Date of report 06/17/2008

Company ADF Foods Limited - Valuation report

Analyst Dhananjayan J

Contact dhanan12@yahoo.com, dhananjayan.dj@gmail.com

Table of Contents (Please enable the macro attached to this file)

Fact Sheet >>

Historicals & Forecast >>

Competitor analysis >>

Segment >>

DCF valuation >>

Disclaimer >>
Fact Sheet
17th June 2008
ADF Foods Limited
ADF Foods Ltd manufactures and distributes Indian cuisine. The company supplies its products to food retailers
located in India and elsewhere throughout the world.

Website http://www.adf­foods.com

Special situation Insider buyings

Pro forma valuation

Price ratio
Price to earnings 9.0
Price to free cash flow 20.9
Price to tangible book value 1.0

Enterprise value ratio

EV / Sales 0.7
EV / EBITDA 3.8
EV / EBIT 5.3
EV / (EBITDA-Capex) 8.1

Debt and interest coverage

Net Debt / EBITDA -0.4 Net cash
EBIT / Interest expense 4.8

Yield Ratio
Dividend yield 4.8%
Earnings yield 9.5%
FCF1 yield 4.2%

Return on Assets
Return on operating assets 13.8%
Return on capital invested 17.5%

Operating margins
EBITDA 19.2%
EBIT 13.8%
Net income 8.4%

Depreciation Vs. Capex Capex

Conclusion
Operating margins is good. Returns on assets is good. Depreciation is more than capex. Quite simple business with strong fun
the stock is trading at attractive valuation. Quite interesting stock to invest in. We see no substantial risk in this stock. Accordin
we believe that the stock is currently trading at 42% discount to its intrinsic value.

Our Verdict: Buy - target price Rs. 60/-

 90.00
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e business with strong fundamentals in place. Currently

isk in this stock. According to our DCF valuation model,
Historicals and Forecast
(Amt in lakhs)
FY 3/07 A FY 3/08 A FY 3/09 E FY 3/10 E FY 3/11 E
Sales 7,994.42 9,008.60 9,729.29 10,507.63 11,348.24
Total growth 13% 8% 8% 8%
EBITDA 1,455.47 1,729.72 1,848.56 1,996.45 2,156.17
Margin 18.2% 19.2% 19.0% 19.0% 19.0%
Depreciation 404.40 484.90 484.90 484.90 484.90
EBIT 1,051.07 1,244.82 1,363.66 1,511.55 1,671.27
Margin 13.1% 13.8% 14.0% 14.4% 14.7%
Interest expenses 259.19 257.92 91.86 92.17 92.17
Interest income 3.83 24.21 24.21 24.21 24.21
EBT 795.71 1,011.11 1,296.02 1,443.59 1,603.31
Tax @ 25% - as it is agricultural income 198.93 252.78 324.00 360.90 400.83
Net income 596.78 758.33 972.01 1,082.69 1,202.48
Margin 7.5% 8.4% 10.0% 10.3% 10.6%
Outstanding shares - note 1 107.80 191.74 191.74 191.74 191.74
EPS INR 5.54 INR 3.96 INR 5.07 INR 5.65 INR 6.27
Adjusted EPS INR 3.86 INR 4.97 INR 5.55 INR 6.18

Total assets 7,815.21 10,164.71 10,164.71 10,164.71 10,164.71

Cash 105.09 1,133.32 1,133.32 1,133.32 1,133.32
Prem exp 1.07 12.95 12.95 12.95 12.95
Investment - cash equivalents 1,881.14 - - - -
Operating assets 5,827.91 9,018.44 9,018.44 9,018.44 9,018.44
Return on operating assets 18.0% 13.8% 15.1% 16.8% 18.5%

Fixed assets excl goodwill but including

Capital work in progress 3,402.07 5,893.48 5,893.48 5,893.48 5,893.48
Current assets excluding cash 2,054.28 2,716.30 2,716.30 2,716.30 2,716.30
Current liabilities excluding debt 759.70 1,516.06 1,516.06 1,516.06 1,516.06
Capital invested 4,696.65 7,093.72 7,093.72 7,093.72 7,093.72
Return on capital invested 22.4% 17.5% 19.2% 21.3% 23.6%

Cash 1,986.23 1,133.32 1,298.56 1,574.47 2,478.38

Debt - assuming repayment does not happen 916.68 388.32 388.32 388.32 388.32
Gross Capex - only maintenance capex 389.07 908.20 908.20 908.20 400.00
Sale of Fixed Assets - - - - -
Net Capex 389.07 908.20 908.20 908.20 400.00
Shareholder's equity - book value 3,550.64 7,898.01 8,486.55 9,185.76 10,004.77
Tangible Book Value (TBV)/share INR 32.94 INR 41.19 INR 44.26 INR 47.91 INR 52.18
Notional FCF1 before invst in WC 612.11 335.03 548.71 659.39 1,287.38
Notional FCF1/share INR 5.68 INR 1.75 INR 2.86 INR 3.44 INR 6.71
Adjusted notional FCF1/share INR 1.65 INR 2.77 INR 3.34 INR 6.62

