Heritage Foods has delivered over 300% returns on its shares in 18 months, backed by strong financials and growth in value-added products. With a focus on the burgeoning ice cream market, the company aims for a topline of ₹6,000 crore and continues to attract investment interest.
Heritage Foods, a leading dairy company in India known for its diverse product portfolio and strong relationships with local farmers, has delivered an impressive return of over 300% on its shares over the past 18 months. According to domestic brokerage firm HDFC Securities, the company’s robust distribution network and commitment to high-quality premium products position it well to capitalize on the growing dairy industry in the country.
Strong Financials
Heritage Foods maintains a strong balance sheet characterized by low debt, improving margins, and healthy operating cash flows. Although its EBITDA margins are slightly lower than those of its closest competitors, HDFC Securities anticipates that stability in milk procurement prices—supported by a normal monsoon and expectations of a good flush season—will help sustain margins in the liquid milk segment. Additionally, the increasing share of higher-margin value-added products (VAP) is projected to drive margin expansion in the future.
The company aims for a topline of ₹6,000 crore within the next three years while maintaining EBITDA margins in the high single digits, primarily by enhancing the contribution of VAP to its overall mix. Heritage Foods ventured into the ice cream segment in 2009, which currently accounts for about 9% of its value-added dairy segment. The company reported ₹31 crore in ice cream revenue, with an annual run rate projected between ₹110–120 crore.
Market Opportunities
Heritage Foods is poised to capitalize on the burgeoning ice cream market in India, which remains relatively underpenetrated compared to the overall impulse retail space. Ice cream distribution outlets currently represent only 10% of the total impulse retail distribution. With rising per capita income, consumers are likely to increase discretionary spending, leading to a surge in impulse purchases that will further boost sales in ice cream and other value-added dairy categories.
Investment Recommendations
In light of these positive developments, HDFC Securities advises investors to buy Heritage shares within the range of ₹588 to ₹614 and accumulate shares on dips between ₹525 and ₹550. The brokerage has set the stock’s base case fair value at ₹655, with a bull target price of ₹707, indicating a potential upside of 15.5% projected over the next 2 to 3 quarters.
Stock Performance Overview
After experiencing a challenging phase between November 2021 and March 2023, during which the stock faced significant selling pressure and remained stagnant, the tide turned in April 2023. The stock rebounded swiftly from its previous lows and has since maintained consistent bullish momentum. It surged from ₹144 per share to its current trading price of ₹612.90, translating to a remarkable gain of 325%.
Notably, the stock recorded positive performance in 12 out of the 18 months since April 2023, showcasing its resilience. June 2023 marked the highest monthly gain, with the stock climbing by 40%, while December 2022 closely followed with a robust gain of 27%.
