Kevin Farshchi
Kushal Chukkapalli
Hua Haixing
December 2nd, 2014
Today’s Agenda
 Introduction
 Hain’s Business
 Macroeconomic Overview
 Industry Analysis
 Recent Stock Market Performance
 Financial Analysis
 Valuation
 Recommendation
Introduction to Hain
 Hain Celestial Group produces, markets,
distributes and sells organic and natural products
under various brand names in the U.S, Canada and
Europe
 Headquartered in Lake Success, New York
 Offers one of the strongest growth portfolios in the
industry
 Some of the prominent brand names include
Arrowhead Mills, Ella’s Kitchen, Avalon Organics
and Earth’s Best
Source: Page 2,Hain Celestial Annual report 2014
The Business
 Hain produces, markets, distributes and sells
organic and natural products under various
brand names in the U.S, Canada and Europe
 The firm sells to natural food distributors,
supermarkets, natural food stores and other
retail outlets
 Its business model includes acquiring
natural/organic food and personal care
companies or product lines
 Revenue drivers: mostly organic price premium,
but also has the benefits of strong distribution
networks and multitude of brands to increase
quantity sold
Business Segments
Product Mix
 Grocery
 Products include infant formula, kids foods, rice, non-dairy
beverages, cereals, pasta etc. Accounted for approximately 77%
of net sales in 2014
5%
 Snacks
 Snack products include variety of potato, root vegetable, tortilla
Grocery
6%
Snacks
Tea
12%
chips, baked puffs, popcorn etc. Accounted for approximately
12% of net sales in 2014
Personal Care
 Tea
 Leading manufacturer and marketer of specialty teas. Include
more than 70 varieties of herbal, green, wellness, white and
chai teas. Accounted for approximately 5% of net sales in 2014
 Personal care
 Cover a variety of personal care categories including skin, hair
and oral care, deodorants, body washes, sunscreens etc.
Source: Hain Celestial Annual report 2014, Page 4
77%
Management
 CEO and founder Irwin Simon has continued confidence in the company’s




ability to sustain high top line growth and maintain a business model
involving strategic acquisitions
By acquiring smaller companies, Hain is able to integrate new product
lines and achieve economies of scale
Historically, the companies that do not meet strategic or profitability
targets are subject to divestitures
Management is expecting 2015 to be another record year for top line
growth, with estimates of 27-30%
We are less optimistic than management
Source: http://ir.hain-celestial.com/mobile.view?c=87078&v=203&d=1&id=1986645
Business Overview – Acquisition Strategies
Target
Main Market
Main Products
Year
Tilda Limited
UK
Organic rice
2014
Rudi’s Bakery
US
Organic bread and baked goods
2014
Ella’s Kitchen
UK
Organic baby food
2013
UK Ambient
UK
Distribution channel in UK
2013
BluePrint
US
Natural cold-pressed juice
2013
• Quickly expanded through distribution channel right after
acquisition to gain immediate revenue synergies
• In Ella’s Kitchen deal, Hain got its US distribution within 30 days after the
deal completed
• Cost synergies – SG&A decrease as % of sales over year
Source: http://www.just-food.com/analysis/hain-celestial-eyes-us-global-growth-with-tilda-acquisition_id125557.aspx
Hain in the Organics Market
GEOGRAPHIC SALES
US Organic Food Market Share
