New Facilities In Europe And Saudi Arabia Will Expand Global Reach

Key Takeaways

• Expected reductions in freight costs and strategic pricing could enhance EBITDA margins and stabilize revenue growth.
  
• Facility expansions and focus on core efficiencies could boost profitability and ROCE.
  
• Increased logistics expenses and decreased earnings signal ongoing pressure on margins and potential challenges in maintaining profitability and investor confidence.

Catalysts

Engages in the milling, processing, and marketing of branded and non-branded basmati rice, and rice food products in India.

• LT Foods is expecting freight costs to decrease in the next financial year, which could lead to improved EBITDA margins as lower logistics costs are realized in international markets.
  
• The company is planning strategic pricing adjustments in response to decreased Basmati rice input costs, which might enhance market share and stabilize revenue growth.
  
• Expansion of the U.S. facility and increased sales from the organic food segment are anticipated to augment revenue and possibly enhance margins given the higher profitability potential in these categories.
  
• New facilities in Europe and Saudi Arabia are projected to contribute significantly to revenue growth, with combined expectations of substantial contributions in subsequent fiscal years.
  
• Targeted efforts to improve return on capital employed (ROCE) by enhancing core business efficiencies and strategically reducing market share in less profitable segments could improve overall profitability metrics.

LT Foods Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming LT Foods's revenue will grow by 12.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.9% today to 8.7% in 3 years time.
• Analysts expect earnings to reach ₹10.6 billion (and earnings per share of ₹30.5) by about March 2028, up from ₹5.9 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.9x on those 2028 earnings, down from 21.8x today. This future PE is greater than the current PE for the IN Food industry at 18.6x.
• Analysts expect the number of shares outstanding to decline by 0.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.53%, as per the Simply Wall St company report.

LT Foods Future Earnings Per Share Growth

Risks

• The freight costs have increased and remain elevated, leading to an increase in logistics expenses, which could suppress net margins until the costs are reduced or passed on to customers.
  
• The decrease in profit from Golden Star due to higher freight costs indicates an impact on associate earnings, potentially affecting overall profits.
  
• The PAT decreased by 4.7% in the quarter year-over-year, indicating a risk to net margins and shareholder returns.
  
• The EBITDA margin has decreased by 80 bps year-over-year for the 9-month period, suggesting ongoing pressure on operational efficiency and profitability.
  
• The return on capital employed and return on equity have both declined compared to the previous year, indicating potential challenges in maintaining financial performance and investor confidence.

Valuation

• The analysts have a consensus price target of ₹426.5 for LT 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 ₹122.1 billion, earnings will come to ₹10.6 billion, and it would be trading on a PE ratio of 19.9x, assuming you use a discount rate of 12.5%.
• Given the current share price of ₹371.85, the analyst price target of ₹426.5 is 12.8% higher.
• 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.