Heritage Foods may test Rs 675 in 6 months: SP Tulsian

SP Tulsian of sptulsian.com told CNBC-TV18, "Heritage Foods is a company promoted by N. Chandrababu Naidu family, the Andhra Pradesh (AP) Chief Minister and if you see the promoter stake of 40 percent, 33 percent is held by his wife and his son."

"They have predominantly presence in the dairy segment. They process about may be 10 lakh litre of milk per day. They have presence in nine state but in five states they have a predominant positions mainly the southern states. If you see their 150 centres for the chilling, packaging, procuring and all that are giving them a good business."

"In the first half they had a topline of Rs 1,165 crore against FY15's Rs 2,070 crore. So, you can say that there was a growth of about 10 percent on that topline. One can understand that- that kind of growth is normal. The operating profit margin has risen from 2.3 percent to 4 percent. Because of that the operating profit has risen to Rs 46 crore in first half against Rs 48 crore for whole of FY15."

"The profit after tax (PAT) also has risen to Rs 26 crore for first half against Rs 28 crore for the whole of FY15. That means they have achieved the bottomline what they have achieved in the full year in the first six months itself resulting in to an earnings per share (EPS) of 11.2 against 12.2 of FY15. So, that is I am expecting an EPS of closure to about Rs 25 because the winter season is again good for the milk industries and all that," he added.

"Apart from that they have 92 retail stores in the southern states mainly into Tamil Nadu, Telegana and Karnataka. They are expanding their footprints in others states as well - the other two or three states may be like Kerala or may be like Andhra all that. However, they have, as I said in the milk business they have presence in nine states. They have presence in Maharashtra, they have presence in Rajasthan, so may be but I am not banking too much on the retail at the current level."

"Come on the financial position, if you see equities quite low at Rs 23 crore, debt is just Rs 40 crore on a net worth of at about may be Rs 220 crore. That Rs 40 crore debt also is largely for the working capital. Come on the comparable peers, as I said Rs 24-25 is the expectation of EPS for FY16, so ruling at a PE multiple of about Rs 20. The comparable peer is Hatsun Agro Products, having the similar topline, similar kind of profitability, that is ruling at a PE multiple of a Rs 40. So, I think that stock holds quite a good promises."

"If you see the recently Chief Minister of Andhra Pradesh Chandrababu Naidu met with Australian Minister who has agreed to provide the support in dairy and fishing in the state of Andhra Pradesh. If they provide that kind of support obviously this company will be seen beneficiary. I am not trying to connect any political to my list to give this purely on the fundamental. So, taking this into consideration share is now ruling at Rs 525. One can look for six months target at Rs 675 though this qualifies as a portfolio stock may be with a view of couple of years as well," he added.