Rating Rationale

Key Rating Drivers & Detailed Description

Strengths:

Established market position supported by strong brand and geographical diversification: Hatsun is the largest private sector dairy company in India, with a portfolio of established brands, superior brand equity, well-spread distribution and procurement networks, and an aggressive marketing strategy. Over the last 5 years the company has been diversifying geographically with revenues from Tamil Nadu reducing to around 55 percent in fiscal 2025 from around 67 percent 5 years earlier. Market position to remain strong in Tamil Nady, with gradual penetration into other states, primarily AP, Telangana, Karnataka and Maharashtra. With the recent acquisition of Milky Mantra acquisition in FY2025, the company is ventured into Odisha market with the Milky Moo brand. Strong market position in the milk segment is cemented by widespread presence in South India, with majority of the processing units located across Tamil Nadu. HAP’s established market position is reflected in its turnover of around Rs. 7275-8699 crores over the last 3 fiscals ended March 2025 and the revenues are estimated to be over Rs.9500 crore for fiscal 2026.

Healthy operating efficiency backed by established procurement and distribution network: Hatsun owns over 13,000 milk banks covering around 10,000 villages, with chilling and dairy units across its key operating markets. This enables it to reach out to over 5 lakh farmers. Further the company has an established network of through its network of around 4000+ own distribution outlets. The company also has renewable energy agreements which fulfill 80 percent of power needs. This in turn supports the profitability with operating margin of around 9.5 to 11.6 percent in the last 3 years ending fiscal 2025 and ROCE of around 11 to 13 percent in the same period.

Prudent working capital management: Working capital cycle will continue to be managed efficiently. The gross current assets (GCA) days came down to 51 days as on March 31, 2025 as against 71 days in fiscal 2024 with reduction in skimmed milk powder (SMP) stock.

Weaknesses:

Exposure to risks related to entry into new geographies and expansion plans: Hatsun plans to further penetrate non-mature markets like Karnataka, Andhra Pradesh, Telangana, Maharashtra, and Odisha, in addition to achieving stable growth in Tamil Nadu. They have made significant capital investments in these geographies over the years (in Odisha, they entered the market through the acquisition of Milk Mantra Dairy Private Limited). Marketing costs and other overhead costs could be high in the current year due to their focus on penetrating the market. Furthermore, intense competition from established players operating in newer geographies may continue to constrain scalability, pricing power, and profitability.

Susceptibility to changes in environmental conditions: Prices of key products, milk and skimmed milk powder, have fluctuated in the past, owing to droughts and supply constraints. Susceptibility to failure in milk production because of external factors such as cattle diseases also impact the business. Also, higher rainfalls in the last quarter in Tamil Nadu and other southern states dented the ice cream sales, leading to lower margins for the company.