DFM Foods - Expensive ‘Rings’ CMP Rs.1350 Target Rs.1143 Rating SELL Page 1 Stock performance (%) 1m 3m 12m DFMF IN 35% 55% 322% Sensex 8% -5% -9% BSE FMCG 6% -6% 1% Financial summary Year Revenues (Rs. mn) EBITDA margin PAT (Rs. mn) EPS (Rs.) P/E(x) ROE (%) FY15 2,893 10.6% 136 13.6 99.2 32.6% FY16E 3,687 11.3% 213 21.3 63.2 39.3% FY17E 4,498 11.6% 252 25.2 53.6 29.5% FY18E 5,553 12.0% 336 33.6 40.2 30.6% Date 30 th March 2016 Market Data Bloomberg DFMF IN Shares o/s 10mn Market Cap Rs. 14bn 52-wk High-Low Rs. 1,399-300 3m Avg. Daily Vol Rs. 6mn Index member - Latest shareholding (%) Promoters 44.2 Institutions 10.0 Public 45.9 Initiating Coverage Usually, ‘push-led’ FMCG business models have remained under-appreciated under the conventional mould of measuring strength of a consumer franchisee by the ‘pull factor’. However, avoiding to get into the argument of superiority of one model over another, we can’t ignore the fact that in certain categories (mainly impulse), the distribution led strategy has delivered both respectable scale and profitability. Further, after attaining certain scale, many of such businesses have made timely transition in their growth stencil from being ‘distribution-led to being brand-led’. DFM Foods (DFMF), is one such ‘regional’ name which is amply leveraging its dominance in one region (North India) and expanding its presence in new regions (West and East India). DFMF’s revenues & operating profits have grown at a CAGR of ~32% & ~33% respectively during FY10-15. Interestingly, throughout the high growth phase of the last decade (when revenue grew ~11x), DFMF maintained the tightest terms of trade possible (zero debtor days) and achieved the scale without any equity dilution, thereby funding the growth through internal accruals and debt (D/E ~0.9x). This puts DFMF above many generic push-led models in the category; led by robust category growth prospects, low base benefit, capacity & distribution expansion and branding focus we expect DFMF’s revenue & PAT to grow at a CAGR of ~23% & ~32% respectively over FY15- 18E. However, DFMF appreciated by a whopping ~55% in last 3 months factoring all the near-medium term positives in the price. We fail to see a further scope of rerating (except a strategic transaction) at these valuations of (~42FY18E). Hence, we initiate coverage on DFMF with SELL rating, TP:Rs.1143 (~34x FY18E, 1.1x PEG) Extruded snacks gaining prominence: Extruded Snacks (ES) targeting urban kids is rightly positioned to take advantage of favourable demographics and rising propensity to spend leading to ES category outpacing growth of other impulse offerings. Brand ‘CRAX’ cracking the snacks market: Though being in the snacks market for ~3 decades, DFM’s Crax brand began exhibiting stupendous growth from 2009 led by better focus, capacity & distribution expansion and branding initiatives. Humongous distribution led opportunity: DFM foods deriving majority of its revenues from North India (~80%) has begun expanding into other regions and has tasted considerable success. While operations in West & East India are in consolidation phase, the company also entered into select cities in South India in CY15. Leveraging its national brand equity and A&P spend: DFM has built a considerable ‘Pull’ demand by offering ‘Toys’ as gifts and through ‘national’ media placements, which we believe would come in handy on geographical expansion. Working capital control with enviable terms of trade: Despite continuous necessity to drive volume growth, it is heartening that DFM has not sacrificed terms of trade to achieve the same. Further, zero debtor days reflects its healthy working capital efficiency. Capacity expansion to support ambitious growth plans: DFM foods has two facilities in Ghaziabad & Noida to manufacture all their offerings. Brownfield expansions being undertaken in Noida facility is expected to deliver a healthy ~4x asset turn. Risks & Concerns: (1) High single brand concentration (Crax ~84%) and regional concentration (North ~80%) (2) Ability to protect gross margins in volatile RM cycles remains to be seen. Tejash Shah [email protected]+91 22 4228 8155 Gnanasundaram S [email protected]+91 44 4344 0062 Madhav PVR [email protected]+91 44 4344 0060 Find Spark Research on Bloomberg (SPAK <go>), Thomson First Call, Reuters Knowledge and Factset Executive Summary
