Contents of this Note :

Company Overview DFM Foods Ltd.

( DFM Foods Ltd. - Mcap Rs. 322 cr. with FY15e Revenues of Rs. 31 cr. ! Page 2-2

Why it Deserves to be a Part of One's Core Portfolio Westbridge Capital ta!e P"r#hase
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$% &ears' 'rowth (ra#! )e#ord * Sales by Value & Volume + ,randwise ales * Crax Corn Rings, Namkeen, Natkhat & Krunchoids + 'eographi#al ales ,rea!"p * North, West & East India + Possible F"t"re 'rowth trategies * eogra!hical Sales & "anu#acturing $i%ersi#ication & &roduct 'aunches + F"t"re Finan#ial -stimates * ()*+e, ()*,e & ()*-e + Con#erns .ey Monitorables

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Company Overview : DFM Foods Ltd. [ BSE Code 519588 ] is operating in one of the fastest growing FMCG segment viz., Packaged Snack Food segment and is competing with brands i!e "#r!#re, Lay$s, %e ow Diamond, etc..

Company is a pioneer in introd#cing branded &pac!aged' e(tr#ded snac!s with the brand name $C)*+$ in ,-./ which even today enjoys ~8 % marketshare in North India.

Despite stiff competition, company has grown its sales (by value at ,0 %ears$ C*G) of 12.10 3 and at 5 Years' CAGR of 48.08 %.

!olume growth has been e"ually im#ressive with ,0 %ears$ C*G) in sa es by vo #me at ,4.45 3 and 5 Years' CAGR in sales by volume at 32.49 %.

Company increased its man#fact#ring capacity by 6,42 3 in F%,1 (precisely in November 2011) and within $ years% it is sitting on verge o& a##roaching '(( % utilisation in its o d 7 new capacities combined which spea!s high y of acceptance of company$s prod#cts in the mar!etp ace.

estbri!"e Ca#ital, one of the argest and most s#ccessf# p#b ic mar!ets f#nd, has recent y, on 80th 9an#ary 10,/, ta$en a si"nifi%ant 24.90 % e&uity sta$e in t'e %om#any, at :;) 15-.,0 per share, which a#g#rs very we for f#t#re sca abi ity and profitab e growth of the company.

Company is wor!ing on a three pronged growth strategy of << <<diversifying geographica sa es presence, <<diversifying geographica man#fact#ring presence, 7 <<diversifying prod#ct offerings via new a#nches.

Management has been proactive in its :) initiatives by reg# ar hosting of conca s and p#b ishing of detai ed presentations=press re eases after every >#arter y res# t. ?enior management is professiona with decades of e(perience in the b#siness.

Despite a positives as a so #nderowned e>#ity str#ct#re with ow f oating stoc!, company is trading at reasonab e : ,.11( Mcap=?a es @@M, ,.0,( Mcap=?a es Forward ,./5( AB=?a es @@M ,.14( AB=?a es Forward which eaves considerab e scope for wea th creation once concrete f#t#re growth strategies are anno#nced by the management in the medi#m term.

Chy DFM Foods Ltd. [ BSE 519588 ] deserves to be a part of one$s core portfo io : &,' estbri!"e Ca#ital, one of the argest and most s#ccessf# :ndia foc#ssed p#b ic mar!ets f#nd, ta!ing the ma(im#m permissib e ( !o "ri##erin# open o$$er ) 24.90 % e&uity sta$e in the company is the biggest positive factor wor!ing in favo#r of DFM Foods Ltd.. On 9an#ary 80th 10,/, Cestbridge has p#rchased 1/.-0 3 e>#ity sta!e in the company from the promoters at :;) 15-.,0 per share by paying in tota :;) 4/.51 cr. @he f#nds raised by the promoters in their persona capacity are i!e y to be #sed to repay :ntercorporate Deposit &:CD' worth :;) 8, cr. o#tstanding in the boo!s of DFM Foods Ltd. as a so to f#nd their C*DA+ p ans for @he De hi F o#r Mi s Co. Ltd. << the Darent Dromoter company of DFM Foods. Dost this sta!e sa e, promoters ho d //.,1 3 e>#ity sta!e in the company which p#ts combined ho ding of promoters and Cestbridge Capita in the company at 4-.01 3.

