HERITAGE FOODS TO HIVE-OFF RETAIL BUSINESS TO ROPE IN PARNERS - ET REPORT

 7 Dec, 2012, 04.00AM IST, C R Sukumar,ET Bureau

HYDERABAD: Heritage Foods IndiaBSE 4.99 % (HFIL), the Rs 1,400-crore retail and dairy products company promoted by the family of Andhra Pradesh's former chief minister N Chandrababu Naidu, will hive-off its retail business into a separate arm to rope in strategic or financial partners, said a top official.

The move assumes significance in the backdrop of the government's move to allow foreign direct investment into the retail sector, allowing foreign companies to buy a controlling interest in Indian retailers.

"The board has approved a proposal to hive off the retail business into a wholly-owned subsidiary and to rope strategic or financial partners in a bid to accelerate the pace of growth in retail business," HFIL president M Sambasiva Rao told ET.

A separate entity, Heritage Foods Retail, was registered for the purpose and the transferring of the retail business to the subsidiary will take place along with the firming up of new partners, said Rao.

He ruled out promoters divesting stake at the parent company level. Heritage Foods, founded by Chandrababu Naidu in 1992, had in 2006 forayed into food and grocery retail. It currently operates in Andhra Pradesh, Tamil Nadu and Karnataka.

The retail division now has 72 'Heritage Fresh' branded retail stores with a total retail trading space of 2.1 lakh square feet. "It is a volume business and we want to at least double the retail trading space over the next two-three years with the help of partners in these three southern states," said Rao.

For the year to March 2012, the retail business reported sales of .`299 crore but had negative EBITDA (earnings before interest, taxes, depreciation and amortisation) of Rs 18.3 crore.

"We are open to roping in both domestic and foreign partners," he said. "There are some pure investment players who may be interested to invest and allow us to manage the business and some domestic and foreign retailers keen on active role in running the business".

HERITAGE FOODS - COMPANY CLARIFICATION

In response to the news item published in today's Business Standard (reproduced in my previous posting) Heritage Foods now issued a clarification to BSE as follows :

 

With reference to the news item appearing in a leading financial daily titled "Premji fund back in retail with Heritage Foods stake buy ", Heritage Foods (India) Ltd has clarified to BSE the following :- "1. The Company decided to subsidiarise Retail business and a wholly owned Subsidiary Company namely Heritage Foods Retail Ltd was incorporated and the decision of the Board was informed to the Stock Exchanges on September 26, 2008. Company is open for strategic partnership in retail business for accelerating its growth. However before finalizing any of such deal the Company will follow the prescribed guidelines as per the Listing Agreement. 2. Company is not looking for any strategic investor at the group company level (HFIL) and the promoters are not looking to sell their stake. 3. The buzz in the market regarding open offer by a strategic player with a total transaction value of $ 100 Million, is not true."

MY OBSERVATIONS



1) Company not denied the investment by Azim Premji's investment fund, which happened during last week of October and first week of September at a price of Rs.380- 390.

2)Heritage denied the entry of a strategic Investor to the main company but nothing commented about a dilution of stake in their retail venture. I feel ,in near future company will de-merge its retail operations into its wholly owned subsidiary and divest some stake of this subsidiary to a strategic investor  . This will surely help the company to reduce its financial burden to a large extent and also help the company to retire its debt substantially over the next few years.

3) Regarding open offer by a strategic player for the company with a TOTAL transaction value of $ 100 Million is really an unthinkable figure. If the author mean this value is for  ENTIRE company , based on some of the recent transactions happened in dairy industry  in India it should be many  times higher than the mentioned figure and in this case I think the promoters will not dilute any stake in their  main company ( Heritage Foods)  at this point of time.

