Amira Foods (ANFI) is one of the biggest distributors and suppliers of Basmati rice around the world. Amira Foods has recently sold off to trade at an attractive price of around $13 a share. In a market where the average P/E for stocks is 16, Amira stands out with a Forward P/E at a bargain 8.46. What makes Amira Foods look even cheaper is the future growth prospects that Amira Foods has, highlighted by their low PEG ratio of 0.64. A PEG below 1 is an indicator that the firm is undervalued, while a figure over 1 would highlight Amira is overvalued based on its future growth potential.
Amira recently announced that a repeat customer from the EMEA markets signed a $90 million contract for the supply of rice. This is a positive for the company and its revenue figures going forward. This news may be good but I must point out 34.3% of Amira's total revenue comes from five of their top customers. This is a lower figure than the 46.6% they had from 5 customers in 2012 but 34.3% is still quite a high figure. The contracts they have with these suppliers are not long term supply contracts. That means that if a supplier decides to move to many of Amira's competitors, Amira's profitability could be significantly reduced going forward. This is one of the potential risks with owning the stock, but is somewhat mitigated by the fact the company is building up its brand around the world that should make such a move increasingly unlikely.
ANFI gets 40.9% of its revenue from Indian markets. The Indian stock markets have risen sharply as Modi has come into power in the country. His policies are seen as being more pro-business. I believe that this will have a positive effect on Amira's Indian sales figure going forward. Another positive is the recent deal they signed with Indian e-commerce website snapdeal.com, that has over 20 million users. This new form of distribution should increase their Indian sales going forward and lead to a higher EPS figure in the future.
ANFI has only made its presence known in the UK over the past year. In that time, it has managed to establish a foothold in 4 of the 5 largest food retailers in the UK, including Asda, Tesco and Morrisons. They recently signed a deal with Waitrose. I believe this highlights the potential for Amira Foods to establish itself in new countries and shows promising prospects for countries where it is not as developed. In my opinion, Amira Foods benefits from the large population of England that is of South-Asian origin. They are more likely to buy the rice products.
Amira Foods has a presence in 40 countries since it launched 6 years ago. It wants a presence in 70 countries within the next 5 years. Based on their success over the past 6 years it makes such a target seem reasonable. Countries that they would like to build a presence in include parts of Africa, Saudi Arabia and Jordan. I personally believe overseas expansion, like the pace of establishing itself in the UK, will lead to higher revenue figures in the future and ultimately a higher EPS. This will ultimately provide a catalyst for ANFI to trade at higher levels in the future.
Amira Foods is more than on target to meet its growth targets. Previously in 2015 they highlighted an aim of 20% revenue and EBITDA growth. They are now forecasting that revenue and EBITDA growth will be 25% in 2015.
The Chairman of Amira, Karan Chanana owns 75.3% of shares in the traded company on the NYSE. I like this arrangement, to me, this highlights that his personal interests are in line with shareholders in increasing the share price of the company.
The main negative for Amira is the large amount of debt that it carries. It has $184.8 million in debt. The interest is also at a floating rate so as interest rates in countries like the US go up, this will increase their financing costs going forward. The large amount of debt also means Amira will be vulnerable if there is an economic downturn. Amira Foods has an awfully low amount of cash for the amount of debt that it has. The large amount of debt may be in my opinion one of the reasons why the company is trading at a discount on metrics such as the P/E ratio. Amira Foods may be more expensive on other metrics such as the EV/EBITDA that takes into account the level of debt that Amira Foods has. With a large amount of debt you have to ask yourself, is a secondary offering from Amira Foods inevitable in the future? This would dilute the share count, reduce EPS and to me is one of the big potential risks in owning this current 'bargain stock.'
Overall, Amira Foods is a value stock in the current market that is worth holding on a long-term basis. This is mainly due to their low Forward P/E and expected growth around the world. They have revised their revenue figures higher for 2015 and I expect even more positive things for the company going forward.
