Heritage Foods (India) Ltd. (HFL), based in Hyderabad, is among the leading
corporates in the dairy industry. HFL has ~77% of its revenue coming in from the
dairy business. The dairy industry, as per industry reports, is expected to grow at a
CAGR of 13-15% till FY2020. The expected robust growth would be on the back
of the urbanization trend, leading to changing consumption patterns backed by
increasing disposable incomes. Being one of the leading players in south India
with established brands, we expect the boom in the dairy industry to drive growth
for HFL. However, we believe the companys retail segment, which has been
incurring losses since inception, will continue to be a drag on its profitability. A
strong growth in the dairy industry, increasing contribution of value added dairy
products (VADP), and widening geographical reach for dairy products are strong
growth drivers for HFL going forward. We initiate coverage on HFL and
recommend Buy with a target price of Rs275.

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