HERITAGE FOODS - UPDATE

COURTESY : BUSINESS STANDARD


Premji fund back in retail with Heritage Foods stake buy 


 Raghuvir Badrinath / Bangalore Dec 05, 2012, 00:50 IST

Premji Invest, the $1.2-billion private and public equity fund of Wipro chairman Azim Premji, has bought a stake in Hyderabad-based Heritage Foods. The latter is a publicly held company, owned by Chandrababu Naidu, former chief minister of the state, with revenue of around Rs 1,400 crore in 2011-12.
It is understood that the stake was bought recently, after a private equity fund managed by the Kotak Mahindra Group offloaded a majority of its 10 per cent stake in the open market. With this, Premji Invest has again takenp direct exposure into the food and groceries retail chain sector, despite the ongoing legal tussle with the promoters of Subhiksha, the failed retail chain in which they’d put a huge amount, shortly before the latter went bankrupt.
While Premji Invest did not respond to queries for this report, senior management officials of Heritage Foods confirmed the move.
Prior to this investment, the PE fund took exposure in Fab India, JSM Corp (which runs the Hard Rock Cafe in India), Trent (part of the Tata Group), Carnation (a car servicing company started by Jagdish Khattar), Manipal Global Education and Healthcare Global (a cancer care chain), among others.
The management of Heritage Foods is understood to be in the advanced stages of spinning off the company’s retail arm, which runs 75 neighbourhood convenience stores under the ‘Fresh’ brand, focused on South India. Heritage Foods gets 90 per cent of its revenue from the dairy business; the rest comes from agriculture and bakery segments.
Heritage’s president, M Sambasiva Rao, told Business Standard they were open to a strategic partnership in the retail business. This business contributes around five per cent, at Rs 300 crore, to the revenue; it report a loss of Rs 20 crore in 2011-12.
The PE sector is also abuzz with reports that Heritage might also be looking for a strategic investor at the group company level. “The stock price during the past three months has had a good run. It has gained as much as 80 per cent and is trading at Rs 465 a share on the NSE. There is a buzz in the market that a strategic player might take a stake and then make an open offer in a total transaction value of $100 million,” two investment bankers told Business Standard.
However, the management of Heritage Foods categorically denied that the promoters were looking at selling stake in the main company. A senior official said during the past two quarters, the profit levels had improved substantially, with the dairy business performing well as procurement costs come down. “That is one of the reasons for the spike in the stock price,” he said.

OLD POSTING ABOUT  THIS  STOCK - HERE

LA-OPALA RG -------- REPEAT

La-opala RG  is a stock recommended twice in this blog once around Rs.60 and again @ Rs.165. Now repeating this stock third time @ Rs.190 . La-opala is a name to reckon with in the  Indian organised crockery market and an undisputed leader in premium segment. Company also exporting its opal and glassware products to many countries.Recently company completed a major capacity expansion program in its Sitarganj Factory ( upto 100 % increase in production capacity of this unit ) which will start to contribute from this financial year onwards.With this expansion company is expecting to increase its export contribution from current 20% to 30% in total turnover. Company already owned another piece of land worth about Rs.20 Cr and management indicated  this will be utilised in future for further expansion.Government’s decision to impose anti dumping duty against cheap imports of opal ware from UAE and China for five years will help the company to sustain and improve its margins.Now the company is also targeting corporate business including supply of products to star hotels..etc.which is  untapped till now .Another important point to note is that the company’s efforts to reduce its debt level .In past four years La-opala reduced its debt level  by 50 % which is very important and prudent decision by the management in a high interest rate regime. La-opala is expected to end FY 2012-13 with an EPS of Rs.15+ and FY 2013-14 with Rs.20+ , based on this current valuation is  still at the lower end for a company operating in premium housewares segment with established brand and showing steady growth.There is no strictly comparable pairs but the demand trend of these products are almost similar to the products offered by companies like TTK Prestige ,Hawkins ..etc Citing all these positives management is aggressively purchasing shares( Sample Filing HERE) from open market in past few weeks even the price ruling around its life time high.Considering the favorable demographic changes ,increasing nuclear family centric life  trends ,changing spending habits ,,etc  companies like La-opala  is expected to post robust growth going forward.Recommending this stock third time as a long term buy even at CMP of Rs.190 for investors with some risk appetite.Stock is listed both in NSE and BSE.

