Stock Update

Heritage Foods Limited

September 23, 2024
 Heritage Foods Limited

Industry LTP Recommendation Base Case Fair Value Bull Case Fair Value Time Horizon

Dairy Rs 599 Buy in Rs 588-614 band and add on dips in Rs 525-550 band Rs 655 Rs. 707 2-3 quarters

HDFC Scrip Code HERFOOEQNR Our Take:

BSE Code 519552 Betting big on the Value added products strategy, announces expansion in the ice cream business
NSE Code HERITGFOOD Over the last few years, Heritage Foods has identified a clear strategy to drive growth in its Value Added Products (VAP) (26.1% CAGR FY22-
Bloomberg HTFL IN
24) business to achieve its target of Rs 6000 cr in topline within the next 3 years and to sustain EBITDA margins in the high single digits by
CMP Sep 20, 2024 599
continuing to increasing VAP contribution in the overall mix (29.2% in FY24 v. 26.0% in FY22).
Equity Capital (Rs Cr) 46.4
Face Value (Rs) 5.0
In line with this strategy, the company recently announced expansion in the relatively under penetrated ice cream segment by setting up
Equity Share O/S (Cr) 9.3
Market Cap (Rs Cr) 5,555
a new ice cream manufacturing facility in its existing unit at Shamirpet, Telangana with a capital outlay of approximately Rs 204 cr. The
Book Value (Rs) 87.1 facility has a revenue potential of around Rs 650 – Rs 700 cr and it will take around 5-6 years to achieve full capacity utilization. The company
Avg. 52 Wk Volumes (‘000) 1,067 has already kick started proceedings on setting up the facility and expects to commission it by November 2025. The capex is expected to be
52 Week High 727 funded by a mix of debt and internal accruals.
52 Week Low 209
The company has initially forayed in the ice cream space in 2009 and the segment contributed around 9% to its value added dairy segment
Share holding Pattern % (Jun, 2024) in Q1FY25. Heritage clocked Rs 31 cr in ice cream revenue, at a run rate of Rs 110 – 120 cr annually. The company’s current facility has run
Promoters 41.3 out of capacity and hence it aims to grab a bigger piece of the ever-growing ice cream market in India. The ice cream market is relatively
Institutions 7.2 underpenetrated in India as compared to the overall Impulse retail space (Ice cream’s distribution outlets are only 10% of the overall Impulse
Non Institutions 51.5 retail distribution). With the increase in per capita income in the country, consumers are expected to increase discretionary spending,
Total 100.0 resulting in a rapid growth in impulse spending and hence driving sales in the categories such as ice cream and other value added dairies.
The company has launched several innovative products in the space and with the expansion in the ice cream space, it is well placed to
capitalize on this growth potential. However, in recent times there has been rapid rise in competition in the ice cream category with
Heritage’s peers also aggressively expanding in the space. We believe that the company needs to get its marketing and branding correct to
grab market share.

Overall, we expect the company to register mid-teens growth in the topline, in line with the management’s target, on the back of a good
* Refer at the end for explanation on Risk Ratings
flush season and a normal monsoon. Benign raw material price environment is expected to keep gross margins stable. Expectation of a good
festive season is expected to provide traction to its new launches under the ‘Heritage Truly Good’ brand.
Fundamental Research Analyst Darshil Shah
[email protected]
We had issued a stock note on Heritage Foods on January 08, 2024 and both our target were achieved within the investment horizon.
Heritage Foods Limited

Valuation & Recommendation:

In Q1FY25, the company continued on its trajectory of improving its topline with increasing share of VAP (41.5% of revenue) and benefitted
from moderation in procurement prices after unprecedented increase in the previous year. Margins improved on the back of improving
operating leverage and positive product mix. We believe that the company’s well-diversified product portfolio, deeply entrenched
distribution network, strong long-term relationships with farmers and focus on providing high quality premium products, enables it to
capitalize on the growing dairy industry in India.

The company has a strong balance sheet with low debt, improving margins and operating cash flows. While the EBITDA margins are
marginally lower than its closest peers, we believe that the stability in milk procurement prices on account of a normal monsoon and
expectation of a good flush season should help the company sustain margins in the liquid milk segment. This coupled with an increasing
share of the margin accretive value-added products, should drive margin expansion, going forward. Management has a long-term target of
Rs. 6,000 cr in revenue, with the share of VAP trending close to 35% - 40%. Also, it believes that it can sustain EBITDA margin in the range
of 8-9%.

