Hatsun Agro: Arokya milk for your good health!

CMP: Rs 89

Market Cap:~950 Cr

P/E: ~17 (on purely extrapolating latest quarter eps)

Industry: Dairy Milk, other dairy products and Ice creams. As the income levels grow,

this industry will become organized as it has in developed economies.

My personal view is, Skim milk, creamers, cheese, butter, ghee and other dairy produces will have a huge market expansion going forward, as the life style of Indian people change.


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This Chennai based company itself had a phenomenal growth in last 10 years, their revenues have increased 10 times in last 10 years. Promoter is a 1st generation entrepreneur and had a very humble start. It started as a ice cream company and has accidentally turned out a dairy industry as the promoter confesses.

Financial Ratios:

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Consumption story!! It has Strong Brand for Dairy, Arokya (well donât get confused, people in Tamilnadu write K for G, I mean, Arokya really means Arogya!!!, that is Health. And just so you guys know, most of my Tamil friends always call me "Magesh" instead of Mahesh, he he, they really do). I asked my better half if she knew this brand, it was on tip of her tongue and said its quality is better than Nadini milk thats sold in Karnataka, Arokya milk is sold in my home town in Karnataka too. And their ice-cream brand Arun is big in Tamilnadu.

Balance sheet:

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Overall, their market share in Tamilnadu is good (Chennaites can help to confirm), they are growing in Karnataka.

Largest Private Dairy as they claim. Its a Peter Lynch stock, buy what you see!

Revenues have consistently grown. If they spin off Arum ice creams

or make it a much stronger brand it can help company improve its margins, for now, Ice cream is about 8% of their total revenue.

They are expanding in Karnataka, thatâs encouraging because the Karnataka Milk Federation is under political control and doing bad, which could benefit Hatsun's Arogya brand milk.

Couple of things that discourage me a little bit are, their margins and financial efficiency ratio. And its already a Rs 1000 crores company, so cant expect it to be multibagger quickly. However, they have not leveraged hugely compared to their revenue growth so they can flex and increase size the of the company.

I expect them to grow at 20%. If they improve margins, it can help create value for its share holders. Looks like the company is shareholder's friendly, has given bonus, rights, splits etc.

Disclosure: Not invested yet but considering to buy once I get positive feedback from you valuepickers!


Are there any chances of them getting into roadblocks while entering into new states?

I am asking this because in gujarat milk companies invite attraction from all political parties where the milk co operatives election are as closely fought as the state assembly elections.

So i guess the local honchos wouldnt tolerate the entry of a new player eating into their pie.

Hitesh, agree with you, private players will have to face some kind of roadblocks because most of the co operative milk federations are managed by politicians and free market capitalism doesn’t work here. But situation in Karnataka is little different, KMF, is loosing its market share because of political tussles and mismanagement, you can imagine, it’s Chairman is one of the brother of Bellary’s Reddys. I suppose Arokya milk can gain from penetrating the Karnataka market in a disciplined manner. In general, Arokya has managed to grow gradually, I am sure they will know how to overcome these kind of situation.

On a lighter note, the ideal way to over come this kind of situation is to rope in another more influential politico as your partner.

Did you say Yediyurappa?

Hatsun has more than tripled in the last year. Currently taking support around 50 day ema levels.

The dairy industry itself seems to have a lot of potential. Rising consumption, price in-elasticity, unorganized to organized conversion and rise in value-added products would be the high level arguments.


Link below is Rana Kapoor (of Yes Bank!) writing about this industry -


Is anybody invested in Hatsun or peers (Heritage foods etc.) Any current views?

Disc: Token position at 270 levels based on technicals. Still reading about Hatsun.

There must be some issue with the ‘search’ functionality or I just dont know how to search, but I had tried to search for the thread on ‘Hatsun Agro’ at valuepickr but I could not find it. Wanted to confirm if I was aware of all the negatives, so I wanted to check it here! J

Dairy sector overview

Our farmers generally have small land holdings and such farmers usually donât go for crops like rice/wheat/sugarcane etc but rather focus on horticulture (fruits, vegetables, spices), dairy, poultry and so on. The advantage of dairy over horticulture is that the price of milk keeps raising while there can be ups and downs in horticulture. Dairy for a farmer would be the equivalent of debt instruments for an investor I presume!

