AMIRA NATURE FOODS LTD ANFI
December 12, 2012 - 10:13pm EST by
otto695
2012 2013
Price: 8.10 EPS $0.75 $1.20
Shares Out. (in M): 36 P/E 10.9x 6.8x
Market Cap (in $M): 290 P/FCF 0.0x 0.0x
Net Debt (in $M): 60 EBIT 0 0
TEV ($): 350 TEV/EBIT 0.0x 0.0x

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  • Food Manufacturer
  • India
  • Consumer Package Goods (CPG)
  • Underfollowed
  • Insider Ownership
 

Description

Amira Nature Foods-- ANFI ($8.09)

ANFI is a packager and seller of rice, primarily premium basmati rice (about 70% of volume). ANFI ages (this takes 12 months or so), processes, packages and sells the rice (it does everything but grow it).  The company sells its rice in 40 countries, using its own brand in 25.  This type of rice is only grown in one region in India/pakistan, so it is unlikely that a large amount of supply could come easily and quickly on the market from new areas of the world.

Recent revenue growth (over last 2-3 years) has been 25-30%.  In addition to forward revenue growth expected at a similar pace, margins will also improve through: 1) scale, 2) greater contribution from international sales which are higher margin and 3) the opening of a new distribution center which will double capacity and reduce the need to purchase some semi-finished product from other parties. 

Results from the recently reported September quarter were terrific with revenue exceeding analyst forecasts by 15-20% and eps of close to 2x the forecast.  Yet you would not know any of this from the stock chart, with the stock trading close to its low and 20% lower than its IPO price.  These kinds of situations always interest us:  here is a company which is off the radar, extremely cheap on an absolute basis, whose fundamentals are moving "up and to the right" (and above concensus), while its stock price has headed lower. 

The stock is now selling for less than 7x 2013 earnings and close to 5x 2014 eps.  This is a growth company, not a cyclical agricultural processor, management owns 75% of the stock, the category is growing close to 20% and the product the company sells is something of a staple which is unlikely to see a significant downtick in demand in a global recession scenario. 

I believe there are two reasons why this stock is so cheap:

1) confusion over whether this is a consumer product company (that could attract a mulitple similar to that of BNNY or HAIN) or an agricultural processor (which should be accorded a single digit multiple).  I believe this has caused the market to err on the side of caution regarding valuation.  What is being overlooked is that, unlike an agricultural processor, this company has great growth characteristics.  There are some headwinds on the valuation insofar as it is a single product company and it headquartered in Dubai, but I think a more reasonable valuation for this business is 15x-20x. 

2) the second reason the stock is so cheap is likely because the CFO resigned at about the time that the September results were announced.  The company has indicated that this was becaue of a medical problem.  While always concerning, given that 4 i-banks have recently (hopefully) scoured the financials, the debt refinancing will also mean the financials will be scoured, the new CFO seems to have a solid pedigree, and the significant insider ownership, we are not overly concerned. 

 

This appears to be a classic case where the perception, which is now indifferent/negative will likely gradually (or perhaps not-so-gradually) shift more positively (perhaps even picked up by the momentum crowd) as the company executes and the story gets out.  ANFI could easily be a 2-4 bagger over the next 18 months as this unfolds.  With management (principally the CEO) owning 75% of the stock, I believe they are aligned and intent on making this happen (as an aside the CEO did not sell shares in the IPO; the proceeds went all to the company).  I could see the stock easily trading at 15x 2014 eps of $1.60 or 3x the current price one year from now (note for 2014 eps, I am using my F2015 number as FY ends in March).  This is still a significant discount to the likes of BNNY, MKC & HAIN (which trade at 20-40x) and to its growth rate of 25-30%.

 

Upcoming catalysts:

1) Management has indicated it is currently looking to refinace its debt with an anticipated reduction of 300-400 basis points.  Here is what they said on the recent call regarding reducing the cost of debt:

"We hope to start working on that post this earnings release and hopefully announce some good news in the near future. Those numbers are not

modeled in, are not forecasted at this stage. At the time of the IPO, also, we said that this is additional upside to the investor. And with it, 3% to 4%

points benefit. That is substantial upside from an EPS perspective"

2) Management has indicated it will be presenting at several investor conferences over the next several months.