We believe investors can buy the stock in Rs 588-614 band (23.0x FY26E EPS) and add on dips in Rs 525-550 (20.5x FY26E EPS) band for a
base case fair value of Rs 655 (25.0x FY26E EPS) and bull case fair value of Rs 707 (27.0x FY26E EPS) over the next 2-3 quarters.

Financial Summary:
Particulars (in Rs Cr) Q1FY25 Q1FY24 YoY-% Q4FY24 QoQ-% FY22 FY23 FY24 FY25E FY26E
Operating Income 1033 924 12% 951 9% 2,681 3,241 3,794 4,306 4,952
EBITDA 94 40 133% 71 32% 191 138 210 332 396
APAT 58 17 249% 40 44% 96 58 107 198 243
Diluted EPS (Rs) 6.3 1.8 250% 4.4 44% 10.6 6.3 11.5 21.3 26.2
RoE-% 15.4 8.4 13.9 22.2 22.5
P/E (x) 56.6 94.6 52.1 28.1 22.9
EV/EBITDA 28.6 40.7 25.8 16.4 13.6
(Source: Company, HDFC sec)
Heritage Foods Limited

Charts in Focus
Gradual improvement in milk procurement and milk sales’ volume High return VAP business to also augment margin profile

Milk Procurement and Sales (LLPD) VAP sales and contribution to total revenue
15.55 1,2 00

29.2% 35. 0%

14.3 26.5% 28.8%

12.2 12.2 24.6% 26.0%
23.6%
30. 0%

1,0 00

10.2 10.9 11.0

9.6 800
25. 0%

20. 0%

600

15. 0%

400

10. 0%

200

619 722 583 696 932 1,106

5.0 %

0 0.0 %

FY21 FY22 FY23 FY24

FY19 FY20 FY21 FY22 FY23 FY24

Milk Procurement Milk Sales VAP Sales (in Rs cr) % of total revenue

With milk procurement costs coming down, spreads have improved Resulting in improving gross margins

Spread (Rs/litre) Gross Margin

25.5%
13.73 24.0%
13.14
12.47
11.54 11.91
11.04 20.9%
10.22 20.1% 20.1%
19.5% 19.2% 18.9%
8.39 10.04 17.5%

Q1FY23 Q2FY23 Q3FY23 Q4FY23 Q1FY24 Q2FY24 Q3FY24 Q4FY24 Q1FY25 Q1FY23 Q2FY23 Q3FY23 Q4FY23 Q1FY24 Q2FY24 Q3FY24 Q4FY24 Q1FY25

(Source: Company, HDFC sec)

 Heritage Foods Limited

Q1FY25 Result Update

Heritage Foods delivered another stellar quarter of results with revenue from operations increasing by 11.8% YoY in Q1FY25. The ongoing moderation in milk procurement prices from the last 4
quarters, after peaking in Q1FY24, resulted in 634 bps YoY improvement in gross margins to 25.5% as compared to 19.2% in Q1FY24. EBITDA grew by 132.8% YoY on the back of increased sales
and improving operating leverage. APAT improved by 249.1% YoY to Rs 58.4 cr during the quarter. Milk/VAP/Fat products revenue grew by 4.7%/18.7%/49.5% YoY, respectively.

Milk Sales in Q1FY25 grew by 4.6% YoY in volume terms to 1.13 MLPD as against 1.08 MLPD in Q1FY24. Procurement grew by 6.6% YoY to 1.62 MLPD as against 1.52 MLPD in Q1FY24. Milk prices
continued to moderate after hitting a peak of Rs 44.55/ltr in Q1FY24 to Rs 41.10/ltr in Q1FY25. Resultantly, spread improved by ~369 bps in Q1FY25. Selling prices were flat YoY.

Within VAP, ice cream was the fastest growing product growing by 20.0% YoY growth in revenue backed by a strong 18%-19% growth in terms of volumes due to intense summer heat. However,
the southern part of India witnessed exceptionally high levels of rainfall in the second part of Q1, which impacted the ice-cream sales growth marginally. Curd witnessed 13% YoY increase in
volumes during the quarter. Overall VAP contribution to the company’s revenues improved 41.5% as compared to 38.6% in Q1FY24. Excluding ghee and butter, share of VAP stood at 37.5% in
Q1FY25 as against 35.3% in Q1FY24.