Link to Company website HERE

Disc : I have vested interest in La-opala.

DE-NORA INDIA - UPDATE

I have recommended a BUY on DE- NORA(India) Ltd on 25th December 2010 @ Rs.79/- ( Old posting HERE ) .Yesterday stock hits its 52 week high @ Rs.256 /- .Recommending to HOLD the stock.

SPAN DIAGNOSTICS LTD - BUY

 

 

In a country like India with huge population ,healthcare industry is considered as a promising one and it is showing good growth rate in recent times.Increasing education level and  disposable income,better awareness and various health schemes of governments acting as the catalyst for this rapid growth .Availability of better hospital facilities and awareness of patients  increasing the potential of the players in medical diagnostic Industry.Periodic outbreak of various diseases at various parts of country ensures sustained business for this industry as a whole. Span Diagnostic is a strong player in this industry which is manufacturing and distributing various kinds of diagnostic/pathology lab devices, including sample test devices and regents.SPAN originally started its operations in 1973 as  as Desai Laboratories and changed its name to SPAN DIAGNOSTICS in 1980.This Surat based company having strong technical and marketing alliances with well known global  players like Hitachi Chemical Diagnostics USA,Technoclone GMBH Austria,Biotechnica Instruments Italy ..etc. and having a nationwide marketing network .  At present a major portion of company’s income is coming from reagents manufacturing business for  Immunology, Biochemistry, Microbiology, Serology  and Histopathology .Increasing trend of lifestyle related diseases ensuring sustained growth in this segment.Company is a market leader in testing kits for AIDS and Maleria and a major supplier of testing kits for  government sponsored health programmes. Span also having an approved facility for antibody productions and their purification.

                                                  Company reported steady growth till 2011 and rewarded its minority share holders accordingly .But in last year Span recorded a loss(excluding extra ordinary income) ,thanks to its wrong decision to devote money and effors for developing  its  medical equipments business and overall sluggishness in economy.I feel ,now company realised its mistakes and taking corrective steps .Their decision to sell Hematology analyzers  business to Nihon Kohden India Private Limited and concentrate in their core business of diagnostic reagent manufacturing is part of their changing strategy .In order to tap the export market  company started a joint venture Span Diagnostics South Africa (PTY) Limited with Reindus Health (Pty) Limited for increasing its presence in African Market. Company also planning to enter in US market in near future . SPAN is also planning to aggressively tap the contract manufacturing opportunities for regents.In latest September quarter company reported sharp improvement in its performance where sales increased from Rs.15 Cr to Rs.25 Cr and net profit improved sharply from Rs.56 lakhs to Rs.2.26 Cr .Quarterly EPS is Rs.3.16.To scale up its business to next level,company having plans to sell part of its stake to MNC’s at right valuation.Considering the huge potential of this industry and goodwill of this company we can’t rule out the possibility of such an alliance with global diagnostic majors .If such an alliance materializes that will re write the fortunes of SPAN. On good September results its stock price appreciated recently and now consolidated around Rs.40 .Those with a long term view  may consider SPAN @ CMP of Rs.43.

Link to company website HERE

Link to latest Annual Report  HERE

KAVERI SEED COMPANY - UPDATE

KAVERI SEED COMPANY recommended @ Rs.272 /- on July 5,2010 today  hits its life time high @ Rs.1300/- .Investors with some risk appetite can still hold the stock for long term.