&1' Management is decent with more than -5 years of history in f o#r mi ing b#siness and 80 years history in ?nac! Food b#siness. :nfact, company was the pioneer in introd#cing branded pac!aged e(tr#ded snac!s in :ndia &partic# ar y ;orth :ndia' #nder the brand name $C)*+$ which even today enEoys 6. 3 mar!etshare in ;orth :ndian mar!et.

&8' A(ceptiona growth attained by the company over ast ,0 years in its branded snac!s food b#siness. Gro(t' is volume)le! rat'er t'an #ri%in")le! which a#g#rs very we for the f#t#re of the company.
(fig. In ` cr)

9MFY14

FY13

FY12

FY11

FY10

FY09

FY08

FY07

FY06

FY05

FY04

Sales by /%%.$$ //0./1 Value

$23.1/

$$3.41

5/.$4

06.66

6$.22

/6.44

$4.11

/%.0$

/%.52

Volume
. in "/ 0

78

$$406

36/4

203%

10%1

62$$

/3%6

/1%5

/$54

/122

/026

Value $4.40 9 6/.31 9 1$.65 9 22.%/ 9 60.61 9 24.11 9 6/.05 9 /3.0% 9 *$%.0$+ *$./%+ 9 /.$2 9 ro1th 9

Volume ro1th

78

/5.%2 9 1$.01 9 12.6$ 9 /1.5/ 9 /1.64 9 /%.2% 9 $%.0$ 9 *$$.25+ *6.54+ 9 %.3% 9 9

(4) Company's flagship brand CRAX Corn Rings is the major contributor to the growth and the growth has been so well that it has not allowed the company to focus on any other product as entire production capacity needed to be channelised to manufacture this product. n current !"#4$ management has initiated deris%ing e&ercise which also seems to be gi'ing somewhat fruitful results so far. (owe'er$ its too early to tal% about success of other product with con'iction.

( fig. In ` cr. )

9MFY14

FY13

FY12

Crax Corn Rings

$2%

$43

$1/

Namkeen

//

6$

/0

Natkhat

$$

Krunchoids
( "aunched in #2FY1$ !

2.0

()) Company was predominantly a *orth ndian company selling #++ , of its produce in only that geography till !"##. !rom !"#- it started di'sersifying into other geographies starting from .estern ndia in !"#-/end to 0astern ndia in !"#1/end. Considering the fact that its only two full years of company selling its products in .est and one full year of company selling its products in 0ast$ the progress seems more than satisfactory. Channel chec%s$ particularly in 0ast ndia$ suggest good pic%/up in company's products in the region.
#+ "ears' 2eographical 3ales 4rea%up
( in ` cr. )

9MFY14

FY13

FY12

FY11

FY10

FY09

FY08

FY07

FY06

FY05

FY04

North

$22

$3$

$2%

$$3

5/

06

6$

/6

$4

/%

/%

West

$3

/4

: :

East

$0

&4'

Drofitabi ity seems to be a bit #nder press#re over ast two fisca s main y beca#se of three reasons : &a' Company aggressive y mar!eting its prod#cts in order to faci itate strong sa es in Cest 7 Aast where it diversified recent y. ?ince company$s man#fact#ring p ants are ocated in ;orth :ndia, it res# ts in increased freight costs for sa es into Cest 7 Aast :ndia which press#res AF:@D* to an e(tent. For increasing its capacity by ,42 3, company #ndertoo! debt<f#nded C*DA+ beca#se of which interest b#rden has increased thereby p#tting press#re on

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;et Drofitabi ity. Given be ow is an overview of ?a es, DF@, :nterest costs as we as Gross Debt, Gross F oc! and Operating Cash F ows of the company over the period of ast ,0 years.

