Up Over 100% in 1 Year: Why Geojit Downgraded Multibagger LT Foods to ‘Sell’ | Stock Market News

After doubling investor wealth over the past year, Geojit Financial Services has downgraded LT Foods (LTF) to a SELL rating, citing expected pressure on margins in the near term. The brokerage has also revised the target price to ₹230, indicating a potential downside of nearly 13 percent.

“LTF focuses on strengthening its brands, distribution, and diversifying products and regions for growth. We expect earnings to grow at a CAGR of 13 percent over FY24E-26E. LTF currently trades at 12x 1Yr Fwd P/E. We value LTF at 13x FY25E EPS and arrive at a target price of ₹230, and downgrade to SELL rating due to expected pressure on margins in the near-term,” Geojit said.

Company Overview

LT Foods is a global company specializing in basmati rice, organic foods, and ready-to-eat/ready-to-cook products. It operates in over 80 countries, with significant exposure in the US, Europe, and the Middle East.

Recent Stock Performance

The stock has surged over 101 percent in the past year and gained 28 percent in 2024 so far. It rose 24 percent in June after a 4.4 percent fall in May. Earlier, it gained 15 percent in April and 4.4 percent in March. The stock was down 9 percent in February and 3 percent in January.

On June 24, 2024, the stock hit a record high of ₹274.90 and is currently just over 5 percent below this peak. It has risen 109 percent from its 52-week low of ₹124.35 on July 13, 2023. Over three years, the stock has soared over 251 percent from ₹73.95 and 525 percent in four years from ₹41.60.

Investment Rationale:

Strong Revenue Growth: Geojit noted that in Q4FY24, LT Foods’ consolidated revenue grew by 14 percent YoY. The basmati rice segment, which contributes 87 percent of total revenue, grew by 15 percent YoY. The organic foods segment, which makes up 10 percent of total revenue, grew by 27 percent YoY. The RTE/RTC segment, accounting for 3 percent of revenue, rose by 55 percent YoY. For FY24, consolidated revenue increased by 13 percent YoY.

Market Expansion: LT Foods is optimistic about maintaining double-digit volume growth in the international basmati market, expanding its outlets to 1.4 lakh from 86.9k in FY23. Its market share in India rose to 30 percent from 29.8 percent in Q1FY24, and it maintained over 50 percent market share in the US. The RTE/RTC business has grown sixfold since FY20 and is expected to grow at a CAGR of 33-35 percent. The organic segment is recovering from losses due to anti-dumping duties on soya. The company is doubling RTE/RTC capacity in America, with an expected consolidated revenue CAGR of around 9 percent over FY24E-FY26E.

Margin Pressure: Geojit reported that the EBITDA margin improved by 100 bps YoY to 11.8 percent in Q4FY24, driven by lower freight costs, manufacturing efficiencies, and scale benefits. LTF plans to invest ₹45-50 crore in digital capabilities in FY25, which may impact margins in the short term due to potential freight cost surges and pressure on realization. However, long-term margins are expected to improve due to a focus on value-added products and cost efficiency. The RTE/RTC business, currently 3 percent of revenue (₹200 crore), is projected to break even at ₹370 crore by FY26-27E. LTF anticipates a consolidated EBITDA margin of 14-14.5 percent in five years and has received a favorable court order for ₹161.2 crore related to an insurance claim, with an appeal pending in the High Court.