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Hindustan Foods: The Brand Behind Brands

Did you know that most of the branded stuff you use, is not really manufactured by the brand itself? The manufacturing of most branded goods is outsourced to companies that work behind the scenes, while the brand focuses on design, development and sales.


And this stands true for most things you use in your daily life. A lot of the consumer electronics are made by a company called Dixon Technologies, Pepsi is made by Varun Beverages, burger buns in McDonalds are made by Mrs Bectors Food Specialities, and the list goes on.


At Rupeeting, we’ve been very fond of such companies, having advised Varun Beverages in the past. The latest addition to our list has been a lesser-known, but skyrocketing company called Hindustan Foods.


Hindustan Foods, Who?

Historically, Hindustan Foods has been best-known for being the manufacturer of Farex - which is a popular baby food product, sold by Glaxo since 1934. Hindustan Foods made Farex and nothing other than that for a good 25 years, from just one factory; until 2013.


But then there was a leadership change at Hindustan Foods - which changed the course and how. Since then, Hindustan Foods went from a Farex maker to a producer of:


  1. Kurkure for PepsiCo India

  2. Drugs for Mankind Pharma and The Himalayan Drug Company

  3. Shoes for Steve Madden, Arrow, Hush Puppies and U.S. Polo

  4. Mosquito repellants for Mortein

  5. Malted beverages for Hindustan Unilever


Other than this, it also started manufacturing tea and coffee, liquid detergents, disinfectants, ice-creams, flip-flops and sandals, bath soaps, cosmetics, and much more.


A 5-Bagger Over the Last 5 Years

In a span of 10 years (FY14 to FY24) - Hindustan Foods has grown multifold, from a revenue of just Rs. 3.2 crore to a run-rate of over Rs. 2,700 crore.


Unfortunately, investors couldn’t make a proportional 800x return - the stock only got listed in August 2019. Nonetheless, it now trades at close to Rs. 500 per share, from a listing price of Rs. 92.


Despite the large scale-up Hindustan Foods has seen over the last decade, the story is far from over. The company has set a goal of reaching a revenue of Rs. 4,000 crore by FY25, and aims to become the largest FMCG contract manufacturer, diversified across product categories and geographies.


Will the Winning Streak Continue?

The past gives enough validation of Hindustan Foods’ ability to scale and succeed. Even if the company were to continue applying the same formula in the future, the market is large enough for Hindustan Foods to continue scaling, even from here.


A few things we’ve observed as contributing factors for Hindustan Foods include:


  1. Category Agnostic - Although the company is named Hindustan Foods, it even makes shoes. The fact that the company is not restricted to a category, and instead is a successful manufacturer does enough to mark success

  2. Customer Relationships - The company’s customers are FMCG conglomerates, which makes expansion of wallet share a legitimate lever

  3. End-to-end Solutions - Hindustan Foods takes care of everything product development, testing and manufacturing, making it a preferred vendor

  4. Inorganic Growth - Over the last 10 years, the company has acquired at least 8 other companies or manufacturing units, of other contract manufacturers or from brands themselves, and successfully integrated them and scaled them up

  5. Flexible Manufacturing Models - Hindustan Foods strengthens and leverages relationships through offering dedicated manufacturing, or shared manufacturing, suiting individual client needs, and offering options


A Growing Market

Hindustan Foods has a bright opportunity of further scaling its business, as contract manufacturing itself becomes increasingly relevant. We expect sustained double-digit growth for the market, driven by:


  1. Focus Realignment by Brands - Like in consumer electronics, large FMCG brands are increasingly focusing on product development, branding and marketing instead of manufacturing

  2. Backward Integration by Retailers - Retailers such as D-Mart and Reliance have started developing their own brands due to slim margins, instead of just selling products from other brands

  3. Increasing Competition from Online Retailers - Many online retailers, such as Zepto, have launched their own brands; like Relish, which is growing at a rate of 100% MoM and generates annual sales of Rs. 300 crores


Additionally, contract manufacturing has historically predominantly been unorganised and fragmented, which like every other industry is being driven towards a more formal and concentrated play.


50% Growth Next Year?

Hindustan Foods ended FY23 with a revenue of Rs. 2,600 crore, and should do north of Rs. 2,700 crore in FY24. Yes, after all that multiplying, you get single-digit growth this year! The company has faced the brunt of a slowdown in FMCG demand.


However, despite the severe slowdown in growth in FY24, the company has been confident of meeting its FY25 target of Rs. 4,000 crore revenue; which if it achieves would mark near-50% growth next year.


The company seems to be backing on the following factors for growth:


  1. A revival in the FMCG sector, which is already starting to show signs - visible from the 1QFY25 results of FMCG companies

  2. Continued headroom for growth in contract manufacturing given Hindustan Foods does a revenue of barely Rs. 3,000 crore right now, against a market which is at least Rs. 50,000 crore in size

  3. Fructification of a project pipeline, which was stalled on account of the lack of volume growth in the sector over the last few quarters

  4. Revenue generation from all the capex the company is undergoing. In FY24, the company has invested close to Rs. 400 crore (~17% of revenue), which should translate to revenue over the next few quarters


Over and above this, as seen in the past, inorganic opportunities, and utilisation of more funds (like the raising of Rs. 400 crore in warrants in December 2023) can further propel growth.


While realistically, and given the current environment, Hindustan Foods may / may not achieve its own target. But, on a larger scale, there seems to be ample headroom for growth, which can result in a meaningful scale up for the company as more brands you use outsource their manufacturing to the likes of Hindustan Foods!

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