ICICI Securities Turns Bullish on Hatsun Agro Products
In its latest research report dated April 23, 2024, ICICI Securities has upgraded Hatsun Agro Products to a Buy rating with a revised target price of Rs 1,190. The brokerage cites strong volume growth, improved margin outlook and strategic expansion as key drivers behind the upbeat stance on the dairy major.
Robust Volume Growth and Distribution Reach
Hatsun Agro Products has steadily broadened its distribution network across India, particularly in tier-2 and tier-3 cities where demand for branded dairy products is rising. ICICI Securities expects a year-on-year volume growth of 10-12% over the next two years, supported by new product launches and increasing penetration in under-served markets. The company’s strong field force and well-established cold chain infrastructure give it a competitive edge in maintaining product quality and availability.
Margin Expansion Set to Drive Profitability
Analysts at ICICI Securities highlight that a favorable milk procurement price environment, coupled with cost rationalization measures, is likely to boost Hatsun Agro’s EBITDA margins from around 9.5% in FY24 to over 11% by FY26. Improved sourcing strategies, better packaging efficiencies and supply-chain digitization are expected to keep operating costs in check, enabling healthier bottom-line growth.
New Capacities and Product Innovations
Over the past year, Hatsun Agro has commissioned new processing units in Maharashtra and Karnataka, adding significant capacity for curd, ghee and ice cream production. The company is also focusing on premium and value‐added dairy segments, including probiotic lassi and fortified dairy mixes. ICICI Securities believes these investments will support a diversified revenue mix and help the company capture higher per‐unit realisation.
Favourable Rural Demand and Pricing Power
With steady rural income growth and changing consumption patterns, branded dairy penetration in semi-urban and rural India is at an inflection point. Hatsun Agro’s strong brand recall, particularly in South India, provides the company with pricing power. ICICI Securities expects the company to be able to pass on moderate input cost pressures without eroding demand.
Valuation and Risks
At the current market price, the stock trades at around 35 times FY25 earnings, which ICICI Securities views as justified given the robust growth outlook. Key risks include volatility in milk procurement costs, potential regulatory changes in dairy pricing and intensifying competition from both national and regional players. Investors should monitor these headwinds while tracking quarterly volume and margin trends.
What Investors Should Do
Given the strong volume momentum, expanding product portfolio and margin tailwinds, ICICI Securities recommends investors add Hatsun Agro Products to their portfolio with a target price of Rs 1,190 over the next 12 months. This represents an upside of approximately 15-20% from recent levels, making it an attractive proposition for those looking at the dairy sector.
Note: This article is for informational purposes and reflects the views of the brokerage firm. Investors should conduct their own research or consult with a financial advisor before making any investment decision.