Summer launches included 3 new variants of Lassi – Sweet, Mango & Strawberry and 3 new variants of ball ice-creams under Alpenvie brand – Cotton Candy, Banana Strawberry and Bubble Gum.
Heritage also launched long shelf-life milk in UHT cartons of various sizes. Ahead of festive season, the company launched a range of healthy, yet indulgent range of Laddus under ‘Heritage Truly
Good’ brand in 3 variants – Ghee Besan, Ghee Jawar & Ghee Millet Laddu.

Heritage Nutrivet Limited, the Wholly Owned Subsidiary Company had a robust top-line growth of 29% YoY to Rs 42.2 cr and a growth of 363% YoY in bottom line to Rs. 2.92 cr. Heritage Novandie
Foods Private Limited, the Joint Venture Company reduced its losses by Rs. 0.23 cr YoY (Rs. 3.34 cr to Rs. 3.11 cr). The management expects strong growth in revenue and improvement in bottom
line for Novadine, going forward.

The management has alluded that the company has witnessed further reduction in procurement prices in Q2 by 0.47 paisa per litre and going forward, it expects procurement prices to remain
stable, with the expectation of a good flush season, starting October-November 2024. However, any further benefits in procurement prices in FY25, could likely be off-set by product mix as sales
of ice-cream and other such VAP products are expected to moderate during the festive season. Q1 witnessed price hikes from major dairy players like Amul and Mother Dairy, especially in the
northern part of the country, where milk prices were relatively subdued. But the southern part of the country has witnessed robust milk production since October 2023. Hence, with adequate
milk availability in these regions along with moderation in milk procurement prices, milk prices in these regions have remained stable and the management does not expect any further price hikes
in the near term.
 Heritage Foods Limited

Key Drivers
A well-diversified product portfolio with focus on product innovation
A strong brand in the dairy business, over the years HFL has created a well-diversified product portfolio by entering into various adjacent product categories to achieve its aim of providing high
quality dairy products to its consumer. The company’s product range now includes different types of milk, curd, buttermilk, butter, ghee, paneer and a variety of other value-added products
(VAP). HFL has strategically invested into a technologically advanced R&D infrastructure that focuses on not only stringent quality control measures but also product innovation.

In FY23, the company launched several new products in the ‘drinkable and ice cream’ category to further enrich its product portfolio. It has also entered into a 50:50 JV with Novadine, France in
2021 and launched a range of French yogurt to cater to the growing demand for fruit-based yogurt consumption in India.

A well-diversified product portfolio has also helped HFL mitigate the demand side fluctuations in the milk segment, resulting from sustained inflationary pressure on milk prices.

Growing AMD segment with a strong foothold in textiles Diversified yet complimentary businesses resulting in healthy return ratios

Share of various segments to total revenue

3.7% 3.8% 4.9% 3.6% 3.3% 4.3%

9.0% 5.4% 5.9% 5.2% 4.63% 8.03%

24.6% 26.5% 23.6% 26.0% 28.8%

29.2%

62.7% 64.4% 65.6% 65.2% 63.3% 58.5%

FY19 FY20 FY21 FY22 FY23 FY24

Milk Value added products Fat Products Others

(Source: Company, HDFC sec)

 Heritage Foods Limited

Increasing share of value-added products (VAP) to drive margin expansion:

The contribution of VAP such as curd, paneer, cheese, buttermilk, lassi, flavoured milk and ice cream to the company’s top line has increased from 24.6% in FY19 to 28.8% in FY23 further increased
to 29.2% in FY24. VAP share stood at 41.5% (including ghee and butter) in Q1FY25. This is one of the fastest growing segments for the company, registering a growth rate of 18.7% YoY in FY24
and further grew by 18.7% YoY in Q1FY25.

Overall, with a rise in consumer spending power, urbanization and increasing focus on health-conscious products, there has been a surge in demand for packaged value added products. These
products usually have marginal incremental cost, but much higher perceived value for the consumer, due to the special occasions in which it is consumed, the potential for differentiation and the
nutritional benefits it offers the consumers.

Thus, the VAP segment is not only the primary growth driver for the company but has also been margin accretive as these products command better realization as compared to liquid milk. The
company already has a strong distribution network and an omni-channel presence to capitalize on the shift of Indian dairy consuming households from unorganized to a relatively organized sector.

