INVESTMENT RESEARCH

FUNDAMENTAL COVERAGE - IFB AGRO INDUSTRIES LIMITED

th
Dated : 04 Sept. 2017
BUY Investment Rationale
Price ` 386 Long term volume and earnings growth opportunity is immense for India’s largest
Fair Value 482
beer player with strong barriers to entry in the form of distribution, brewery reach,
Upside 25%
Div Yield scale and brands. However operating environment over the next year is challenging
-
Tenure 1 Year both due to the highway ban and likely margin dilution due to absence of input costs
Sensex 31673.06 credit under GST.
Nifty 9893.00
Group/Index B IFB’s restructuring effort towards spirit and liquor business has started reaping benefits.
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.
Competition in the Distillery space in West Bengal has increased due to the commissioning of a new
Stock Details distillery during the current financial year. The excess spirit production capacity in India continues
M.cap (` in cr) 362
to put pressure on margins of the distillery business due to import of spirit from other states of India.
Equity (` In cr) 9.37
52 wk H/L ` 496.90/327.20
Face Value ` 10.00
NSE code IFBAGRO
507438
Focus on Country liquor (IMIL) & huge penetration opportunity to drive growth
BSE code
India is a lowly penetrated country with the lowest per capita consumption of alcohol 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.
Key Valuation Ratios
RONW 11% During 2016-17, the IMIL business registered a revenue growth of 6% only, due to low level of
P/E 12 Industrial activity resulting in lower disposable income in the hand of consumers.
P/BV 1.2
Demonetization has also impacted the sales of IMIL products during 2016-17. The increase in spirit
EV/EBIDTA 7.00
prices during the year have impacted the margins. Excess capacity created in the market place
resulted in high retailer schemes and increased logistics costs.
Recent decision of the Hon'ble Supreme Court of India on banning of sale of liquor within the 500
IN `
meters radius of highway will impact the revenue of IMIL business . During the year,
Key Financial Data Company has entered into tie up arrangement with M/s Herald Beverages Pvt. Ltd, Jiancha, West
EV (`in cr) 411.07 Bengal for bottling of Company's Brands for expansion of business in the district of 24 Parganas
BV (`in cr) 309.81 (South), West Bengal.
NW(`in cr) 290.29 Impact of the highway ban on the industry will be limited in the second half of the year, but
EPS 32.60 companies have to deal with a new challenge of mitigating the impact of the goods and services tax
(GST). The purpose of the directions contained in the order is to deal with the sale of liquor along
and in the proximity of highways properly understood, which provides connectivity between cities,
Share Holding Pattern towns, and villages. The order does not prohibit licensed establishments within municipal areas.

Promoter Others
Capacity expansion in distillery division will result in cost optimization and company will
35% endeavor to perform better in coming years. Consolidation in the IMIL space has started and
65% it may create an opportunity for the company. The company expects additional sales
volume from ANDHRA PRADESH MARINE PLANT during current year.

VALUATION (` In Cr except per share)

FY 18Est. Earnings 40.94
Equity Share Capital 9.37
FV 10.00
No. of Equity Shares 0.94
EPS(FY18 Est.) 43.69
Estimated P/E Ratio 11
Estimated Price/share 482

Corporate Governance Transparency Ratio's

Year End 201703 201603 201503 201403
Tax Rate % 20.29 18.80 39.88 30.80
Receivable days 17.00 19.00 11.00 5.00
Source: Google Div. Payout % - - - -

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Marine business - a niche play

IFB Agro is a major player in the seasonal marine foods business in West Bengal with operations comprising
Domestic business, Exports and Feeds business. In the Domestic business, company has tie-ups with well-
known brands like Le Meridien, Jaypee Hotels, The Leela, Maharaja’s Express, Mainland China, Marriott
and Taj Hotels which would support the domestic business growth. Company also exports its tailor-made
products to various countries including the US, Japan, and Australia to countries in the Middle East and
Europe, to suit the customers' needs.

