Hatsun Agro Q3 Results Review - Strong Margins Inspite Of Steep Inflation In Input Prices: ICICI Securities

ICICI Securities Report

Takeaways from Hatsun Agro Products Ltd.'s Q3 FY23:

1. considering multiple rounds of price hike in nine months-FY23, we believe volumes have likely declined in Q3 FY23 and

2. milk procurement prices continue to remain high due to muted flush season in FY23.

While Hatsun’s gross margin declined 60 basis points YoY, the Ebitda margin expanded 64 basis points due to lower staff cost and other expenditure (lower ad-spend in our view).

We believe gross margins have bottomed out and model margin recovery from H1 FY24. We model Hatsun to report profit after tax compound annual growth rate of 25.2% over FY22-24E with:

1. high single-digit growth in milk procurement,

2. better utilisation of three new plants and

3. higher share of value-added products especially single-serve ice creams.

We remain structurally positive on Hatsun due to its competitive advantages and growth opportunity in South India but need more comfort on valuations to be constructive.

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