Pepci Co
Danone Groupe
U.S.A
0.30%
Rest of World
0.50%
Mondelez International
0.60%
Starbucks
0.70%
General Mills
14%
14%
1.70%
Newman's Own
13%
11%
24%
30%
63%
59%
2013
2014
2.10%
Organic Valley
2.20%
Amy's Kitchen
2.20%
Natural Path Foods
72%
3.00%
Hain Celestial
4.70%
Whitewave Foods
0.00%
U.K
5.80%
1.00%
2.00%
3.00%
4.00%
5.00%
Source:http://blogs.wsj.com/numbers/who-owns-what-in-organic-packaged-foods-1613/
6.00%
7.00%
2012
Source: Hain Celestial Annual report 2014, Page 3
Macroeconomic Review
 Key catalysts:
 Consumer trends is clearly moving towards healthier &
natural foods: CAGR of 14% from 2013-2018
 Discretionary income continues to increase after the
recession
 The success of organic & natural food products is really
a shift from using discretionary income to using
ordinary or “defensive” income on organic products
 The Organic Trade Association found that 81% of
American Families reported purchasing organic food
 What is interesting is that just 18% of consumers are
“power shoppers,” who account for over half of net sales
 This implies over 80% of consumers have not reached
true purchasing potential
(1) http://www.foodnavigator-usa.com/Markets/US-organic-food-market-to-grow-14-from-2013-18
Stable Sales Growth in US
US Organic Sales
40.0
35.0
16.00%
14.90%
12.90%
12.00%
30.0
10.80%
25.0
25.0
20.1
20.0
15.0
11.80%
11.80%
27.9
31.5
35.1
11.43%
14.00%
12.00%
10.00%
22.3
8.00%
18.0
6.00%
10.0
4.00%
5.0
2.00%
0.0
Sales (bn USD)
Growth Rate
2007
18.0
14.90%
2008
20.1
12.00%
2009
22.3
10.80%
2010
25.0
11.80%
2011
27.9
11.80%
Source: http://www.organicnewsroom.com/2014/05/american_appetite_for_organic.html ,http://www.thepacker.com/fruit-vegetable-news/222580921.html
2012
31.5
12.90%
2013
35.1
11.43%
0.00%
Industry Overview – Growth in UK
• In 2013, sales of organic
products in the UK grew by
2.8%, a decisive return to
grow after four year of
contraction since the 2008
financial crisis.
• Stay tuned: we will see how
successfully Hain captured
this growth later on
Source: Page 6, Organic Market Report 2014, Issued by Soil Association
Industry Porter’s Five Forces Analysis
Threat of new entrants (Low)
• Mature industry
• Entry of smaller players not
that threatening
Rivalry among existing firms
(High)
• Very competitive market, main
competitors including
Whitewave, Kelloge, General
Mills, Mondelez International;
Bargaining Power of Suppliers
(Medium)
• Suppliers are globally
diversified
• Rely on overseas suppliers
Threat of Substitutes (Low)
• Few true substitutes (organic)
• A lot more inorganic
substitutes
Bargaining power of
Consumers (Low)
• Buyers are usually price
takers in food industry
Stock Market Performance
 Closing Price 12/1/2014 = $114.33
 52 Week Range = $80.02-$115.68
 Market Cap = 5.766 B
 Enterprise Value = 6.508 B
 Sector: Consumer Staples
Imminent Stock Split
 Hain Celestial announced on November 25th,
2014 that stockholders approved a 2-for-1 stock
split in the form of a 100% dividend
 Stockholders at the close of December 12, 2014
will receive an additional share of common
stock for each share owned
 Investors will have twice as many shares at half
the market price per share
http://www.marketwatch.com/story/hain-celestial-announces-2-for-1-stock-split-2014-11-25
Key question: can we get a
good rate of return at this
price???
