Hatsun Agro's ice cream business has 'potential to create value', ICICI Securities rates as Buy

The growth in ice cream business is being led by a shifting preference towards premium products, rising disposable income, and the rise of modern retail formats.

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Shares of Hatsun Agro, dairy product maker and owner of ice cream brand Arun, are once again under investor's radar with ICICI Securities retaining its Buy recommendation along with a target price of Rs 1250 per share, at a time when HUL is hiving off its ice cream business into a separate listed company.

Hatsun Agro is also India's largest private sector dairy company and also runs a chain of premium ice cream outlet Ibaco. Hatsun has a market capitalisation of over Rs 25,000 crore and the shares are lower by 2.5% so far this year.

Hatsun has cited forecasts that project the ice cream market in India to reach a size of Rs 95,600 crore by 2032, from Rs 22,860 crore in 2023, at a growth rate (CAGR) of 17.4% between 2024-
2032. The growth is being led by a shifting preference towards premium ice cream products, rising disposable income, and the rise of modern retail formats, Hatsun said in its annual report.

ICICI Securities said Hatsun Agro’s ice cream business has potential to create value, with established brands Arun and Ibaco. The company runs three manufacturing units that cater to a large geography.

Recently, Hindustan Unilever had granted an in-principle approval to the demerger of its ice cream business into a separate entity, which will eventually be listed independently. For HUL, the ice cream business is a high-growth segment with strong brands like Kwality Wall’s, Cornetto and Magnum operating with 'mid to high-single digit profitability'. The ice cream category has maintained its volume vis-à-vis last year, during the September quarter.

HUL added that the demerger will create a 'leading listed ice cream company in India, which will have a focused management with greater flexibility to deploy strategies.'

Aside of HUL, there are only a few niche players in the ice cream business like Naturals and Baskin Robbins, along with regional co-operatives, some of whom may have relatively weaker balance sheets.