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Heritage Foods Ltd

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Incorporated on 5 Jun.'92 and promoted by N Chandra Babu Naidu, Heritage Foods processes milk and milk products. At its four chilling centres, milk procured from farmers, is pasteurised and supplied in tankers to bulk consumers and in sachets to retail consumers. The company came out with a public issue in Nov.'94 to part-finance the setting up of an integrated dairy (inst. cap.: 2 lac ltr pd). It established three integrated dairy plants in Madras, Hyderabad and Bangalore, and supporting milk chilling centres at various locations in North Arcot district of Tamilnadu, and Kolar district of Karnataka. Company commissioned new milk centre at Triuvannamalai in state of Tamilnadu. The Dairy products viz., Ghee and Skim Milk Powder were launched in Consumer Packs in the market of Kerla, Tamilnadu, Karnataka and Andhra Pradesh. Company establish a premier position in liquid milk market of Hyderabad, Madras and Banglore. Company had strengthen its procurement network, a Milk Chilling Centre has been commissioned at Atmakur, Nellore Dist. A.P. this centre enabled an upsurge in milk procurement. Company Milk Processing Unit at Narketpally & the Sales & Registered office at Hyderabad have been recommended for ISO-9002:1994 certification for implementation of Quality system. The Company was awarded ISO-9002 certification for processing, packing & selling of liquid milk. The Company is planning to enter Milk markets of Goa, Pune, Mumbai and other Southern markets. The Company is also exploring avenues to enter into Branded Food segment of the growing food processing sector. During 2001-02 the company established a procurement and packing station at Battiprolu,Guntur District having a capacity of 50,000 Ltrs a day. It is also creating facilities for manufacturing and marketing of table butter to meet the growing demand. The company had voluntarily de-listed its shares from Madras & Hyderabad Stock Exchanges with the approval of sharesholders. During 2003-04, the Company commissioned 2 milk procurement and processing plants, one at Namakkal in Tamil Nadu and other one at Nandyala in Andhra Pradesh. The Company also started milk procurement and processing operations at Kondapi, Prakasam Distrcit, Andhra Pradesh by purchasing assets of Sri Lakshmi Narasimha Dairy Specialities Private Ltd. As on March 2004, the Company is having 7 Milk Procurement, Processing & Packaging Plants, 15 Milk Procurement and Processing Plants

THE SALES AND NET PROFIT FIGURES FOR LAST FIVE YEARS ARE AS FOLLOWS:

Mar ' 12 Mar ' 11 Mar ' 10 Mar ' 09 Mar ' 08
Sales 1,393.41 1,096.09 900.38 792.56 588.03
Operating profit 51.26 34.09 44.10 -3.27 -16.47
Interest 19.71 15.97 16.67 14.58 12.43
Gross profit 34.76 23.29 30.35 -11.15 -24.76
EPS (Rs) 8.10 0.97 4.85 -30.89 0.81

THE SALES AND QUARTERLY FIGURES FOR LAST FEW QUARTERS ARE AS FOLLOWS :

Sep ' 12 Jun ' 12 Mar ' 12 Dec ' 11 Sep ' 11
Sales 402.13 414.04 365.64 360.30 350.44
Operating profit 26.94 20.33 14.05 14.30 13.63
Interest 4.59 5.24 4.92 4.10 4.64
Gross profit 23.08 15.69 10.32 10.89 9.68
EPS (Rs) 12.56 7.33 2.66 3.68 2.22

THE SALES AND QUARTERLY FIGURES FOR LAST FEW QUARTERS ARE AS FOLLOWS :

Sep ' 12 Jun ' 12 Mar ' 12 Dec ' 11 Sep ' 11
Sales 402.13 414.04 365.64 360.30 350.44
Operating profit 26.94 20.33 14.05 14.30 13.63
Interest 4.59 5.24 4.92 4.10 4.64
Gross profit 23.08 15.69 10.32 10.89 9.68
EPS (Rs) 12.56 7.33 2.66 3.68 2.22

There has been a steady growth of profit margins on qoq basis sep 11 had npm of .73 % and sep 12 had npm of 3.6% with a steady growth in each quarter .