3) Potential to reduce tax rate.

4) Continued strong (above-concensus) results over the next several quarters, with strong revenue growth and expanding margins, all line items moving in the right direction and above concensus, and a dirt cheap valuation, should attract value and momentum investors alike.

 

Risks:

1) As mentioned, The CFO recently resigned.  While it is hard to say for certain that there was nothing else going on here, the new CFO has a solid background (Accenture and Yum Brands) and management continues to own a large percentage of the shares, without having monetized any holdings to-date. 

2) This is a one-product company (primarily), so any disruption in supply or export rules within India could be a material negative.

 

 

I do not hold a position of employment, directorship, or consultancy with the issuer.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

*ANFI will be refinancing its debt, which i believe will add about 10 cents per share to analyst numbers.  i think  an annoucement on this will occur within the next 1-3 months.
*management has indicated it will be participating in a number of invetsor conferences in the coming weeks/months.
*continued strong (above-concensus) results over the next several quarters.
*new processing facility currently being built will allow for a doubling of capacity and improve margins.  This will be complete in 2014.
*recent announcement of large order not fully factored into top-line, especially for 4Q (March)
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    Description

    Amira Nature Foods-- ANFI ($8.09)

    ANFI is a packager and seller of rice, primarily premium basmati rice (about 70% of volume). ANFI ages (this takes 12 months or so), processes, packages and sells the rice (it does everything but grow it).  The company sells its rice in 40 countries, using its own brand in 25.  This type of rice is only grown in one region in India/pakistan, so it is unlikely that a large amount of supply could come easily and quickly on the market from new areas of the world.

    Recent revenue growth (over last 2-3 years) has been 25-30%.  In addition to forward revenue growth expected at a similar pace, margins will also improve through: 1) scale, 2) greater contribution from international sales which are higher margin and 3) the opening of a new distribution center which will double capacity and reduce the need to purchase some semi-finished product from other parties. 

    Results from the recently reported September quarter were terrific with revenue exceeding analyst forecasts by 15-20% and eps of close to 2x the forecast.  Yet you would not know any of this from the stock chart, with the stock trading close to its low and 20% lower than its IPO price.  These kinds of situations always interest us:  here is a company which is off the radar, extremely cheap on an absolute basis, whose fundamentals are moving "up and to the right" (and above concensus), while its stock price has headed lower. 

    The stock is now selling for less than 7x 2013 earnings and close to 5x 2014 eps.  This is a growth company, not a cyclical agricultural processor, management owns 75% of the stock, the category is growing close to 20% and the product the company sells is something of a staple which is unlikely to see a significant downtick in demand in a global recession scenario. 

    I believe there are two reasons why this stock is so cheap:

    1) confusion over whether this is a consumer product company (that could attract a mulitple similar to that of BNNY or HAIN) or an agricultural processor (which should be accorded a single digit multiple).  I believe this has caused the market to err on the side of caution regarding valuation.  What is being overlooked is that, unlike an agricultural processor, this company has great growth characteristics.  There are some headwinds on the valuation insofar as it is a single product company and it headquartered in Dubai, but I think a more reasonable valuation for this business is 15x-20x. 

    2) the second reason the stock is so cheap is likely because the CFO resigned at about the time that the September results were announced.  The company has indicated that this was becaue of a medical problem.  While always concerning, given that 4 i-banks have recently (hopefully) scoured the financials, the debt refinancing will also mean the financials will be scoured, the new CFO seems to have a solid pedigree, and the significant insider ownership, we are not overly concerned. 

