Buy Hatsun Agro Products; target of Rs 1190: ICICI Securities

ICICI Securities research report on Hatsun Agro Products

Hatsun 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 SMP at end of FY24. We model Hatsun to utilize it if milk procurement prices inch upwards, (2) higher utilization of Govindapuram (AP) and Solapur (Maharashtra) plants and (3) higher revenue share of ice cream. The company has also introduced chocolates under the brands Hanobar and Havia in FY24. We believe success of chocolates will likely be margin and DCF 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.

Outlook

With 10% stock price correction over past six months and earning tailwinds, we upgrade stock to BUY from HOLD with a DCF-based TP of INR 1,190 (implied P/E of 50x FY26E; earlier TP: INR 1,145).

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Hatsun Agro Products - 23042024 - isc