Increasing share of high margin VAT to propel future growth

VAP sales and contribution to total revenue

1,2 00
29.2% 35. 0%

28.8%
26.5% 26.0% 30. 0%

1,0 00

24.6% 23.6%
25. 0%

800

20. 0%

600

15. 0%

400

10. 0%

200

5.0 %

619 722 583 696 932 1,106

0 0.0 %

FY19 FY20 FY21 FY22 FY23 FY24

VAP Sales (in Rs cr) % of total revenue

(Source: Company, HDFC sec)

 Heritage Foods Limited

Omni-channel presence across the value chain and long-term relationships gives it a strategic advantage
HFL has created a strong presence across the milk value chain right from cattle feed and animal nutrition to an omni-channel sales network.

Milk Procurement – Raw milk is procured through the procurement operations spread 9 states. 99% of the milk was procured directly from farmers in FY24 as against 90% in FY20. The company
has built strong, long-lasting relationships with 3,00,000+ farmers and 11,300+ milk procurement representatives. to increase milk procurement while also investing in village level milk collection
infrastructure, bulk coolers, and chilling centres.

Milk Chilling Centres – HFL has continuously invested in increasing its milk chilling capacity from 188 chilling units in FY20 to 203 units in FY24. It boasted 24.0 lakh litre per day (LLPD) milk chilling
capacity per day as of June 30, 2024. It intends to increase its penetration in chilling centers, going forward. The raw chilled milk is then transported to the nearest processing plant through tankers
for onward processing into retail milk packages or to manufacture dairy based value-added products.

Dairy Processing - The company has 18 State-of-the-art milk processing facilities with a total processing capacity of 27.8 LLPD. The company has a strong R&D strategy and employs cutting-edge
technology for processing. The company has introduced fully automated processing lines with the processing infrastructure designed to ensure efficient operations and high product quality
standards.

Sale of Dairy & Value-Added Products – The company has adopted an omni-channel strategy and has a well standardized network of 237 Happiness Points, 850+ Parlours, 180,000+ retail trade
outlets, 27 modern retail chains and 16 E-commerce platforms. The company has also invested in various digital marketing initiatives to increase its consumer reach and strengthen the ‘Heritage’
brand.

Expansion into existing and new geographies to fuel growth

While HFL is a prominent player in the Southern Indian markets of Andhra Pradesh, Telangana, Karnataka and Tamil Nadu, it has expanded its sales presence across 12 states in India. The company
plans to penetrate deeper into metropolitan cities by expanding into several towns and semi-urban areas. HFL intends to leverage its strong distribution network to enter new geographies and
strengthen the existing ones through brand building activities.

Well placed to benefit from increasing demand of dairy products in the country
The rising income levels in India and focus on health consciousness has resulted in increase in demand for organized dairy products in India. The share of organized and branded players’
contribution to liquid milk consumption is estimated at around 40% currently which that of curd and paneer is much lower at 9% and 5%, respectively. This share is expected to increase further
with the consolidation of unorganized players in the industry.

Financial Summary:
HFL reported an overall strong FY24 with continued sales momentum resulting in 17.1% YoY growth in net sales to Rs 3794 cr in FY24 as compared to Rs 3239 cr in FY23. Share of milk/VAP/Fat products
in net sales stood at 58.5%/29.2%/8.0%, respectively. VAP sales witnessed a strong growth of 18.7% on a year-on-year basis. Value-added products contribution including consumer packed ghee and
 Heritage Foods Limited

butter stood at 33.5% for FY24 and at 29.63% without ghee in consumer pack and butter in consumer pack. The company continues to focus on increasing the share of higher margin VAP products
in its overall revenue mix, which is expected to drive margin expansion, going forward. The company has also strategically focused on its rapidly growing ice-cream business through new product
launches and increasing retail presence. HFL newly launched ice-cream variant- ‘Vibez’s’ is a testament to this strategy.

Average milk procurement during the year stood at 15.5 LLPD, whereas average milk sales came in at 11.0 LLPD in FY24. Milk procurement prices continued to decline after peaking at Rs 44.55/liter
in Q1FY24 to 41.7/liter in Q4FY24, resulting in improvement in gross margin by 146 bps to 20.7% in FY24. Average milk sales prices also remained robust at Rs 54.8/liter in Q4FY24 as compared to Rs
53.2/liter in Q4FY23. Curd sales during the year grew by 16% YoY to around Rs 820 cr. Owing to a good flush season, the company reported higher mix of fat sales 8.0% in FY24 as compared to 4.6%
in FY23. As milk procurement prices continue to decline and due to the company’s policy to not speculate on fat prices and sell the entire production, the company witnessed fat losses during the
year as it is sold a zero gross margin. However, the management expects limited losses from fat sales in FY25 as it now holds only one more month of fat inventory.