Price INR 41.70 INR 41.70 INR 41.70 INR 41.70

Mcap based on current O/S excl warrants issued 7,370.01 7,995.51 7,995.51 7,995.51
EV 6,625.01 7,085.28 6,809.36 5,905.46
Adjusted price INR 34.55 INR 36.95 INR 35.51 INR 30.80

EV/Sales 0.7 0.7 0.6 0.5

EV/EBITDA 3.8 3.8 3.4 2.7
EV/EBIT 5.3 5.2 4.5 3.5
EV/(EBITDA-Net Capex) 8.1 7.5 6.3 3.4
PE 10.5 8.2 7.4 6.6
P/FCF1 23.9 14.6 12.1 6.2
P/TBV 1.0 0.9 0.9 0.8

Adjusted PE 9.0 7.4 6.4 5.0

Adjusted P/FCF1 20.9 13.4 10.6 4.7

Net debt/EBITDA -0.4 -0.5 -0.6 -1.0

EBIT/Interest expense 4.8 14.8 16.4 18.1

Dividend per share INR 2.00 INR 2.00 INR 2.00 INR 2.00
Dividend yield 4.8% 4.8% 4.8% 4.8%
Earnings yield 9.5% 12.2% 13.5% 15.0%
FCF1 yield 4.2% 6.9% 8.2% 16.1%

Debt analysis
Cash credit and packing credit 677.10 218.67 218.67 218.67 218.67
Interest rate - SBI Rate 10.75% 10.75% 10.75% 10.75% 10.75%
Foreign currency packing credit - 125.34 125.34 125.34 125.34
Interest rate - assumption 10.75% 10.75% 10.75% 10.75%
Term loan 214.37 - - - -
Interest rate - SBI Rate 11.00% 11.00% 11.00% 11.00% 11.00%
Hire purchase due to bank 25.21 44.31 44.31 44.31 44.31
Interest rate - assumption 11.00% 11.00% 11.00% 11.00% 11.00%
Total loan 916.68 388.32 388.32 388.32 388.32

Assumption
1. Maintain the same debt level for the next 5 years.
2. Included 50 lakhs in interest expenses for bank charges.
3. In our DCF model, we have discounted FCF1 - ie free cash flow before investment in working capital. We believe that the WC
the management within a short span of time.

Note 1: Outstanding shares

No of shares outstanding as on 31st March 2008 176.74
Convertible warrants issued on 24th Dec 2007 15.00
Total O/S 191.74
FY 3/12 E FY 3/13 E
12,256.10 13,236.59
8% 8%
2,328.66 2,514.95
19.0% 19.0%
484.90 484.90
1,843.76 2,030.05
15.0% 15.3%
92.17 92.17
24.21 24.21
1,775.80 1,962.09
443.95 490.52
1,331.85 1,471.57
10.9% 11.1%
191.74 191.74
INR 6.95 INR 7.67
INR 6.85 INR 7.58

10,164.71 10,164.71
1,133.32 1,133.32
12.95 12.95
- -
9,018.44 9,018.44
20.4% 22.5%

5,893.48 5,893.48
2,716.30 2,716.30
1,516.06 1,516.06
7,093.72 7,093.72
26.0% 28.6%

3,511.65 4,684.64
388.32 388.32
400.00 400.00
- -
400.00 400.00
10,953.14 12,041.23
INR 57.13 INR 62.80
1,416.75 1,556.47
INR 7.39 INR 8.12
INR 7.29 INR 8.02

INR 41.70 INR 41.70

7,995.51 7,995.51
4,872.18 3,699.19
INR 25.41 INR 19.29

0.4 0.3
2.1 1.5
2.6 1.8
2.5 1.7
 6.0 5.4
5.6 5.1
0.7 0.7

3.7 2.5
3.5 2.4

-1.3 -1.7
20.0 22.0

INR 2.00 INR 2.00

4.8% 4.8%
16.7% 18.4%
17.7% 19.5%

218.67 218.67
10.75% 10.75%
125.34 125.34
10.75% 10.75%
- -
11.00% 11.00%
44.31 44.31
11.00% 11.00%
388.32 388.32

capital. We believe that the WC invst would be recouped by

 Competitor's analysis Himalya Kohinoor
International Foods Ltd
Ltd
(Amt in lakhs)
FY 3/08 LTM 12/07 Median
Sales 4,682.30 57,816.00
Growth 51% -3% 24%
EBITDA 1,366.20 6,627.00
Margin 29.2% 11.5% 20%
Depreciation 197.40 1,055.00
EBIT 1,168.80 5,572.00
Margin 25.0% 9.6% 17%
Interest expenses 192.50 2,556.00
EBT 976.30 3,016.00
Margin 20.9% 5.2% 13%
Tax @ 25% 244.08 754.00
Net income 732.23 2,262.00
Margin 15.6% 3.9% 10%
O/s 220.33 196.01
EPS INR 3.32 INR 11.54

As on 3/07
Total assets 5,490.20
Prem exp 2.91
Cash 6.73
Deferred tax assets 124.88
Operating assets 5,355.68
Return on operating assets 21.8% 22%

