Agro Tech Foods have two business segments, which follow a profit centric approach.

In the branded foods segment, company has branded oils and foods. The branded oils have two very successful brands namely Sundrop and Rath. and Food segment has ACT II (the No 1 Popcorn brand in the world belonging to ConAgra) for popcorns.

Bulk and processed commodities segment includes oils and grains procured, processed and distributed by the commodity sourcing and exports and the seed buying operation.

Net sales edged up 5% to Rs 252.80 crore in the quarter ended March 2007. The brand Sundrop has grown about 4%, while Sundrop Heart has risen 8%. ACT II expanded by about 66%. Operating profit margin (OPM) has increased by 120 basis points (bps) to 3.4%, largely due to the price increase in Sundrop in December 2006 and higher sales of high margin ACT II. Other income also increased by 500%, which resulted in an increase of 88% in profit after tax (PAT) to Rs 7.50 crore.

Net sales of the company was up 11% to 1038.10 crore in FY 2007. OPM increased by 90 bps to 2.1%, whereas OI shot up 71%. PAT moved up 68% to Rs 16.10 crore.

Performance in Q4 (January-March) FY 2007

Net sales grew by a mere 5% to Rs 252.80 crore in the quarter ended March 2007. Sundrop expanded about 4%, while Sundrop Heart advanced 8%. ACT II surged 66%. Agro Tech Foods continues to focus on margins and its branded products and will continue its brand building activities and its advertisements on its successful brands.

OPM increased by 120 bps to 3.4%. Staff cost inched up by 40 bps to 2%. Raw material expenditure has decreased by 70 bps to 89% while other expenditure fell by 80 bps to 6%. Other income has improved by 500% to Rs 1.20 crore. Net interest spurted 20% to Rs 0.60 crore. Depreciation declined 17% to Rs 0.50 crore. Profit before tax (PBT) stood at Rs 8.70 crore - growth of 93%. Total tax rose 140% to Rs 1.20 crore. PAT jumped 88% to Rs 7.50 crore.

Year ended performance in FY 2007

Net sale of the company grew by 11% to Rs 1038.10 crore. Operating profit margin of the company increased by 90 bps to 2.1%. Raw material cost rose by 30 bps to 89%, whereas staff cost inched up 3 bps to 2%. Other expenditure reduced by 130 bps to 7%.

Operating profit surged 100% to Rs 21.40 crore. OI shot up 71% to Rs 2.90 crore. Interest tumbled down 33% to Rs 2.60 crore, whereas deprecation slipped 4% to Rs 2.20 crore. This resulted in 215% growth in PBT to Rs 19.50 crore. There was no extraordinary item (EO) in FY 2007 against Rs 5.06 crore in FY 2006. Total tax outgo was up 100% to Rs 3.40 crore. PAT after EO increased by 68% to Rs 16.10 crore.

Segment results for the year ended March 2007

Agro Tech Foods continues to focus its branded food business which is evident from the quarterly results. The branded food business of the company expanded by 11% to Rs 542.6 crore. Sundrop as a brand has grown about 4%; the proportion of more profitable parts of Sundrop like Sundrop Heart rose 8%. ACT II advanced by about 66%.  It has market share of about 5% in the western snacks market, while for the month of March 2007, Sundrop had 8.6% market share. It aims to grow its ACT II popcorn brand by 100% every year.

Margins were up by 30 bps to 3.5%. In the case of Sundrop, the company has gross margin of about 17-18%, which for an edible oil brand is quite decent. In the case of ACT II, gross margins are at about 30%. Profit before interest and tax (PBIT) rose 22% to Rs 19.10 crore. The category contributed around 46% to the company’s revenues while the contribution to PBIT stood at 65%.

Bulk and processed commodities business of the company grew 5% to Rs 628.80 crore. The margins increased by 20 bps at 1.6%. PBIT was up by 16% to Rs 10.10 crore. The category contributed around 54% to the company’s revenues while the contribution to PBIT stood at 35%.

Other developments

Agro Tech Foods has stopped its non-profitable brands of chips and atta, and has developed a strategy of focusing only on products with a gross margin of around 20%.

Earlier, Agro Tech Foods was a group company of ITC and had its manufacturing plant at Mantralayam in Andhra Pradesh. Subsequently, the plant was sold to ITC and was leased back for 99 years to the company for Rs 16 crore. Subsequent to ConAgra taking a majority stake, the parent found this arrangement totally unviable as reflected in the poor margin and losses. After a long conflict between the company and ITC, a London court passed an order of settlement: the company had to pay Rs 43 crore to ITC in phases (as reflected in EO over the past few years).

Presently, Agro Tech Foods has no manufacturing plant. Manufacturing is outsourced to unorganised players under its quality control. Hence, there is no need for any capex or any other significant investment to increase volume.

In 1996, Agro Tech Foods sold the Mantralayam undertaking to ITC as a slump-sale unit. Hence, it anticipated no capital gain tax. Unfortunately, the income-tax (IT) department rejected the claim of slump-sale and considered the sale as a short-term capital gain and levied a tax liability of Rs 12.87 crore. The company paid the amount but appealed the judgement. The hearing before the tribunal was over on 18 December 2006, and the final order is expected soon. If the order is negative, the company will route the tax payment already made through profit & loss (P&L), showing it as an extraordinary loss. If the company, wins the judgment, then there will be a cash inflow of Rs 12.87 crore plus interest income for almost 10 years. This will further improve the cash flow position substantially.

Valuation

The scrip closed at Rs 106.55 at BSE on 16 March 2007.