Hindustan Foods

Hindustan Foods reported a robust Q3 FY25, with total income growing 21% YoY to ₹886 crores. EBITDA increased by 37% to ₹79 crores, and PAT saw a 30% rise to ₹29 crores. For the nine months of FY25, total income was up 30% to ₹2,643 crores, with EBITDA growing 38% to ₹227 crores. The company's gross block expanded from ₹1,238 crores to ₹1,330 crores, reflecting ongoing capital expenditure, and net debt stood at approximately ₹650 crores at the end of Q3.

The company's diversification strategy into various product categories, including ice creams, OTC pharmaceuticals, beverages, and footwear, is beginning to yield promising results. Management highlighted that these strategic decisions are helping the company navigate the current FMCG slowdown. They expressed optimism that the business profile will significantly transform over the next two to three years, driven by these new segments.

The ice cream business is showing strong momentum, with the company preparing for the upcoming season. A greenfield project in Nashik is progressing, and another is planned for the North. Backward integration for ice cream sticks manufacturing is set to commence in April 2025. These additions are expected to make the ice cream business account for as much as one third of the company's gross block by FY '27, underscoring its strategic importance.

Hindustan Foods is highly bullish on the footwear segment, anticipating it will contribute 15% to 20% of the turnover by FY '27. The company sees strong tailwinds from import substitution and the 'Make in India' initiative. Operational improvements in existing factories and the ramp-up of the new southern facilities are underway, with a new Karnataka factory expected to reach full capacity by March. The shoe business is projected to become PAT positive starting this quarter and next.

The OTC division in Baddi has successfully scaled up operations, securing an additional customer with production anticipated to start by Q1 FY '26. Dispatches to Russia are also expected to resume within the same timeframe. In the beverage division, the company has commenced production of DOY packs for an existing client and seamlessly integrated the newly acquired bottled-water plant in Odisha, reinforcing its capabilities in this segment.

The company plans a total CAPEX of over ₹1,800 crores by FY '27, primarily for greenfield projects. Management is confident in achieving around three asset turns and a long-term Return on Equity (ROE) of 18% to 20% once these investments are fully operational and ramped up. They noted that current ROE is impacted by deployed capital awaiting full utilization.

Working capital requirements have increased, predominantly due to the shoe business, which has longer receivable days and higher inventory needs for raw and packing materials. The company is funding this through a mix of debt and equity, aiming to maintain a 1:1 debt-equity ratio. Management emphasized their objective to reduce working capital as much as possible, viewing investment in working capital as unproductive.