Lanka Milk Foods - Rewriting the history

Lanka Milk Foods - Rewriting the history

Background

Main business activities of the company include importing, packing, exporting and selling of full cream, infant & skim milk powder and other types of milk allied products and fruit juices and energy drink. Due to the growing demand of the local produced milk products the weightage of revenue in the imported milk powder has been gradually declining where as the volume of sales from fresh milk and other related products are increasing.

Revenue trending

Revenue has been growing over the years to reach Rs. 6,7bn in FY 2019/20 and LMF has recorded a revenue of Rs 5.8bn for the 9 months ended 31st December 2020. 59% of the company revenue for 9months came from liquid milk and other related products and fruit juice and energy drink segment.

Financial performance

LMF's profitability during the last three years were fluctuating however its in an improving trend since 2019/20 due to enhanced margins from liquid milk as well as imported milk powder. During the 9 months ended 31st December 2020 liquid milk sector generated a profit margin of 12% while imported powdered milk sector recorded a profit margin of 15%. The company has recorded a profit after tax of Rs 698mn compared with the profit after tax of Rs 291mn reported in FY 2019/20. The analysis of the three quarters in 2020/21 shows consistent profitability in liquid and other product sector while profitability in powdered milk sector was seen fluctuating. Powdered milk sector recorded a significant profit during Q3 highly likely due to a one-off adjustment making a big impact to LMF's Q3 earnings.

Q4 expected performances and beyond

The company has implemented several strategies to improve revenue and boost financial performance in 2020 which will have a good and sustainable impact on its financials in 2021 and beyond. Some of these strategies were;

a) Establishment of united dairies lanka to increase milk production

b) Investment in new yogurt plant with an investment of Rs 300mn to double the current production capacity and the new facility is expected to be operational in Q1 2021.

c) Export Ambewela fresh milk, Daily flavored milk and fruit juices to Maldives 

d) Enhance distribution channels island wide

Given these strategies LMF's Q4 2020/21 quarter to be expected better than Q3 with a revenue of Rs 1.8Bn and a profit of Rs 222mn making the FY 20/21 EPS to be Rs. 22.3.

Ratio analysis

               17/18 18/19 19/20 20/21 F

EPS                  14.5 -3.2          7.53 22.32 

NAV           311 221          260          315

DPS           2.5        1.25          2.5         6.70 

DPO         17% -39% 33% 30%

Price           158 110            74         182

PE ratio          10.9 (34.4)    9.8 8.1 

PBV            0.5 0.5            0.3 0.6

DY                  1.6% 1.1% 3.4% 3.7%

Based on relative valuation parameters LMF has a significant upside potential as a long term investment under current market context.

       Sector LMF Relative Price

PE ratio 16.1          8.1    359 

PBV 2.6          0.6          819 

DY         3.2% 3.7% 209 

Average 463 




Comments

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    ReplyDelete
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    ReplyDelete
  3. Astra DairyApril 26, 2024 at 3:06 AM

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