ICICI Securities has raised its target price for Heritage Foods to Rs 390 while maintaining a 'hold' rating. The company reported a 19% revenue increase, but rising milk procurement costs remain a significant challenge to profitability.
Heritage Foods saw strong revenue numbers in the second quarter of fiscal year 2027, but the path to higher profit remains challenged by rising raw material costs. ICICI Securities recently updated its outlook for the dairy company, raising the target price to Rs 390 from the previous Rs 346, while maintaining a neutral 'hold' rating on the stock.
The core of the company's performance was a 19% year-on-year increase in revenue. This growth was largely pushed by its value-added segment—which includes products like curd, paneer, and buttermilk—which saw sales climb by 32%. This segment is a key focus for the company as it aims to move toward higher-value products to boost its business advantage.
However, the company is fighting significant cost pressure. Milk procurement prices—the cost the company pays to farmers for raw milk—shot up by 11% compared to the same period last year, reaching Rs 47.7 per liter. While Heritage Foods implemented a 6% increase in selling prices to counter this, it was not enough to fully cover the rise in input costs, keeping profit margins under pressure.
Management is now counting on the price hikes introduced during the second quarter to show better results in the upcoming third quarter. However, visibility remains limited due to external factors. Unpredictable variables, such as climate-related issues and the rising cost of cattle feed, continue to create uncertainty in the procurement chain. This environment is why analysts remain cautious, despite the company's strong distribution network and product strategy.
The valuation provided by the brokerage is based on an estimated 15 times earnings for the fiscal year 2028. This suggests that while there is recognition of the company’s growth potential in the dairy market, there is also a clear focus on the risks posed by volatile raw material inflation.
For investors, the most important monitorable over the next few quarters will be the company’s ability to protect its profit margins. The critical factor to watch is whether the firm can successfully pass on these procurement costs to consumers without causing a drop in sales volume. Future updates on how input prices stabilize or fluctuate will likely influence the company's financial performance.