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DFM Foods - Expensive ‘Rings’ CMP
Rs.1350
Target
Rs.1143
Rating
SELL
Page 1
Stock performance (%)
1m 3m 12m
DFMF IN 35% 55% 322%
Sensex 8% -5% -9%
BSE FMCG 6% -6% 1%
Financial summary
Year Revenues (Rs. mn) EBITDA margin PAT (Rs. mn) EPS (Rs.) P/E(x) ROE (%)
FY15 2,893 10.6% 136 13.6 99.2 32.6%
FY16E 3,687 11.3% 213 21.3 63.2 39.3%
FY17E 4,498 11.6% 252 25.2 53.6 29.5%
FY18E 5,553 12.0% 336 33.6 40.2 30.6%
Date 30th March 2016
Market Data
Bloomberg DFMF IN
Shares o/s 10mn
Market Cap Rs. 14bn
52-wk High-Low Rs. 1,399-300
3m Avg. Daily Vol Rs. 6mn
Index member -
Latest shareholding (%)
Promoters 44.2
Institutions 10.0
Public 45.9
Initiating Coverage Usually, ‘push-led’ FMCG business models have remained under-appreciated under the conventional mould of measuring
strength of a consumer franchisee by the ‘pull factor’. However, avoiding to get into the argument of superiority of one
model over another, we can’t ignore the fact that in certain categories (mainly impulse), the distribution led strategy has
delivered both respectable scale and profitability. Further, after attaining certain scale, many of such businesses have made
timely transition in their growth stencil from being ‘distribution-led to being brand-led’.
DFM Foods (DFMF), is one such ‘regional’ name which is amply leveraging its dominance in one region (North India) and
expanding its presence in new regions (West and East India). DFMF’s revenues & operating profits have grown at a CAGR of
~32% & ~33% respectively during FY10-15. Interestingly, throughout the high growth phase of the last decade (when revenue
grew ~11x), DFMF maintained the tightest terms of trade possible (zero debtor days) and achieved the scale without any
equity dilution, thereby funding the growth through internal accruals and debt (D/E ~0.9x). This puts DFMF above many
generic push-led models in the category; led by robust category growth prospects, low base benefit, capacity & distribution
expansion and branding focus we expect DFMF’s revenue & PAT to grow at a CAGR of ~23% & ~32% respectively over FY15-
18E. However, DFMF appreciated by a whopping ~55% in last 3 months factoring all the near-medium term positives in the
price. We fail to see a further scope of rerating (except a strategic transaction) at these valuations of (~42FY18E). Hence, we
initiate coverage on DFMF with SELL rating, TP:Rs.1143 (~34x FY18E, 1.1x PEG)
Extruded snacks gaining prominence: Extruded Snacks (ES) targeting urban kids is rightly positioned to take advantage of
favourable demographics and rising propensity to spend leading to ES category outpacing growth of other impulse offerings.
Brand ‘CRAX’ cracking the snacks market: Though being in the snacks market for ~3 decades, DFM’s Crax brand began
exhibiting stupendous growth from 2009 led by better focus, capacity & distribution expansion and branding initiatives.
Humongous distribution led opportunity: DFM foods deriving majority of its revenues from North India (~80%) has begun
expanding into other regions and has tasted considerable success. While operations in West & East India are in consolidation phase,
the company also entered into select cities in South India in CY15.
Leveraging its national brand equity and A&P spend: DFM has built a considerable ‘Pull’ demand by offering ‘Toys’ as gifts and
through ‘national’ media placements, which we believe would come in handy on geographical expansion.