Marine exports have registered 64% growth in revenue during the current year due to full functioning
of the tie-up plant in Andhra Pradesh . Operating margins fell significantly during the year under review due
to the increase in the raw material prices and severe competition from South East Asia and Latin American
countries. Marine exports will continue to have margin pressure due to competitions from South East Asian and
Latin American countries. The high level of raw material prices and exchange fluctuations will continue to
weigh on Marine exports.
Company has increased the reach of retail and Hotel/Restaurant/Catering segment in major cities in India
resulting in increased sales in FY2017. Further, IFB plans to undertake aggressive marketing of its marine food
products to strengthen its presence into this segment in India. With improvement in global economic
growth outlook and increasing demand for frozen sea food, expects Marine division helps company to
achieve incremental revenue in years ahead.

PEER GROUP COMPARISON

CMP MRKT. CAP EPS* P/E PROMOTER
PEERS
(in ` ) (in ` cry) (in ` ) (X) %
IFB AGRO 386.05 361.73 34.2 11.28 65.00
UNITED BREWERIES 796.00 21046.24 8.70 91.49 73.87
GM BREWERIES 412.00 602.34 30.04 13.72 74.43
SOM DISTILLERS 147.55 406.06 5.06 29.16 22.99
*EPS is taken for FY 2017

An Eye on the Quarterly numbers:-

 Sales rose 23.01% to ` 336.34 crore in the quarter ended June 2017 as against ` 273.43 crore
during the previous quarter ended June 2016
 Net profit declined 28.52% to ` 7.27 crore in the quarter ended June 2017 as against ` 10.17
crore during the previous quarter ended June 2016
 Earnings per share (EPS) for the quarter ended Q1 FY 18 stood at ` 7.77, as compared with
` 10.86 for the quarter ended Q1 FY17.

Graphical presentation Q1 FY 2017-18 & FY 2017 Results:

Results Snapshot ` in crores

Quarter Ended % Change % Change Year Ended
Quarterly & Yearly

Particulars % Change
Results Analysis

Q1 FY 18 Q4 FY 17 Q1 FY 17 (Q-O-Q) (Y-O-Y) FY 17 FY 16
Revenue 336.33 142.19 273.43 136.54% 23.00% 829.31 621.31 33.48%
EBITDA 15.12 10.89 20.80 38.84% -27.31% 62.27 59.17 5.24%
EBITDA % 4.50% 7.66% 7.61% - - 7.51% 9.52% -
PBT 9.70 6.35 14.54 52.76% -33.29% 40.22 36.11 11.38%
PBT% 2.88% 4.47% 5.32% - - 4.85% 5.81%
PAT 7.27 4.93 10.17 47.46% -28.52% 32.06 29.32 9.35%
PAT % 2.16% 3.47% 3.72% - - 3.87% 4.72%
EPS 7.77 5.27 10.86 47.44% -28.45% 34.23 31.31 9.33%

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SEGMENT WISE BREAKUP ` in crores

SEGMENT WISE

Quarter Ended % change % change Year Ended % change

Segment Wise
BREAKUP

Q1 FY 18 Q4 FY 17 Q1 FY 17 Q-0-Q Y-0-Y FY 17 FY 16 Y-0-Y

REVENUE

Spirit, Liquor , Spirituous

189.62 88.42 140.56 114.45% 34.90% 362.41 305.85 18.49%
Beverages
Marine 146.72 53.78 132.88 172.82% 10.42% 466.93 315.52 47.99%
Total 336.34 142.20 273.44 136.53% 23.00% 829.34 621.37 33.47%
Less: Inter Segment Revenue 0.01 0.01 0.01 - - 0.03 0.06 -
Inc. from Operations 336.33 142.19 273.43 - - 829.31 621.31 -

Company Overview

IFB Agro, incorporated in 1982, manufactures and distributes Grain Alcohol, DDGS, CO2, Organic Manure,
Alcoholic beverages, Aqua feed and Processed Frozen Shrimps for Domestic and Export markets. Company
maintains state-of-the-art in-house R&D facilities equipped with modern instruments such as GCs,
spectrophotometers etc.

