LT Foods Opportunity

On 29th May, 2020, LT Foods showed up on my screen, because it had reported a good set of numbers.

3 other items caught my attention.

• Sales had grown by 20% while PAT had grown by 167%
• Branded business (Daawat Basmati Rice) had done well
• Debt to EBITDA had reduced from 4x in FY19 to 2.9x in FY2020

Company presentation

Another important thing to note was that, unlike other sectors, production had not been affected much despite the Covid lockdown because the company’s products fall under the essential commodities category.

News article

By the time I read this article, the stock price had already gone up from ₹24 to ₹26, a jump of 8%. What caught my fancy though, was the fact that a branded business was now available at 4 PE whereas it’s competitor, KRBL (India Gate Basmati Rice Brand) was available at double the valuation. Since I was reading the news on a Friday evening, I had the weekend to think about whether I should buy this stock on Monday morning.

Time for some scuttlebutt

Next I remembered, one of my close friends knows a contact who happens to be a big distributor of another brand of Basmati rice. So through my friend, I contacted this distributor and the feedback I received was that exports of Basmati rice to countries like Iran, are likely to be affected this year due to logistical challenges.

In the end, I felt the risk reward equation was favorable, given that the stock was selling cheap (compared to KRBL as well compared to the PE it which it has historically traded at), and allocated 10% of my portfolio to this stock on 1st June, 2020 at ₹26. Fast forward to today and I am sitting on gains of 60%+ (The current stock price is ₹42). Worked out to be a good trade!

When to sell?

This is no high quality business and was a pure opportunistic play. My plan is to ride the stock as long as it continues going up and exit once it goes to ₹35 or less.

-Barath Mukhi

21st June, 2020