ADF Foods Share Price Surges 11 Per Cent Intraday

ADF Foods share price surged 11 per cent intraday on the National Stock Exchange (NSE) after that the company’s management stated that it was expecting profitability in American operations in the coming quarters. The promoters are keen to increase stake from current 53 per cent to 60 per cent.

In the last 6 months, ADF Foods share price has shown an increase of 120 per cent. On 27th April the stock stood at Rs.81 and today it is reading at Rs.180. Also, the previous high of the scrip stood at Rs.190.

Heritage Foods stock may get re-rated:

Chandrababu Naidu’s Heritage Foods is planning to sell its retail business to Kishore Biyani’s Future Retail for about Rs.275 cr apart from a variable payout. The deal, which shall be funded by issuing shares of Future Retail to Heritage Foods shareholders, shall be a big positive for the latter’s shareholders. Heritage Foods shall benefit as its financials, excluding the loss making retail, shall appear completely different. 

However, for Future Retail, the gain shall be restricted to the firm getting stronger foothold in the Hyderabad, Chennai and Bengaluru market via Heritage Foods’ close to 120 retail outlets, presently loss making. However, the valuation at which ‘Future Retail’ is acquiring ‘Heritage’ is reasonable­­ at half of one-time sales. Retail business has been a drag on Heritage for the last several years, depressing the firm’s financials ­­ net profit, profit margins and ROCE – return on capital employed. 

For example, ex-retail, Heritage’s EBIT or earnings before interest and tax for FY16 was higher by 15 per cent, ROCE of over 50 per cent against 30 per cent with retail. However now, with the cash-guzzling retail business out of the way, the management shall be able to concentrate on its core dairy business and have higher cash-in-hand to expand and grow at 15 per cent-20 per cent for the next 5 years. 

The deal with Future Retail could re-rate the Heritage Foods’ stock. On the basis of Heritage’s estimated FY17 dairy business earnings alone, the stock trades at 22 times its earnings as compared to 35-80 times in case of its peers­­ Parag Milk Foods, Hatsun Agro Products and Prabhat Dairy.

At 13:38 pm, ADF Foods share price was trading 6.01 per cent at Rs.171 on the NSE today. The stock opened at Rs.162.90 from a previous closing of Rs.161.30. Dynamic Levels Researchers have identified ADF Foods share as a multibagger stock and recomended investment in it.