Amira Nature (ANFI) Breaks the Market Ceiling as Stock Rises 90%; Jefferies Shares Key Insights

Jefferies' Akshay Jagdale spotlights that even on a big leap following strong FQ3 earnings, ANFI marks a compelling buying opportunity for investors.

Amira Nature Foods Ltd (NYSE:ANFI) has rode the waves of quite a volatile year. Even with the stock on a mad dash up to the market ceiling today, the Indian specialty rice maker on this high has lost 40% in value against this time last year. Yet, today, all eyes are on a third fiscal quarter earnings show that sent investors buying and shares flying at a monster pace of 90%.

Jefferies analyst Akshay Jagdale cheers the surprisingly solid quarterly print that are a crucial indication of momentum in both revenue as well as EBITDA gains- both of which are key wins for the consumer player. Why? The analyst pinpoints that these fired-up gains translate to better industry operating conditions, which will bode well for ANFI. For a stock that before had not opted for quarterly reporting, the move is a reassuring one, says Jagdale, who argues that any “stock weakness” to put it bluntly is “unwarranted.”

In reaction, the analyst reiterates a Buy rating on ANFI stock with a $6 price target, which implies a close to 90% upside from current levels. (To watch Jagdale’s track record, click here)

“Competitors’ March quarter results point to a continued solid operating environment. KRBL, which is one of the largest Indian branded Basmati rice players, reported March quarter and FY18 results yesterday morning. We don’t cover the company but point out that their earnings presentation points to strong 18% y/y growth in EBITDA for the March quarter, which is a positive read-through for ANFI,” explains the analyst.

For the third fiscal quarter, ANFI posted 12% year-over-year growth in revenues to $161 million, compared to the analyst’s expectations for 11% growth, and quite a ramp up in growth against the 8.5% seen in the first half of fiscal 2018. Jagdale attributes the strength to a 27% year-over-year boost in rice sales, where the analyst had only been anticipating 2%, which was somewhat offset by a 65% dip in institutional sales. Adjusted EBITDA was also strong, soaring 18% year-over-year to $22 million, another impressive sequential performance against the 14% growth seen in the first half of fiscal 2018. Though revenue rose above the analyst’s expectations, EBIT and EBITDA each fell $1 million shy with EPS meeting expectations.

Liquidity trends are looking good for the company, continues Jagdale, who notes that growth opportunities down the line look positive thanks to a roughly 20% year-over-year lift in paddy costs and quantity of rice that subsequently drove up inventories. Free cash flow was negative to the tune of around $6 million for the quarter, stemming from an approximately $22 million boost in working capital, which is mostly attributed to a $70 million upturn in inventories, or 26% year-over-year growth. Between cash and ST deposits, the company circles $11 million in liquidity with most of its $345 million in inventory pointing to semi-finished rice that “if need be” could be put on the open market for sale. Trade receivables dipped 10% year-over-year even in face of an “extremely tight liquidity environment in India, which is encouraging,” the analyst commends.

In a nutshell, “Since yesterday morning, ANFI’s competitor (KRBL) reported March quarter results and ANFI positively surprised us by reporting December quarter results. ANFI’s Dec quarter results were generally in line but more importantly showed continued sequential acceleration in rev & EBITDA growth. We view both data points as incrementally positive. The stock is trading well below intrinsic value, which we view as a great buying opportunity,” contends Jagdale.

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