Currently, in India, the total milk procurement is about 130 million metric tons, which is 16% of the total world production and 21% (I guess by value) of India’s agricultural production. Just around 1/4 th to 1/3rd (by different estimates) of the milk produced in India is consumed by the organized sector (cooperatives, private dairies) while the rest is by the unorganised sector. Upto the 90s, dairy industry mainly constituted of the cooperatives. Now the private sector contribution is around half of the total production by the organized sector. Cooperatives process 90% of the milk procured as liquid milk, while the private sector sells only 20% as liquid milk. Rest of them are value-added products like butter, ghee, milk powder, ice cream, yoghurt, sweets, spreads, cheese, flavoured milk, butter milk, paneer etc.

Company overview

The biggies in this sector amongst the cooperatives are Amul followed by KMF. KMF has the least margin (as in, it pays the most to the farmers) amongst all dairy companies while Amul pays almost 3/4 of the selling price of milk to its farmers. Hatsun agro is the largest private player in the industry but much smaller than the biggies in the cooperative industry. For comparison, Amul had revenues of US$2.4 billion in 2011 against US$260 million by Hatsun.

Hatsun procures around 2.4 million litres of milk.

**Hatsun Products **

Hatsun - Dairy Whitener, Skimmed Milk Powder, Agmark Certified Ghee, Butter, Cooking Butter Arokya - Milk, Curd, Paneer and Buttermilk through the Brand Hatsun Milk & Milk Products

Arun â Ice creams (mass market)

Ibaco â Specialty ice cream parlours, ice cream cakes for marriages/parties


Selling milk is a fairly commoditized market. While brands are important (with people usually sticking to one particular brand of milk), I donât think itâs good enough to command any sort of a premium. The margin of a dairy company is mainly decided by the value-added segment. Even in the value-added segment, the competition is intense. Each and every category, be it ghee, butter, butter-oil or milk powder, there are thousands of unorganized entities, hundreds of private dairies and cooperatives as well as foreign companies. The competition may be intense, but not cut-throat (yet), simply because the demand is far higher than the supply.

Positives of Hatsun

Hatsunâs goal is to sell less of liquid milk but instead go for more of value-added products. More so into flavoured milk (not yet), yoghurt (its in it already but a small player) and ice creams (Arun, Ibaco). The Arun brand of ice creams I guess is similar to Vadilal. Both are small players who mainly sell in a particular region (South India and West India respectively). Even though Hatsun claims to be the leading player in South India, I donât see a lot of it in Karnataka and so I guess its sales are mostly in Tamil Nadu. Less than 8% of Hatsunâs revenue came from ice creams but it is set to go higher as it is increasing its Ibaco ice cream parlours. There are no other listed players in the luxury ice cream segment. There are a number of foreign players in the speciality/luxury end of ice creams like Baskin Robbins, but they operate at a price point much higher than Ibaco (similar to Eicherâs Royal Enfield to a Harley Davidson! J ). Have been reading reviews of Ibaco and they have been fairly decent. Ibaco is THE reason why I bought shares of Hatsun.

Negatives of Hatsun

Current contribution of ice creams in Hatsunâs revenue is very small. Ibaco has just started and while its successful in its current form, the real question is whether Ibaco can be scaled up going forward. Nestle (Haagen Dazs) was in gourmet ice cream category many years back but had discontinued it; its set to re-enter the Indian market. Amul and Kwality Walls (HUL) have major plans for this segment. There are good quality Indian competitors (Natural ice creams, Pabraiâs Fresh & Naturelleâs).

Hatsun does not have a lot of debt but most of the promoterâs shares are pledged. I donât know why it is so. Is it possible that promoter can pledge their shares to use the extra cash to buy more shares from the market?

They have bought a stake in a wind mill company. IIRC its claimed in the AR that it was done to ensure continuos/cheap power supply. Not at all convincing, sounds like diworsification.

Instead of paying dividends, I would have preferred the company to invest into cold chains and extend its reach into other markets. Ibaco as of now is mainly in TN and it is very much possible that the company does not have the bandwidth to have a strong focus in other regions, even though its one of their goals.

In an interview, it was said that we can expect 17-18% growth in revenues in the coming years. That does not sound like a company that is getting into higher margin yoghurt, flavoured milk and importantly, gourmet ice cream sector. I am confused due to that statement. If it is indeed a company that will grow at less than 20%, then the current share price is very expensive!