Working capital control with enviable terms of trade: Despite continuous necessity to drive volume growth, it is heartening that
DFM has not sacrificed terms of trade to achieve the same. Further, zero debtor days reflects its healthy working capital efficiency.
Capacity expansion to support ambitious growth plans: DFM foods has two facilities in Ghaziabad & Noida to manufacture all
their offerings. Brownfield expansions being undertaken in Noida facility is expected to deliver a healthy ~4x asset turn.
Risks & Concerns: (1) High single brand concentration (Crax ~84%) and regional concentration (North ~80%) (2) Ability to protect
gross margins in volatile RM cycles remains to be seen.
Capacity Expansion majorly brownfield currently given their superior asset turn. Greenfield expansion under consideration
DFM Foods - Expensive ‘Rings’ CMP
Rs.1350
Target
Rs.1143
Rating
SELL
BOD Remuneration as a % of PAT
Source: Company Filings, Spark Capital Research;
Page 19
Corporate Governance
Member Remuneration-Rs.mn % of PAT Position
Mr. Mohit Jain 7.96 5.9% Managing Director
Mr. Rohan Jain 9.35 6.9% Dy. MD
Mr. Pradeep D 0.55 0.4% Independent Director
Mr. Sarath C Nanda 0.06 0.04% Independent Director
Mr.Mohit Satyanand 1.0 0.7% Independent Director
Ms.Hiroo M - - Independent Director
Mr. Sandeep S - - Executive Director
Total 18.9 14%
Board’s diversity in line with SEBI guidelines
Source: Company Filings, Spark Capital Research
Mr. Mohit Jain
Mr. Rohan Jain
Mr. Pradeep D
Mr. Sarath C
Nanda
Mr.Mohit
Satyanand
Ms.Hiroo M
Mr. Sandeep S
Audit Committee - - Chairman Member Member - -
Nomination &
Remuneration
Committee Member - Member - Chairman - Member
Stakeholders Relation.
Committee Member - - - Chairman - -
Banking & Finance
Committee Chairman Member - - - - -
Average dividend payout of ~36% over last five years
* Inclusive of dividend tax, Source: Company Filings, Spark Capital Research
41%
28%
19%
35%
29%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
FY 11 FY 12 FY 13 FY 14 FY 15
Dividend Payout
DFM Foods - Expensive ‘Rings’ CMP
Rs.1350
Target
Rs.1143
Rating
SELL Corporate Governance
Page 20
Board of
Directors
Contingent
Liabilities
Succession
Planning
2010 2011 2012 2013 2014 2015
Total No. of Directors 6 6 6 6 7 7
No. of Independent Directors 3 3 3 3 3 4
No. of changes in directors over last year 1 - - - 2 1
The second generation of the promoter family has already been active in the operations of the company with Mr. Rohan Jain being
inducted into the board of directors from 2009.
Related Party
Transactions
As on March 31
2015 2014 2013 2012
Purchase of Raw Material 3.7 31.3 13.3 6
% of cost of goods sold 0.2% 2% 1% 1%
Rent Paid 28.3 28.3 20.7 16.5
% of total income 1% 1% 1% 1%
Inter company deposits given/repaid - (190) 57.5 132.5
% of net worth - 50% 17% 44%
(In Rs.Mn) 2013 2014 2015
Contingent Liabilities outstanding as on March 31st 174.2 415.7 637.1
Contingent Liabilities as a % of Networth 52% 110% 139%
During the year, the Excise Department has raised a demand against the Company amounting to Rs.2,214 Lakhs (Previous Year Rs.2,414 Lakhs) on
account of excise duty payable on the products of the Company. The total demand outstanding as on 31.03.2015 is Rs.6,369 Lakhs (Previous year Rs.