Valuation Conclusion

Company's restructuring efforts have started to reap benefits as the EBIT margins for spirit and liquor
business have improved during current quarter. Going forward, IFB’s concentration on the high margin
IMIL bottling business and cost control measures with the help of captive power plant will lead to an
improvement in the EBITDA margin.
Company exports its tailor-made products to various countries including the US, Japan, and Australia, and to
countries in the Middle East and Europe. Company also has a tie up with Thailand’s C.P. Group for supply of
feed to farmers. 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.

Long term volume and earnings growth opportunity is immense for India’s largest beer player with
strong barriers to entry in the form of distribution, brewery reach, scale and brands. However
operating environment over the next year is challenging both due to the highway ban and likely
margin dilution due to absence of input costs credit under GST.

Estimating the share price of the company as per P/E valuation.

P/E of FY18E at 11x , EPS(Est.) a ` 43.69, the estimated share price for next 1 year tenure turns
around to be ` 482. We recommend to BUY this script.

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Quarterly Results (` in cr except per share)

Particulars LTM 201706 201703 201612 201609
Net Sales 931.50 336.34 136.50 191.12 267.57
EBITDA 58.70 15.13 10.90 15.89 16.79
Depreciation 20.40 4.97 5.51 5.03 4.94
Op Income 38.30 10.16 5.39 10.86 11.85
Misc.Inc (Exp.) 12.20 2.26 3.63 2.90 3.42
Interest Exp 0.80 0.45 -0.96 1.42 -0.14
EBT 37.50 9.71 6.35 9.44 11.99
Taxes 7.00 2.44 1.42 0.01 3.09
Net Inc(Reg) 30.50 7.27 4.94 9.43 8.90
Extraord. Items - - - - -
Rep Net Inc 30.50 7.27 4.94 9.43 8.90
EPS 32.60 7.76 5.27 10.06 9.50
Adjusted EPS 32.60 7.80 5.30 10.10 9.50

Income Statement and Estimates ( ` in Cr except per share)

Particulars 201403 201503 201603 201703 2018E 2019E 2020E
Sales 489.22 582.97 610.93 807.05 1016.33 1239.87 1421.44
Other operating Income 17.66 1.28 10.38 22.26 26.93 32.32 38.14
Total Inc. from operations 506.88 584.25 621.31 829.31 1043.26 1272.19 1459.58
Operating EBITA 35.92 10.98 30.75 29.01 42.42 65.27 85.94

Profit & Loss

Total Inc. from operations 506.88 584.25 621.31 829.31 1043.26 1272.19 1459.58
TOTAL EXPENDITURE 461.66 554.65 568.86 779.97 979.42 1185.05 1350.84
EBITDA 45.22 29.60 52.45 49.34 63.85 87.15 108.74
Depreciation (9.30) (18.62) (21.70) (20.33) (21.43) (21.88) (22.80)
Rep. profit before othrinc.,
35.92 10.98 30.75 29.01 42.42 65.27 85.94
fin.cost,tax & excp. Item
Goodwill amortization - - - - - - -
Rep. profit before othrinc.,
35.92 10.98 30.75 29.01 42.42 65.27 85.94
fin.cost,tax & excp. Item
OTHER INCOME 24.65 15.09 6.72 12.95 10.70 11.68 11.80
Profit from ordinary act. Before
Fin.Cost ,TAX & Exp.Items 60.57 26.07 37.47 41.96 53.12 76.94 97.74

