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ICICI Securities Report
Hatsun Agro Products Ltd. reported 10% revenue decline in Q1 FY21 and it was largely due to lower sales of ice cream. Adjusting for lower ice cream, we note the dairy (milk and curd) and cattle feed reported low single digit growth. Considering the carryover effect of price hikes in FY20, we believe the volumes would have declined 4-5%. As the company’s revenue contribution from business to business (B2B) customers and hotel restaurant and cafe (HoReCa) is negligible, there is limited impact of lockdown on Hatsun’s business.
We expect Hatsun to report profit after tax (PAT) compound annual growth rate (CAGR) of 46% over FY20-FY22E with return on equity (RoE) higher than cost of capital. Though we remain positive on the company’s business model due to the established moats and growth opportunities, we believe upside is limited at current valuations. Hence, we retain Hold with a discounted cash flow (DCF) based target price of Rs 650 (implied price to earning 43 times FY22E).
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