4,155 Lakhs). As per reclassification of the products filed by the Company, Nil excise duty is leviable on its products from 01.12.2007. The Excise
Department had contested the reclassification filed by the Company. The Commissioner of Excise Duty (Appeals) had upheld the reclassification in favour
of the Company. Further, the Excise Department has filed an appeal with Custom, Excise and Service Tax Appellate Tribunal against the order of
Commissioner of Excise Duty (Appeals). Based on the favourable judgment by Commissioner (Appeals) and on legal advice, the Company has not
created any provision in the books of accounts and has treated these amounts as contingent liability. Accordingly, CENVAT credit for the year amounting
to Rs. 920 Lakhs (Previous year Rs. 842 Lakhs) has also not been claimed as a credit by the Company, but has been charged as part of purchase
cost/expense for the year. The balance unavailed CENVAT credit as on 31.03.2015 is Rs.3,328 Lakhs (Previous year Rs.2,408 Lakhs). The net liability of
the Company after availing CENVAT credit would be Rs.3,041 Lakhs (Previous Year Rs.1,747 Lakhs). FY15 annual Report
DFM Foods - Expensive ‘Rings’ CMP
Rs.1350
Target
Rs.1143
Rating
SELL
Page 21
Management and Board of Directors Profile
Mr. Rohan Jain is the Dy. Managing Director of DFM Foods Ltd. He graduated with B.Sc. in Economics with concentration in Finance from
the Wharton School, University of Pennsylvania, U.S.A. in May, 2005. After completing his studies, he had joined the promoter Company
The Delhi Flour Mills Co. Ltd. as Executive Asstt. to the Jt. Managing Director to assist him in the management of overall affairs of the
Company. Further he had been providing assistance in managing the sales and marketing affairs of the snack food business of the
Company since 2005. He has developed the necessary experience and expertise in this area and has played a major role in the growth
and development of this business.
Mr. Pradeep Dinodia is a leading Chartered Accountant and taxation expert. He is practicing as a partner of S.R. Dinodia & Co. LLP, a
Chartered Accountant firm in New Delhi. He has been associated with the Federation of Indian Chambers of Commerce & Industry
(FICCI), New Delhi, Institute of Chartered Accountants of India and International Fiscal Association, India Chapter in various capacities. He
has been on the Board of the Company since 8th March, 1994
Mr. S.C. Nanda is a renowned Advocate with more than 37 years of legal experience. In 1977, he joined Khaitan & Co., a renowned
Solicitors Firm in Delhi and during his tenure handled the litigation work in the various High Courts and the Supreme Court. Subsequently
he started doing more of non-litigation work including drafting of document, deeds, Foreign Collaborations, international business
transaction, conveyancing etc. He has vast experience in matters pertaining to real estate and development of hotels, resorts, colonies and
commercial establishments. He has been on the Board since 8th March, 1994..
Mr.Rohan Jain, Deputy
Managing Director
Mr. Pradeep Dinodia,
Non-Executive
Independent
Director
Mr. S.C. Nanda, Non-
Executive Independent
Director
Mr. Mohit Jain has been the Managing Director of the Company since 28th February, 1994 and was also appointed as Chairman of the
Company w.e.f. 27th January, 2014. Mr. Mohit Jain is a promoter Director of the Company and the Chairman & Managing Director of the
promoter Company. The Delhi Flour Mills Co. Ltd. He joined The Delhi Flour Mills Co Ltd. in 1975 and has been involved in the flour milling
industry since then. He had the pivotal role in establishing the snack food division of the Company in 1984 and has been involved in its
development since then. He has intimate knowledge of both the flour milling and snack food industry.
Mr. Mohit Jain, CMD
Mr. Mohit Satyanand is a management Consultant. He started his career with Hindustan Lever Ltd. in 1977 and served them as an Area
Sales Manager (Foods) till 1981. Then he joined The Delhi Flour Mills Co. Ltd., where he was instrumental in establishing the present
snack food business of the Company. Subsequently, he set up and ran an event management company Team Work Films Pvt. Ltd. He was
a key member of the team responsible for the success of UNCLE CHIPS. He is a promoter Director of Inlingua School of Language, New
Delhi, for language training. He has an extensive knowledge in sales and marketing of consumer goods including the snack food market.
