Commencement of 3 plants in a span of just 12 months is probably to lead to robust income development and drive the return ratios upwards in FY22-23. Hatsun has commenced Solapur plant in Q4FY21, Dharapuram (TN) plant in Q2FY22 and plans to commence Govindapur, Telangana plant in Q3FY22. While milk procurement rates are anticipated to move upwards, we note (1) accumulation of SMP inventory at reduced rates on Mar’21 Balance Sheet will partially arrest decline in EBITDA margin and (2) possibility of cost hikes in H2FY22 as most co-operatives have raised rates now. We model Hatsun to report an earnings CAGR of 19.2% more than FY21-23E with: (1) higher single-digit development in milk procurement, (2) commencement of 3 plants and (3) reduced powerful tax price in FY22E. We stay structurally positive on Hatsun due to its competitive positive aspects and robust development chance in South India. Maintain ADD with a DCF-based TP of Rs 1,060 (65x FY23E Earlier TP-Rs 860).
Q1FY22 functionality: Hatsun reported income development of 20.7% YoY. We think ice cream organization reported robust development. While gross margin was flat at 30.5% YoY, the EBITDA margin declined 320bps due to larger other expenditure. In our view, ad-commit and travel expense has enhanced YoY. With reduce in powerful tax price, the PAT grew 4% YoY.
FY22 earnings drivers: (1) Ice cream organization is largely back to normalcy and we count on robust development in FY22 due to (i) favorable base, (ii) marketplace share gains and (iii) commencement of Govindapur ice cream plant in Q3FY22, (2) commencement of Solapur plant (Maharashtra) in Q4FY21 and Dharapuram plant (TN) in Q2FY22 will lead to larger milk revenues and (3) migration to new tax regime will outcome in reduction of powerful tax price to ~25.5%.
Additional investments in FY22-23: Hatsun plans to invest in (1) 50,000 LPD lassi and butter milk plant at Solapur, (2) .1mnpd curd processing plant at Dharapuram and (3) it is in approach to set up greenfield unit at North Andhra Pradesh.
Increase in milk procurement rates in FY22E: We model milk procurement rates to raise in FY22 from reduced levels of FY21 and Q1FY22. Anticipating probably raise in milk procurement rates, Hatsun has accumulated huge SMP inventory at finish of Mar’21 which can partially arrest EBITDA margin decline in FY22E. We also count on the organization to raise promoting rates as most co-operatives have raised rates.