Hindustan Foods Limited — Q2 FY25 earnings call

Call held 13 Nov 2024

Management summary

Hindustan Foods reported robust top-line growth in Q2 and H1 FY25, driven by the expansion of its shoe business and scaling of the OTC Health and Wellness factory in Baddi. While revenues increased smartly, overall profitability was flat due to additional costs associated with the integration of the shoe business. The company is actively diversifying into high-growth avenues like ice cream, beverages, and footwear, with significant capex planned for new facilities and capacity expansions, aiming for a gross block of over ₹1,800 crores by FY26.

Highlights

  • H1 FY25 Total Income reached ₹1,757 crores, marking a 35.4% increase YoY.

  • H1 FY25 EBITDA stood at ₹148 crores, up 36.6% YoY.

  • H1 FY25 PBT increased by 12% YoY to ₹68 crores.

  • Q2 FY25 Total Income grew 31% YoY to ₹886 crores.

  • Q2 FY25 EBITDA was ₹72.6 crores, a 30.7% increase YoY.

  • Q2 FY25 PBT saw an approximate 2% increase YoY to ₹31.8 crores.

  • Integration of the shoe business incurred additional costs of ₹6-7 crores in H1 FY25, impacting profitability.

  • Total investment in ice cream facilities is projected to exceed ₹600 crores across three factories, with a gross block target of over ₹1,800 crores by FY26.

Concerns

  • Additional costs from shoe business integration

Key financials

2 periods

Q2 FY25

  • Total Income
    ₹886 Cr
    YoY +31%
  • EBITDA
    ₹72.6 Cr
    YoY +30.7%
  • PBT
    ₹31.8 Cr
    YoY +2%

H1 FY25

  • Total Income
    ₹1,757 Cr
    YoY +35.4%
  • EBITDA
    ₹148 Cr
    YoY +36.6%
  • PBT
    ₹68 Cr
    YoY +12%

What they filed

Q1 FY27: revenue up 17.9%, net profit up 34.4% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue883 880 959 1,019 1,039 +18%1,044 +19%1,117 +16%1,201 +18%
EBITDA70 73 78 81 86 +23%95 +30%100 +28%100 +23%
Net profit23 29 32 32 35 +52%39 +34%42 +31%43 +34%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Guidance & targets

Capex

  • Ice Cream Plant (Nashik) Total Capex Capex · Ongoing · High confidence ₹185 crores
    The total capex for this site is now estimated to be INR185 crores, and the commercialization is expected in April 2025.

    — Ganesh Argekar, Executive Director

  • Ice Cream Plant (Lucknow) Capacity Expansion Capex Capex · Ongoing · High confidence ₹20 crores
    capacity at the ice cream plant in Lucknow with a capex of around INR20 crores is in progress and will be completed before February '25.

    — Mayank Samdani, Group Chief Financial Officer

  • North India Greenfield Ice Cream Plant Investment Capex · in phases · High confidence ₹225 crores
    This will envisage an investment of INR225 crores in phases.

    — Mayank Samdani, Group Chief Financial Officer

  • Beverage Capacity Expansion (Mysuru) Capex Capex · Ongoing · High confidence ₹15 crores
    the Board has sanctioned a further capex of INR15 crores to expand our capacity at our Mysuru plant.

    — Mayank Samdani, Group Chief Financial Officer

  • Colour Cosmetics Facility (Silvassa) Land Acquisition Capex Capex · Completed · High confidence ₹40 crores
    The land acquisition for the Colour Cosmetics facility at Silvassa has been completed with a capex of INR40 crores.

    — Mayank Samdani, Group Chief Financial Officer

  • Mineral Water Bottling Company Acquisition (Orissa) Investment Capex · Ongoing · High confidence up to ₹35 crores
    The board has sanctioned an investment of up to INR35 crores to acquire a company based in Orissa for bottling mineral water for a multinational company.

    — Mayank Samdani, Group Chief Financial Officer

Capacity

  • Ice Cream Plant (Nashik) Initial Capacity Capacity · First day of commercialization · High confidence 12,500 liters
    The estimated capacity in the first day will be 12,500 litons of ice cream, which would have various formats of party packs, sticks, cups and cones.

