Company Overview:

Hindustan Foods (HFL) is a contract manufacturer of consumer products. The company is diversified across various categories with manufacturing capabilities in food & beverages, personal care, home care, and sportswear products among others. Hindustan Foods caters to clients like Danone, ITC, Unilever, Arvind Fashions, Reckitt Benckiser, and PepsiCo.

Investment Thesis:

HFL has been in the business for over 15 years and shares strong relationships with its large OEM clients. HFL is India's most diversified consumer goods contract manufacturer. India's underpenetrated consumer goods industry (where per capita consumer goods consumption is one quarter that of China) is moving towards outsourcing of manufacturing operations. Doing so will enable the OEMs to focus on their core competencies of product development, distribution, sales, and marketing.

HFL works on long term contracts with an assured ROE of 18%. The company regularly expands its product basket. During Q3FY22 the company acquired 100% stake in Reckitt Benckiser Scholl, which marked its entry into the fast-growing OTC healthcare and wellness segment as a contract manufacturer. It also acquired a color cosmetics manufacturing facility operated by AeroCare Personal Products LLP.

Between FY17 and FY21, the company grew revenue/EBITDA/net profit at a CAGR of 144.3%/133.4%/168.7%. Over the same period, HFL was able to expand gross block at a CAGR of 127.5%.