Heritage Foods came to our attention when Vijay Kedia, one of our favourite stock wizards, declared it as his “Diwali Gift” to us. Kedia explained that Heritage Foods is grossly undervalued in comparison to its peers like Hatsun Agro. While Hatsun is commanding a market-cap to sales of 1.5x, Heritage’s market-cap is languishing at 0.5x its sales.
Kedia explained that the reason for this anomaly is because Heritage Foods has a retail division which is a drag on profitability. However, the management has indicated its resolve to get rid of the retail division sooner or later. Once that happens, Heritage Foods will gallop to catch up with its peers and this will lead to multi-bagger gains for the shareholders is Vijay Kedia’s proposition.
Ventura shares the optimism of Vijay Kedia, Dolly Khanna and Kamal Kabra for Heritage Foods. It has issued an initiating coverage report in which it has described Heritage Foods as a “compelling opportunity to invest in the fast growing domestic consumption story”. Ventura has also opined that at 10.6X FY18 earnings coupled with the strong growth outlook, Heritage Foods’ valuations are “extremely attractive, considering the heady valuation of its peers and the other consumption stocks”.
Ventura has predicted a target price of Rs. 925 for Heritage Foods which is a whopping upside of 81% from the CMP of Rs. 510.
| Heritage Foods’ Annual Ratios (%) | |||
| 1-Year | 3-Years | 5-Years | |
| Growth | |||
| Revenue | 20.38 | 14.16 | 18.15 |
| Net Profit | -37.40 | 45.61 | 38.78 |
| EPS | -37.40 | 45.28 | 38.58 |
| Book Value | 8.07 | 28.16 | 16.82 |
| Average | |||
| Operating Margin | 4.38 | 5.68 | 5.00 |
| Net Margin | 1.36 | 2.37 | 1.57 |
| Return on Networth | 15.53 | 29.40 | 20.02 |
| Return on Investment | 16.96 | 24.68 | 19.09 |
| Heritage Foods’ Interim Growth Ratios (%) | |||
| QoQ | YoY | YTD | |
| Quarterly | |||
| Revenue | -0.72 | 14.05 | 7.09 |
| Operating Profit | -14.57 | 62.95 | -5.37 |
| Net Profit | -25.65 | 107.61 | -10.82 |
| EPS | -25.65 | 107.66 | -10.82 |
| TTM | |||
| Revenue | 3.23 | 16.54 | 10.56 |
| Operating Profit | 10.19 | 69.18 | 45.81 |
| Net Profit | 13.32 | 122.54 | 76.78 |
| EPS | 13.33 | 122.56 | 76.79 |
(Source: valueresearchonline.com)
It is worth noting that there is gossip floating around that Chandra Babu Naidu, the Chief Minister of Andhra Pradesh and the promoter of Heritage Foods, is looking to divest his holding in the Company to a MNC.
GreaterAndhra.com has voiced this gossip:
“If reports doing rounds in some blogs are to be believed, Telugu Desam Party president and Andhra Pradesh Chief Minister N Chandrababu Naidu has sold away his family company Heritage Group to renowned ITC group for a whopping amount.
Though there is no confirmation from either side, rumours are afloat in corporate circles that Naidu had sold Heritage group to ITC. May be, the deal is still in the finalisation stages.
While the net worth of the company, which has nearly 275 stores, is said to be around Rs 1200 crore, the deal was struck for more than 30 times of the value, say the reports.
Apparently, the decision was taken with Naidu and his son Lokesh being busy with full-time politics and Naidu’s wife Bhuvaneshwari is feeling too tired to handle the business.
On the other hand, their daughter-in-law Brahmani is busy taking care of NTR Memorial Trust activities. So, the family wants to get out of the business activity and focus on public service!”
However, these rumors/ gossip of the stake sale are not new to Heritage Foods. In a research report issued way back in 2003, Impetus Advisors had referred to this rumor:
“There has been unconfirmed news of a few MNCs, which are in the dairy business, showing interest in taking a stake in the company. Rabo bank is reported to have taken a proposal to Heritage on behalf of an MNC. There also has been unconfirmed news of Mr. Chandrababu Naidu interested in selling his stake in the company to a strategic buyer. Any development of this kind will mean that the price-value gap will bridge faster.”
Impetus Advisors got their stock pick right. The stock is a 20 bagger (2010% gain) since then.
Whether Heritage Foods will be another 20-bagger in the next 10 years is the question of everyone’s mind! Any guesses?
Every Baba and Politician are busy in FMCG ,along with Indian business houses and MNC fighting for market share, FMCG is a crowded place ,so has to be bough with margin of safety and lower expectations.
Read Every Baba as many Baba
Greatandhra.com is the faltoo gossip site which MANUFACTURES news from thin year in telugu., & here we are taking it’s article as reference 😛
#Multibaggerstockideaa:
Heritage Foods is looking slightly flat to overvalued as far as the valuation is concerned. Last year was tough for the company as FY15 posted decreasing PAT. Revenues as well as expenses were jumped more than 15-17 percent but PAT was down nearly 50 percent. The company is trailing on PE of 26x which looks 50-50 case as far as long term vision is there. Debt is increasing gradually since last three years. Cash flows are on the negative side as well. Returns on Capital Employed is decreasing significantly over two-three years and Debt to equity ratio is increasing which is a negative sign for the company. As of now, it will be better to avoid the company to complete restructuring and lining up the quarter results, better is to enter on some trend reversal.
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