Angel Broking recommends Buy on IFB Agro Industries with a Target Price of Rs 249 (12 months)

For 3QFY2014, IFB Agro (IFB) reported a good set of numbers. Its net sales grew by 23.6% yoy to Rs. 129cr, 34.6% higher than our estimate of Rs. 96cr. The EBITDA grew by 19.9% yoy to Rs. 16cr, driven by growth in net sales during the quarter. The net profit for the quarter increased by 28.7% yoy to Rs. 9cr, higher than our expectation of Rs. 6cr.

Restructuring of spirit and liquor business has started reaping benefits: IFB's restructuring effort towards spirit and liquor business has started reaping benefits. The EBIT margin for the segment expanded for the third straight quarter to 13.3% in 3QFY2014. Going forward, IFB is also planning to invest in captive power plant which will help in reducing its cost and thereby further improve its margins.

Focus on Country liquor (IMIL) & huge penetration opportunity to drive growth: India is a lowly penetrated country with the lowest per capita consumption of alcohol at 1.3lt p.a. which provides a potential consumption opportunity. IFB has been able to increase its market share in the Indian made Indian liquor (IMIL) segment in West Bengal. To further strengthen its market share, it has converted its Indian made foreign liquor (IMFL) bottling plant to a IMIL bottling plant and expanded its capacity at Panagarh plant, which would facilitate revenue growth going forward.

Marine business - a niche play: IFB is a major player in the marine business (with prawns constituting 90% of the business) in West Bengal (WB) with presence in domestic as well as export markets. The company also has a tie up with Thailand's C.P. Group for supply of feed to farmers. We believe there is huge potential for the company's marine business, given the company's strong customer base, rising demand for frozen sea food, and improvement in overall global economic growth outlook. Further, rupee depreciation will boost revenue from export markets.

Valuation: IFB's preferential allotment of 3,62,000 shares at a price of Rs. 188 per share(subject to shareholders' approval) is an indicator of the promoter's confidence in the company. As on 1HFY2014, IFB holds cash and cash equivalent of Rs. 31cr which is ~17% of the current market capitalization. At the current levels, the stock is trading at a PE of 4.9x its FY2015E earnings and P/BV of 0.8x for FY2015E. We recommend a Buy rating on the stock with a target price of Rs. 249 based on a target PE of 6x for FY2015E.

Source : Equity Bulls

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