Hatsun Agro Ltd - Result Update - Q1FY18 - KR Choksey

Result highlights

Revenue in Q1FY18 stood at INR 11687.4 Mn which was a growth of 12.8% yoy and de-growth of 4% qoq due to summer season from April to June where production is lower as compared to other quarters. however, sales remains above our estimates. EBIDTA reported was INR 1033.6 Mn with growth of 23.8% yoy and de-growth of 11.8% qoq due to increase in price of milk and lower production. EBIDTA margins stood at 8.8% in Q1FY18 as compared to 8.1% in Q1FY17 and 9.6% in Q4FY17.PAT remained around INR 352.2 Mn with growth of 18.9% yoy and de-growth of 18.7% qoq. PAT margins stood at 3.0% in Q1FY18 as compared to 2.9% in Q1FY17 and 3.6% in Q4FY17.

Double Digit revenue growth: Hatsun Agro ltd posted its Q1FY18 results which were above expectations We saw Revenue growth in double digit of around 12.8% yoy due to launch of products and also change in mix between milk and value added products. We saw de-growth of 4% qoq due to lower production in Q1FY18 as compared to Q4FY17. Revenue reported at INR 11687.4 Mn as compared to INR 10365.1 Mn in Q1FY17. Milk & milk products constitutes of 93.9% of the total revenue of around 10969.1 Mn in Q1FY18 as compared to INR 9881.5 Mn (95.3% of total revenue) in Q1FY17, around 1% is got from renewable energy in Q1FY18 while around ~5% is other business like commodity both in Q1FY18 and Q1FY17.

Improvement In margins yoy while Subdued margins qoq: Hatsun Agro ltd reported Q1FY18 EBIDTA at INR 1033.6 Mn which is the growth of 23.8% yoy and de-growth of 11.8% qoq. EBIDTA margins showed improvement with 79bps yoy while it decrease 78bps qoq. Q1FY18 margins remained around 8.8%. Margins were drag qoq due to increase in operating expense of around 12.3% yoy and 24.2% qoq and also price of raw material increase during the quarter. PAT for Q1FY18 was at INR 352.2 Mn which is the growth of 18.9% yoy and de-growth 18.7% qoq. Its margin remained at 3.0% with improvement of just 15bps yoy and decrease of 54bps qoq. With new commission of the packing plant for milk it is expected that interest cost which was around INR 204.2 Mn would further increase.

Valuations & Views: Hatsun Agro Ltd remains one of the largest and strong players in dairy sector which has it presence in southern India. We believe that its core strength lies in milk and milk products which is around 94% of the revenue. Out of which milk contributes around 65% while remaining is value added products. Company plans to change mix of milk and milk products to achieve higher revenue and growth in top line of around 19%-20% in FY18E and FY19E. Company has also started generating renewable energy and currently it is around 1% and we expect it to be around the same range in by FY19. With commissioning of new plant of milk packaging it is expected that will lead to improvement in EBIDTA and PAT margins and we expects it to reach around 9.4% and 3.5% in FY19E. We remain optimistic for the growth of company and also factors which leads to expansion in industry as India being a largest producer and Consumer of Dairy, rise in demand for different products, increase in disposable income, shift of unorganized to organized sector will bring in the progress of the dairy sector in India. At CMP of INR 652, we recommend 'ACCUMULATE' rating on the stock with the target price of INR 693 and upside of 6.3%.

Shares of HATSUN AGRO PRODUCT LTD. was last trading in BSE at Rs.632.35 as compared to the previous close of Rs. 651.9. The total number of shares traded during the day was 8507 in over 472 trades.

The stock hit an intraday high of Rs. 660 and intraday low of 618. The net turnover during the day was Rs. 5420894.

Source : Equity Bulls

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