Huge price
increase very
recently
We were long here
SWOT Analysis
Strengths
•
•
•
•
S
Rising demand for healthier food
Strong Growth in UK market
2nd largest player in organic food industry
Strong brand recognition with loyal
customer base
Weaknesses
• High competition in the industry
• Better established producers as new
entrants to the organic market could
decrease market share
Opportunities
Threats
• Acquisitions: economies of scale &
synergies
• Emerging markets
• Market consolidation
• Consumers’ rise in
• Adverse currency fluctuation
• Uncertain R&D outcomes
• Tightened spending would decrease
demand for organic products
• Product recalls
17
Recent Financial Performance
 2015 Quarterly Earnings Highlights
 Revenue increased 35%
 Adjusted EPS increased 31% to $0.68
 Sales in the UK increased 51% YoY
 Success of recent acquisitions: 23 brands had double digit revenue growth
 The sales increase primarily resulted from the acquisitions of HPPC in July
2014, Rudi’s in April 2014 and Tilda in January 2014, which collectively
accounted for $131.6 million
 Markets reacted favorably to these numbers back in September
Hain Celestial Form 10Q, Page 22-23 <http://ir.hain-celestial.com/mobile.view?c=87078&v=200&d=3&id=9888637>
Financial Ratios
Greenblatt Ratios
Liquidity
2010
2011
2012
2013
2014
Current Ratio
2.26
2.17
2.21
2.10
1.89
Quick Ratio
1.13
1.17
1.29
1.19
1.14
2010
30%
1%
EBIT/ Tangible assets
EBIT/Enterprise value
2011
34%
2%
2012
38%
2%
2013
36%
3%
2014
35%
4%
Solvency
Debt/Assets
Interest Coverage
2010
2011
2012
2013
2014
21.31%
18.36%
23.83%
29.63%
26.07%
9.17
9.92
10.31
10.00
10.00
Greenblatt Ratios
45%
Profitability
40%
2010
2011
2012
2013
2014
27.75%
27.63%
26.38%
27.66%
27.66%
ROA
6.61%
8.60%
8.36%
8.70%
7.95%
ROE
10.34%
13.23%
14.50%
16.35%
14.56%
Gross Margin
35%
30%
25%
20%
Efficiency
15%
2010
2011
2012
2013
2014
A/R Turnover
7.78
8.73
8.99
8.67
8.26
10%
A/P Turnover
6.86
8.51
9.15
7.72
7.15
5%
Inventory Turnover
4.06
4.81
5.58
5.75
5.56
Days Sales Outstanding (DSO)
46.90
41.82
40.58
42.12
44.20
Days Payable Outstanding (DPO)
53.22
42.90
39.91
47.27
51.08
Days Inventory Outstanding (DIO)
89.88
75.86
65.46
63.48
65.66
Cash Conversion Cycle
83.56
74.78
66.13
58.32
58.78
0%
2010
2011
EBIT/ Tangible assets
2012
2013
EBIT/Enterprise value
2014
DuPont Analysis
Dupont Analysis
DuPont Analysis
100.00%
2.00
90.00%
1.80
80.00%
1.60
70.00%
1.40
2010
2011
2012
2013
2014
9.54%
10.05%
10.51%
11.09%
11.20%
Interest Burden
88.46%
87.35%
89.09%
89.92%
90.30%
60.00%
1.20
Tax Burden
38.03%
56.48%
61.37%
66.29%
64.22%
50.00%
1.00
Asset Turnover
0.74
0.83
0.82
0.77
0.73
40.00%
0.80
Financial Leverage
1.56
1.54
1.74
1.88
1.83
30.00%
0.60
20.00%
0.40
10.00%
0.20
EBIT Margin
ROE
3.73%
6.34%
8.21%
9.54%
8.64%
0.00%
0.00
2010
2011
2012
2013
EBIT Margin
Interest Burden
Tax Burden
Asset Turnover
Financial Leverage
ROE
2014
Assumptions
Revenue Growth
COGS as a % of Sales
SG&A/Sales
Amortization of Goodwill & Intangibles
Interest Expense/Operating Income
Tax Rate
Depreciation as a % of Net PP&E
Capital Expenditures as a % of Revenue
A/R as a % of Revenue
Inventory as % of COGS
A/P as % of COGS
Current Scenario: Base Scenario
FY 2015
FY 2016
FY 2017
FY 2018
FY 2019
30.0%
27.0%
25.0%
20.0%
15.0%
72.3%
72.3%
72.3%
72.3%
72.3%
14.5%
14.5%
14.5%
14.5%
14.5%
0.5%
0.5%
