HATSUN - Hatsun Agro Products Ltd. Share Price

Management at Hatsun Agro Product Limited, led by Chairman Mr. R G Chandramogan, expressed a positive outlook for the dairy sector in light of the recent GST reforms. The company plans to share the benefits of tax exemptions by passing on nearly half of the savings to farmers and consumers. This dual approach aims to boost demand by enhancing consumer spending and increasing rural pockets of farmers.

Mr. Chandramogan mentioned that GST on dairy products like ice cream has been reduced from 18% to 5%, while the tax on paneer has been removed entirely. He expects the prices of value-added products, particularly ice cream, could see a decrease of about 8% to 9%. The key numbers highlighted include the effort to reduce the GST impact on butter and skimmed milk powder (SMP) from INR 100 to INR 30 per unit, allowing for better margins and increased earnings for farmers.

Looking forward, management anticipates a top-line growth of around 20% in the next fiscal year due to the expected stimulative effects of the tax reforms. Mr. Chandramogan indicated that this growth would not only stem from established markets but also from new markets like Maharashtra and Telangana, where the initial capital expenditures are expected to yield results.

Lastly, the company is strategically positioned, having completed major capital expenditures (Capex) in recent years, thus setting the stage for improved capacity utilization and productivity in response to the anticipated demand surge. This strategic positioning allows Hatsun to remain competitive in a rapidly evolving dairy sector and to capitalize on the improving economic conditions driven by the new GST structure.

Question 1:

How are you viewing this notification now that it is official regarding the rate cut for the entire dairy space, including premium products like Paneer?

Answer: I'm excited about the GST rate cuts as they offer two major benefits. First, they will enhance consumer spending capacity. We plan to pass on half the tax exemption to both farmers and consumers, which should stimulate demand and help improve rural spending. This, in turn, will significantly boost farmers' financial situations, leading to better economic health in the dairy sector.

Question 2:

What changes do you anticipate regarding the prices of milk and related products post-GST reduction?

Answer: Milk will remain tax-free, so its price won't change significantly. Curd will still carry a 5% tax, but for ice cream, which was previously taxed at 18%, the rate is now reduced to 5%. For Paneer, while input tax credits are curtailed, we expect an overall price decrease of about 8-9% for consumers, benefiting both the consumer and the farmer.

Question 3:

What is your assessment of how value-added products are performing in the current dairy market?

Answer: Value addition is often more about branding than the product itself. If we can successfully market our brands to consumers, they will continue choosing us, despite price changes. Our four brands are among market leaders in their categories, and I believe that brand loyalty will help maintain sales, especially in an increasingly competitive market.

Question 4:

You mentioned a growth expectation of 20%. What factors support this projection?

Answer: Our growth expectation is supported by the recent GST reforms, which will stimulate demand and improve affordability. We've laid the groundwork with previous capital expenditures in new markets. Now that we're set to leverage those investments, we anticipate achieving better demand capture, resulting in equal growth in both existing and new markets next year.

Question 5:

What can you tell us about capacity utilization post-demand boost and your current Capex situation?

Answer: With most of our Capex already completed, we're optimistic about higher capacity utilization as demand increases. In new markets like Maharashtra and Telangana, we're expecting our prior investments to blossom. This will allow us to better scale our operations and meet the anticipated heightened demand effectively.

Question 6:

Lastly, how does the recent price increase by dairy cooperatives impact your pricing strategy now that GST cuts are in effect?

Answer: The recent price hikes from dairy cooperatives complicate the landscape, but our expectation for the GST to stimulate demand may lessen the pressure to raise consumer prices further. We hope there will be some retraction in cooperative prices due to the efficiencies and enhanced financial conditions that the GST reforms should bring about.