Hatsun Agro Q4 Review - Strong Volume Led Revenue Growth, Margin Tailwinds; Upgrade To Buy: ICICI Securities

ICICI Securities Report

Hatsun Agro Products Ltd. reported highest gross margins in past 10 quarters underlining the cyclical recovery in margins due to lower milk procurement prices.

We believe margins may expand even in FY25 as-

1. the company has accumulated large inventory of low priced skim milk powder at end of FY24. We model Hatsun to utilize it if milk procurement prices inch upwards,

2. higher utilisation of Govindapuram (Andhra Pradesh) and Solapur (Maharashtra) plants and

3. higher revenue share of ice cream.

Hatsun Agro has also introduced chocolates under the brands Hanobar and Havia in FY24. We believe success of chocolates will likely be margin and discounted cash flow accretive.

We remain positive on Hatsun due to competitive advantages such as established brands, distribution and direct milk procurement.

We marginally raise FY25E and FY26E earnings by 0.4% and 3.3%, respectively. With 10% stock price correction over past six months and earning tailwinds, we upgrade stock to Buy from Hold with a DCF-based target price of Rs 1,190 (implied price/earnings of 50 times FY26E; earlier target price: Rs 1,145).

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