Also if we look at yearly performance in view of npm the margins have increased from previous years with last two quarters showing large increase .( why and how have they increased needs more digging )

the product portfolio of the company looks simple and boring ( thats why i like it ) .

from the first looks like it has got its act together in a boring industry(read boring as not fancy)…:)…

with the sales kicking in at past rates (high probability event) the increase in margins can lead to a strong re-rating of the company .

:::already stock price has more than doubled led by some strong buying happening in the stock.

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I think all dairy forms had increased the milk prices aroundApril2012 .I remembered heritage also increased the milk prices (As i am using it). But i have read news like milk production is more thanconsumption in recent time.Dairy forms are converting liquid milk to milk powder because they are not able to sell all collected milk.It could put more pressure on profitability incomingquarters [as milk prices maydecline and every dairy wants to sell collected milk with low prices].

Dis : I have not invested and not read about this company.But I have read news related to milk production in local news paper.

Heritage Foods India rose 3.15% to Rs 527 at 12:19 IST on BSE on report the company will hive-off its retail business into a separate arm to rope in strategic or financial partners.




Meanwhile, the BSE Sensex was up 25.43 points, or 0.13%, to 19,512.23.

On BSE, 17,000 shares were traded in the counter as against an average daily volume of 63,209 shares in the past one quarter.

The stock hit a high of Rs 536.40 and a low of Rs 491 so far during the day. The stock had hit a record high of Rs 562.50 on 23 November 2012. The stock had hit a 52-week low of Rs 133.15 on 16 May 2012.

The stock had outperformed the market over the past one month till 6 December 2012, rising 20.07% compared with the Sensex's 3.56% rise. The scrip had also outperformed the market in past one quarter, spurting 98.02% as against Sensex's 12.34% rise.

The small-cap company has an equity capital of Rs 11.53 crore. Face value per share is Rs 10.

According to the report, the move assumes significance for Heritage Foods India (HFIL), the retail and dairy products company, in the backdrop of the government's move to allow foreign direct investment (FDI) into the retail sector.

HFIL's president M Sambasiva Rao was quoted by media as saying that the board has approved a proposal to hive off the retail business into a wholly-owned subsidiary and to rope strategic or financial partners in a bid to accelerate the pace of growth in retail business.

A separate entity, Heritage Foods Retail, was registered for the purpose and the transferring of the retail business to the subsidiary will take place along with the firming up of new partners, said Rao.

HFIL had clarified to the stock exchanges on Wednesday, 5 December 2012, that it decided to subsidiarise retail business and a wholly-owned subsidiary company namely Heritage Foods Retail was incorporated. The company said it is open for strategic partnership in retail business for accelerating its growth.

It further clarified that it is not looking for any strategic investor for HFIL and the promoters are not looking to sell their stake.

On a consolidated basis, Heritage Foods (India)'s net profit rose 467.84% to Rs 14.48 crore on 14.58% rise in net sales to Rs 397.59 crore in Q2 September 2012 over Q2 September 2011.

Hi Ranvir,

Yes, this seems to be developing into a very promising and interesting story. I have been missing it at several entry points and have been able to trade on small qtys.

A friend of mine who is a very good investor is super bullish on it.

Milk business though simple and boring but has a sustainable competitive advantage by way of brand value and distribution network.They are now talking about value added things being launched.

If they are able to turnaround or sell off their retail operations, it would be a huge trigger.

Do keep updating on the developments.

Thanks & Regards,

Ayush

Disc: Do not hold as of now

Arokya milk/Arun Ice creams are famous brands in Tamil Nadu , but Hatsun Agro is in a permanent slumber. What could be the difference between Heritage and Hatsun ?

I had looked into both Hatsun and Heritage. I had found Hatsun as better investment and have created a thread in “Not so hidden gems”.