Heritage Nutrivet Ltd, HFL’s wholly owned subsidiary company had a robust top-line growth reaching Rs. 160.1 cr in FY24 (+50% YoY), with significant growth in bottom-line from Rs.1.6 cr to 7.4 cr
(up 360% YoY). Heritage Novandie Foods Private Limited, the Joint Venture Company has reduced the losses by Rs. 4.0 cr YoY (Rs.17.1 cr to Rs.13.1 cr) in FY24.

Risks & Concerns:

Competition pressure from unorganized players
Dairy sector has many small-scale unorganized players leading to fragmentation and inefficiencies. Non-profit Co-operative societies can sell dairy products including milk and milk products at lower
price due to absence of profit motive and subsidy received; hence they pose a competitive risk. However, the company has a strong brand recognition in key markets in South India and its products
caters well to the brand and health-conscious customers.

Perishable nature of products may result in logistical issues and supply chain disruptions
Due to their perishable nature, it is extremely difficult to maintain the freshness of dairy products. Milk supply improves in winter and monsoon while demand for curd rises in summer and that of
ghee in festive months. Dairy farmers often face logistical hassles that have an impact on the production and transportation of milk products. HFL has developed a wide spread pan-India distribution
and procurement network across various channels which helps it to effectively mitigate any temporary supply chain disruptions.

Climate changes induced production and price fluctuations

Unprecedented climate change like rainfall and heat may impact milk production which can result in price fluctuations. The company has actively invested in technology like “Glass-to-Glass”, a tech
enabled approach to maintain milk purity across the value chain. HFL is also dedicated to providing animal nutrition and farmers awareness to improve milk productivity and mitigate climatic changes.

Inflationary pressure on raw material prices

Milk procurement prices have been susceptible to double-digit rise due to high raw milk prices, resulting from increased cost of feed and fodder and supply chain disruptions resulting from global
macroeconomic headwinds. The company has taken commensurate price hikes as and when required which has been absorbed by the market given the company’s strong brand pull and superior
product quality. Skimmed milk powder globally remains volatile impacting export realisations of Indian players.
 Heritage Foods Limited

Industry Overview
Global
The global dairy industry is projected to register a CAGR of 5.79% between 2023-28E. Milk production in the European Union, the second largest milk producer, is projected to at a slower pace when
compared to the world average. Despite a slight surge in domestic milk production compared to the previous decade, China is anticipated to remain the world’s largest importer of milk products.
Over the next decade, the world’s per capita consumption of fresh dairy products is expected to grow by 1.4% per annum, slightly faster than the last decade due to higher per capita income growth.

Increasing share of high margin VAT to propel future growth

Global share in Production of Milk and Milk Products

(2023)

24.4%
32.7%

16.8%
3.9%
4.6%
6.8% 10.8%
India European Union USA Pakistan China Brazil RoW

(Source: Company, HDFC sec)

India
India is the largest milk producer in the world, contributing ~24% of global milk production. Milk production in the country is estimated as 230.58 million tonnes during 2022-23 registered a growth
of 5.7% CGAR over the last 10 years. Moreover, the per-capita availability of milk has increased from 303 gram/day in 2013-14 to 444 gram/day in 2021-22, nearly 1.5 times increase.
During 2022-23, Uttar Pradesh was the highest milk producing state with a share of 15.72 % of total milk production followed by Rajasthan (14.44 %), Madhya Pradesh (8.73 %), Gujarat (7.49 %), and
Andhra Pradesh (6.70 %). In terms of YoY annual growth rate (AGR), the highest AGR recorded by Karnataka (8.76%) followed by West Bengal (8.65%) and Uttar Pradesh (6.99%) over the previous
year. The Indian dairy industry is projected to achieve a market size of Rs 31.19 lakh cr, showcasing a CAGR growth rate of 13.2% from 2023 to 2028E.
 Heritage Foods Limited

Within the dairy industry, cheese market is expected to grow at the highest CAGR of 24.06% between 2023-28E, followed by the lassi market at 20.47% CAGR and ice cream market at 17.5% CAGR
during the same period. One of the primary factors driving the market is the rapidly increasing population and escalating demand for ready-to-eat (RTE) dairy products, such as butter, frozen desserts,
milk powder, and yogurt. Additionally, the increasing awareness among the masses about the health benefits of dairy products is creating a positive market outlook. Due to seasonality, capacities can
run at a maximum of 65-70% on an annual basis.

