We recommend ?BUY? on DFM FOODS LIMITED for a target of INR 315 – valuing the company at P/E 39x of FY21E Earning.
CMP:? ? ? ? ? ? ? ? ? INR 248
Target Price:? ? ?INR 315
Investment Rationale:
DFM markets its products under the brand name ?CRAX? and ?NATKHAT? which has got strong recognition in the snacks category in the country.
Robust Marketing and Distribution Network
Limited project execution risk, commissioning of Line up-gradation at Ghaziabad Unit
Experienced Promoters capable of managing the business growth
High growth potential with solid track record and pays a dividend
Valuations And View:
DFM Foods is an attractive stock for growth-seeking investors, with an expected double digit earnings growth in the upcoming year which is expected to flow into an impressive return on equity of 26% over the next couple of years. The stock price is available at a discount value compared to industry average. We value the business at 39x FY21E EPS and recommend a BUY rating on the stock with a target price of INR 315 per share.
Risk & Concerns
Geographical concentration, however diversifying in other regions: DFM earns majority of its revenue from CRAX corn rings which contributes around 80-85% of its total income. Though, the company has geographical concentration, CRAX has been in existence for more than three decades and has developed acceptance among customers especially with the 6-10 years age group. Furthermore, DFM revenue is concentrated in the Northern region of the country from where it derives around 75%-80% of its revenue. However, the company has been improving its distribution network in other parts of the country and has witnessed growth in revenue from other regions as well.
High Competition from other players: The company remains exposed to stiff competition from larger established companies and small regional players which have mushroomed across the country and has added to competitive intensity of the industry. Hence, the biggest challenge for the industry players would be scaling up their regional presence to a national level while maintaining highest quality standards. However, an established brand name enables DFM to have an edge over its competition.
Company Background
DFM Foods Limited (DFMFL) was established in 1983 as part of diversification process of Delhi Flour Mills Company Limited. The company is engaged in the business of manufacturing, selling, and marketing of packaged foods. DFMFL?s products profile consists of 13 distinct product variants. The company markets Corn Rings and Wheat Puffs under the ?CRAX? and ?NATKHAT? brand names. In FY18, DFMFL derived approximately 61% of its revenue from the Corn Rings and 27% of its revenue from Curls. The company had an installed capacity of 35,300 Metric Tonne (MT) per annum as on March 31, 2018. The company also undertook line up-gradation of additional 3800 MTPA with a total cost of Rs. 15 crore to be funded through debt of Rs. 14.10 core and internal accruals of Rs. 0.9 crore. The project has become operational in September, 2018 increasing the total installed capacity to 39100 Metric Tonne (MT) per annum.
Businesses
Manufacturing, selling, and marketing of packaged foods
The company markets Corn Rings and Wheat Puffs under the ?CRAX? and ?NATKHAT? brand names.
.
Products
Packaged Foods
Industry Overview
The organized snack food industry consists of four segments ? traditional namkeens, potato chips, bridged and extruded snacks. Collectively the industry is estimated to be about H 23,000 crores per annum and from all counts is growing at a healthy clip. The organized sector consists of several kinds of players. These competitors range from having a product portfolio covering all segments of the market and a national presence, to the majority who are concentrated in one segment and have a strong regional presence. Besides the organized sector, a large unorganized sector also exists. The unorganized sector is very localized and normally operates in a single segment. The growth of the Industry has continuously attracted new entrants in both the organized and unorganized sector in virtually all the segments of the market.
Disclosure:
EZ Wealth is a Stock Broker registered with BSE, NSE and MSEI in all the major segments viz. Cash, F&O and CDS segments. EZ Wealth is also a Depository Participant and registered with both the Depositories viz. CDSL and NSDL. Further, EZ Wealth is a SEBI registered Portfolio Manager. EZ Wealth is a step-down subsidiary of Wealth Discovery Securities Pvt. Ltd (referred as ‘WDSPL’ hereafter).
This report is not to be altered, transmitted, reproduced, copied, redistributed, uploaded, published or made available to others, in any form, in whole or in part, for any purpose without prior written permission from EZ Wealth.
The projections and the forecasts described in this report are based on estimates and assumptions and are inherently subject to significant uncertainties and contingencies. Projections and forecasts are necessarily speculative in nature, and it can be expected that one or more of the estimates on which the projections are forecasts were based may not materialize or may vary significantly from actual results and such variations will likely increase over the period of time. The recipients should consider and independently evaluate whether it is suitable for its/ his/ her/their particular circumstances and if necessary, seek professional / financial advice as there is substantial risk of loss. EZ Wealth does not take any responsibility thereof. Any such recipient shall be responsible for conducting his/her/its/their own investigation and analysis of the information contained or referred to in this report and of evaluating the merits and risks involved in securities forming the subject matter of this report. The price and value of the investment referred to in this report and income from them may go up as well as down, and investors may realize profit/loss
This report has been prepared by EZ Wealth and published in accordance with the provisions of Regulation 19 of the Securities and Exchange Board of India (Research Analysts) Regulations, 2014, for use by the recipient as information only and is not for general circulation or public distribution. The solicitation of an offer to buy, purchase or subscribe to any securities, and neither this report nor anything contained therein shall form the basis of or be relied upon in connection with any contract or commitment whatsoever. It does not constitute a personal recommendation or take into account the particular investment objective, financial situation or needs of any individual in particular. The research analysts of EZ Wealth have adhered to the code of conduct under Regulation 24 (2) of the Securities and Exchange Board of India (Research Analysts) Regulations, 2014. The recipients of this report must make their own investment decisions, based on their own investment objectives, financial situation or needs and other factors. Past performance is not a guide for future performance. Actual results may differ materially from those set forth in the projection. This report has been prepared by EZ Wealth based on the information available in the public domain and other public sources believed to be reliable. Though utmost care has been taken to ensure its accuracy and completeness, no representation or warranty, express or implied is made by EZ Wealth that such information is accurate or complete and/or is independently verified.
The contents of this report represent the assumptions and projections of EZ Wealth and EZ Wealth does not guarantee the accuracy or reliability of any projection, assurances or advice made herein. Nothing in this report constitutes investment, legal, accounting and/or tax advice or representation that any investment or strategy is suitable or appropriate to recipients’ specific circumstances. Since EZ Wealth or its associates are engaged in various financial activities, they might have financial interest or beneficial ownership in various companies including subject company/companies mentioned in the report. EZ Wealth or its associates have not received any compensation for investment any compensation including brokerage services and for products or services other than investment banking or merchant banking from the subject company in the past 12 months. It is confirmed that EZ Wealth or research analyst or its associates have not managed or co-managed public offering of securities for the subject company in the past 12 months.
Research analyst or EZ Wealth or its relatives’/associates’ have no material conflict of interest at the time of publication of this report. Neither research analyst nor EZ Wealth are engaged in market making activity for the subject company. It is confirmed that research analysts do not serve as an officer or director. No material disciplinary action has been taken on EZ Wealth by any regulatory authority impacting Equity Research Analysis activities. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. This information is subject to change, as per applicable law, without any prior notice. EZ Wealth reserves the right to make modifications and alternations to this statement, as may be required, from time to time. Research analyst or EZ Wealth or its actual/beneficiary ownership of 1% depends from case of case. It is also confirmed that research analysts have not received any compensation from the subject company in the past 12 months.
WDSPL registered address: 1206, 12th Floor, Kailash Building K.G. Marg. Connaught Place New Delhi-110001
