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ICICI Securities Report
Heritage Food Ltd. reported strong revenue growth of 19.9% YoY while Ebitda margin remained flat (-7 basis points YoY).
Average milk procurement prices inflated by 6.3% YoY, resulting in gross margin compression (-60 bps YoY).
The higher sales of margin accretive value added product (+18% YoY) partly aided margins. While milk prices have increased by 7.6% YoY, we note sequential increase of mere 0.4%. We model milk prices to remain stable for rest of FY24.
The revenue growth is likely to continue on geographical and channel expansion with higher value added products sales. The steady launches of new products are likely to continue.
We cut FY24E earnings by 10% to factor in Q2 FY24 result. However, maintain buy rating with discounted cash flow -based target price of Rs 290 (implied price/earnings of 14 times FY25E).
Key risks are higher competitive pressures and raw material prices.
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