     

    This appears to be a classic case where the perception, which is now indifferent/negative will likely gradually (or perhaps not-so-gradually) shift more positively (perhaps even picked up by the momentum crowd) as the company executes and the story gets out.  ANFI could easily be a 2-4 bagger over the next 18 months as this unfolds.  With management (principally the CEO) owning 75% of the stock, I believe they are aligned and intent on making this happen (as an aside the CEO did not sell shares in the IPO; the proceeds went all to the company).  I could see the stock easily trading at 15x 2014 eps of $1.60 or 3x the current price one year from now (note for 2014 eps, I am using my F2015 number as FY ends in March).  This is still a significant discount to the likes of BNNY, MKC & HAIN (which trade at 20-40x) and to its growth rate of 25-30%.

     

    Upcoming catalysts:

    1) Management has indicated it is currently looking to refinace its debt with an anticipated reduction of 300-400 basis points.  Here is what they said on the recent call regarding reducing the cost of debt:

    "We hope to start working on that post this earnings release and hopefully announce some good news in the near future. Those numbers are not

    modeled in, are not forecasted at this stage. At the time of the IPO, also, we said that this is additional upside to the investor. And with it, 3% to 4%

    points benefit. That is substantial upside from an EPS perspective"

    2) Management has indicated it will be presenting at several investor conferences over the next several months.

    3) Potential to reduce tax rate.

    4) Continued strong (above-concensus) results over the next several quarters, with strong revenue growth and expanding margins, all line items moving in the right direction and above concensus, and a dirt cheap valuation, should attract value and momentum investors alike.

     

    Risks:

    1) As mentioned, The CFO recently resigned.  While it is hard to say for certain that there was nothing else going on here, the new CFO has a solid background (Accenture and Yum Brands) and management continues to own a large percentage of the shares, without having monetized any holdings to-date. 

    2) This is a one-product company (primarily), so any disruption in supply or export rules within India could be a material negative.

     

     

    I do not hold a position of employment, directorship, or consultancy with the issuer.
    I and/or others I advise hold a material investment in the issuer's securities.

    Catalyst

    *ANFI will be refinancing its debt, which i believe will add about 10 cents per share to analyst numbers.  i think  an annoucement on this will occur within the next 1-3 months.
    *management has indicated it will be participating in a number of invetsor conferences in the coming weeks/months.
    *continued strong (above-concensus) results over the next several quarters.
    *new processing facility currently being built will allow for a doubling of capacity and improve margins.  This will be complete in 2014.
    *recent announcement of large order not fully factored into top-line, especially for 4Q (March)

    Messages


    Subjectnet debt
    Entry12/13/2012 07:34 AM
    Memberlordbeaverbrook
    thanks for the idea.  you stated that net debt is $60MM...i calculated about $100MM more than this amount (am i missing something?)... thanks again...

    SubjectRE: net debt
    Entry12/13/2012 08:44 AM
    Memberotto695
    you are probably using the B/S form 9/30/12 which is not pro forma for the IPO, which ccured in early October.  If you refer to the pro forma B/S in the prospectus, you will see debt of about $91M and cash of about $32M.  They sold 9m shares at $10, so that accounts for roughly the $90-$100M difference.

    SubjectRE: RE: follow up
    Entry12/17/2012 07:40 AM
    MemberNovana
    Do we know who were the banks that god repaid with IPO proceeds? I noticed in the prospectus that the CEO gave personal guarantees on all outstanding bank debt so it would make a lot of sense for him to issue shares at virtually any price to repay all outstanding loans before personal loans were called. Otherwise I struggle to understand the rush of family business that existed for 100 years to go public at big discount to original valuation range.

    SubjectRE: RE: RE: RE: follow up
    Entry02/26/2013 12:59 PM
    MemberNovana
    Good question

    SubjectRE: RE: RE: RE: RE: RE: RE: RE: follow up
    Entry04/17/2013 11:22 AM
    Memberdanconia17
    it's really bizarre that two negative writeups were removed from VIC.  makes you wonder if the company somehow got access to it and threatened them or something.

    Subjectconspiracy theory!
    Entry04/17/2013 12:00 PM
    MemberUCB1868

    It is clear that Amira Nature Foods is protected by powerful forces. I can only speculate that the basmati rice market is under the clandestine control of the Mafia and / or Skull & Bones.


