Heritage Foods can move to Rs 300: Rajen Shah

Shah told CNBC-TV18, "Heritage Foods is a very low profile Hyderabad based company operating in the south of the country. It primarily operates in Andhra Pradesh, Karnataka and Tamil Nadu. This company is into two businesses- dairy and retail business. The dairy business has been doing pretty well; it is growing at about 20-25%. Last year it grew at about 25%. The retail business is doing pretty well value wise. Last year, the retail business of the company got about 85 stores across Hyderabad, Karnataka and Tamil Nadu. The retail business value wise went up by about 25%."

He further added, "But unfortunately its dairy business is highly profitable and the retail business is equally loss making. So, profits earned by dairy business get neutralized because of huge losses being incurred by the retail business. In the past we have seen companies, which have two divisions wherein one division is very profitable and the other is loss making. In such a situation, normally the management either hives off or demerges or sells out. We expect similar sort of thing happening in case of Heritage Foods."

"Last year the retail business of Heritage Foods reported a loss of about Rs 23 crore and the profit of the dairy business were almost about Rs 40 crore. Angel Broking believes that in the next 12-36 months either the company may demerge the retail business into a new company altogether and offer shares of this entity to shareholders of Heritage Foods or may be once the FDI in retail comes, we could see the company selling out this business at a decent premium. It could easily fetch about Rs 175-200 crore for the retail operations of the company. So something of this sort may happen and as and when that happens we'll see a significant re-rating of this stock."

"The current market cap of the company is very low, it is just about Rs 175 crore. It is basically just reflecting the retail business and not the profitable dairy business of the company. This is a stock wherein the downside is very low but the upside could be huge if one of this development happens. Our target is that in the next 2-3 years this is surely going to happen and when that happens the stock can easily move up to about Rs 300 levels. The market cap of Rs 175 crore for a company which is into dairy business is too low actually. So this is a sure shot multibagger in the making."

Disclosure: We own Heritage Foods in our PMS.