Hindustan Foods Limited — Q3 FY25 earnings call

Call held 13 Feb 2025

Management summary

Hindustan Foods reported strong Q3 and Nine Months FY25 results, driven by strategic diversification into ice cream, footwear, OTC pharmaceuticals, and beverages. Management expressed confidence in achieving long-term financial targets, including an 18-20% ROE and significant contributions from new business verticals, despite acknowledging a persistent FMCG slowdown and initial learning curves in new segments. The company outlined substantial CAPEX plans to support future growth.

Highlights

  • Q3 FY25 Total Income increased by 21% to ₹886 crores YoY.

  • Q3 FY25 EBITDA grew by 37% to ₹79 crores YoY.

  • Q3 FY25 PAT increased by 30% to ₹29 crores YoY.

  • Nine Months FY25 Total Income rose 30% to ₹2,643 crores YoY.

  • Ice cream business expected to account for one third of gross block by FY '27, with stick manufacturing starting April 2025.

  • Shoe business projected to contribute 15-20% of turnover by FY '27.

  • Total CAPEX of over ₹1,800 crores expected by FY '27, targeting 18-20% ROE post-ramp up.

  • Net debt stood at approximately ₹650 crores as of Q3 FY25.

Key financials

3 periods

Q3

  • Total Income
    ₹886 Cr
    YoY +21%
  • EBITDA
    ₹79 Cr
    YoY +37%
  • PAT
    ₹29 Cr
    YoY +30%

Q3 end

  • Net Debt
    ₹650 Cr
  • Gross Block
    ₹1,330 Cr

9M

  • Total Income
    ₹2,643 Cr
    YoY +30%
  • EBITDA
    ₹227 Cr
    YoY +38%

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

Capacity

  • Ice Cream Sticks Manufacturing Commencement Capacity · April 2025 · High confidence April 2025
    our backward integration strategy with the commencement of ice cream sticks manufacturing in April 2025.

    — Sameer Kothari, Managing Director

Gross Block Contribution

  • Ice Cream Business Share Gross Block Contribution · FY '27 · High confidence one third
    the ice cream business will account for as much as one third of the gross block of the company by FY '27.

    — Sameer Kothari, Managing Director

Turnover Contribution

  • Shoe Business Share Turnover Contribution · FY '27 · High confidence 15% to 20%
    the shoe business should contribute as much as 15% to 20% of the turnover by FY '27.

    — Sameer Kothari, Managing Director

Production Commencement

  • OTC Division (New Customer) Production Commencement · Q1 FY '26 · High confidence Q1 FY '26
    anticipate the commencement of production by the first quarter of FY '26.

    — Ganesh Argekar, Executive Director

International Business

  • OTC Dispatches to Russia International Business · Q1 FY '26 · High confidence Q1 FY '26
    we expect to resume dispatches to Russia within the same time frame [Q1 FY '26].

    — Ganesh Argekar, Executive Director

Capex

  • Total CAPEX Capex · FY '27 · High confidence over ₹1,800 crores
    we will be around more than Rs. 1,800 crores CAPEX, right.

    — Mayank Samdani, Group Chief Financial Officer

  • Shoe Business New Project Investment Capex · next couple of years · Medium confidence ₹50 crores
    this Rs. 50 crores number is what we expect to invest in the next couple of years. We do not expect that that investment will happen at one go.

    — Sameer Kothari, Managing Director

  • Beverages CAPEX Capex · next one and a half years · High confidence ₹40 crores (beverages) and ₹35 crores (bottling plant)
    there is a beverages Rs. 15 crores project timeline around that, color cosmetics Rs. 40 crores, and bottling plant of Rs. 35 crores, then as well as Baddi would it be within next one and a half years or would be beyond that?

    — Priyank, Vallum Capital (reconfirming management's prior statement)

Profitability

  • Return on Equity (ROE) Profitability · FY '27 · High confidence 18% to 20%
    we expect that long term ROE expectation of between 18% to 20% posted... we will be able to post these kinds of 18% to 20% ROE numbers.

    — Mayank Samdani, Group Chief Financial Officer

Efficiency

  • Asset Turns Efficiency · post-CAPEX ramp-up · High confidence three
    we are confident that we will be around three asset turns going forward when our all these CAPEX will start delivering and ramp up fully, right.

    — Mayank Samdani, Group Chief Financial Officer

  • Shoe Business Asset Turns Efficiency · long term · Medium confidence 5x to 7x
    asset turns in case of shoes should be between 5x and 7x as opposed to, let's say, an ice cream where it is maybe 1.5x to 2x.

    — Sameer Kothari, Managing Director

Market context

  • Shoe Business PAT Profitability · starting this quarter and next · High confidence positive
    we expect that starting from this quarter and next, the shoe business should also start becoming positive.

    — Sameer Kothari, Managing Director

Risks & concerns

  • Counterparty Risk

    medium

    Company is exposed to counterparty risk from customers despite mitigation efforts like contractual agreements and security deposits.

    Management acknowledged

  • FMCG Sector Slowdown

    medium

    Persistent slowdown in the FMCG sector, though management focuses on internal strategies to mitigate its impact.

    Management acknowledged

  • Learning Curve and Gestation Period for New Businesses

    low

    New segments like Baddi OTC and shoe business have taken longer to settle and ramp up, impacting initial performance.

    Management acknowledged

Areas of evasion (1)

  • Segmental revenue and margin breakdowns

Q&A highlights

2 direct, 1 evasive
Capital Turns and ROE targets post-CAPEX Direct
we are confident that we will be around three asset turns going forward when our all these CAPEX will start delivering and ramp up fully... we expect that long term ROE expectation of between 18% to 20% posted.

Clarifies the company's long-term financial efficiency and profitability targets after significant capital expenditure.

Asked by Mayur Parkeria

Segmental Revenue/Margin Breakup Evasive
it is very hard to give the segmental revenue right now, because we do not look at, we are not looking at these parameters... for us it is the only segment as a contract manufacturer.

Highlights management's reluctance to provide segment-wise financial data, limiting investor visibility into the performance of diverse business verticals.

Asked by Mayur Parkeria, Ritwik Rewadia, Priyank

Footwear Business Outlook and CAPEX Direct
we are extremely bullish about the footwear segment... we see a lot of import substitution, we see a lot of Make in India story... we already announced the capacity addition in Karnataka, and we have already announced the earlier capacity addition which was happening in Chennai, etc.

Provides strategic insights into a key growth segment, including market tailwinds, expansion plans, and investment rationale.

Asked by Rohit Mehra, Akhil Parekh

3 min read 7 chapters

Detailed narrative

Q3 & Nine Months FY25 Performance Overview

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.

Strategic Diversification & Growth Drivers

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.

Ice Cream Business Expansion

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.

Footwear Segment Potential

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.

OTC Pharma & Beverages Progress

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.

Capital Allocation & Financial Targets

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 & Debt Management

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.

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