Heritage Foods - Why is it such a fancied stock?

I am writing this to request members who have an insight into this stock to give me an objective assessment of why this stock is viewed as a multibagger? What are the triggers that will propel growth that can offer multibagger returns? Is there a risk in the fact that it is owned by Chandrababu Naidu family? If he goes out of power will his rivals not hound this down? I would like to learn more about this stock. If you have the patience to layout the investment thesis. Thank you in advance for your time.

 

Its a fancied stock because Vijay Kedia, Dolly Khanna and a few other star investors have invested in it.

 

Look into its financials...This year sales was around 2000cr with only 1.4% net profit margin...Company has set a target of 6000 cr sales in 2020 with focusing on higher margin product...its trading at @25P/E whereas its close competitor are trading at 50-60 P/E... Have a great future ahead atleast for 3-4 years...thats why ace investor are entering into this....

 

Pretty much ^

Everything else you hear is just a sales pitch. Unless people are going to pay big premium for Heritage products, no niche there.

Patanjali is already disrupting the FMCG space. ITC has plans to take Aashirvad into dairy. Many regional players and the NDDB co-operatives (Amul dudh pita hai India).

Kwality announced signing Akshay Kumar as brand ambassador.

 

Has the management clarified how they plan on growing sales 3x in just 5 years? Also I believe a significant part of their business is from Telangana. Isn't this a big political risk given the rivalry between the two leaders? Also regarding multiples 25x is not exactly a bargain, while 50-60x for dairy business is most definitely ridiculously expensive, in my opinion.

Vijay Kedia has no doubt proven himself as a smart investor, but Iam struggling to see the attraction in this stock.

 

Yup...50-60 P/E is ridiculous ...20-25 P/E is OK...The management intend to increase their sales by 3X by focussing more on their value added products like Packaged Curd, Icecream, paneer which typically having double margin compare to milk...Their track record shows they can achieve it...from last quarte their retail business EBIDTA came positive and management is expecting profit from their retail sector...They are penetrating into new states like delhi NCR....
As far as chandra babu naidu, He is trying to export the dairy products to Australia and other countries...(Read his laast month tweets)...

 

Politician words... Do they carry any weight?

3x sales on the back of so called value add products like curds, icecreams, paneer etc actually sounds absurd. As if competition is non existant in these products.

Expansion into north that too a south based dairy company.... Not sure if you know this but even amul has struggled up north. Mother dairy has a significant share in delhi/ncr, verka further up north.

Besides while india may be the largest producer of milk, a large part of it is still raw buffalo milk

 

Please go through their Annual report...

 

The two main arguments seem to be :

1. Undervalued relative to peers even at current prices

2. Huge growth plans ahead, as declared by their management.

Doubts/ Questions

1. If something is undervalued there are two possibilities : it is genuinely undiscovered by the market or the market is discounting facts retail investors are not aware of. Which of the two is it?

2. Do they have a track record which gives confidence that they can execute on announced growth plan?

 

Go through their annual report for what? Would it reflect what you have mentioned here?

As fun_da_mentalist points point : if undervalued, it's either undiscovered by the market or market is in a wait and watch mode about the execution of its growth plan.

In my view, it's more of the second for the scrip is certainly not undiscovered ( even amateur investors seem to talking about it). Thus it comes back to execution and 3x on the back of what you mention in my opinion looks difficult

 

This discussion is throwing up all the right questions. I was waiting for a correction to buy this stock. Now there is a change in my view. I will buy this stock only if I see satisfactory answers to the questions, raised by Fundamentalist.

Thanks to Fundamantalist and other Forum members who contributed to this discussion.

 

I think they have a track record that give confidence for future growth... And Chandrababu Naidu is there as CM till 2019...And management are very optimistic about their future growth....
I think it comes on radar of ace investors 2-3 months back and this run up is due to that only...
I am holding this stock from the level of 280 so my views may be biased...so please do your own research before putting money into it....

 

Guys did you check this?

https://rakesh-jhunjhunwala.in/smal...amal-kabra-has-tremendous-potential-religare/

 

@ Mr Fun_Da_Mentalist @ Mr kharb @ Mr Karthikeyan - If permitted to say , this type of investing is termed Growth Investing by Ace investors like you where one has to bet on future growth & future intrinsic value ,but down side is not adequately protected.. Am I right Sir? May be because at present promising undervaluedes are difficult to find.

 

..In my view this field is going to be over crowded ,with existing players like Nestle, Britania becoming aggressive,ITC trying to secure future of Tobacco business here,Baba Ramdev becoming ambitious, lot of other regional players expanding..HUL being FMCG player can jump any where in FMCG field.Dabur may also some day have to enter in this field to expand,so will other FMCG players like MARICO,Godrej ,Emami ,bajaj etc in future as they are in business of FMCG and may like to expand 360 degree. Crowded place has always wafer thin margins. So difficult task for Heritez Food management but not impossible.We need to see if these big investers are for long journey as our co passengers or intent to go down from train to give us their berth at the station we want to board the train.A very interesting play to bet or even to see from side line.

 

Promising undervalueds are hard to find. I suppose that depends on how widely and how deeply we look. People like us with day jobs have limited time and resources to invest in this effort. More importantly, we are outside that charmed circle which is privy to real decision making on large buys. We will always be buffeted by these facts. Important to recognise it and plan accordingly.

I have always read up reports by these big boys to give me the universe to choose from. Also because it is important to pick stocks that are in the radar of large investors. But after that, if the investment thesis does not sit comfortably with me or I sense an attempt to "market" a stock I avoid it. But mainly, I pick only those which pass my filters and parameters.

In that regard, stocks I would invest in are quite limited and which is why I naturally run a very concentrated portfolio.

 

The key question to answer : if I had an extra rupee to invest would I put it in heritage or one of my existing stocks. My answer is I would rather put it in a granules or a Shilpa or a Camlin and until a few days ago into a Kitex. But of course that depends on portfolio styles and saturations

 

what made u change your mind about Kitex?

 

I still like Kitex. But naturally it makes more sense to add at 640 than it does to add at 705.

 

@Shakti Kanduriji,
In one of your earlier comments, you have mentioned that sustainability and scalability are two important pre requisities for choosing a stock. It was news for me, when I read it. Now, I am making it a habit to think abt this before looking at the fundamentals, while choosing a stock.
I think, Scalability becomes more important when it is all about about Growth Investing. Ever increasing competition in the FMCG space may make "scalability" very difficult.