The company has also invested ₹30 crore in AeroCare Personal Products LLP. “Aerocare is currently manufacturing various colour cosmetics like lipsticks, eye make-up, pressed powders and lip gloss, and also oral care, after shave lotions and eau de toilette,” its investor presentation says. The management is confident of generating cash flow from the deals, which are likely to be finalised in the ongoing quarter of the current fiscal, in FY23. According to executive director Ganesh Argekar, the company is looking at a turnover of ₹100 crore each from the facilities in FY22-23. “With these acquisitions and the organic growth from our existing factories, we are confident about achieving the target of ₹4,000 crore of turnover by FY25,” the presentation adds. Kothari, meanwhile, is hopeful that the pharma business will add more value to the topline than personal care, and the current return on capital employed (ROCE) will be slightly higher because of the former’s market prospects. “Secondly, based on the consolidation exercise we see some benefit flowing to us in terms of becoming a global supplier to Scholl/Dr Scholl. Then the ROCE will get very interesting.”

Capex Calculations

The company has lined up an investment of ₹125 crore in its ice cream facility in Uttar Pradesh, and ₹10 crore in a shoe factory in Tamil Nadu, along with some investments in Mumbai. It also plans to put in ₹150 crore in home and personal care project in Hyderabad.

Sharing an update on the investments, Argekar says, “The Uttar Pradesh ice cream project is progressing well, and installation of machines has commenced. The company remains confident to start commercial production in the current quarter. However, the Hyderabad project has been delayed and it is now expected to be completed only by Q2 FY23.”

The delay in the Hyderabad unit is on account of a slowdown in the FMCG sector. Claiming that there will be no cost overruns in the project owing to the delay, Kothari says, “All our projects are earmarked and budgeted with our principals. Right from Day One, the entire timeline and the budget for the project are approved by our principals. Any cost overrun is passed on to our principals unless it is due to our inefficiencies. In case of inflationary concerns or any change in the macroeconomic scenario, it is passed on to the customer.”

The company is fully funded for the current acquisitions and capital expenditure. “We do not need to raise money for assets. If we get to a situation where new projects, new acquisitions come on line, we would definitely optimise the capital structure in terms of debt and equity before we hit the equity market,” says Kothari.

HFL plans to deploy the excess land bank and the unused land at its facilities to expand its existing contract manufacturing business for fast moving consumer goods. “At some point of time, we may look at other ways of monetising excess towards warehousing or other available options,” clarifies Kothari.

Going forward, the company believes consolidation will be the buzzword in the FMCG contract manufacturing space, and more M&A opportunities will come up within the next couple of years.

hindustan foods profile

Hindustan Foods: M&A, Capex For Topline Boost