Net financials
Interest income - - - - - - -
Interest expenses (0.37) (0.17) (1.36) (1.74) (1.62) (1.20) (1.19)
Net Financial Items (0.37) (0.17) (1.36) (1.74) (1.62) (1.20) (1.19)
Reported Pre-tax profit 60.20 25.90 36.11 40.22 51.50 75.75 96.55
Reported Tax charge (18.54) (10.33) (6.79) (8.16) (10.56) (12.76) (17.49)
Reported Net profit 41.66 15.57 29.32 32.06 40.94 62.98 79.05
Minorities - - - - - - -
P/L OF ASSOCIATE CO. - - - - - - -
Rep. NP after min. Int. 41.66 15.57 29.32 32.06 40.94 62.98 79.05
Extra Ordinary income 14.53 - - - - - -
Rep.Net Income after
27.13 15.57 29.32 32.06 40.94 62.98 79.05
extra ordinary items

EPS and Dividend

Dividend Paid - - - - - - -
Retained earnings 27.13 15.57 29.32 32.06 40.94 62.98 79.05
Reported EPS 44.46 16.62 31.29 34.22 43.69 67.22 84.37
Adjusted Basic EPS 28.95 16.62 31.29 34.22 43.69 67.22 84.37

Number Of Shares
Opening Balance 9.37 9.37 9.37 9.37 9.37 9.37 9.37
Issued during the Period - - - - - - -
Closing Balance 9.37 9.37 9.37 9.37 9.37 9.37 9.37
FV 10.00 10.00 10.00 10.00 10.00 10.00 10.00
Wtd. Avg. no. of shares 0.94 0.94 0.94 0.94 0.94 0.94 0.94
Note:- The figures shown in the brackets means NEGATIVE.

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BALANCE SHEET
Particulars 201403 201503 201603 201703 2018E 2019E 2020E
Equity & Liabilities
Shareholders' Fund
Share Capital 9.37 9.37 9.37 9.37 9.37 9.37 9.37
Reserves and Surplus 196.68 212.26 241.58 273.65 314.59 377.57 428.63
Minority Interests - - - - - - -
Total Shareholders' Fund 206.05 221.63 250.95 283.02 323.96 386.94 438.00
Non-Current Liabilities
Long-term Borrowings - - 43.43 30.74 24.32 20.16 17.28
Other LT Liabilities 4.00 5.61 6.35 6.06 5.84 5.01 4.49
Deferred Tax Liability 9.29 17.50 16.07 17.67 18.27 20.68 23.39
Long term Provisions 1.51 2.50 2.23 0.13 0.14 0.16 0.17
Total Non-Current Liab. 14.80 25.61 68.08 54.60 48.57 46.00 45.34
Current Liabilities
Short term Borrowings 4.21 - - - - - -
Trade Payables 6.86 17.00 23.22 23.52 24.00 26.72 29.19
Other current liability 23.42 10.31 24.64 31.75 35.47 39.44 47.44
Short term Provisions 0.62 1.17 - - - - -
Total current Liab. 35.11 28.48 47.86 55.27 59.47 66.15 76.63
Total Equity & Liab. 255.96 275.72 366.90 392.89 431.04 499.10 559.96
Assets
Non-Current Assets
Fixed Assets
Tangible fixed Assets 118.29 118.59 144.84 142.22 152.09 168.37 192.28
G/W On Consolidation - - - - - - -
Non-current Investment 2.96 2.96 2.91 2.91 2.91 2.91 2.91
Long term L&A 0.63 9.72 15.55 16.33 18.05 19.96 22.07
Other Non current Ass. 2.20 2.05 1.67 1.02 1.02 1.02 1.02
Deferred tax receiv. - - - - - - -
Total Non-Current Ass. 124.08 133.32 164.97 162.48 174.07 192.27 218.28
Current Assets
Current Investments 5.00 - 87.97 117.73 112.20 109.60 115.30
Inventories 24.48 44.09 44.00 41.68 52.16 65.14 74.73
Trade Receivables 9.24 26.79 38.68 38.13 50.08 73.79 78.23
Cash & cash Equi. 48.86 57.89 13.73 13.15 22.27 35.00 48.58
Short Term L&A 21.77 11.70 15.74 15.29 15.00 15.63 16.05
Other current Assets 22.53 1.93 1.81 4.41 6.26 7.63 8.76
Total current Assets 131.88 142.40 201.93 230.39 257.97 306.79 341.65
Total Assets 255.96 275.72 366.90 392.89 432.04 499.10 559.96