    — Ganesh Argekar, Executive Director

  • Beverage Capacity Increase (Mysuru) Capacity · Ongoing · High confidence over 30%
    This will increase our capacity by over 30% from manufacturing and filling up beverages.

    — Mayank Samdani, Group Chief Financial Officer

Commercialization

  • Ice Cream Plant (Nashik) Commercialization Commercialization · April 2025 · High confidence April 2025
    The total capex for this site is now estimated to be INR185 crores, and the commercialization is expected in April 2025.

    — Ganesh Argekar, Executive Director

  • North India Greenfield Ice Cream Plant Commercial Production Commercialization · 2026 · High confidence ice cream season starting 2026
    and we are targeting to start commercial production for ice cream season starting 2026.

    — Mayank Samdani, Group Chief Financial Officer

  • Hyderabad HPC Brownfield Expansion Commercialization Commercialization · CY25 · High confidence May or June latest of CY '25
    We are hoping that we get commercialized by May or June latest of CY '25.

    — Sameer Kothari, Managing Director

Completion

  • Ice Cream Plant (Lucknow) Capacity Expansion Completion Completion · February 2025 · High confidence before February '25
    capacity at the ice cream plant in Lucknow with a capex of around INR20 crores is in progress and will be completed before February '25.

    — Mayank Samdani, Group Chief Financial Officer

Gross Block

  • Total Gross Block Gross Block · FY26 · High confidence ₹1,800-2,000 crores

    Previously over ₹1,800 crores → ₹1,800-2,000 crores

    And at the end of FY '26 we expect the gross block to be around INR1,800 crores to INR1,800 crores to INR2,000 crores.

    — Sameer Kothari, Managing Director

Equity

  • Total Equity Equity · FY26 · High confidence ₹1,000 crores
    We expect that there to be about INR1,000 crores and the equity to be about INR1,000 crores.

    — Sameer Kothari, Managing Director

Profitability

  • Shoe Business Profitability Profitability · Future · Medium confidence similar to contract manufacturing business
    Our expectation is it's going to be very similar to the contract manufacturing business.

    — Sameer Kothari, Managing Director

Debt

  • Debt-Equity Ratio for New Capex Debt · Next 2 years · High confidence 1:1
    it will be a mix of debt and equity of 1:1 because as you rightly indicated that we have the warrants money to come in around INR250 crores. And is, if we take the 1:1 leverage also, it will help us in getting the capex, which we are advertising right now.

    — Mayank Samdani, Group Chief Financial Officer

Risks & concerns

  • Additional costs from shoe business integration

    high

    The integration of the shoe business introduced additional costs of ₹6-7 crores in H1 FY25, affecting overall EBITDA and profitability.

    Management acknowledged

  • Subdued consumer demand in FMCG sector

    medium

    The FMCG sector continues to contend with challenges stemming from subdued consumer demand, though HFL's dedicated business model provides stability.

    Management acknowledged

  • Operational inefficiencies and working capital needs in shoe business

    medium

    Operational issues in North factories (materials, stock availability) and working capital needs for the fully integrated shoe business are being addressed.

    Management acknowledged

  • Inflationary environment impacting commodity prices

    medium

    Commodity prices have risen, with some items up by 20-25% in the last year, which can impact gross margins, though dedicated manufacturing has a pass-through model.

    Management acknowledged

Areas of evasion (1)

  • Specific margin profile for the shoe business in the short term

Q&A highlights

3 direct
Footwear division ramp-up and profitability Direct
So Faisal, as far as the footwear business is concerned, you are aware that we acquired a going concern. The going concern already had some of the major leading multinational brands as customers. We actually have inherited an excellent plan roster from the previous customers, and we continue building on that. From that perspective and because of various tailwinds that we've mentioned earlier, including BIS, import duties, etcetera. Demand generation is not a problem as far as the shoe industry is concerned.

Analyst questioned the progress and capacity utilization of the footwear business, which is a new segment. Management clarified that demand is strong, focus is on integration and efficiency, and Baddi facility approvals are mostly through.

Asked by Faisal Hawa

Quantum of shoe business integration costs and timeline for profitability Direct
So on a very broad basis, Nitesh, the cost indication cost is what we could have better is around INR6 crores to INR7 crores for H1 total H1, right? ... So the expectation is as soon as possible. However, there are a couple of operational things which are going on in the North factories Ganesh and team are trying to get the efficiencies in terms of materials, stock availability.

