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Agro Tech Foods Ltd.    
06 Dec 2019
Despite the popcorn, Agro Tech Foods has yet to see growth pop

by Suhani Adilabadkar

Affiliated to Conagra Foods and also held by Rakesh and Rekha Jhunjhunwala, Agro Tech Foods offers popular brands ACT II Popcorn, Sundrop Peanut Butter, Sundrop oil and ACT II Nachoz. The company offers products under categories such as edible oil, spreads, ready to cook, ready to eat snacks, puddings and desserts. 

The firm has a manufacturing network of five plants across the country at Jhagadia, Kashipur, Unnao, Kothur and Mangaldai. Agro Tech Foods is also in the process of expanding its manufacturing base by adding two more plants, one in Chittoor, Andhra Pradesh and another in Kolkata. The company has three wholly owned subsidiaries, Sundrop Foods Private Ltd, Agro Tech Foods Bangladesh and Sundrop Foods Srilanka. 

Primarily known as a refined oil company, it has been rapidly scaling up its food business with the aim of becoming one of the best performing food companies in India. Overall revenues however, have been flat in recent years. 

Quick Takes:

  • The company offers popular brands, ACT II Popcorn, Sundrop Peanut Butter, Sundrop oil and ACT II Nachoz.

  • The company is aiming towards becoming a Rs. 500 crore business in the next few years. 

  • The oil business contributes roughly two thirds of total revenues, and consequently has a big impact on the overall revenue and profitability growth of the company. 

  • Revenues have been flat. The oil business has low entry barriers and being a commodity business, is highly susceptible to volatile price variations. 

  • In the long run, growth will have to be driven by the food business with higher investments, introducing new products and strengthening its retail network. 

The September Quarter was a mixed one for Agro Tech

Agro Tech Foods reported standalone revenue from operations of Rs. 204 crore in Q2FY20 against Rs. 211 crore same period previous year, declining 3% YoY. Operating profit stood at Rs. 18.4 crore compared to Rs. 17.8 crore same period previous year growing 4% YoY. Operating margin expanded 58 bps coming out at 9.0% in September quarter FY20 against 8.4% corresponding quarter previous year. 

Aided by stagnant depreciation expenditure, low finance costs and deferred tax credit, PAT came out strongly despite revenue falling, rising 70% YoY and 119% sequentially. Net Profit or PAT stood at Rs. 15.4 crore for September quarter compared to Rs. 9.1 crore same period previous year. Agro Tech Foods has been reporting stagnant numbers over the past few years, revenue growing at a CAGR of 1.5% for the past five years, but the company is still in the prized kitty of stock market czar, Rakesh Jhunjhunwala. 

The revenue engine has been sputtering

Agro Tech Foods is the pioneer in popcorn category with more than 50% market share. The company over the past few years has built a sizeable foods portfolio apart from oil business. Sundrop edible oil gives it 45-50% market share in the premium oil segment and with the brand Crystal together constitutes roughly two thirds of total revenues.

Ready to cook (RTC) which mainly constitutes ACT II popcorn reported value growth of 14% YoY largely driven by volume growth of 12% YoY in category performance. Ready to eat (RTE) category with RTE Popcorn, tortilla chips and extruded snacks came out with lower revenue growth of 7% YoY and volume growth of 14% YoY. 

This segment has been impacted by supply chain issues on Tortilla Chips and also to some extent on extruded snacks. RTE popcorn on the other hand delivered growth of 38% YoY. In the spreads category, peanut butter revenues increased 9% YoY with volume growth of 12% YoY with the business continuing to demonstrate steady growth momentum. Coming to the edible oil business, there was a decline in revenues and volumes both for Sundrop and Crystal edible oil brands. Revenues dropped 5% and 22% whereas volumes fell 3% and 23% respectively YoY in Q2FY20. 

Agro Tech Foods has not been able to fire up its revenue engine over the past few years. The company has been reporting lacklustre revenue and PAT growth for the past five years. Revenue for the past four quarters has been either been in the negative zone or stagnant sequentially. The oil business has been holding back quarter performance , reporting low or flattish growth. Edible oils have low entry barriers and being a commodity business, is highly susceptible to volatile price variations. With the oil business contributing roughly two thirds of total revenues, it impacts the overall revenue and profitability growth of the company. 

The management is aware of this drawback and has been formulating a strategy to nullify the vulnerability of this verical. Foods with the categories ready to eat, ready to cook and spreads have been introduced and being scaled up to provide resilience. The company has recently introduced two new products, sweet corn popcorn in RTC and sundrop popz cereals in RTE contributing 20pbs and 180 bps respectively of food growth in Q2FY20. In addition to these two products, the company has started commercial production for Sundrop Cocoa Nut, a choco almond spread and Sundrop Duo for entering confectionary market. Altogether, these four products will contribute 500 bps growth to food business. 

With respect to the spreads business which currently is approximately Rs. 50-60 crore, the company is looking forward to growing it to Rs. 100 crore in the next few years. Spreads has a market of about Rs. 2050 crore, and has sub-segments such as honey which is about Rs. 1220 crore, jams worth Rs. 394 crore, nuts and seeds worth Rs. 272 crore and chocolate spread worth Rs. 162 crore. 

With presence in the nut and seed segment through its Sundrop peanut butter, the management keen on the choco spread segment, noting that the segment had been underperforming as products are being made available at high price points. The company is targeting this space with plans to introduce chocolate, almond, cashew and their combinations in the spread category. Mr Sachin Gopal, MD and CEO, Agro Tech Foods added, “We will be having the strongest spread basket in the industry in the next 3-4 years”. 

Though the company  has not been providing the growth impetus needed in the edible oil business, the Sundrop brand is extremely well known, providing a healthy image rub off to other products and much-needed cash flows to sustain the scaling up of food business. In the long run, growth will have to be driven by the food vertical with higher investments, introducing new products and strengthening its retail network. In fact, the company aims to grow this into a 500 crore business, currently at around Rs. 225 crore, in the next few years.  Whether the food and snack business would be able to scale up and provide the requisite balance to its revenue platform, only time will tell.


Agro Tech Foods Ltd. is trading below it's 30 day SMA of 705.3
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