Heritage Foods....Cool Multibagger

Heritage Foods

Investment strategy : Buy in the range of Rs. 1050-1150 and add on dips when it comes to 900 range

Investment Horizon : 3 - 5 years


The Heritage group was founded in 1992 by Telugu Desam party Chief and Current Chief Minister of Andhra pradesh Shri Nara Chandrababu Naidy, with three business divisions at inception (which is now six divisions) viz., Dairy, retail and agri under its flagship company Heritage foods limited.

Presently Heritage’s milk products have market presence in Telangana, Andhra Pradesh, Karnataka, Kerala, Tamil Nadu and Maharashtra and its retail stores across Bangalore, Chennai and Hyderabad.

It is expanding to North India (with recent entering into Delhi Market), and across the country to create a National Brand and to be a pan –Indian Player

Integrated agri operations are in Chittoor and Medak Districts and these are backbone to retail operations.

In the year 1994, HFL went to Public Issue to raise resources, which was oversubscribed 54 times (which was pretty good compared to its peers)

Heritage Foods has its headquarters in Hyderabad, Telangana, India

Brands:

 The Diary Brand – Procurement and distribution of quality Milk and milk products

 The Retail Brand – Chain of retail outlets and has approximately 140 stores across the cities

The Major Products includes milk, curd , ice-cream, buttermilk, and in retail stores it includes fresh fruits and vegetables and bakery products, cereals, pulses, spices etc.

The company has also worked on New brand on the occasion of 25 years celebrations of the company

Mission

To be a nationally recognized brand for Healthy and Fresh products with a revenue of INR 6000 Crore.(USD 1 Billion) by 2022
We anticipate, understand and respond to our Customers' needs by creating high quality products and making them available through innovative and convenient channels
We are devoted to empowering the Farmer community through our unique 'Relationship Farming' Model

Financial Highlights:

Year	2005	2010	2012	2013	2014	2015	2016	2017
Sales	266.13	900.38	1,393.41	1,601.81	1,722.04	2,072.97	2,380.58	2,273.40
Expenses	245.49	850.34	1,339.83	1,500.93	1,625.46	1,989.29	2,249.61	2,137.03
Operating Profit	20.64	50.04	53.58	100.88	96.58	83.68	130.97	136.37
Net profit	10.16	5.60	9.33	49.96	45.31	28.21	55.43	66.82
EPS	9.75	4.86	8.09	43.07	19.53	12.16	23.89	28.80
RATIOS:
Dividend Payout	29.53%	37.14%	24.76%	6.93%	15.36%	24.67%	12.56%	30.00%
OPM	7.76%	5.56%	3.85%	6.30%	5.61%	4.04%	5.50%	6.00%

Other Key points:
Over the last 5 years Revenues are grown at a CAGR of 14% , PAT has grown at a CAGR of 56%, EBITDA has grown at a CAGR of 27%
Company has good Return on Equity track record at 3 years at 23.2%
Low debt to equity ration of 0.5
Debt was around Rs. 126 crores which is two years Net profit
(Net profit for the Financial year 2016-17 is 66 crores)
Cash flows has grown from 35 crores to 126 crores from FY10 to FY 16 which reiterates that the profits are in consistent with the cash flows


Pros:

With mission to achieve revenue of USD 1 billion, the company is expected to grow at a fast pace

Good corporate governance

Long term sustainability of the business with strong support from farmers

Value Chain and forward, backward integration along with a strong distribution network base

Consistent Dividend pay-out ratio

Heritage bags many awards which include Golden Peacock Award for excellence in corporate

Governance for the year 2016.

Astute Management team

Cons: 
Competition from Big players like Reliance Fresh, LT foods etc.
Trading at P/E ration of 32 which is a concern

Technical Rating: 70-75

Fundamental Rating: 70-73

Overall rating: 70

Valuations: With the investment horizon given, considering all the inputs of estimates the valuations are at Rs. 4000

Annual report FY 16 

Annual report FY 15