Milk production in India growing at a stable rate Improving per capita milk availability

Annual Milk Production with corresponding annual Per capita milk availabiltiy (gms/day)
growth rate
6.6% 4.3% 427 444
6.3% 6.3% 6.4% 6.5% 5.3% 406
250

5.7% 5.8% 7.0 %

375 394
337 355
322
6.0 %

4.0% 307
200

3.5% 5.0 %

290 299
150
4.0 %

3.0 %
100

2.0 %

132 138 146 155 165 176 188 198 210 221 231
50

1.0 %

0 0.0 %

Milk Production (Mn Tonnes) Annual Growth Rate

(Source: Company, HDFC sec)

Company Background
Founded by Mr. Nara Chandrababu Naidu in 1992, Heritage Foods Limited (HFL) is among the leading dairy companies in India, operating under 2 business divisions – Dairy and Renewable Energy
(primarily for captive consumption). With over 3 decades of experience in the dairy industry, the company offers a diverse range of products, including milk, value-added dairy and fat products. The
company operates across 18 milk processing facilities with a total processing capacity of 2.78 mn litres per day (MLPD) and has 203 Milk Chilling units with 2.40 MLPD milk chilling capacity.

HFL’s milk and milk products have a wide market presence across 12 states including Andhra Pradesh, Telangana, Karnataka, Kerala, Tamil Nadu, Maharashtra, and Odisha, among other states. The
company has an extensive distribution network spanning across 187 Happiness points, 850+ parlours, 180,000+ general retail trade outlets, 27 organized modern retail chains and 16 E-commerce
 Heritage Foods Limited

platforms, which helps strengthen the brand through its omni-channel presence.

On the procurement side, the company collects milk from more than 3,00,000 farmers, spread across 10,500 villages in 9 states. In FY24, Heritage opened 1,457 new village level milk procurement
centres, which brought in nearly 3 lakh+ litres of additional raw milk daily. The company also is also present in Livestock feed and feed supplements through its subsidiary Heritage Nutrivet Limited.

HFL’s product portfolio

Milk
The company sells 3 types of milk – fresh milk, A2 milk and ultra-high temperature (UHT) milk. Fresh milk is the most consumed product in India with its demand on the rise in India with increasing
health consciousness, dietary needs and living standards in India. A2 milk is 100% buffalo milk with full cream and UHT is can be stored at room temperature and has a long shelf life.

Value added products

The company sells a variety of products under the gambit of ‘Value added products’ (VAP). These include curd, paneer, cheese, buttermilk, flavoured milk, milk shake, sweets, lassi and ice cream/frozen
desserts. Curd contributes majority of the segment revenue whereas ice cream/frozen dessert category has grown the fastest in FY24.

Fat Products
The fat products portfolio of the company consists of Ghee, Butter and Cream. Fat products contributed 8% to the company’s revenue in FY24 and ~5% in Q1FY25.

Renewable Energy Vertical

The company generated 11.7 MW of renewable energy in FY24. Of this, 6.3 MW was through wind power plants and 5.4 MW was through solar power plants. The renewable energy generated by the
company is primarily for captive consumption.

Ancillary Business Segments – Feed and Yogurt

Heritage Nutravet Limited (HNL)
HNL is a wholly owned subsidiary of HFL, engaged in providing animal nutrition through livestock feed and feed supplements. The products of HNL are designed to serve a variety of animal needs. It
offers technical support and raises awareness among dairy farmers about improving milk productivity and profitability.

