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    Hatsun Agro Q1 FY24 earnings call

    HATSUNGood
    Fast Moving Consumer Goods·20 Jul 2023
    Management Summary

    Hatsun Agro is undergoing a strategic transition, prioritizing high-margin branded consumer segments (ice cream, curd, milk) over its commodity business, which was hit by milk shortages. The company is executing a significant deleveraging plan, aiming to cut debt by two-thirds over two years using internal accruals and asset sales. Additionally, a shift from wind to solar energy is underway to better align power generation with peak summer demand periods.

    Highlights

    8

    • Revenue growth for Q1 FY24 was in the mid-single digits, impacted by a strategic curtailment of the commodity business.

    • Commodity business turnover saw a loss of approximately ₹200 crores due to milk shortages in the previous year.

    • Total debt stood at approximately ₹1,500 crores as of March 2023.

    • Company announced the sale of windmill assets for a consideration of ₹135 crores to pivot towards solar energy.

    • Management targets reducing total debt to less than ₹500 crores within the next two years.

    • Tamil Nadu's contribution to total business has decreased from 65-70% to 50%, showing successful geographic diversification.

    • Targeting double-digit revenue growth for the full year FY24 as milk supply situations improve.

    • Operating margins are targeted to improve by 150 basis points to reach the 12-13% range.

    What Changed3

    vs Q3 FY24

    Tone shiftStrong → GoodGuidance items5 → 4 (-1)Risks discussed2 → 3 (+1)

    Key financials

    Single quarter

    04 metrics
    1. 01Revenue Growth5%+5%YoY
    2. 02Total Debt₹1,500 Cr
    3. 03Windmill Sale Consideration₹135 Cr
    4. 04Tamil Nadu Revenue Share50%

    Segment breakdown

    Branded Consumer Business
    0 growth Performance
    Commodity Business
    ₹200 Cr Revenue Loss0 curtailed Status
    List

    Guidance & targets

    3
    CategoryTargetPriority
    Debt
    Total Debt
    < 500 crores
    		High
    Margin
    EBITDA Margin
    12-13%
    		Medium
    Capacity
    Solar Power Tie-up
    50 megawatts
    		High

    Risks & concerns

    5
    RiskSeverity

    Milk Availability Crisis

    Last year saw a crisis in milk availability which forced the company to curtail its commodity business. — Management acknowledged

    medium

    Energy Generation Mismatch

    Wind power generation is low in April/May when dairy demand peaks; shifting to solar to fix this mismatch. — Management acknowledged

    low

    Macroeconomic Uncertainties

    Mentioned potential for 'covid attack' or 'economic recession' as factors that could delay long-term targets. — Management acknowledged

    low

    Areas of Evasion(2)

    • Specific timeline for ₹10,000 crore revenue
    • Exact volume vs price growth split for the quarter

    Q&A highlights

    3

    “We have curtailed our business on the commodity where we sell almost 200 crores turnover that was possible we couldn’t do it and we focused on consumer businesses.”

    Explains why headline revenue growth was muted (mid-single digits) despite strong performance in core consumer brands.

    asked by CNBC TV18 Interviewer

    2 min read5 chapters

    Detailed Narrative

    01

    Strategic Pivot to Branded Consumer Goods

    Hatsun Agro is intentionally reducing its exposure to the volatile commodity dairy market, which saw a ₹200 crore turnover loss this quarter due to milk shortages. Management is focusing resources on high-margin branded segments like ice cream and curd, which are reportedly performing 'extremely well.' This shift is expected to drive a 150 basis point improvement in margins to reach 12-13% as the milk supply situation stabilizes.

    02

    Aggressive Deleveraging Roadmap

    The company plans to reduce its debt from ₹1,500 crores to under ₹500 crores within the next two years. This will be achieved through the sale of non-core assets, such as the ₹135 crore windmill sale, and utilizing high depreciation-linked cash flows. Management noted that major capacity building is largely complete, allowing for significant debt repayment from internal accruals.

    03

    Energy Infrastructure Optimization

    Hatsun is shifting its energy strategy from wind to solar to better match its operational needs. Wind power generation is historically low during the peak dairy demand months of April and May. By tying up 50 megawatts of solar power, the company aims to align power generation with the high-demand summer season, improving operational efficiency and cost-resilience.

    04

    Geographic Diversification Success

    The company has successfully reduced its dependence on the Tamil Nadu market, which previously accounted for 65-70% of revenue. Currently, Tamil Nadu contributes 50%, with the remaining 50% coming from other Southern states and Maharashtra. This diversification is seen as a key driver for the targeted double-digit revenue growth in FY24.

    05

    Capacity Ready for ₹10,000 Crore Milestone

    While management declined to provide a specific date for hitting ₹10,000 crores in revenue, they confirmed that the necessary production capacity is already in place. The focus remains on 'double digit' growth for the current fiscal year. The company is waiting for the 'turbulence' of recent milk shortages and macro volatility🌐 to settle before committing to more aggressive long-term margin or revenue targets.

    This is an AI-generated summary of a publicly available earnings call transcript.