Hatsun Agro Products Ltd in March quarter clocked the highest gross margin in 10 quarters. If one goes by ICICI Securities, there is scope for further margin expansion in FY25, thanks to lower milk procurement prices; higher revenue share of ice cream, accumulation of low priced inventory and improved capacity utilisation at Solapur and Govindapur facilities.
Given the 10 per cent stock price correction over past six months and earning tailwinds, this brokerage has upgraded the Hatsun Agro Products stock to ‘Buy’ from ‘Hold’ and suggested a target price of Rs 1,190, implying a PE of 50 times based on estimated FY26 earnings.
Hatsun Agro Products has accumulated large inventory of low priced skim milk powder (SMP) at end of FY24. ICICI Securities said Hatsun may utilise it if milk procurement prices inch upwards. ICICI Securities sees higher utilisation of Govindapuram (AP) and Solapur (Maharashtra) plants and higher revenue share of ice cream lifting Hatsun Agro Products margin going ahead.
“The company has also introduced chocolates under the brands Hanobar and Havia in FY24. We believe success of chocolates will likely be margin and DCF accretive. We remain positive on Hatsun due to competitive advantages such as established brands, distribution and direct milk procurement. We marginally raise FY25E and FY26E earnings by 0.4 per cent and 3.3 per cent, respectively,” it said.
ICICI Securities said Hatsun’s inventory at end of FY24 increased 2.5 times YoY. It believes the company is prudently utilising the deflationary trend in commodity prices to accumulate the SMP inventory. This would help Hatsun Agro Products maintain profitability if the milk procurement prices inch upwards in H2FY25, the brokerage said.