He has been on the Board since 29th January, 2000.
Mr. Mohit Satyanand,
Non-Executive
Independent
Director
Source: Company, Spark Capital Research
Mr. Sandeep Singhal is a co-founder and Managing Director of WestBridge Capital India Advisors Pvt. Ltd. He has vast venture capital
and private equity investing experience in India. He was a Co-Founder and Managing Director of Sequoia Capital India. Earlier, he worked
at the Boston Consulting Group (BCG) where he advised several mid-market Indian Companies on their product and marketing strategies.
Prior to BCG he had worked with Hindustan Lever Ltd. where he was instrumental in eleven product launches targeting Indian consumer
segments that contributed significantly to the Company’s business. He has an MBA from IIM Ahmedabad, an MS in molecular simulation
from the University of Illinois, and a B. Tech. In Chemical Engineering from IIT Delhi. He has been on the Board since 30th January, 2014.
Mr. Sandeep Singhal,
Non-Executive Director
DFM Foods - Expensive ‘Rings’ CMP
Rs.1350
Target
Rs.1143
Rating
SELL
Page 22
Financials – Gross Margin Profile
Maize Prices have risen more than ~50% in the last four months
Source: Bloomberg, Spark Capital Research
HDPE Prices near five year lows
Source: Bloomberg, Spark Capital Research
Laminates & toys account for ~50% of total raw material cost
Source: Company Filings, Spark Capital Research
Gross margins have been range bound between ~37% to ~38%
Source: Company Filings, Spark Capital Research
Refined Oil, 11%
Laminates, 28%
Toys, 22%
Others, 39%
900
1100
1300
1500
1700
1900
2100
2300
Mar-
11
Jun-1
1
Sep-1
1
Dec-1
1
Mar-
12
Jun-1
2
Sep-1
2
Dec-1
2
Mar-
13
Jun-1
3
Sep-1
3
Dec-1
3
Mar-
14
Jun-1
4
Sep-1
4
Dec-1
4
Mar-
15
Jun-1
5
Sep-1
5
Dec-1
5
Mar-
16
NNS Pulses Maize price INR/qtl.
1000
1100
1200
1300
1400
1500
1600
1700
Mar-
11
Jun-1
1
Sep-1
1
Dec-1
1
Mar-
12
Jun-1
2
Sep-1
2
Dec-1
2
Mar-
13
Jun-1
3
Sep-1
3
Dec-1
3
Mar-
14
Jun-1
4
Sep-1
4
Dec-1
4
Mar-
15
Jun-1
5
Sep-1
5
Dec-1
5
Mar-
16
HDPE Polymers (USD/metric tonne)
437 615
826 982
1,137 1,406
1,709 2,075
36% 36% 37% 37%
39% 38% 38%
38%
25%
27%
29%
31%
33%
35%
37%
39%
41%
0
500
1,000
1,500
2,000
2,500
FY 11 FY 12 FY 13 FY 14 FY 15 FY16E FY17E FY18E
In R
s.m
n
Gross Profit Gross Margin
DFM Foods - Expensive ‘Rings’ CMP
Rs.1350
Target
Rs.1143
Rating
SELL
Page 23
Financials – Working Capital consistency + Robust internal cash accrual on cards
Capital efficiency to improve on steady state business model
Source: Company Filings, Spark Capital Research
Net worth to more than double in three years led by robust profits
Source: Company Filings, Spark Capital Research
New capex usually funded with ~75% debt