Whatâs Ibaco (from Hatsunâs site)

At IBACO you can pick your own flavours, choose your own toppings (nuts, sauces, brownies, cookies, anything!) and make your own sundae. And just like we packed three owns into that last sentence, you can pack 3 flavours into one cup, maybe even 4 or 5. It’s your call.

The price of our serving is determined by its weight!

Disclaimer: This is one of the stocks that I have been holding from some time, had started buying it around 165. Would decide whether I need to buy more or sell everything after hearing views/analysis from the members of this forum.

Wanted to post in this forum from a long time but was feeling a little embarrassed. If there is anything wrong in the way I have posted, please let me know, will keep it in mind.


I had put up just a single line gap between paragraphs but not sure why there are so many line gaps. Also, no edit functionality for posts! :frowning:

Soujanya -

I’m not invested in Hatsun. Wanted to share my views (may be erroneous) since I live in Chennai.


In Chennai/Tamilnadu, even Amul doesn’t has much traction. It is all Aavin (http://www.aavinmilk.com/organisation.html; like Tamilnadu’s Amul) here. Milk gets sold out as early as 6AM. Only then people buy other brand milk like Arokya. Amul is reduced to premium segment like tetra pack doesn’t-get-spoilt milk.

I kind of agree with you since population is growing, with limited land/resource the milk price may be a one way upside move “growing” more than inflation. Amul/Aavin/KMF/state co-op cos may be leaders in their markets but due to the sheer size other second rung players can be profitable.


I love Ibaco! They are like ice parlours (over 35 locations in Chennai) with bells and whistles. I think their margins are good. A two person bill may come to Rs 350 and their cost may not be even Rs 100.

What is owing Hatsun for Ibaco alone? It is like owing Tata Global for Starbucks alone. Their margins are crazy and they are only in Mumbai, Delhi, Pune and Bangalore. So much scaling can be done. I don’t Tata Global but might consider if the valuations are right.

In this respect Hatsun is predominately in TN only and not sure if they can have any traction in other parts of the country.

1 Like

Hi Ashwin,

Ibaco parlours have now opened in Bangalore as well, but I could not visit them during my last visit to Bangalore due to time constraints. I had asked a friend of mine from Chennai for a “proper” review but now that I have found you, well, I guess I don’t have to wait! :slight_smile:

In terms of creaminess, sweetness and overall taste, how is Ibaco in comparison to: Baskin-Robbins, Swensen’s, Amul, Kwality Walls?

In terms of uniqueness, how would you rate the flavours against say Natural Ice creams?

The experience of visiting their parlours, how would their service be when compared to visiting say Starbucks, CCD, Dominos?

Swensen’s is something me and my colleagues used to go for lunch occasionally. I guess without any real fruits, Ibaco cannot be a serious alternative for lunch.From review sites, I do have an idea how Ibaco’s price and taste is in general. But if you can give me further details, I can cover-up the gaps I have due to never having visited their stores! :stuck_out_tongue:

Basically, what I want to understand is, that does it seem like Ibaco can be something that can be a regular office-goers getaway or a family weekend outing?

I agree on the margins thingie. JLR for Tata Motors, Royal Enfield for Eicher, Starbucks for Tata Global beverages and (hoping that) gourmet ice creams are the sort of candidates where companies can increase prices easily without the customers complaining too much!


Quality of Ice Cream:

I don’t know if you can consider Baskin-Robbins as a premium offering. I’ve gone there and it is not good. The outlet is a small dinghy place and they don’t even accept credit/debit cards! I’ve tried them in Dubai and it is very good. In India, I’m not sure.

I’ve tried Naturals in Mumbai as well as in Goa, and it is good. Cheaper than Ibaco and better in quality. Cream and Fudge is very costly and not over the top in terms of quality too. Not tried Amul or Walls at their parlour.

Ibaco is good not great. I feel they score in good offering at a reasonable price. You’ve to check their margins with Ibaco; I think they are very good and that’s why they are opening more parlours. Please don’t get the opinion that Ibaco is a gourmet offering.


Have you gone to a Naturals parlour? Ibaco parlour is like that. Starbucks ambiance (Colaba branch) is way good. They are in a totally different league. CCD quality is so-so but they score in ambiance/“cool” factor. Ibaco is more of a basic parlour with seats to hang out with friends/family. I think kids would love Ibaco whereas adults might like KFC/Dominos kind of ambiance.