Analyst sought specific financial impact of integration costs and timeline for the shoe business to turn profitable. Management provided a clear cost figure for H1 and explained operational challenges delaying immediate profitability.

Asked by Nitish Rege

Total investment in ice cream and asset turnover expectations Direct
Priyank, that overall will go beyond INR400, INR500 because we have already invested INR250 crores in Lucknow. We are talking of investing around INR400 crores more in these 2 factories. So it will be upwards of INR600 crores when the entire 3 factories entire ramped up and all the investment is done. ... No. Unfortunately, ice cream asset turns are a little lower than the average of us because the investment size is more. So it will go around it will it will be between 2 to 2.5x asset turns in the ice cream.

Analyst inquired about the significant capital allocation to the ice cream segment and its expected asset efficiency. Management provided a comprehensive total investment figure and corrected the analyst's higher asset turnover expectation.

Asked by Priyank Chheda

3 min read 6 chapters

Detailed narrative

Robust Top-line Growth Despite FMCG Headwinds

Hindustan Foods delivered strong top-line performance in H1 FY25, with total income growing 35.4% YoY to ₹1,757 crores. Q2 FY25 also saw a 31% YoY increase in total income to ₹886 crores. This growth was primarily fueled by the expansion of the shoe business and the operational scaling of the OTC Health and Wellness factory in Baddi. Despite a subdued consumer demand environment in the broader FMCG sector, the company's dedicated business model provided financial stability.

Profitability Impacted by Shoe Business Integration Costs

While revenue growth was strong, overall profitability remained relatively flat. H1 FY25 EBITDA increased 36.6% YoY to ₹148 crores, and Q2 FY25 EBITDA rose 30.7% YoY to ₹72.6 crores. However, PBT growth was more modest, up 12% YoY to ₹68 crores for H1 and only 2% YoY to ₹31.8 crores for Q2. This was attributed to additional costs of ₹6-7 crores incurred in H1 FY25 for the integration of the newly acquired shoe business, as the company focuses on aligning new operations and achieving synergy.

Aggressive Expansion in Ice Cream Manufacturing

HFL is making significant strides in the ice cream segment, with plans for substantial investments. The Nashik plant's total capex is estimated at ₹185 crores, with commercialization expected by April 2025 and an initial capacity of 12,500 liters per day. An additional ₹20 crores is being invested in Lucknow for capacity expansion, to be completed by February 2025. Furthermore, a new greenfield plant in North India is sanctioned with an investment of ₹225 crores in phases, targeting commercial production by the ice cream season of 2026, bringing total ice cream investment to over ₹600 crores.

Diversification into Footwear and Other Categories

The entry into the footwear segment is a key diversification strategy. The acquired shoe business, already serving major multinational brands, is expected to ramp up its South capacity by Q4 FY25. While integration costs have impacted short-term profitability, management is bullish on the sector's long-term growth, expecting profitability similar to its contract manufacturing business. Other strategic moves include a ₹15 crore capex to expand beverage capacity at the Mysuru plant by over 30%, completion of land acquisition for a ₹40 crore colour cosmetics facility in Silvassa, and an investment of up to ₹35 crores to acquire a mineral water bottling company in Orissa.

Capital Allocation and Funding Strategy

The company aims to increase its gross block to ₹1,800-2,000 crores by FY26, with equity expected to be around ₹1,000 crores. The new capex of approximately ₹550 crores will be funded through a mix of debt and equity, maintaining a 1:1 debt-to-equity ratio. This includes utilizing the remaining ₹250 crores from warrants money. As of September 30, 2024, the company's net worth stood at ₹705 crores, gross block at ₹1,238 crores, and debt-to-equity ratio at 1.03%.

Outlook on Margins and Operational Efficiencies

Management clarified that gross margins for dedicated manufacturing sites are stable due to a pass-through model for commodity price inflation. However, the margin profile for the shoe business is still being assessed, with initial integration costs impacting overall EBITDA. The focus remains on driving efficiencies and ramping up capacities in the shoe business, particularly in the South, to improve profitability. The company expects to start disclosing more granular data on the shoe business's top-line and margins in future calls.

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