Cash cow

The stock price of Hatsun Agro, a leading player in the dairy segment in Southern India, is going anywhere but south. Hatsun has outperformed the Sensex by a mile and gained 154% over the past one year to hit an all-time high of Rs.970. The 2.5x surge has come on the back of double-digit earnings growth over the past few quarters.

Riding on this success, chairman RG Chandramogan, has sold 3.15 million shares for Rs.231.5 crore. Chandramogan is the largest shareholder, and post this disposal, his stake stands at 55.68%. This is the first instance of Chandramogan selling in the open market. On the same day, promoter Deviga Suresh also disposed 200,000 shares worth Rs.14.7 crore. DSP BlackRock MF acquired a part of this tranche by buying 1.89 million shares for Rs.138.9 crore.

Between September and October, a host of other promoter entities had also reduced their holding to raise Rs.94.5 crore. Institutional shareholding hasn’t altered much over the past year. The share of domestic mutual funds increased from 0.01% for the quarter-ending September 2016 to 0.3% for the quarter-ending September 2017, while the share of foreign portfolio investors has increased from 3.26% to 3.74%. Among FPIs, the holding of Jwalamukhi Investment Holdings (WestBridge) has remained unchanged at 1.22%.   

A significant presence across five states and 100% direct milk procurement has enabled Hatsun to garner 14% market share in the Southern market. Over the past five years, its net sales has clocked a CAGR of 21.2%, while its net profit has compounded at an impressive 38.17%. Q2FY18 revenue increased by 6.7%, while profit increased by 18.8% over Q2FY17. The stock currently trades at 51x FY19 estimated earnings. A shift from unorganised to the organised sector, commissioning of its new packaging plant and launch of new milk products are reasons being put forth by analysts to justify the premium multiple.