16 October 2012 For Private Circulation Only

A Multibagger in the making – One of India’s Largest Private Dairy Companies at 8x P/E

Dairy Sector – Offers ample scope for growth

• The Penetration of the Organized sector is still very

low, of the 122 mn tones of milk output in 2011 only

37% was processed, of this the organized sector

accounts for only 15%.

• Demand for milk is growing at 8-10% almost twice the

output, this has lead to unabated milk inflation over the

last decade.

• Value added products such as Curd, Butter Milk, Ice

Cream are growing at 20% on the back of changing

consumption patterns and rising urbanization.

Heritage Dairy Business – Cash Cow

• Dairy is 77% of overall business, within Dairy the

major contributors are Liquid Milk (75%), Value added

products (13%) and Fat products (11%)

• Milk is procured directly from 2.5 lakh farmers and sold

to more than 8 lakh households.

• Asset Light business, with high ROC in the range of

40-45%,negative working capital cycle and generates

Rs 45-50 cr operating cash each year.

Dairy Value Added Products – Growth Driver

• Dairy value added products contributed 144 Crores to

the overall business in 2012, this segment has

margins in the range of 13-15%, slated to grow at 35-

40%.

• Curd, Ice Cream, and Flavored Milk are the key

products, this segment will help Heritage break away

from the commoditized nature of the Liquid Milk

business.

Retail – To breakeven in 3 years

• Heritage has 73 retail stores that are loss making, this

business was started in 2006 and has already turned

profitable on a Store Level.

• Heritage plans to almost double its retail area of 0.2

msf over next couple of years, the incremental growth

will provide considerable operating leverage leading to

breakeven at EBITDA.

CMP (INR) 302

Fair Value (INR) 850-900

Investment Horizon 3 yrs

M. Cap (INR mn) 3482

Brief Financials

(in Rs mn) FY11A FY12A FY13E FY14E FY15E

Revenue 10,961 13,934 16,629 20,102 23,829

growth (%) 27% 19% 21% 19%

EBITDA 341 513 758 1,027 1,382

margin(%) 3.1% 3.7% 4.6% 5.1% 5.8%

PAT 14 93 294 422 659

growth (%) 564% 216% 44% 56%

EPS 1.0 8.0 25.5 36.6 57.2

P/E 37.6x 11.8x 8.2x 5.2x

ROE (%) 1% 11% 28% 32% 37%

Segment Sales

(in Rs mn) FY11A FY12A FY13E FY14E FY15E

Dairy 8,453 10,768 13,114 15,739 18,844

growth (%) 27% 22% 20% 20%

EBITDA 579 732 891 1,122 1,400

margin(%) 6.8% 6.8% 6.8% 7.1% 7.4%

Retail 2,390 2,990 3,514 4,364 4,985

growth (%) 25% 18% 24% 14%

EBITDA (160) (170) (133) (95) (18)

margin(%) -6.7% -5.7% -3.8% -2.2% -0.4%

Investment Argument

• Dairy business to benefit from rising urbanization and

changing consumption patterns. This segment is

expected to grow at 20% CAGR.

• Dairy Value Added products to grow at 40% CAGR,

operating margins are 2x of liquid milk business.

• Dairy EBITDA to grow at 24% CAGR with rising

contribution of value added products.

• Dairy is a high asset turnover business, ROC is in the

range of 40-45%.

• Cash flow from Dairy to be used to pay down debt, D/E

to come down to 0.56 by 2015 from 1.55 in 2012.

• Retail is currently loss making, losses to gradually

subside and business to breakeven in 3 years.

• Hatsun Agro, the closest listed peer trades at 8.5-9x

EBITDA.Private Equity deals in the dairy space have

taken place at 10-12x EBITDA.

• The risk/reward ratio at these valuations is extremely

favorable as there is ample scope for multiple re-rating

and earnings growth.

Heritage Foods

16 October 2012 For Private Circulation Only

DISCLAIMER: This report has been issued by Girik Wealth Advisors Pvt Ltd., which is regulated by SEBI. This report is strictly for internal and private

circulation. While utmost care has been taken to ensure that the facts stated are accurate and opinions given are fair and reasonable, neither the

company nor any of its Directors, officers or employees shall in any way be responsible for its contents. The information herein was obtained from

various sources; we do not guarantee its accuracy or completeness. The report does not have regard to specific investment objectives, financial

situations and the particular needs of any specific person who may receive this report. The views/opinions expressed are for information purpose

only, and may be subject to change due to change in equity or other market conditions. Investors should realize that statements regarding future

prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each security’s price or value

may rise of fall.

Address : Girik Wealth Advisors Pvt Ltd. ,609,Maker Chambers V, Nariman Point, Mumbai 400021,India,Email : info@girikcap.com