Stock Review: ADF Foods

ADF Foods is into food processing. It is focused mainly on export markets. The company is involved exports a number of products like chatnis, ready to eat foods, pickles. They also own a number of brands like Ashoka, Camel and Aeroplane. The company recently launched a brand which is targeted towards the domestic market by the name of ADF Sole.

Indian markets offer a very good opportunity as far as food processing companies are concerned. Their focus is mainly on the export markets and deriving roughly 85-90% of the revenues from its exports.

India is still a virgin market for this company and the introduction of organized retail has given a good fillip to food processing companies in India. If you look at the financials, in FY10 they did revenues close to Rs 100 crore, made a profit after tax (PAT) of about Rs 15.5 crore which means an EPS of close to Rs 7.5 to 8.

The best thing is that this company enjoys operating margins of close to 25%. In the first half, the sales are almost static at about Rs 52 crore and profit after tax was slightly down at about Rs 8 crore which means on a conservative basis, you can expect the company to do an EPS of about Rs 7 to 8.

They recently made an acquisition in the US of a company called Elena Foods which does revenues close to USD 9 million. This will automatically add about Rs 40 to 50 crore to their revenues and will lead to higher earnings in the future.

Elena Foods have got a USFDA approved plant in the US. The company can introduce a number of Indian products and also manufacture through that plant. It will give them better penetration into the US market. They have opportunity in the US market as well as Indian markets.

The stock has corrected from about Rs 80 to 90 to the current levels of about Rs 55 to Rs 60 and at a PE multiple of about Rs 7 to 8 which will go down once the revenues from Elena start to come in. I find that the stock looks attractive for investment.