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Aashish Tater

Aashish Tater

5.30 AM Jan 1st 1970

Agro Tech Foods

BSE ID : 500215     NSE ID : ATFL

RECOMMENDED PRICE 479.25

PEAK FROM RECO 1149.75 139.91%

CURRENT PRICE 686.90 Resource id #18

Agro Tech Foods belongs to the group which is world's third largest player in the sector. Sundrop and Act II are few of its well known brand. This is the stock for Investors as the say good for heart we believe it's good for Investment.

Agro Tech Foods: Baby of the MNC Giant ConAgra Foods

 

Fundamental Perspective

Agro Tech Foods belongs to the group which is world's third largest player in the sector. Sundrop and Act II are few of its well known brand. The company has been able to position itself in a market which is growing rapidly after which it consolidates in terms of sales and then again go for rapid growth. There is no direct competition in few of its businesses and market share is quite high where competitors are unable to match the market penetration it has achieved over the years.

 

About the Parent: CONAGRA

Parent operates in four segments: Consumer Foods, Commercial Foods, Ralcorp Food Group, and Ralcorp Frozen Bakery Products. Consumers can find recognized brands such as Banquet, Chef Boyarde, Egg Beaters, Healthy Choice, Hebrew National, Hunt's, Marie Callender's, Odom's Tennessee Pride, Orville Redenbacher's, PAM, Peter Pan, Reddi-wip, Slim Jim, Snack Pack.

In 2012-2013 the parent prepared a road-map called "Recipe for Growth". The last year company in its annual report provided the update "The Table is set". If one closely analyzes the comments its clearly evident there is massive expansion that is going to take place in the company's strategy which will benefit its Indian subsidiary. There have been recent talks about parent company going for increasing its stake in Agrotech food and looking at our quant model and their strategic road map we feel the open offer is likely that too at a Hefty premium. The company is available at 1.5 times its sales almost negligible debt compared to its peers where deal has happened at 3 times sales.

So far ConAgra was not focusing on bringing its product to India and thus all the valuation that it commanded was from its existing business. But after the new roadmap it's evident that Conagra will focus on India as a growth strategy and an important recipe for growth.

We have always focused on Annualized Equivalent Value AEV what rate of expectancy to growth company pays to acquire other companies vis-à-vis existing subsidiaries we identified ATLAS COPCO, ALFA LAVAL, MCDOWELL_N, and many other open offer candidates based on this principle and now we identified the next in the system if Parent paid $5 billion to acquire Ralcorp we feel the subsidiaries specially India is trading at half the value and potential of growth is bigger than some other geographies.

 

Why Parent will make an Open offer:

Agrotech's Management is right now focusing on setting up distribution network and it is for the parent because rapidly expanding for its existing products does-not make much of a sense Parent have a huge products line and Indian markets cannot be left aloof as its one of the fastest growing market in the world. The Sale potential of the new products ranges from 1100-1300 crore within two years of its existence as the network is already created which is equal to current market capitalization. The potential for few of its brand launches is higher as the product profile matches that of Working Middle Class which is the area of concentration for parent.

 
Valuations:

On valuation front we feel the engine of growth can help its EPS grow substantially as its equity is too low and is largely controlled by large investors thus free float is also a factor To add to this if we have open offer from parent to increase its stake to 75% or delist the company. The stock will be trading at much higher premium compared to current levels. On valuation basis we feel the stock will offer substantial upside when the entire momentum shift from parent's side. This is the stock for Investors as the say good for heart we believe it's good for Investment. If open offer comes for 75% we expect the price to be somewhere around 700-730 and if it's for delisting parents can pay 950 conservatively.

Disclaimer: Aashish Tater is an equity analyst and investment consultant based in Kolkata, INDIA. At the time of writing this article, he, his firm and dependent family members have no position in the stocks mentioned above. The author invites readers to send him email and welcomes comments, feedback & queries at query@fortunewizard.com. This report has been prepared solely for information purposes and the information contained herein may not be deemed to be an investment advice. Such information is impersonal and not tailored to the investment needs of any specific person. The information contained herein is not a complete analysis of every material fact representing any company, industry or security. The views expressed may change. While the information contained herein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Investors are advised to satisfy themselves before making any investments and should consult with and rely upon their own advisors whether and how to use such information in making any investment decision. Neither the author nor his firm accepts any liability arising out of use of the above information/ article.

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