( fig. In ` cr. )

FY13

FY12

FY11

FY10

FY09

FY08

FY07

FY06

FY05

FY04

Sales

//0./1

$23.1/

$$3.41

5/.$4

06.66

6$.22

/6.44

$4.11

/%.0$

/%.52

&2/

$%.%1

$0.3/

$/.5$

2.61

5.13

/.%4

%.$2

%.40

$.21

%.%3

Interest Ex!ense

3.1/

1.15

/.%%

$.6/

/./5

/.%6

%.36

%.20

%.2/

$.%3

3C(

$3.45

$5.14

$1.%3

$0.31

$1.22

*$6.40+

%.34

%.1%

6.$5

*$.$2+

ross 2lock

$%0.%4

43.5$

62.12

/0.40

$$.$2

3./$

5.44

5.15

5./1

5.15

ross $ebt

2%.3%

05.56

$0.53

$0.35

3.46

/2.%4

1.%/

1.$0

1.$%

2.22

&2' Company s'oul! run out of e*istin" %a#a%ities by +Y,5, so, going forward, the growth strategy of the management co# d be either or a of the fo owing fo#r : &a' @o serve the growing regions of Cest 7 Aast :ndia o#t of its e(isting ;oida p ant &in ;orth :ndia' where company has b#i t eno#gh common infrastr#ct#re to accomodate additiona 645 3 capacity over and above e(isting capacities &o d 7 new combined' with minima time and monetary investment. Gowever, whi e doing this, company wi have to inc#r high freight costs re>#ired to transport prod#ce from ;orth to Cest 7 Aast :ndia. Gence, since ;orth :ndia is a so a growing region for DFM, it wi be in the best interest of the company to !eep s#ch additiona capacities to serve the ;orthern region itse f in the ong r#n whi e for a short whi e, ti a ternate faci ities are b#i t, Cest 7 Aast can easi y get served by the ;orthern p ant. @o set<#p a greenfie d faci ity at a ocation which is best s#ited to serve Cest 7 Aast regions combined. @o set<#p a greenfie d faci ity in ?o#th :ndia to cater to the mar!et there as company is active y considering entering ?o#thern region which is a high growth region for e(tr#ded snac!s segment. @o b#y o#t any e(isting man#fact#ring faci ity in any of the above stated regions and #pgrade it to match company$s >#a ity standards so that considerab e time can be saved

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which is otherwise re>#ired to set<#p a greenfie d faci ity. Cith Cestbridge as its !ey partner in g#iding o#t f#t#re growth strategies, foc#s sho# d s#re y be on charting o#t profitab e aggressive growth as f#nding the growth sho# d now not be a prob em for the company.

&.' :f we e(trapo ate the said strategies into n#mbers, company sho# d easi y be ab e to achieve fo owing financia s over coming two years. Ce have tried to remain as conservative as possib e in order to be on a safer side.
( fig. in ` cr. )

FY14e

FY15e

FY16e

Sales

/20

6$4

1$%

E2I/$4

/2

6%

16

&4/

5.0%

3.0

$2.3

Cith above stated financia s, within two months going into *pri $10,/, company sho# d start trading at : ,.11( Mcap=?a es @@M ,.0,( Mcap=?a es Forward ,./5( AB=?a es @@M ,.14( AB=?a es Forward which are most reasonab e for an aggressive y growing FMCG company i!e DFM. @he !ey iss#e to fi( is profitabi ity and with a good DA p ayer as e>#ity partner, we sho# d see sooner rather than ater, !ey steps getting anno#nced on this front. Management has been reasonab e in its :) initiatives with conca s being reg# ar y hosted and presentations=press re eases being reg# ar y iss#ed after every >#arter y res# t. Drofessiona management, participation of Cestbridge in form# ating f#t#re growth strategies, strong brand in fast growing e(tr#ded snac!s segment and #nderowned e>#ity str#ct#re of company$s stoc! sho# d faci itate a significant rerating of the company on the bo#rses on the whiff of sma est positive trigger.

Concerns : &,' :nter Corporate Deposit &:CD' given to parent @he De hi F o#r Mi s Co. Ltd.

9MFY14

FY13

FY12

FY11

FY10

FY09

FY08

FY07

FY06

FY05

FY04

( in ` cr. )

%. &. D.

