Elara Capital

Heritage Foods (Buy)

CMP: ₹610.75

Target: ₹825

Heritage Foods Ltd (HTFL) reported results in line with our estimates as EBITDA of ₹45.9 crore (up 30.5 per cent y-o-y) was in-line with our estimate of ₹45.7 crore. Net sales at ₹640 crore up 4 per cent y-o-y was led by 16 per cent y-o-y growth in fresh curd (23 per cent of sales).

Sales excluding VAD (71 per cent of sales) grew by just +1 per cent y-o-y led by +5 per cent y-o-y volume growth in pouch milk which was offset by lower realisations in pouch milk and FAT losses due to glut of milk in the country for which State/Government subsidies (₹50/kg + 20 per cent export incentives) have been announced to flush out the excess SMP inventory from the country. Lose milk in cans are getting sold at discounted rates in urban markets and FAT losses have increased as a result of 20 per cent decline in FAT realisations.

We cut our PAT estimates for FY19/20e by -18 per cent/-22 per cent led by -12 per cent /-14 per cent cut in sales due to lower than expected growth in pouch milk (5 per cent in FY19 versus 15 per cent earlier), VAD (15 per cent in FY19 versus 30 per cent earlier). We expect HFL to post a sales/EBITDA/PAT CAGR of 8 per cent/+26 per cent/21 per cent in FY18-20e period. We value the company on weighted average basis of 17.5x (Earlier 15x) EV/EBITDA and 1.4x P/Sales (Earlier 1.2x) on FY20 estimates, to arrive at a revised target price of ₹825 (earlier ₹870). We maintain our ‘buy’ rating on the stock.

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