LT Overseas - Rs.44.00

Incorporated in 1990, LT Overseas Ltd. (LT) is primarily in the business of milling, processing and marketing of branded & non-branded basmati rice and manufacturing of rice food products in the domestic and overseas markets. Its operations include contract farming, procurement, storage, processing, packaging and distribution. Presently with around 22% market share, it is the third largest player in domestic basmati rice segment after Satnam Overseas and KRBL. Incidentally, the company owns 19 brands with ‘Daawat’ and ‘Heritage’ as its leading brands. Apart from all types of basmati rice, the company’s product portfolio comprises brown rice, white rice, steamed rice, parboiled rice, organic rice, quick cooking rice, value added rice and flavoured rice in the ready to cook segment. Globally, its products are being sold in more than 35 countries including quality conscious markets like USA, Canada, UK and the European Union. In fact, it is among the first few players in the rice industry to achieve ISO:9001 and Hazard Analysis and Critical Control Point (HACCP) certification from British Standards Institute.

Presently, LT has a capacity to process 30.5 TPH of paddy of which 27 TPH is processed at its own facility at Bahalgarh, Haryana, and the balance 3.5 TPH is processed in facility leased from group concerns at Sonepat and Amritsar. Notably, it is among the few rice manufacturers to use silos for storage of rice. Moreover, all its processes are fully mechanized and the output is untouched by hand. It is also using automatic colour sorting machines for quality purposes since 1992. It also has an R&D division that concentrates on developing processes for getting better aroma, better head grains yield and reducing the stickiness and developing value added rice. Recently, it has entered into an agreement with Satake Corporation, Japan, for exclusive right to use new milling technologies for value added rice which will give LT a technological edge over its other local competitors. It has formed a strategic alliance with Phoenix Agri Silica Corporation for developing a silica plant to convert husk ash, a waste generated during the milling process into silica - a raw material used in the cement industry. Meanwhile, it has also entered into contract farming agreement with Tata Chemical. LT has a very strong distribution network with more than 100 distributors covering almost every state. As 40% of its revenue comes from exports, it has exclusive arrangement with distributors in North America, South America and the European Union and has of late started supplying basmati rice directly to retail chains in US and Canada. It is also taking some initiatives to increase its presence in the Far East, Africa and the Middle East region.

A few months back, LT raised around Rs.40 cr. through an IPO at Rs.56 per share primarily for putting up a new parboiled rice processing and milling capacity of 6 TPH, a new milling line for producing value added rice with capacity of 5 TPH and to set up silos and flat storage facilities. It is also putting up a power plant of 2MW for captive consumption. In a pre-IPO placement, LT allotted 7.14 lakh equity shares to Bennett Coleman & Co and another 50,000 equity shares with Deramann Ltd at a price of Rs.70 per share. To increase its domestic market share, the company has applied for another 30 brands which are pending at various stages. Considering all these factors, it may report sales and net profit of Rs.450 cr. and Rs.20 cr. respectively for FY07. This may shoot up to Rs.550 cr. and Rs.32 cr. respectively for FY08. The EPS works out to Rs.9 for FY07 and Rs.14 for FY08. Investors are strongly recommended to buy at current levels as the share price can easily double in a year’s time.