Hatsun Agro Q2 Review - Lower-Than-Expected Revenue Growth; Margin Expansion Remains Strong: ICICI Securities

ICICI Securities Report

Takeaways:

Hatsun Agro Products Ltd. reported gross/Ebitda margin expansion (+49 bps/15 bps YoY) in spite of Q2 FY24’s relatively high base. The expansion is largely led by:

• stable milk procurement prices; and

• better product mix, in our view.

We believe the buoyant margin trajectory may sustain in H2 FY25E, considering expected stability in milk procurement prices and higher capacity utilisation. However, we believe a cyclical upturn in milk procurement prices may impact margins in Q4 FY25 and beyond.

Lower inventory on the Sep-24 balance sheet indicates liquidation of SMP inventory in H1 FY25.

Net debt/equity ratio stands at 1.3 times versus 1.6 times in March 2024 due to repayment of short-term debt.

We remain positive on Hatsun given its competitive advantages – established brands, distribution and direct milk procurement.

We cut FY25E/FY26E earnings by 10%/8% to factor in the H1 FY25 results. Retain Buy.

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