Heritage Foods Ltd Research Report By Edelweiss

We met the management of Heritage Foods and also visited the plant and Heritage parlour to get an update on the market, and insights on the company’s efforts towards achieving its stated target on growth and profitability.

Our interaction with management, operational personnel reinstated our confidence in the ability of the management to drive growth and earnings ahead. We maintain our Buy rating with a price target of INR 750.

The following are the key takeaways of our meeting.

Gearing the organizational structure for growth ahead- Being future ready

Heritage has geared itself for higher growth and increased penetration across geographies. The company remains committed to grow at a CAGR of 20% + to reach the revenue of INR 6000 crore with 40% share of added products over the next 4-5 years.

To achieve growth at this staggering pace, the company has internally created groundwork in terms of (a) Increased capital outlay- To double the capex from INR 50-60 crore to INR 100-120 crore (b) Inducting new talent, reorganizing and empowering the existing talent (c) Embracing technology at the faster rates. We remain constructive on the developments.

Targeting key markets to double volumes

Heritage has successfully expanded its procurement and distribution reach from mere 2 states a decade back to now being present in 15 states (via organic growth and acquisition of Reliance Dairy), aggregating daily procurement and sales of around 14-15 lac litres.

Going forward, it has embarked to double its procurement and sales volume to 30 lac litres in the next 4-5 years, with clear focus in the key markets – (a) Southern states aims to have additional 5 lac litres (b) Maharashtra, MP and Mumbai aims to bring additional 5 lac litres (c) From the new regions of north- NCR, Haryana, Delhi, aims to procure 5 lac litres daily from the current level of 1 lac litres.

Heritage to smartly straddle its portfolio between Milk and value added fresh products

Heritage, in its quest to become a full-fledged dairy company, is aggressively transitioning from a plain vanilla milk to value-added products’ player. The company aims to enhance the share of valueadded products from current 22% to 40% in next 4- 5 years and to achieve this, Heritage is deepening and widening reach in the category via introduction of new varieties of curd, butter milk, Lassi, Flavoured milk and ice cream.

The latest JV with the French dairy company Nova dine to enter into Fruit flavoured Yoghurt is a step in the direction to increase range in its value added portfolio. The company is further scouting for inorganic growth potential to achieve its desired growth and targets.

We believe, Heritage is smartly straddling the high-returns pouch milk segment and high-growth & margin accretive medium shelf life curd and yogurt segment. We like Heritage’s strategy to focus in the fresh segment that entails high margins and low working capital.

Outlook and Valuation; Re-iterate BUY

Heritage focused strategy of balancing aggression in growth with profitability and efficiency continues to keep us positive on the company. We expect its revenue to grow at a CAGR of 12% while earnings to grow at a CAGR of 48% over FY18-20. We maintain Buy with a price target of INR 750. (Valued at 25x FY20+ Investment value of Future Retail Shares)