Heritage didnt look worthy because of its debt, profit margins, political links, though I had not looked in detail about revenue contributions, they are not asfocusedon dairy as Hatsun is.

I think recent frenzy inHeritageis more because Azim premzi bought some stake.

Hi Mahesh,

The value picks blog guy has been super bullish on Heritage foods right since when it was consolidation around 200 levels. According to him , Heritage is a fully integrated company . Meaning,they directly procure milk from dairy farmers , label it and send it to retail outlets (their own and others ) . There are no middle men involved which reduces the cost of procurement. It seems such business model is very difficult to replicate. Does Hatsun also follow the same model ?

asfocusedon inHeritageis

Arokya milk/Arun Ice creams are famous brands in Tamil Nadu , but Hatsun Agro is in a permanent slumber. What could be the difference between Heritage and Hatsun ?

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Debt equity as of FY12 was 2.5 for Hatsun & 1.5 for Heritage. OPM was 6.9% for Hatsun vs 6.6% for Heritage. P/E was 26 for Hatsun vs 19 for Heritage. If similar earnings are reported for H2 as in first half then Hatsun will be at 22x FY13 while Heritage will be at 12.5x.

asfocusedon inHeritageis

OPM figures were for latest available qtr for both co’s.

Heritage didnt look worthy because of its debt, profit margins, political links, though I had not looked in detail about revenue contributions, they are not asfocusedon dairy as Hatsun is.

I think recent frenzy inHeritageis more because Azim premzi bought some stake.

Hi,

Just adding some market info -

Lot of knowledgeable investors are bullish and have met the management team at heritage. So there may be more speculative buying in next 2-3 months.

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Shankar, Hatsuns sourcing of milk, they buy directly from farmers too(not just that, they take care of their cows, they have their ownveterinarydoctors, and sell food to the cows) I will need some time look in detail and update here.

I had looked into both Hatsun and Heritage. I had found Hatsun as better investment and have created a thread in “Not so hidden gems”.

Heritage didnt look worthy because of its debt, profit margins, political links, though I had not looked in detail about revenue contributions, they are not asfocusedon dairy as Hatsun is.

I think recent frenzy inHeritageis more because Azim premzi bought some stake.

The company will be meeting in near future to declare BONUS in some time within a span of 1 month.

The results have been very good and it’s given to understand that the company is looking forward to hive off their bakery div (in time to come).

The company not only sells milk but also their by products and dairy items, ice cream etc.

Company products are well accepted in South India and company has plans to expand to different states.

A stock to watch and study more in detail to get familiar.

sanjoy bhattacharya has added Heritage Food in ‘Contrarian portfolio’ complied for forbes india. I’m simply a big fan of sanjoy for his stock picking skills, unfortunately not much details on why he likes.

Good days ahead?

possible triggers

1). Boost in the economy with new govt

2). FDI in reatil will help to tie up with any MNC or attract Investments.

3). High chances of spinning off retail business. In such case, Diary segment will be valued at around 750 Cr with 75 cr Net profit. current MCP - ~500cr

4). Huge interest in Dairy businesses in India by MNCs.

5). High chances of TDP govt formation in AP. Morale boost for promoters.

Positives for Heritage:

1). Pricing power - Heritage milk Rs. 1 costlier than other brands but still has highest market share.

2). Entering into value added Milk prodcuts.

3). Diary business can be treated like consumer products with Asset light model, pricing power and Brand recall. expcted to command a PE of at least 15-20.

4). Debt will be reduced by FY14. Good dividend is expected.

Negatives:

1). Parlours are not doing well

2). Own products ( heritage brand) doesn’t have brand recall except Milk, Curd

3). Huge Overhead costs in Retail segment.

disc: Invested. Biased opinion.

Views invited from VPs.

Hi Sridhar,

I am positive on the dairy industry as well and am accumulating Hatsun. I had taken a brief look at Heritage but the baggage of the retail biz turned me off. Maybe that is why the market is not giving it a better valuation? If/when they hive it off, it will be good for the dairy biz.

)- HG