Fixed assets excl goodwill but including

Capital work in progress 3,392.42
Current assets excluding cash 1,963.26
Current liabilities excluding debt 283.73
Capital invested 5,071.95
Return on capital invested 23.0% 23%

Cash 6.73
Debt 1,589.71
Gross capex 344.47
Sale of FA -
Net capex 344.47
Shareholder's equity - book value 4,348.99
Tangible Book Value (TBV)/share INR 19.73
Notional FCF1 before invst in WC 585.16
Notional FCF1/share INR 2.66

Price INR 25.55 INR 92.85

Mcap 5,629.45 18,199.82
EV 7,212.43 18,199.82

EV/Sales 1.5 0.3 0.9

EV/EBITDA 5.3 2.7 4.0
EV/EBIT 6.2 3.3 4.7
EV/(EBITDA-Net Capex) 7.1 2.7 4.9
PE 7.7 8.0 7.9
P/FCF1 9.6 9.6
P/TBV 1.3 1.3

Net debt/EBITDA 1.2 1.2

EBIT/Interest expense 6.1 6.1

Dividend per share INR - INR 1.00

Dividend yield 0.0% 1.1% 0.5%
Earnings yield 13.0% 12.4% 12.7%
FCF1 yield 10.4% 10.4%
Segment Business segment Geographical segment
(Amt in lakhs)
FY 3/05 FY 3/06 FY 3/07 FY 3/08
Business Segment
REVENUE
Processed and preserved foods 5,633.27 5,841.72 7,643.58 8,628.30
Growth 3.7% 30.8% 12.9%
%age on total 88.7% 93.0% 95.6% 95.8%
Traded goods 718.66 436.68 350.84 380.30
Growth -39.2% -19.7% 8.4%
%age on total 11.3% 7.0% 4.4% 4.2%
Total revenue 6,351.93 6,278.40 7,994.42 9,008.60
Total growth -1.2% 27.3% 12.7%

EBIT
Processed and preserved foods 684.38 796.40 1,252.87 1,696.13
Growth 16.4% 57.3% 35.4%
Margin 12.1% 13.6% 16.4% 19.7%
Traded goods 110.60 69.50 137.85 123.59
Growth -37.2% 98.3% -10.3%
Margin 15.4% 15.9% 39.3% 32.5%
Corporate overheads 258.40 275.32 358.35 653.23
Total 536.58 590.58 1,032.37 1,166.49
Total growth 10.1% 74.8% 13.0%
Margin 8.4% 9.4% 12.9% 12.9%

Capital employed
Processed and preserved foods 3,156.15 3,175.78 3,412.04 4,421.84
Traded goods 159.57 90.83 85.05 108.99
Corporate assets / (Liabilities) -39.98 213.61 2,624.48 3,729.50
Total 3,275.74 3,480.22 6,121.57 8,260.33
Return on capital employed 16.4% 17.0% 16.9% 14.1%
Geographical segment
REVENUE
Domestic 489.70 265.87 736.24 747.37
Growth -45.7% 176.9% 1.5%
%age on total 7.7% 4.2% 9.2% 8.3%
Exports 5,862.23 6,012.53 7,258.18 8,261.23
Growth 2.6% 20.7% 13.8%
%age on total 92.3% 95.8% 90.8% 91.7%
Total revenue 6,351.93 6,278.40 7,994.42 9,008.60
Total growth -1.2% 27.3% 12.7%

EBIT
Domestic 108.54 50.74 256.94 33.36
Growth -53.3% 406.4% -87.0%
Margin 22.2% 19.1% 34.9% 4.5%
Exports 686.44 815.16 1,133.78 1,786.36
Growth 18.8% 39.1% 57.6%
Margin 11.7% 13.6% 15.6% 21.6%
Corporate overheads 258.40 275.32 358.35 653.23
Total 536.58 590.58 1,032.37 1,166.49
Total growth 10.1% 74.8% 13.0%
Margin 8.4% 9.4% 12.9% 12.9%
Capital employed
India 3,275.74 3,480.22 6,121.56 8,260.33
Outside India - - - -
Corporate assets / (Liabilities) - - - -
Total 3,275.74 3,480.22 6,121.56 8,260.33
DISCOUNTED CASH FLOW VALUATION

Year FY 3/09 E FY 3/10 E FY 3/11 E FY 3/12 E

Discount rate - cost of equity 17.1%
FCF 548.71 659.39 1,287.38 1,416.75
Terminal growth rate
Terminal Value (TV)
Discount factor 0.85 0.73 0.62 0.53
Present Value (PV) 11,614.82 468.63 480.96 801.95 753.73
Cash 1,133.32
Total intrinsic value 12,748.14
No of shares 191.74
Intrinsic value per share INR 66.49
Current market price INR 41.70
Margin of safety 59.4%

Cost of equity
Risk free interest rate 8.34%
Inflation rate 8.75%
Total cost of equity 17.09%
FY 3/13 E

1,556.47
8%
18,493
0.45
9,109.57
Disclaimer

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