Stock Review: Hatsun Agro Products and Heritage Foods

 

Shares of Chennai-based FMCG companies Hatsun Agro Products and Heritage Foods are on song, gaining over 30% in the past one month, outperforming the broader market, as investors bet on the turnaround in its performance, helped by a shift to value-added products in the dairy ingredients segment.

On Wednesday, the shares surged nearly 20% to close at . 231.70, hitting the upper circuit. The shares have nearly doubled so far this year, outperforming the Sensex which is down 4% and FMCG Index which is almost flat.

In fiscal 2010, the company's net profit was down to . 2.69 crore from . 11.97 crore in 2009 despite a 12.59% raise in sales. It had cited bad monsoon, non-availability of milk and surge in procurement price as key reasons for the bottomline lag. In its 2010 annual report, the company said domestic dairy ingredients, variety of milk products like curd, cream, butter, ghee would be its major thrust areas in fiscal 2011.

Hatsun has an annual production of 20,000 metric tonne of milk powders and 11,000 metric tonne of milk fat at present. Dairy ingredients serves the food and nutrition industry, including the dairy, bakery, pharmaceutical, confectionery, snacks and savory markets.

Sourcing is a critical element as liquid milk operations are essentially commoditised plays with lower margins. It is estimated that profit mar-gins of most domestic dairy operations fall between 3-5% usually. One avenue to improve the margin is entering into value-added products such as sweets, ice creams and other milk derivatives such as butter and cheese.

"We have devoted our time in building our dairy ingredient business. We have transformed ourselves as a branded player in this space from a commodity player where volatility is more," RG Chandramogan, chair-man and managing director of Hatsun Agro Product, the largest private dairy in India said.