Source: Company Filings, Spark Capital Research
43% 39%
20% 25%
33%
39%
29% 29%
27%
20%
13% 16%
18%
22% 19%
21%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
FY 11 FY 12 FY 13 FY 14 FY 15 FY 16E FY 17E FY 18E
ROE ROCE
0.97
0.57
1.91
1.60
0.99 0.86
0.00
0.50
1.00
1.50
2.00
2.50
FY10 FY11 FY12 FY13 FY14 FY15
Debt- Equity
Free Cash flow though under stress due to CAPEX investments
Source: Company Filings, Spark Capital Research
-137
-520
-133
86
-179
13
-487
-107 -11.4%
-30.7%
-5.9%
3.3%
-6.2%
0.3%
-10.9%
-1.9%
-35.0%
-30.0%
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
-600
-500
-400
-300
-200
-100
0
100
200
FY 11 FY 12 FY 13 FY 14 FY 15 FY16E FY17E FY18E
rs.m
n
FCF FCF/Net Sales
227 302 336 377
457
629
830
1,100
0
200
400
600
800
1,000
1,200
FY 11 FY 12 FY 13 FY 14 FY 15 FY16E FY17E FY18E
In R
s.M
n
Net Worth
DFM Foods - Expensive ‘Rings’ CMP
Rs.1350
Target
Rs.1143
Rating
SELL
Page 24
Comparison with companies in related sub-sectors
Sales FY13: 2,402mn
FY14:2,943mn
FY15: 3,597mn
FY13: 9.3%
FY14: 7.0%
FY15: 8.3%
PAT Margin
EBITDA Margin FY13: 16.1%
FY14: 15.5%
FY15: 17.8%
FY13: 61,359mn
FY14: 68,293mn
FY15: 77,751mn
FY13: 4.2%
FY14: 5.8%
FY15: 8.9%
FY13: 6.9%
FY14: 9.2%
FY15: 11.0%
FY13: 7,872mn
FY14: 7,622mn
FY15: 7,562mn
FY13: 5.3%
FY14: 5.6%
FY15: 4.9%
FY13: 8.3%
FY14: 9.2%
FY15: 8.2%
FY13: 2,250mn
FY14: 2,629mn
FY15: 2,887mn
FY13: 2.8%
FY14: 2.7%
FY15: 3.8%
FY13: 10.0%
FY14: 9.7%
FY15: 10.7%
FY13: 22,077mn
FY14: 24,617mn
FY15: 27,346mn
FY13: 2.5%
FY14: 3.2%
FY15: 2.7%
FY13: 11.1%
FY14: 10.8%
FY15: 9.7%
FY13: 6,057mn
FY14: 6,707mn
FY15: 8,195mn
FY13: 27.6%
FY14: 25.8%
FY15: 25.6%
FY13: 28.5%
FY14: 27.8%
FY15: 29.1%
Manpasand
Beverages
Britannia
Industries
Agro Tech
Foods DFM Foods LT Foods Bajaj Corp
OCF
OCF/EBITDA
FY13: 441mn
FY14: 79mn
FY15: 637mn
FY13: 114%
FY14: 12%
FY15: 60%
FY13: 10%
FY14: 21%
FY15: 14%
FY13: 3061mn
FY14: 6758mn
FY15: 6113mn
FY13: 73%
FY14: 108%
FY15: 72%
FY13: 2%
FY14: -0.4%
FY15: -2%
FY13: 217mn
FY14: 335mn
FY15: 397mn
FY13: 33%
FY14: 48%
FY15: 64%
FY13: 7%
FY14: 10%
FY15: 12%
FY13: 159mn
FY14: 154mn
FY15: 202mn
FY13: 70%
FY14: 60%
FY15: 65%
FY13: -1%
FY14: 1%
FY15: 1%
FY13: -1453mn
FY14: -39mn
FY15: -1383mn
FY13: N.A
FY14: N.A
FY15: N.A
FY13: 58%
FY14: 62%
FY15: 58%
FY13: 1232mn
FY14: 1277mn
FY15: 2074mn
FY13: 71%
FY14: 68%
FY15: 87%
FY13: 29%
FY14: 18%
FY15: 14%
WC/Sales
Source: Bloomberg, Spark Capital Research
DFM Foods - Expensive ‘Rings’ CMP
Rs.1350
Target
Rs.1143
Rating
SELL
Page 25
Comparison with companies in related sub-sectors
Inventory FY13: 32 days
FY14: 52 days
FY15: 43 days
FY13: 28 days
FY14: 22 days
FY15: 21 days
Creditors
Debtors FY13: 49 days
FY14: 59 days
FY15: 60 days
FY13: 22 days
FY14: 22 days
