Basmati boom has India’s LT Foods seeking growth in Europe, Middle East
LT Foods looks at Europe and Middle East for expansion as it seeks to capitalize on surging demand for basmati rice
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News Delhi: LT Foods Ltd is targeting Europe and the Middle East for expansion after conquering the US market as one of India’s biggest basmati rice processors seeks to capitalize on surging demand for the aromatic grain.
Shares of LT Foods have more than doubled this year as the half-century old commodity trader increases focus on branded foods to exploit changing consumer desires in India and abroad.
“We want to concentrate and increase sales of our branded products, especially in the US and Europe, as we see huge potential there” and in the Middle East, Ashwani Arora, joint managing director, said on Monday in an interview in New Delhi.
The Mumbai-listed firm bought the Gold Seal Indus Valley and Rozana rice brands from Hindustan Unilever Ltd last year to strengthen its presence in the Middle East. It purchased the 817 Elephant brand in July to further boost sales in markets like the US and Canada, and is setting up a plant in Rotterdam to cater to Europe, Arora said.
“We want to be recognized as a food company, not a commodity trader,” said Arora, whose family started the business as a grains trader in the 1950s and set up its first rice mill in 1978. “The trend is health plus convenience. We are following that trend and developing our whole product range based on the theme.”
Although it has captured more than 50% of the basmati rice market in the US, it’s share in the Middle East and European markets is nominal, according to the company, which also sells rice brands such as Daawat, Royal, and Hadeel.
LT Foods and Japan’s Kameda Seika Co. set up a joint venture in November to manufacture and market rice-based snacks in India. The Indian firm also joined hands with Future Group in December to process and sell south Indian rice.
Basmati rice accounts for about 38% of total rice consumption in the Middle East, 4.4% in Europe, 1.3% in the US and 1.2% in Asia, according to a company presentation.
LT expects revenue will almost double to $1 billion by 2020 from an estimated Rs32 billion ($500 million) in the year ended 31 March, Arora said. Improvements in procurement, processing, sales and distribution should help lift operating profit as a percentage of revenue to 15% in the coming years from 12%, he said.
Rising income in India has encouraged consumers to shift to modern convenience stores from mom-and-pop shops, boosting demand for branded rice and pulses. Branded products account for 26% of total basmati sales in the country, according to the company.
LT Foods annually sells about 200,000 tonnes of branded basmati rice in India, capturing a market share of 20%, he said. Branded packaged rice accounts for about two-thirds of its sales, while trading and value added products such as organic cereals and brown rice make up the rest, Arora said.
The company, which competes with firms such as KRBL Ltd and Kohinoor Foods Ltd, is aiming to increase its annual rice processing volumes to 500,000 tonnes in two years from 400,000 tonnes by outsourcing mills owned by others, Arora said.
Ajay Thakur, an analyst with Anand Rathi Securities Pvt, said in a report in February that the company’s stock valuations were inexpensive and the rising share of its branded business, cost efficiency-led margin gains and better inventory management were expected to drive greater free cash flow and return ratios. He has a buy rating on the stock.
“We don’t want to make a fresh capital expenditure and we will outsource because there are a lot of idle capacities that are available,” Arora said. “We are keen on spending money on branding and advertising our products. The focus is to invest in brands and markets.” Bloomberg