6$

$3

$6./0

0.0%

6.2%

0.0%

$6.6%

2.30

5.1%

2.3%

/.0%

Gere, it is a so worthwhi e to note the financia performance of @he De hi F o#r Mi s Co. Ltd. over ast ,0 years as a so its Gross Debt and A>#ity over same period :

Delhi Flour Mills Financials

( in ` cr. )

FY13

FY12

FY11

FY10

FY09

FY08

FY07

FY06

FY05

FY04

Sales

/52.26

/66.33

/0%.4/

/11.44

//6.$/

//%.$2

$5/.5/

$66.3$

$/$.%0

33.3%

EBITDA

$2.$4

$0.$3

$$.%/

5.24

3.6$

4.$6

6.0%

/.50

/.$4

/.$2

PAT

6.$%

/.3/

6.64

$.36

%.$3

%.65

%.60

%.6$

%.$0

%./$

Equity

%.16

%.16

%.16

%.16

%.16

%.16

%.16

%.16

%.16

%.16

Debt

$$3.4%

2$.%3

60.32

6%.32

12.14

1%.$1

$2.$$

$0.%3

$%.%4

$$.25

Over ast two fisca s i.e. F%,1 7 F%,8, the parent company is re ocating its f o#r mi ing operations to D ot ;o. .4<F,C,D,A, ?ector Acotech<:, A(tension<:, Greater ;oida &H.D.' from c#rrent ocation .822< .8.,, )oshanara )oad, De hi. D ant 7 Machinery are imported from Ocrim ?D* d#ring F%,8 which were a ready received and civi const#ction was going on at the site. @ota DroEect cost was estimated at :;) ,21 cr. o#t of which :;) 4/.28 cr. were spent ti F%,8. Commercia Drod#ction at the said new faci ity is e(pected to commence from ?eptember 10,/ as per company estimates. @o F#nd this proEect, management had approached its Fan!ers for an additiona proEect finance of :;) 5. cr. over and above :;) 42.,5 cr. proEect finance tied #p in F%,1. :n addition, company was oo!ing at raising f#nds via e>#ity ro#te which sho# d be to the t#ne of 6:;) /4 cr.. ;ow, before disc#ssing any f#rther et$s go to o#r Concern ;o. 1 and then chec! whether both concerns stand addressed as on date.

&1' DFM Foods Ltd. promoters so d their persona sta!e in the company to the t#ne of 1/.-0 3 at :;) 15-.,0 per share to Cestbridge Capita on 80th 9an#ary 10,/ and raised :;) 4/.51 cr. in their persona

capacity of which no f#nds came to the company$s boo!s. Gere, three things need to be noted : &a' :n the conca hosted by the management after dec aration of I8F%,/ res# ts which a so coincided with the event of said promoters sta!e sa e, management ass#red that o#t of the :;) 4/.51 cr. raised, 8, cr. wi come to DFM Foods boo!s via repayment of :CD given to the parent. ?ince parent promoter co., @he De hi F o#r Mi s Co. Ltd. was a ready in the re>#irement of f#nds in order to finance its proEect &as disc#ssed above in Concern ;o. ,', the additiona 88 cr. which were raised by the said promoter sta!e sa e seem perfect y fine and e(act y matches with the f#nds re>#irement as disc#ssed in ConcernJ,. ?ignificant investment by a renowned DA D ayer i!e Cestbridge ta!ing ma(im#m permissib e ( !o "ri##erin# open o$$er ) e>#ity sta!e of 1/.-0 3 and the fact that one of its fo#nding members, Mr. ?andeep ?ingha , has a so Eoined company$s board a#g#rs very we for the f#t#re of the company and p#ts to rest both CocernJ, 7 ConcernJ1.

