AGRO TECH FOODS

Bull case:

ATFL to be the hub for India, Srilanka and Bangladesh, under a 100% subs.From an oil business with
some pricing power due to Sundrop the co is moving towards FMCG ( around 20% if i remember, the last
quarter concall gives this out nicely, to paraphrase what their CEO said about ' using the oil business
income to run the snacks business '. No plans to take on debt, most capex will be from accruals. ConAgra
(http://www.conagrafoods.com/our-food/brands) pipeline excites investors. It has taken the co five years
to come to this level and I think with name change to ConAgra being on the pipeline, the commitment
towards the snacks business will be high. For whatever it is worth Rakesh Jhunjhunwalla has been an
investor for > 5 years and holds around 7% is increasing stake slowly. Maybe, we need to see this as a
great play on the growing snack food market which for a large part is unorganized now.


Bear case:

Also, 82:18 in terms of oils:foods, from 98:2 in 6 years. That's a little too slow, don't you think?

Also, 790 cr is the total revenue. 18% foods = Rs.140 odd cr. Now, he says Act II has got 2% of 10K
market..so, max revenue that can come from Act II is 200 cr (if they double it to 4% which is going to be
mighty difficult, max-to-max, it's 400 cr). And peanut butter another 65 cr at 100% capacity..say, with
better pricing, they hit about 100 cr in the next 2 yrs. Forget about new categories - they will take a lot of
time.

So, we are saying, we have an upside (in terms of revenues, max-to-max) - 250cr from Act II, 100 cr from
peanut butter (and assume oil business grows 10% every year in an optimistic scenario). So, in 2 years,
my revenue would 780 cr (oil) + 400 cr (Act II) + 100 cr (peanut butter) = 1280 cr. Current
marketcap/sales is 1.6. Assuming a similar ratio would be maintained, we are looking on a very optimistic
basis, a market cap of 2000 cr. which is a 60% upside from current levels - an approx 30% cagr in 2
years. And that is on a very optimistic basis.

Realistic case:

On a realistic basis, it'll probably be around 20% cagr or less. And that is assuming oil is stable,
corn doesn't take off (from a RM angle). It pays out only 10% of net profits for now.

Broadly, I thought after looking at the 82:18 ratio, a 25 odd P/E is over the top.

I see it as a play that can deliver 15% CAGR over 10 years, as the mix moves towards snacks and higher
end in oil. It will be one of the stories that can be at the base of a portfolio, especially if one can keep
adding at lower multiples.