Heritage Novandie Foods Private Limited (HNFPL)

Incorporated in 2021, HNFPL is a 50:50 JV between HFL and Novadine, France to manufacture and market various types of yoghurt in the country. The company to capture the Indian yogurt market
with its fruit-based yogurt and aims to have a strong presence across 8-10 key cities in the next 2 years.
 Heritage Foods Limited

HFL Milk product portfolio Value added product portfolio

(Source: Company, HDFC sec)

HFL Fat product portfolio Feed Sales

Feed Sales (in Rs cr)

160.1
121.5
103.9 106.9
94.6
73.8

FY19 FY20 FY21 FY22 FY23 FY24

(Source: Company, HDFC sec)

 Heritage Foods Limited

Management Overview

Management Overview

Name Designation Description

Vice Chairperson/ She joined the company in 1994 as a Whole-time Director. She has been successfully steering Heritage Foods towards growth and
Mrs. Bhuvaneswari Nara
Managing Director prosperity. She holds a Bachelor’s degree in Arts and is a dynamic leader and has extensive experience in the business

She joined Heritage Foods in 2011 as Vice President Business Development and since 2013 onwards she is serving as the Executive
Mrs. Brahmani Nara Executive Director Director. She holds a Master’s degree in Business Administration from Stanford University and a Bachelor’s degree in Electrical Engineering
from Santa Clara University, California, USA.
Mr. Srideep is a seasoned professional having a diversified and rich experience of more than two decades in Business Leadership roles and
Mr. Srideep Kesavan CEO has deep domain expertise across Sales & Distribution, Marketing, Category Management, P&L, and General Management in Beverages,
Food & Agribusiness Organizations

Has been associated with the Heritage Foods since inception. He is a Fellow Member of the Institute of Chartered Accountants of India
A. Prabhakara Naidu CFO
and has 26 years of experience in finance and accounts

(Source: Company, HDFC sec)

Peer Comparison:
HFL has the lowest margins among the peers as Hatsun is more urban centric and has a large proportion of ice cream sales; Dodla has a higher percent of procurement from Karnataka, where
the State Govt gives subsidy on milk procured and Dodla has profitable overseas operations in Africa.

Mcap Revenue EBITDA Margin PAT P/E (x)

Company
(Rs cr) FY23 FY24 FY25E FY26E FY23 FY24 FY25E FY26E FY23 FY24 FY25E FY26E FY23 FY24 FY25E FY26E
Heritage Foods 5555 3241 3794 4306 4952 4.3 5.5 8.0 8.7 58 107 198 243 94.7 52.2 28.1 22.9
Hatsun Agro 26730 7228 7975 9104 10385 9.7 11.1 11.8 11.7 161 247 415 549 163.7 109.3 72.3 55.8
Dodla Dairy 7287 2812 3125 3485 3938 6.8 9.2 9.5 1.0 122 167 199 243 58.8 43.1 36.1 29.6

(Source: Company, HDFC sec)

 Heritage Foods Limited

Financials
Income Statement Balance Sheet
Particulars (in Rs Cr) FY22 FY23 FY24 FY25E FY26E Particulars (in Rs Cr) - As at March FY22 FY23 FY24 FY25E FY26E
Net Revenues 2681 3241 3794 4306 4952 SOURCE OF FUNDS
Growth (%) 8.4 20.9 17.1 13.5 15.0 Share Capital 23 46.4 46 46 46
Operating Expenses 2490 3102 3584 3975 4556 Reserves 634 679 762 927 1133
EBITDA 191 138 210 332 396 Shareholders' Funds 658 726 808 974 1179
Growth (%) -29.5 -27.6 51.8 57.7 19.5 Minority Interest 0 0 0 0 0
EBITDA Margin (%) 7.1 4.3 5.5 7.7 8.0 Total Debt 19 168 132 172 187
Depreciation 52 56 61 67 77 Net Deferred Taxes 24 25 26 26 26
Other Income 11 12 12 15 22 Total Sources of Funds 701 919 966 1172 1393
EBIT 150 94 161 279 341 APPLICATION OF FUNDS
Interest expenses 4 4 9 15 17 Net Block & Goodwill 576 617 700 733 856
PBT 137 90 152 265 325 CWIP 7 20 20 20 20
Tax 34 24 39 67 82 Investments 22 19 144 174 244
PAT 103 66 113 198 243 Other Non-Curr. Assets 7 15 14 17 20
Share of Asso./Minority Int. -6 -9 -7 0 0 Total Non-Current Assets 612 672 878 944 1140
Adj. PAT 96 58 107 198 243 Inventories 206 379 262 389 448
Growth (%) -35.1 -39.8 83.9 85.9 22.5 Debtors 18 28 29 35 41
EPS 10.6 6.3 11.5 21.3 26.2 Cash & Equivalents 33 16 79 75 75
Other Current Assets 33 30 34 35 41
Total Current Assets 291 453 403 535 604
Creditors 52 45 145 93 106
Other Current Liab & Provisions 150 162 170 215 245
Total Current Liabilities 202 206 315 307 351
Net Current Assets 89 247 88 228 253
Total Application of Funds 701 919 966 1172 1393
 Heritage Foods Limited

