factory operations) and increasing global scrutiny on food safety and sustainability could disrupt supply chains, create production downtime, and increase compliance costs-leading to fluctuations in revenue and compressing net margins.

Valuation

• The analysts have a consensus price target of ₹228.0 for ADF Foods based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹9.3 billion, earnings will come to ₹1.3 billion, and it would be trading on a PE ratio of 27.0x, assuming you use a discount rate of 12.7%.
• Given the current share price of ₹228.05, the analyst price target of ₹228.0 is 0.0% lower. 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.