Cash & cash equivalents 48.86 57.89 13.73 13.15 22.27 35.00 48.58
Other int. bearing assets 7.96 2.96 90.88 120.64 115.11 112.51 118.21
Interest-bearing debt 27.63 10.31 68.07 62.49 59.79 59.60 64.72
Net interest-bearing debt - - - - - - -
Net gearing (%) - - - - - - -

Investments
Tangible assets
Gross capex (47.86) (26.04) (45.03) (20.79) (31.30) (38.17) (46.71)
Sale of fixed assets 0.74 1.76 0.61 1.15 - - -
Net capex (47.12) (24.28) (44.42) (19.64) (31.30) (38.17) (46.71)
Depreciation tangibles (9.30) (18.62) (21.70) (20.33) (21.43) (21.88) (22.80)
Note:- The figures shown in the brackets means NEGATIVE.

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RATIO ANALYSIS
Particulars 201403 201503 201603 201703 2018E 2019E 2020E
Return on assets - 5.86% 9.13% 8.44% 9.93% 13.53% 14.93%
Return on equity - 7.28% 12.41% 12.01% 13.49% 17.72% 19.17%
ROCE - 4.32% 9.32% 7.44% 10.43% 14.50% 17.06%

EBIT Margin - 4.46% 6.03% 5.06% 5.09% 6.05% 6.70%

Pre tax margin - 4.43% 5.81% 4.85% 4.94% 5.95% 6.61%
Net Profit Margin - 2.66% 4.72% 3.87% 3.92% 4.95% 5.42%

Total asset turnover - 2.20 1.93 2.18 2.53 2.73 2.76

Fixed asset turnover - 4.93 4.72 5.78 7.09 7.94 8.09
Equity turnover - 2.73 2.63 3.11 3.44 3.58 3.54

Current Ratio - 5.00 4.22 4.17 4.34 4.64 4.46

Quick Ratio - 3.45 3.30 3.41 3.46 3.65 3.48
Cash Ratio - 2.03 0.29 0.24 0.37 0.53 0.63

Receivable Days - 11.28 19.56 17.37 15.84 18.23 19.52

Inventory Days - 22.56 28.26 20.05 17.49 18.06 18.90
Payable Days - 7.58 12.91 10.97 8.76 7.73 7.50
Conversion Cycle (Days) - 26.26 34.91 26.45 24.57 28.57 30.91

Financial Leverage Effect - 1.90 1.79 1.54 1.56 1.38 1.38

Debt to Capital - 0.04 0.21 0.18 0.16 0.13 0.13
Debt to Equity - 0.05 0.27 0.22 0.18 0.15 0.15
Note:- The figures shown in the brackets means NEGATIVE.

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Disclosures & Disclaimers

Disclosures :

1) Business Activity :

Rudra Shares & Stock Brokers Limited is engaged in the business of providing broking services & distribution of
various financial products. RUDRA is also registered as a Research Analyst under SEBI(Research Analyst)
Regulations, 2014. SEBI Reg. No. INH100002524.

2) Disciplinary History :

There has been no instance of any Disciplinary action, penalty etc. levied/passed by any regulation/administrative
agencies against RUDRA and its Directors. Pursuant to SEBI inspection of books and records of Rudra, as a Stock
Broker, SEBI has not issued any Administrative warning to Rudra.

