Buy Heritage Foods; target of Rs 360: ICICI Securities

ICICI Securities research report on Heritage Foods

Heritage reported revenue growth of 2.8% and PAT decline of 65.6% YoY. EBITDA margin declined 350bps, YoY. We expect it to report revenue CAGR of 8.2% over FY20-22 with (1) volume CAGR of 3% and (2) price hikes of 5%. We also model value-added products (except curd) to report revenue decline in FY21-22. Post lockdown, the milk procurement prices have corrected and we expect EBITDA margins to be above 6% in FY21 due to (1) price hikes of ~10% in FY20, (2) lower sales of ghee and SMP which have lower margins and (3) correction in milk procurement prices.

Outlook

We model Heritage to report PAT CAGR 38.3% over FY20- FY22 with improvement in core return ratios. Maintain BUY with a target price of Rs360 (15x FY22E; Earlier TP-Rs404).