Hindustan Foods Limited (“Hindustan Foods” or the “Company”) is one of the largest and most diversified contract manufacturing companies for various FMCG products.

Price – Rs. 394

The Company has manufacturing units in Goa, Pondicherry, Jammu & Kashmir, Mumbai, Coimbatore and Hyderabad.

Business Model:

• Contract Manufacturing – Provide contract manufacturing solutions for MNCs and emerging businesses.These contracts are typically for seasonal clients, product testing and smaller companies without manufacturing capabilities. The contracts are not long term and are flexible in nature, in terms of volume, product categories and size.The Company is responsible for manufacturing about a third of Hindustan Unilever’s beverage business, like Bru coffee and Lipton tea.
• OEM Manufacturing – Under this model, the entire manufacturing facility is exclusively utilized for the principal company. The principal guarantees the business for a minimum number of years and returns on investments (ROI).
• Private Labels – Private label is the process of taking a manufacturer’s formulation and designing and adding your name and logo to it.
• Owned Brands – The Company has potential to create own brands focused on foods, beverages and pest control products as they have gained the expertise to manufacture for other brands. The Company manufactures, markets and distributes their own leather products under the brand UN:OR “Unorthodox” and ESTD 1977.

Financial Position

Particulars	FY14	FY15	FY16	FY17	FY18
Revenue (In Rs. Cr.)	3.18	17.42	23.85	37.86	138.66
Growth	–	447.80%	36.91%	58.74%	266.24%
EBITDA (In Rs. Cr.)	(0.49)	(5.72)	2.25	2.92	10.06
EBITDA Margin	-15.41%	-32.84%	9.43%	7.71%	7.26%
EBIT (In Rs. Cr.)	(0.64)	(7.02)	0.91	1.56	8.84
EBIT Margin	-20.13%	-40.30%	3.82%	4.12%	6.38%
PBT (In Rs. Cr.)	(1.33)	2.50	(0.05)	0.83	8.65
PAT (In Rs. Cr.)	(1.33)	2.50	1.44	0.67	6.28
PAT Margin	-41.82%	14.35%	6.04%	1.77%	4.53%
EPS (In Rs.)	(2.66)	5.00	2.88	0.52	4.65
EPS Growth Rate	–	–	-42%	-82%	802.6%
Historic P/E (Closing Price of 31st March)	–	7.53	32.73	293.79	63.17
CURRENT P/E (based on price of 15th March  – Rs. 394 and EPS TTM –Rs. 8.24)	47.82
Shareholder funds (In Rs. Cr.)	(2.45)	0.03	3.07	32.46	38.74
Minority Interest (In Rs. Cr.)	0.00	0.00	0.00	0.00	0.00
Debt (In Rs. Cr.)	16.31	9.63	11.07	4.68	32.02
Cash (In Rs. Cr.)	0.03	0.07	0.13	16.16	6.61
RATIOS
D/E	(6.66)	321.00	3.61	0.14	0.83
Interest Coverage	(0.71)	(3.69)	2.30	3.07	7.68
ROCE	–	–	6.44%	4.20%	12.49%
ROE	–	–	–	2.56%	22.33%

Quarterly Performance

Quarterly Results	Q3 FY 2018	Q2 FY 2019	Q3 FY 2019	TTM	Q-o-Q %	Y-o-Y %
Revenue (In Rs. Cr.)	26.17	52.74	55.72	216.32	5.65%	112.92%
EBITDA (In Rs. Cr.)	2.26	4.94	5.44	19.45	10.12%	140.71%
EBITDA Margin	8.64%	9.37%	9.76%
PAT (In Rs. Cr.)	1.02	2.54	3.09	10.76	21.65%	202.94%
PAT Margin	3.90%	4.82%	5.55%
EPS (Rs.)	0.74	1.93	2.29	8.24	18.65%	209.46%

Q3 FY 2018 Highlights:

• Hindustan Foods expects a turnover of Rs. 250 Cr. annually from its green-field project in Coimbatore for packing of tea and other beverages. Commercial production began in late December 2018.
• The Vasai, Maharashtra unit for shoes has signed up new orders from various customers like Flipkart, Myntra, Lollipop, Dunes and is ramping up gradually.
• The Extruded Foods manufacturing in Goa, the Leather Shoes business in Pondicherry and Chennai, and the Pest Control manufacturing in Jammu continued to perform consistently.

WHAT’S DRIVING THE STOCK?

Diversified Business Model

Business Model			Owned Brands
Contract Manufacturing	OEM Manufacturing	Private Labels	Foods: Saucery
Food Extrusion: Marico, Pepsico.	Food Extrusion: Danone	Leather Products: Steve Madden, U.S. Polo, Kenneth Cole.
Leather Products: Gabor, Richter, Bata, Jomos, TBS, Hidesign, Reliance Brands Ltd., Arvind Ltd.	Pest Control Product: Reckitt Benckiser		Leather Products: UN:OR, ESTD 1977
	Beverages: Hindustan Unilever Ltd.		Licensing & Distribution: TBS, Gabor, Richter.
	Fabric Care: Hindustan Unilever Ltd.

Strong Clientele Profile | Diversified Across Various Product Categories And Customers

Growing Opportunity In The Contract Manufacturing Space In India

Contract manufacturing represents huge opportunity due to the following reason:

• Asset Light Model for upcoming brands – For companies that need to test market products and only gradually scale their presence, contract manufacturing represents an asset light strategy.
• Cost Advantage – As most market spaces become increasingly competitive, there is a greater premium on the need to moderate costs and engage with contract manufacturers who possess large capacities and economies-of-scale.
• Help the companies to focus on R & D and Marketing & Distribution while outsource their manufacturing needs.

The Company represents an attractive opportunity for international brands seeking to prospect marketing opportunities in India without spending extensively in setting up manufacturing facilities.

Management Guidance

The Company is very confident to achieve near term revenue target of Rs. 1000 Cr. by FY 20.

Expansion and Acquisition

• On 25th Jan, 2019, Hindustan Foods has acquired 40% stake in ATC Beverages Private Limited in Mysore which is engaged in the business of contract manufacturing of beverages for Pepsico presently.
• The Company approved further investment of Rs. 30 Cr. in the Coimbatore plant to expand capacities to meet the growing demand.
• Investment of Rs. 50 Cr. is authorized to expand the Hyderabad facilities for manufacturing of detergents and liquid soaps.
• Considering the proposed investments in existing ongoing projects as also visibility of newer projects, the Board also discussed the possibility of raising up to Rs. 100 Cr. by way of issue of equity shares / warrants / cumulative convertible preference shares or any other securities.

On 27th February, 2019, private equity firm Convergent Finance has closed its deal by leading a $22 million (Rs 154 Cr.) funding round in Hindustan Foods Limited

WHAT’S DRAGGING THE STOCK?

Low Equity Base | Thin Trading Volume | Only BSE Listed.

Client concentration – Top 4 clients account for 75% of revenue.

Low Margins

Valuation Perspective – At the current price of Rs. 394 (as on 15th March 2019), Hindustan Food’s trailing 12 month PE comes to ~ 47.82x which is at a discount to the industry average of about 60x . Based on this, fair value of Hindustan Foods should be Rs. 494.4.

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