FY15: 19 days
FY13: 23 days
FY14: 30 days
FY15: 33 days
FY13: 7 days
FY14: 6 days
FY15: 6 days
FY13: 27 days
FY14: 47 days
FY15: 51 days
FY13: 20 days
FY14: 19 days
FY15: 19 days
FY13: 20 days
FY14: 10 days
FY15: 12 days
FY13: 21 days
FY14: 21 days
FY15: 23 days
FY13: 24 days
FY14: 16 days
FY15: 18 days
FY13: Nil
FY14: Nil
FY15: Nil
FY13: 175 days
FY14: 200 days
FY15: 182 days
FY13: 25 days
FY14: 22 days
FY15: 13 days
FY13: 62 days
FY14: 48 days
FY15: 42 days
FY13: 22 days
FY14: 21 days
FY15: 17 days
FY13: 30 days
FY14: 22 days
FY15: 23 days
FY13: 6 days
FY14: 5 days
FY15: 5 days
Manpasand
Beverages
Britannia
Industries
Agro Tech
Foods DFM Foods LT Foods Bajaj Corp
WC Days
EV/EBITDA
FY13: 53 days
FY14: 89 days
FY15: 82 days
FY13: 3.5
FY14: 3.6
FY15: 26.8
FY13: 0.6
FY14: 0.6
FY15: 4.8
FY13: 6 days
FY14:-1 days
FY15: -8 days
FY13: 15.4
FY14: 15.9
FY15: 29.8
FY13: 1.1
FY14: 1.5
FY15: 3.3
FY13: 26 days
FY14: 38 days
FY15: 44 days
FY13: 18.4
FY14: 17.8
FY15: 25.3
FY13: 1.5
FY14: 1.6
FY15: 2.1
FY13: -3 days
FY14: 5 days
FY15: 5 days
FY13: 10.0
FY14: 13.4
FY15: 11.4
FY13: 1.0
FY14: 1.3
FY15: 1.2
FY13: 211 days
FY14: 226 days
FY15: 211 days
FY13: 6.2
FY14: 6.5
FY15: 7.4
FY13: 0.7
FY14: 0.7
FY15: 0.7
FY13: -2 days
FY14: 4 days
FY15: 0 days
FY13: 36
FY14: 33.4
FY15: 26.0
FY13: 4.4
FY14: 9.4
FY15:7.8
EV/Sales
Source: Bloomberg, Spark Capital Research
DFM Foods - Expensive ‘Rings’ CMP
Rs.1350
Target
Rs.1143
Rating
SELL
Page 26
Risks & Concerns
DFM has contingent liabilities of Rs.637.1mn relating to excise duty payable on the products, though DFM is confident of a favourable ruling, any adversity arising from the same could impact fund position.
High leverage with Debt/Equity ratio of 0.9x in FY15 could emerge as a constraint in rising further funds if needed for capacity expansion needs
Non-availability of key raw materials as corn could impact production thereby leading to shortage of supply and subdued volume growth
Increasing safety pressure on the packaged food segment from regulators could lead to additional costs being incurred to ensure quality standards
Concentration risk exposes DFM to regional economic and product success vagaries – Crax Rings – ~84% of revenues and North India - ~80% of revenues
RISKS &
CONCERNS
Favourable ruling in excise duty case could result in one time extraordinary income as well as improvement in gross margins as provision for CENVAT credit would then be claimed by the company.
Exemplary growth in new markets leading to revenues growing faster than our assumed ~24% revenue CAGR from FY15-18.
Subdued raw material inflationary cycle that could help in sustaining gross margins against our assumptions of gross margin contraction.
