Hatsun Agro Q1 Result Review - Lower Milk Procurement Prices Lead To Margin Expansion: ICICI Securities

ICICI Securities Report

We are enthused by Ebitda margin expansion posted by Hatsun Agro Products Ltd. in Q1 FY24 YoY. Correction in milk procurement price has resulted in gross margin expansion of 110 basis points QoQ.

We model the full benefits of lower input prices to be visible in Q2 FY24. The sale of windmill assets is likely to be accretive in our view as the return on capital employed on windmill operations was lower than cost of capital.

We remain positive on Hatsun structurally due to competitive advantages such as brands, distribution and milk procurement.

We also believe it is likely to benefit from favorable milk cycle for dairy companies.

However, we need more safety on valuations and retain 'Hold' rating. We the stock at target price of Rs 1,000 (implied 50 times FY25E; prior target price: Rs 880) as per discounted cash flow methodology.

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