Should investors milk the profit in Heritage Foods now?

Heritage Foods (CMP: Rs. 626, Market Capitalisation: Rs. 5,814 crores, Under-weight), a leading dairy company with a diversified product portfolio that includes milk and milk-based products, posted a healthy revenue growth of 16 percent year on year (YoY) in the fourth quarter. This was primarily aided by a 20 percent increase in the volume of value-added products (VAP). The EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortisation) margins improved by 230 basis points to 7.5 percent, on account of lower fat inventory losses, benign raw material costs, and a richer product mix.

 

The company has set a target of reaching a revenue of Rs 6,000 crore in the next 3-4 years, which translates into an annualised growth of 15-18 percent. The management is focusing on increasing the share of VAP, penetrating new geographies, strengthening the supply chain, and expanding its product portfolio to scale up its market presence.

 

Robust operational performance

Milk revenues grew 7 percent YoY, driven by a healthy combination of higher sales volume and improved realisations. Average milk procurement increased by 11 percent to reach 1.59 million litres per day (MLPD) whereas procurement prices fell by Rs. 3.5 per litre to Rs. 41.7 per litre. The company posted robust performance despite the fourth quarter being the end of the flush season. Going forward, procurement prices are expected to remain stable or see a slight increase in Q1FY25.

Revenue from VAP grew much faster at 22 percent YoY in Q4 and 19 percent for the full year. The segment margins came in around ~10.5 percent. During the quarter, the company launched various products, including toned and skimmed milk in tetrapak under the brand names Farm Fresh and Lite Fit; a new ice cream variant Vibez; and flavoured curd under the brand name Shubh Meetha Dahi.