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Hatsun Agro: Just add milk

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Image Credit: Tanmoy Chakraborty

The dairy sector is booming and Hatsun is creaming off profits.

When R.G. Chandramogan was a boy, he says he was such a bad student, his family and friends teased him saying he would grow up fit only to herd cows. “Today, I herd 6 lakh cows,” he told a Tamil TV host, talking about how he grew Hatsun Agro Products from a push-cart to a Rs 2,463.89 crore dairy company.

Fascinating as his rags-to-riches story is (Hatsun did not meet us for this story), the real story today is in what the company plans to do next. So far, it has been almost exclusively focussed on selling dairy products in Tamil Nadu (it’s based in Chennai). Early this year, Hatsun acquired Hyderabad-based Jyothi Dairy to strengthen its footprint in Andhra Pradesh. It also raised 
Rs 30 crore through preferential allotment of equity shares to dabble in the ready-to-eat segment. 

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Hatsun started out selling ice cream under the brand name Arun and moved into milk, milk powder, curd, ghee, and paneer. Its supply chain is like Amul’s—procuring milk directly from farmers—3.2 lakh of them across 10,000 villages of Tamil Nadu—which gives it an advantage in pricing and margins. “In India, milk is consumed in the 100 sq. km. radius of where it is produced,” says Ankur Bisen, senior vice president, retail, Technopak.

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“Milk remains a local business because of the logistics costs associated with it. It will never make sense to produce in Tamil Nadu and sell in Mumbai unless you are able to get a premium for your brand. A national play is a tough ask,” adds Girish Nadkarni, partner, IDFC Alternatives-Private Equity. (IDFC Alternatives invested in Manchar, Maharashtra-based Parag Milk Foods in 2012.) 

If a national play doesn’t work, Hatsun has that covered; it entered the international market almost a decade ago, launching Arun in Seychelles and Brunei. Today, it exports milk products to 38 countries.

The dairy-sector boom and a favourable export regime have helped Hatsun almost quadruple its net profit in the past four years. Its stock has returned 80% since November 2013 and the company has declared a dividend of 250% for FY14. The payout amounted to 33% of the company’s net profit.