Any buy-outs or stake sale at higher valuations could result in valuations rising above our assumption of 34x FY18E EPS
Risk to
Thesis
DFM Foods - Expensive ‘Rings’ CMP
Rs.1350
Target
Rs.1143
Rating
SELL
Page 27
Valuation summary
…and mean with a lot of expectation…
Source: Bloomberg, Spark Capital Research
…on prospective growth
Source: Bloomberg, Spark Capital Research
…way above its trading range…
Source: Bloomberg, Spark Capital Research
DFM foods multiple rallying to an all time high…
Source: Bloomberg, Spark Capital Research
30.0x
20.0x
10.0x
50.0x
40.0x
0
200
400
600
800
1000
1200
1400
1600
Mar-
11
Jun-1
1
Sep-1
1
Dec-1
1
Mar-
12
Jun-1
2
Sep-1
2
Dec-1
2
Mar-
13
Jun-1
3
Sep-1
3
Dec-1
3
Mar-
14
Jun-1
4
Sep-1
4
Dec-1
4
Mar-
15
Jun-1
5
Sep-1
5
Dec-1
5
Mar-
16
P/E Multiple
range
No. of days
traded % of no. of days
Cumulative no.
of days
%of Cumulative
no. of days
8 - 12x 50 3% 51 3%
12 - 16x 140 8% 191 10%
16 - 20x 358 20% 549 30%
20 - 24x 439 24% 988 54%
24 - 28x 194 11% 1182 65%
28 - 32x 217 12% 1399 76%
32 - 36x 225 12% 1624 89%
36 - 40x 156 9% 1780 97%
40 - 44x 38 2% 1818 99%
44 - 48x 1 0% 1819 99%
48 - 52x 1 0% 1820 99%
52 - 56x 11 1% 1831 100%
Avg, 25.17
+1SD, 33.17
-1SD, 17.16
+2SD, 41.18
-2SD, 9.15
-
10.00
20.00
30.00
40.00
50.00
60.00
Mar-
11
Jun-1
1
Sep-1
1
Dec-1
1
Mar-
12
Jun-1
2
Sep-1
2
Dec-1
2
Mar-
13
Jun-1
3
Sep-1
3
Dec-1
3
Mar-
14
Jun-1
4
Sep-1
4
Dec-1
4
Mar-
15
Jun-1
5
Sep-1
5
Dec-1
5
Mar-
16
Relaxo Footwear
Jubilant
Foodwork
DFM Foods
Manpasand
Beverages
Page Industries La Opala
Eicher Motors
15
20
25
30
35
40
45
20% 25% 30% 35% 40% 45% 50%
FY
18E
PE
FY15-18E EPS CAGR
DFM Foods - Expensive ‘Rings’ CMP
Rs.1350
Target
Rs.1143
Rating
SELL
Page 28
Buy Outs/Investments in Indian food space - Valuation
Date Company Investors Amount
(US$M) Stake (%) Round Stage
Company
Valuation-
Equity - Post
Money (INR Cr)
Revenue
Multiple(based
on Equity
Value/Market
Cap)
EBITDA
Multiple(based
on Equity
Value)
Dec-15 Adinath Agro Carpediem Capital Partners,
Others 2.54 28.35 Late 56.44 1.25 12.54
May-15 Manna Foods Fulcrum Venture India, Others 5 34 1 Late 88.24 2.38 15.96
Aug-14 Manpasand
Beverages SAIF, Aditya Birla PE 11.78 8.82 2 Pre-IPO 807.99 2.74 17.66
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Absolute
Rating
Interpretation
BUY Stock expected to provide positive returns of >15% over a 1-year horizon REDUCE Stock expected to provide returns of <5% – -10% over a 1-year
horizon
ADD Stock expected to provide positive returns of >5% – <15% over a 1-year
horizon SELL Stock expected to fall >10% over a 1-year horizon
DFM Foods - Expensive ‘Rings’ CMP
Rs.1350
Target
Rs.1143
Rating
SELL Disclaimer (Cont’d)
Page 31
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