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ICICI Securities
Hatsun Agro (Hold)
Target: ₹830
CMP: ₹804.10
Three pointers from Q2-FY21: dairy business reported low single-digit revenue growth led by procurement growth in mid single-digit; the fall in milk procurement prices will likely lead to life-high gross and EBITDA margins in FY21; and Hatsun managed to stabilise volumes despite multiple challenges such as lockdown and volatile procurement prices. Considering the carryover effect of price hikes in FY20, we believe volumes were flattish during the quarter.
We model Hatsun to report an earnings CAGR of 56.5 per cent over FY20-FY22 with: high single-digit growth in milk procurement; lower milk procurement prices due to lower offtake by HoReCa and commencement of flush season; and commencement of three plants in FY21.
With the onset of festive season and opening up of the HoReCa channel, demand for value-added products such as ice cream will likely recover in H2FY21.
While we remain structurally positive on the company, the stock price upside is capped at current valuations.
Retain Hold with a DCF-based target price of ₹830 implying P/E of 49x FY22 (earlier target price: ₹650).
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