For old posting ,Click HERE

Disc:I have vested interest in KSCL

BAMBINO AGRO - RESULT UPDATE

Bambino Agro reported a loss of Rs.81 lakhs in November quarter . For the full year 2011-2012 company reported a profit of Rs.3 Cr v/s Rs.1.8 Cr posted last year .After a long gap of 15 years company declared a dividend @ 15 % .During the latest quarter company also reported  its best ever single quarter  sales figure of Rs.70 Cr .Even the company posted a loss in latest quarter I feel promoters are reasonably confident about the future and hence they decided to distribute profit this time.Investors with some risk appetite can still hold it for long term.

 Disc:I have vested interest in BAIL

DIWALI WISHES ....

WISHING A HAPPY DIWALI AND PROSPEROUS  YEAR AHEAD.THIS TIME I AM CHOOSING  'BRAND' AS THE THEME FOR  STOCK SELECTION.WE ALL KNOW HOW A BRAND IS IMPORTANT FOR COMPANIES AND HOW STOCK MARKET VALUING COMPANIES WITH GOOD BRANDS .WE HAVE MANY EXAMPLES BOTH FROM MNC AND INDIAN SPACE LIKE NESTLE,GSK CONSUMER,P&G,TTK PRESTIGE,PAGE INDUSTRIES..Etc.THEIR BRANDS ARE THEIR BIGGEST ASSETS AND THE MAIN FACTOR DRIVING GROWTH YEAR AFTER YEAR.BUT IT IS A FACT THAT STOCK PRICE OF COMPANIES HAVING GOODS BRANDS ARE HIGHLY PRICED AND OUT OF REACH OF MANY SMALL RETAIL INVESTORS . BUT STILL THERE ARE SMALL BUT GROWING  COMPANIES WITH GOOD BRANDS IN SOME NICHE SPACES.MANY OF THE SELECTED COMPANIES ARE ALREADY RECOMMENDED HERE AND SOME OF THEM ARE TRADING AT THEIR 52 WEEK HIGH LEVELS.SOME STOCKS EARLIER RECOMMENDED FOR PROFIT BOOKING ,BUT NOW CONSIDERED ALL POSITIVE DEVELOPMENTS INCLUDING FINANCIAL PERFORMANCE AND OTHER FACTORS HAPPENED THEREAFTER WHILE SELECTING THESE STOCKS.I BELIEVE EVEN THESE COMPANIES ARE TRADING AT SUBSTANTIALLY HIGHER RATES ,INDIA'S FAVORABLE DEMOGRAPHIC TRENDS WILL DRIVE THE GROWTH OF THESE COMPANIES GOING FORWARD.

 Company :Heritage Foods                

 Industry  : Dairy
 CMP :440
 Initially Rec.Price : Rs.200
 Sales   FY 2008           FY 2012
              Rs.588 Cr        Rs.1394 Cr
Link to Old Recommendation  HERE
Link to Company website       HERE
Link To Latest Annual Report HERE

Company :La-Opala RG                
 Industry  : Houseware
 CMP :Rs165
 Initially Rec.Price : Rs.50
 Sales   FY 2008         FY 2012
              Rs.55 Cr        Rs.115 Cr
 Link to Old Recommendation  HERE
 Link to Company website       HERE
 
  

Company :Bambino Agro                
 Industry  :  Packaged Foods
 CMP : Rs.61                                  
Initially Rec.Price:Rs.40                          
 Sales FY 2008      FY 2011
           Rs.92 Cr        Rs.215 Cr
        Link to Old Rec. HERE
        Link to Company web.HERE

Company :Acrysil        
Industry : Designer H.Wares
CMP :Rs.117                        
Initially Rec.Price : Rs.85 (Adj.to Bonus Issue)
Sales   FY 2008         FY 2012
              Rs.30 Cr        Rs.62 Cr
 Link to Old Recommendation HERE
 Link to Company website       HERE
 Link to Latest Annual Report   HERE 

Company :Orient Bell        
Industry : Building Materials
CMP :Rs.69                        
Initially Rec.Price :NA
Sales   FY 2008         FY 2012
              Rs.214 Cr        Rs.546 Cr
  Link to Company website       HERE
 Link to Latest Annual Report   HERE