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&8' )om#any o#erates in a very com#etitive environment and that too at ow price points of )s. 5 and )s. ,0 per pac!. Competitors are biggies i!e Depsi, :@C, Dar e and the new entrant GCL &Gopa Corporation' as a so strong mid<size p ayers i!e Fa aEi and Dra!ash ?nac!sK forget here n#mero#s regiona p ayers which operate at sma sca e. Gere, two things need to be noted : &a' Company has carved out a niche &or itsel& in *+'( years age bracket and concentrates its mar!eting activities on said genre. :ts Lgift with every pac!M strategy is one of its !ind amogst competition and has enab ed it to s#stain as we as grow handsome y against competition. Company increased its capacity by ,42 3 in F%,1 &precise y in ;ovember 10,,' and o d p #s new capacity sho# d get to ,00 3 #ti isation we before F%,5<end which means in -ust 3 years timeframe. entire in%rease! %a#a%ity "ot absorbe! by t'e mar$et which spea!s high y of acceptance of company$s prod#cts in the mar!etp ace. :f we oo! at vo #me growth attained by the company over ast 5 years, the pict#re gets more c earer :
FY13 FY12 FY11 FY10 FY09

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Sales by Value
( in ` cr. )

//0./1

$23.1/

$$3.41

5/.$4

06.66

Sales by Volume
( in M.T. )

$$406

36/4

203%

10%1

62$$

Volume ro1th
( YoY )

/5.%2 9

1$.01 9

12.6$ 9

/1.5/ 9

/1.64 9

Key Monitorables :

/,0 Re#ayment of 1C2 3 Management has ass#red the shareho ders abo#t repayment of :;) 8, cr. :CD given to @he De hi F o#r Mi s Co. Ltd. o#t of the f#nds raised via promoters$ sta!e sa e to Cestbridge Capita . Ce need to monitor whether the act#a repayment happens d#ring I/F%,/ or not. /20 1n%rease in 4anufa%turin" Ca#a%ity 3 *s disc#ssed before, company sho# d r#n o#t of e(isting capacities &o d 7 new combined' in F%,5 and so it wi re>#ire to draw p ans for capacity a#gmentation soon &before I,F%,5'. ?ince the company has now e(panded into Cest 7 Aast :ndia as a so it is active y oo!ing for entering into ?o#thern mar!et, so, the roadmap towards increase in e(isting capacities wi be !ey monitorab e aspect asto where and how the company p ans to increase its man#fact#ring presence. /30 5ales Gro(t' 3 Company$s sa es growth, partic# ar y in Cest 7 Aast :ndia wi be !ey monitorab e to chec! whether the company$s prod#cts are finding same eve of acceptance as they have fo#nd in ;orth :ndia. * so, sa es growth in ;orth :ndia wi a so need to be c ose y watched o#t for to ens#re company doesn$t oose o#t in its home mar!et. /40 5ales 4i* 3 ?tarting F%,/, company has started to foc#s on $;at!hat$ brand which is at )s. 1 price point as a so has a#nched new prod#ct in the form of $"r#choids$. Going forward it wi be interesting to see the sa es mi( as to whether other prod#cts gain sa es moment#m vis<a<vis company$s f agship brand $Cra($ Corn )ings or not. /50 2ebt 6 7&uity 2ilution 3 Gow the company manages C*DA+ p ans over ne(t two years wi be !ey aspect to monitor N whether it goes for entire debt f#nded C*DA+ or di #tes e>#ity to what e(tent or how it ba ances debt<e>#ity str#ct#re to finance C*DA+. /80 9e( :ro!u%t ;aun%'es 3 Company, in a i!e ihood, is going to go for aggressive new prod#ct a#nches starting F%,5. Drofi e of prod#cts a#nched, its respective peer scenario as we as how we they get received in the mar!etp ace wi be !ey monitorab e.

Disclaimer :
This Research Note should only be taken as a direction for further research and should, in no way, be construed as an advice to Buy/Sell concerned Company. hile preparin! this note, we have used all publicly available information as also information from other sources which are thou!ht of as most reliable. "owever, althou!h we have tried to be as !enuine and as accurate as possible in publishin! the data#s$, still, reader of this note is advised to cross%check the information and we should not in any way be held liable for any incorrect information. &ts safe to assume that we have the concerned company as part of our portfolio and so the views e'pressed in this note should be seen in that backdrop. The reader assumes the entire risk of any use made of this note and we should, in no way, be held liable for any loss arisin! out of the contents or action taken by the reader because of this note. This Research Note should not be interpreted as a recommendation of any kind but is only for the information purpose.