I used to be a regular at Naturals and love it. Was hoping that Ibaco would be close to Naturals in terms of taste. And regarding Baskin-Robbins, I really dont understand why people pay so much for it! One of them had opened in Manipal (a small town where I studied) some time in the 90s but closed down after some time due to poor sales. But as the chain itself has survived, I guess they have their fans.

There is no info available regarding margins in Ibaco. It has to be a few times higher than the usual 4-5% margins of selling liquid milk.

Thank you very much for your reply, especially the bolded ones below, just the sort of info I was looking for.

Quality of Ice Cream: offering.


The Industry itself is very capex intensive and that sort of prevents geographical expansion.

Hatsun has plants (I think 7) in TN and Kar. That will continue to be the focus area for Milk and Icecreams. If you look at the competitors, there is no big pan-India player. Naturals has its difficulty in expanding outside of Mumbai-Pune belt. Vadilal is restricted to the west. Amul sells butter and other products in all regions but milk/ice cream is restricted. I have read news reports of Hatsun exporting ibaco but don’t see that as a huge opportunity.

The real kicker will be scope to increase products like ghee, butter, curd etc. Hatsun is focusing on this. They had expanded their curd capacity. Ghee and Butter is already being sold in other parts.

Chandramogan the founder of this company had given an interview to Vijay TV. He talks about the success of Hatsun Ghee in North India.


From an investment point of view, its hard to see Ibaco as the major driver of earnings. Data from the last AR shows that Ice cream products (incl. Arun) account for ~6% of revenue. Even if we assume Ibaco is 1/3rd of that, it’s just ~2% of total revenue. Ibaco would have to be a blockbuster to help drive earnings in the next 2-3 years.

Milk and milk products account for 90% of revenue. Milk being a low margin business, the focus will be on value added milk products like those mentioned in the post above. Recent mgmt comments reflect the focus on maintaining/increasing margins.

The below presentation gives an overview of the Indian dairy industry, key players and their product portfolios, and other info. Its slightly dated but still worth a read to get a quick overview of the industry.

)- HG

March 14 shareholding pattern available for Hatsun -

FII interest has gone up from 1 FII holding 92,350 shares to 4 FII’s holding 1,757,452 shares.

Could not get the names though…

Results out.

YoY: Sales 2493.5 cr Vs 2165 cr (+15%), NP 81.7 cr vs 44.7 cr (+83%)

QoQ: Sales 643.7 cr Vs 596.7 cr (+7.8%), NP 4 cr vs 6.1 cr (-35%)

Pricier inputs affected Q4 results as indicated by mgmt earlier -


Price has been range bound between 265 and 280 odd but delivery %s have been quite high for past 2-3 months.

Disc: invested

Per the June '14 shareholding pattern, Jwalamukhi(i.e. Westbridge) is one of the FIIs -

HSBC Bank (Mauritus) Ltd A/C. Jwalamukhi Investment Holdings




Hello ValuePickers,

This is my debut post.I would like to thank everyone for building such a great forum and loading with tonnes of information.

I was doing some comparison with Hatsun and Kwality since comparing them is like apple to apple.Almost similar product lines being offered from the these two like milk,ghee,milk powder and the other value added dairy products.One piece of puzzle still i dont understand is why Kwality is grossly undervalued by the market even in this fierce bull run.Financial snapshot comparison between Hatsun and Kwality indicates Kwality grows much faster than Hatsun in topline and bottomline.

Even debt levels looks better in kwality.Hatsun’s PE is 40+ whereas Kwality is trading at 6-8.

The only big difference between these two is cash flow from operations.Hatsun has positive cash flows from operations whereas Kwality has negative cash flow for years.That is the only red herring on Kwality’s side.Both managements look very able and focussed.

Can some senior member throw more light on Kwlaity’s low valuations?

Disc: Not invested

Hi Sambath,

Cash flow is the most important factor which the analysts consider to evaluate a company’s performance. This is the segment which can be least maniplated.

Sales, net profit can be manipulated by adjusting depreciation, taxes or increasing sales figure by giving away goods on credit and taking back later.

Cash flow gives actual picture because you know how much cash is company able to generate and that’s what matters.