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    Hatsun Agro

    HATSUNGood
    Fast Moving Consumer Goods·20 Jul 2022
    Management Summary

    Hatsun Agro reported record quarterly revenue exceeding ₹2,000 crores, though profitability was hampered by peak raw material inflation. Management is optimistic about a margin recovery to 12-13% as input costs soften and recent price hikes (8-10% in ice cream) take effect. The company is aggressively pursuing geographic diversification through exports and non-South Indian markets while maintaining a high capex run rate.

    Highlights

    7

    • Quarterly revenue crossed ₹2,000 crores for the first time, making it the first private sector dairy company to reach this milestone.

    • Net profits declined by approximately 20% YoY due to raw material price pressures and peak inflation.

    • Management expects a 20% revenue growth for the full year, targeting a top line of approximately ₹7,500 crores.

    • Steady-state EBITDA margins are projected to return to 12-13% in the second half of the fiscal year.

    • Planned Capex for the current year is ₹450-500 crores, focused on capacity expansion and a new factory in Rajahmundry.

    • Export target set at 10% of total turnover by the end of FY24, expanding from current markets like Maldives and Singapore to 10 more countries.

    • Non-South market revenue share target of 20% expected to be achieved within 18 to 20 months.

    Concerns

    1

    • Raw Material Price Inflation

    What Changed1

    vs Q3 FY23

    Guidance items3 → 6 (+3)

    Key financials

    Single quarter

    04 metrics
    1. 01Revenue₹2,000 Cr
    2. 02Net Profit Growth-20%-20%YoY
    3. 03Ice Cream Revenue Share12.5%
    4. 04Capex (Previous Year)₹450 Cr

    Segment breakdown

    Ice Cream
    12.5% Revenue Share9% Price Increase
    Curd and Milk
    5% Historical Growth (2021)
    List

    Guidance & targets

    6
    CategoryTargetPriority
    Revenue
    Annual Revenue Growth
    20%
    		High
    Revenue
    Total Revenue
    ₹7,500 crores
    		High
    Margin
    Steady State EBITDA Margin
    12-13%
    		Medium
    Capex
    Annual Capex Spend
    ₹450-500 crores
    		High
    Other
    Export Revenue Share
    10%
    		Medium
    Market Share
    Non-South Revenue Contribution
    20%
    		Medium

    Risks & concerns

    4
    RiskSeverity

    Raw Material Price Inflation

    Management noted raw material prices have been at 'peak inflation', impacting current quarter margins. — Both acknowledged

    high

    GST on Curd

    The company is increasing curd prices to pass on the impact of GST. — Management acknowledged

    medium

    Seasonality and Covid Disruptions

    Management noted that unlike the previous two years, Covid did not affect summer sales this year. — Management downplayed

    low

    Areas of Evasion(1)

    • Specific market share numbers for Arun ice cream in the North were not provided, clarifying they mostly sell milk powder there.

    Q&A highlights

    3

    “Raw material is bound to come down... International auction 14 percent drop has been experienced in the last fortnight. So this will also percolate to India.”

    Explains the mechanism for margin recovery through both falling input costs and pricing power.

    asked by CNBC TV18 Interviewer

    1 min read4 chapters

    Detailed Narrative

    01

    Margin Stabilization Strategy

    Management attributes the recent margin decline to peak inflation in raw materials, which led to a 20% drop in net profits despite record revenues. To counter this, the company has implemented price hikes of 8-10% in ice cream and is passing on GST costs in the curd segment. They expect margins to stabilize at 12-13% in H2 FY23 as international raw material prices have already begun to soften, evidenced by a 14% drop in international auctions.

    02

    Aggressive Revenue and Capex Targets

    Hatsun Agro is targeting a 20% growth rate to reach a total revenue of approximately ₹7,500 crores for the full year. This growth is supported by a robust capex plan of ₹450-500 crores, which includes strengthening existing capacities and establishing a new factory in Rajahmundry. The company aims to capitalize on a 'normal' summer season following two years of Covid-related disruptions.

    03

    Geographic Diversification and Exports

    A key pillar of the company's long-term strategy is reducing dependence on the South Indian market. Management targets a 20% revenue contribution from 'Non-South' regions (West, East, and Central India) within the next 18-20 months. Additionally, they are scaling their export business, aiming for it to constitute 10% of total turnover by FY24 by expanding into 10 new countries, including Malaysia and Mauritius.

    04

    Ice Cream Segment Leadership

    The ice cream business, comprising the Arun and Ibaco brands, currently contributes 12-13% of total revenue. Management claims a top-two position in the national ice cream market alongside Amul and asserts they are number one if frozen desserts are included in the category. This segment is expected to be a primary driver of the targeted 20% overall growth.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.