0.5%
0.5%
0.5%
10.0%
10.0%
10.0%
10.0%
10.0%
33.5%
33.5%
33.5%
33.5%
33.5%
7.8%
7.8%
7.8%
7.8%
7.8%
1.4%
1.4%
1.4%
1.4%
1.4%
13.0%
13.0%
13.0%
13.0%
13.0%
21.0%
21.0%
21.0%
21.0%
21.0%
13.6%
13.6%
13.6%
13.6%
13.6%
Discount Rate Calculation
Cost of equity
Rf
Beta
MRP
E[R]
Cost of Debt
in Million USD
Total Interest Expenses
Current portion of long-term debt
Long-term debt, less current portion
Other noncurrent liabilities
Total Amount of Financial Debt
Cost of Debt
2.31%
0.381
7.00%
4.98%
23.4
100.096
767.827
5.02
872.943
2.68%
WACC Calculation
KE
WE
KD (After Tax)
WD
15.42%
65.11%
1.78%
34.89%
WACC
Business Risk Premium
10.66%
0.50%
Discount Rate
11.16%
1 Year Beta (weekly returns)
5 Year Beta Bloomberg
1 Year Beta
1.2
0.0
Realized Return YTD
0.3
Total Debt
Total Common Equity
Total Capital
867.9
1619.9
2487.8
Shares outstanding
Current Price
Total market value of equity
50.4
114.3
5757.1
34.9%
65.1%
100.0%
Discounted Cash Flow Valuation
FCF Build
EBIT
Plus: D&A
Less: Taxes
Less: Capex
Less: Changes in NWC
Unlevered FCF
Terminal Growth Rate
Discount Rate (WACC +
premium)
Terminal Value
Discount Period (t)
PV of FCF's
Perpetuity Method
355.7
40.3
(107.2)
(39.8)
7.3
241.7
451.7
44.3
(136.2)
(50.6)
57.8
251.4
564.7
49.2
(170.2)
(63.2)
68.0
312.5
677.6
55.1
(204.3)
(75.9)
68.0
384.6
779.2
62.0
(234.9)
(87.2)
61.2
457.8
$779.22
62.0
(234.9)
(87.2)
0.0
519.0
3.0%
11.16%
5,778.27`
1
217.43
2
203.49
2
252.86
4
251.89
5
269.74
PV of
Terminal
Enterprise
PV of FCF's Value
Value
Net Debt
Equity Value
1,195.41
3,404.31
4,599.73
3,850.53
749.2
Shares
48.88
$/Share
$78.78
Current Scenario: Base
Scenario
Discount Rate Sensitivity
Sensitivity Analysis
Discount Rate
Terminal Growth Rate
78.78
10.66%
10.91%
11.16%
11.4100%
11.66%
2.50%
80.37
77.32
74.46
71.76
69.20
2.75%
82.79
79.58
76.56
73.73
71.05
3.00%
85.36
81.98
78.80
75.81
73.00
3.25%
88.11
84.53
81.18
78.03
75.07
3.50%
91.06
87.26
83.71
80.38
77.27
Trading Comparables Valuation
US Organic Food Market Share
Pepci Co
Danone Groupe
Mondelez International
Starbucks
 WhiteWave Foods is the only
0.30%
real comparable company to
Hain
 Hain has lower sales but better
margin compared with its
peers
0.50%
0.60%
0.70%
General Mills
1.70%
Newman's Own
2.10%
Organic Valley
2.20%
Amy's Kitchen
2.20%
Natural Path Foods
3.00%
Hain Celestial
4.70%
Whitewave Foods
0.00%
5.80%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
Trading Comparables Valuation
Company Name
General Mills, Inc.
Mondelez International, Inc.
The WhiteWave Foods Company
Weight
TEV/Total
Revenue
0.1
2.3x
0.2
2.3x
0.7
2.4x
LTM
NTM
TEV/EBITDA TEV/EBIT P/Diluted EPS TEV/Forward Total TEV/Forward Forward P/E
Before Extra Revenue
EBITDA
12.1x
14.6x
19.4x
2.3x
11.6x
17.8x
15.4x
19.2x
36.9x
2.4x
14.4x
21.9x
21.3x
29.8x
51.4x
2.1x
16.1x
33.6x
LTM
NTM
TEV/Total TEV/EBITDA TEV/EBIT P/Diluted EPS TEV/Forward Total TEV/Forward Forward P/E
Revenue
Before Extra Revenue
EBITDA
Intrinsic Value/Share
$ 89.10 $
based on Weighted Average Multiples
Intrinsic Value/Share
$ 90.42 $
based on WhiteWave's Multiples
98.32 $113.80 $
129.56 $
98.57 $
104.78 $
119.18
110.75 $131.77 $
147.00 $
94.13 $
110.94 $
134.89
 Focus on EV/EBITDA & P/E ratio
 50/50 Highest TP/Lowest TP: $122.5
Football Field
Blended
Price Target of
$93
Comps
DCF
$40
$50
$60
$70
$80
$90
$100
$110
$120
$130