Hindustan Foods Gets Systematix' 'Buy' Initiation, Sees 23% Upside

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Systematix Report

We initiate coverage on Hindustan Foods Ltd. with a Buy rating. There are not too many listed peers comparable with Hindustan Foods, except for-

1. Varun Beverages, the listed peer in F&B contract manufacturing, and

2. some broad similarities in the business models of electronics manufacturers like Dixon Technologies and Amber Enterprises.

While Varun Beverages’ margins are materially higher than those of Hindustan Foods (given Varun Beverages’ higher degree of value addition, which includes bottling and distribution), Hindustan Foods’ FY24-FY27E earnings’ growth forecast is higher versus Varun Beverages’.

Dixon and Amber compare better with Hindustan Foods on margins but are materially ahead on earnings growth (with corresponding higher valuations). While Hindustan Foods’ smaller scale and valuation discount vs peers could persist, we expect the multiple to be supported by its-

1. robust project pipeline,

2. improving RoE, and

3. healthy revenue/ earnings growth trajectory over the medium term.

We value Hindustan Foods at a P/E of 42x FY27E EPS (post-dilution), at a slight discount to its current one-year forward P/E to account for recent expansion into new segments with some execution risk.

Our valuation implies a target price of Rs 710/share (23% upside to current market price). The stock currently trades at a P/E of 45x/34x FY26E/FY27E EPS.

We expect to upgrade the company’s earnings over FY26-FY27 if it finalizes more contracts through its ever-expanding pipeline during this period.

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