Cash Flow Statement Key Ratios

Particulars (in Rs Cr) FY22 FY23 FY24 FY25E FY26E Particulars FY22 FY23 FY24 FY25E FY26E
Reported PBT 131 82 145 265 325 Profitability Ratios (%)
Non-operating & EO items 4 0 -1 1 -2 EBITDA Margin 7.1 4.3 5.5 7.7 8.0
Interest Expenses 4 3 8 15 17 EBIT Margin 5.6 2.9 4.3 6.5 6.9
Depreciation 52 56 61 67 77 APAT Margin 3.6 1.8 2.8 4.6 4.9
Working Capital Change -7 -178 214 -147 -26 RoE 15.4 8.4 13.9 22.2 22.5
Tax Paid -35 -23 -38 -67 -82 RoCE 22.4 12.0 17.6 26.8 27.2
OPERATING CASH FLOW ( a ) 148 -61 390 134 309 Solvency Ratio (x)
Capex -42 -79 -123 -100 -200 Net Debt/EBITDA -0.1 1.1 0.3 0.3 0.3
Free Cash Flow 106 -140 267 34 109 Net D/E 0.0 0.2 0.1 0.1 0.1
Investments 1 3 -128 -30 -70 PER SHARE DATA (Rs)
Non-operating income -2 -6 0 0 0 EPS 10.6 6.3 11.5 21.3 26.2
INVESTING CASH FLOW ( b ) -42 -83 -252 -130 -270 CEPS 16.2 12.4 18.0 28.6 34.5
Debt Issuance / (Repaid) -51 123 -40 40 15 BV 71.9 79.2 87.1 104.9 127.1
Interest Expenses -3 -2 -9 -15 -17 Dividend 2.5 2.5 2.5 3.5 4.0
FCFE 52 -23 89 29 37 Turnover Ratios (days)
Share Capital Issuance 0 22 0 0 0 Debtor days 2 3 3 3 3
Dividend -35 -12 -23 -32 -37 Inventory days 28 33 31 28 31
Others -4 -5 -3 0 0 Creditors days 6 5 9 10 7
FINANCING CASH FLOW ( c ) -93 126 -76 -7 -39 Valuation (X)
NET CASH FLOW (a+b+c) 13 -17 62 -3 0 P/E 56.6 94.6 52.1 28.1 22.9
P/BV 8.3 7.6 6.9 5.7 4.7
EV/EBITDA 28.6 40.7 25.8 16.4 13.6
EV / Revenues 2.0 1.7 1.4 1.3 1.1
Dividend Yield (%) 0.4 0.4 0.4 0.6 0.7
Dividend Payout (%) 23.6 39.5 21.8 16.4 15.3

(Source: Company, HDFC sec)

 Heritage Foods Limited

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(Source: Company, HDFC sec)

HDFC Sec Retail Research Rating description

Green Rating stocks
This rating is given to stocks that represent large and established business having track record of decades and good reputation in the industry. They are industry leaders or have significant market share. They have
multiple streams of cash flows and/or strong balance sheet to withstand downturn in economic cycle. These stocks offer moderate returns and at the sam e time are unlikely to suffer severe drawdown in their stock
prices. These stocks can be kept as a part of long term portfolio holding, if so desired. This stocks offer low risk and lower reward and are suitable for beginners. They offer stability to the portfolio.

Yellow Rating stocks

This rating is given to stocks that have strong balance sheet and are from relatively stable industries which are likely to remain relevant for long time and unlikely to be affected much by economic or technological
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Red Rating stocks

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industry or in overall economy. Management of these companies need to prove their mettle in handling cyclicality of their business. If they are successful in navigating challenges, the market rewards their shareholders
with handsome gains; otherwise their stock prices can take a severe beating. Overall these stocks offer high risk high return opportunities.
 Heritage Foods Limited

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 Heritage Foods Limited

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Digitally signed
DARSHIL by DARSHIL
HEMANTBHAI
HEMANTB SHAH
HAI SHAH Date: 2024.09.23
08:15:54 +05'30'