3) Terms & Conditions of issuance of Research Report:

The Research report is issued to the registered clients. The Research Report is based on the facts, figures and
information that are considered true, correct and reliable. The information is obtained from publicly available media
or other sources believed to be reliable. The report is prepared solely for informational purpose and does not
constitute an offer document or solicitation to buy or sell or subscribe for securities or other financial instruments
for clients.

4) Disclosures with regard to ownership and material conflicts of interest :

Sr. No. Disclosures Yes/No

a) Rudra or its research analysts, or his/her relative or associate has any direct or indirect No
financial interest in the subject company.

b) Rudra or its research analysts, or his/her relative or associate has any other material No
conflict of interest at time of publication of the research report.

c) Rudra or its research analysts, or his/her relative or associates have actual/beneficial No

ownership of one per cent or more securities of the subject company.

5) Disclosures with regard to receipt of compensation :

Sr. No. Disclosures Yes/No

a) Rudra or its associates have received any compensation from the subject company in the No
past twelve months.

b) Rudra or its associates have managed or co-managed public offering of securities for the No
subject in the past twelve months.

c) Rudra or its associates have received any compensation or other benefits from the subject No
company or third party in connection with the research report .

6) Other Disclosures:
Yes/No
Sr. No. Disclosures

a) The research analyst has served as an officer,director,employee of the subject company. No

b) Rudra or its research analyst has been engaged in market making activity for the subject No
company.

c) Rudra or its or associates have received any compensation from the subject company in the No
past twelve months.

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Disclaimers:

This Research Report (hereinafter called report) has been prepared and presented by RUDRA SHARES & STOCK BROKERS
LIMITED, which does not constitute any offer or advice to sell or does solicitation to buy any securities. The information presented in
this report, are for the intended recipients only. Further, the intended recipients are advised to exercise restraint in placing any
dependence on this report, as the sender, Rudra Shares & Stock Brokers Limited, neither guarantees the accuracy of any information
contained herein nor assumes any responsibility in relation to losses arising from the errors of fact, opinion or the dependence
placed on the same.
Despite the information in this document has been previewed on the basis of publicly available information, internal data , personal
views of the research analyst(s)and other reliable sources, believed to be true, we do not represent it as accurate, complete or
exhaustive. It should not be relied on as such, as this document is for general guidance only. Besides this, the research analyst(s) are
bound by stringent internal regulations and legal and statutory requirements of the Securities and Exchange Board of India( SEBI)
and the analysts' compensation was, is, or will be not directly or indirectly related with the other companies and/or entities of Rudra
Shares & Stock Brokers Ltd and have no bearing whatsoever on any recommendation, that they have given in the research report.
Rudra Shares & Stock Brokers Ltd or any of its affiliates/group companies shall not be in any way responsible for any such loss or
damage that may arise to any person from any inadvertent error in the information contained in this report. Rudra Shares & Stock
Brokers Ltd has not independently verified all the information, which has been obtained by the company for analysis purpose, from
publicly available media or other sources believed to be reliable. Accordingly, we neither testify nor make any representation or
warranty, express or implied, of the accuracy, contents or data contained within this document. Rudra Share & Stock Brokers Ltd
and its affiliates are engaged in investment advisory, stock broking, retail & HNI and other financial services. Details of affiliates are
available on our website i.e. www.rudrashares.com.

We hereby declare, that the information herein may change any time due to the volatile market conditions, therefore, it is advised to
use own discretion and judgment while entering into any transactions, whatsoever.
Individuals employed as research analyst by Rudra Shares & Stock Brokers Ltd or their associates are not allowed to deal or trade in
securities, within thirty days before and five days after the publication of a research report as prescribed under SEBI Research
Analyst Regulations.
Subject to the restrictions mentioned in above paragraph, we and our affiliates, officers, directors, employees and their relative may:
(a) from time to time, have long or short positions acting as a principal in, and buy or sell the securities or derivatives thereof, of
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