    SubjectAgain???
    Entry01/15/2014 10:56 PM
    Memberfizz808
    yet another ANFI short write up removed? This is getting a little ridiculous. Why is VIC bowing to the pressure??

    SubjectRE: Again???
    Entry01/16/2014 07:17 AM
    Memberzzz007
    Probably because they don't feel like paying lawyers to fight frivolous lawsuits.  Personally, I'd rather have them use the money to continue handing out the $5k prizes than to make a first amendment stand on behalf of one member.
     
    Or, maybe there really is something potentially libelous in the removed writeups.  Hard to know.

    SubjectRE: RE: RE: Again???
    Entry01/16/2014 09:35 AM
    Memberzzz007
    Well actually, yeah.  Why should VIC carry water on the legal side for an anonymous poster who is using their venue to drive profit for themselves?  VIC isn't the ACLU.  Any VIC member has the ability to climb out from under momma's skirt and post their ideas non-anonymously on sites like Seeking Alpha.  If freedom of speech is so important to them, they can bear the legal expenses themselves.

    SubjectRE: RE: RE: RE: RE: Again???
    Entry01/16/2014 12:12 PM
    Memberzzz007
    Did somebody post a comment stating that "VIC folks don't derive any finanical benefit from the site"?  I must have missed it.  Or maybe VIC removed it before I had a chance to read it.

    SubjectInteresting Write Up and Tilda?
    Entry02/12/2014 08:49 AM
    MemberMSLM28
    Anyone read the recent article on SA?" Seems rather compelling to me. As usual, sell-side appears asleep at the wheel. Any thoughts?
     
    http://seekingalpha.com/article/1964081-amira-nature-foods-an-overvalued-company-with-multiple-red-flags
     
    Also, I'm curious to hear the bull response or perception of the Hain's purchsae of Tilda at 9x.

    SubjectNew SA Article
    Entry05/15/2014 09:54 AM
    MemberMSLM28
    Anybody following this battleground name? Timing of debt refi remains troublsome
     
    This recent write-up was not us yet we found it instructive: http://seekingalpha.com/article/2214053-amira-nature-foods-new-risks-create-more-than-50-percent-downside
     

    Summary

    • Auditor resignation likely to delay refinancing and open up Company to potential restatements given possible new auditor scrutiny around multiple accounting irregularities.
    • Blatant misstatement in SEC filings.
    • Existence of undisclosed related party that might be used by ANFI to inflate margins and meet / beat Street estimates.
    • Financials disclosed to the Ministry of Corporate Affairs in India are significantly lower than those reported to the SEC.
    • Management appears to significantly inflate revenue from basmati rice exports.

    SubjectAmira - has anyone looked at this as a short?
    Entry02/05/2015 12:09 PM
    Membercan869

    They are in the market with a bond deal.  I've been going through their financials and there are a whole host of things which give me pause:

    1) host of related party transactions with CEO having direct ownership stakes in the Indian businesses where Amira's operations are housed

    2) part of the proceeds of the bond deal are being used to pay the CEO $30mm for land that he purchased privately in the last year or so

    3) company recently switched auditors from Grant Thornton to Deloitte after some sort of dispute with GT

    4) CFO of the company was a banker at Deutsche Bank, who is underwriting the bond deal.   He is the third CEO in ~2 years.

    5) Business seems to generate absolutely no cash flow and building massive amounts of inventory despite revenue and EBITDA growth

     


    SubjectRe: Re: Amira - has anyone looked at this as a short?
    Entry02/06/2015 08:34 AM
    MemberSiren81

    This is a TOTAL POS and mgmt is shady, but last time I checked cost to borrow was like 28%, so it wasnt that compelling of a short.


    SubjectRe: Re: RAGING Short
    Entry08/20/2015 11:33 AM
    MemberElmSt14

    I hope some people made money on this because I know too many (myself included) who thought it was a zero yet lost money shorting the stock.  Congrats to all who posted shorts and had them mysteriously taken down.

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