Hain Celestial: Organic Products Leader and !

Entrepreneur with Strong Growth Momentum

Hain Celestial (HAIN) will maintain high sales growth with its long-term
strategy in acquisitions and an optimistic organic food industry outlook. Even
though it is trading close to 52-week high, its diversified portfolio of brands and
constant product innovation indicate a significant upside.

Rating!

Company!

Buy!

Hain Celestial

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62.90!
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Current Price!
Target Price in One Year!

72.59 (15.41% Upside)

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Stock Price
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Bull 81.46
Base 72.59
Bear 65.38

U.S.

Exchange

Ticker!

New York

Nasdaq

HAIN

Why Should We Invest in Organic Food Industry?

We see a strong sales growth in the U.S. markets. Throughout the past two
decades, the consumer demand for organically produced goods has been
increasing dramatically with CAGR of 12.2%. According to recent industry
statistics, organic sales have expanded in all food categories since 2005, which
account for over 4 percent of total U.S. food sales. In the coming years, industry
revenue is expected to grow further as the result of several economic factors.
Firstly, the U.S. economy continues to recover from the previous financial
crisis, indicating that the disposable income of American families is projected to
increase over the next five years. Secondly, the Consumer Confidence Index
(CCI) reaching the highest level since 2007 may change their diet choices. The
shift in consumer attitudes and purchasing behavior suggests that consumers
now show more concerns regarding health, environment, and animal welfare, all
of which are demonstrated in the fundamental values of organic food.

Customers are concerned about risks of more industrialized food such as

GMO. Currently there are intensive debates on the effects of genetically
modified organisms (GMOs) on health and the environment as well as whether
GM food in the U.S. should be labeled. Numerous scientists point out that no
long-term studies have ever been conducted to confirm the safety of GMO use.
McDonald's, the world's largest fast-food company and a longtime buyer of
Simplot potatoes for french fries, refused to continue buying Simplot's latest
GMO, the Innate potato. As a result, organic food has become an excellent
alternative to GMO and other non-organic food.

U.S. Organic Food Sales Growth !

and Consumer Confidence Index!
(in billions)

Source: USDA&UWMadison

Number of Whole Foods Stores

Organic products have become more accessible. The natural food retail
chains are now expanding in an unprecedented level due to the rising consumer
demand for organic foods. Whole Foods Market, for example, specializing in
natural and organic foods, the company owns about 50 brands and sells 5,000
products around the world. As retail channels become more and more diverse,
consumers could gain more access to all kinds of organic products.
Source: Seeking Alpha

2014 Sales Divided by Products

Why Should We Pick Hain Celestial among a Sea of Organic

Foods Producers?

Source: 10K

Hain owns the most diverse set of organic product portfolio by frequent
acquisitions. Compared to its peers such as General Mills and WhiteWave
Foods, Hain owns the largest number of brands by constantly acquiring organic
food producers throughout the years and adding them to its product mix. With its
40 plus brands, Hains products cover 10 of the 15 highest penetration categories
across organic and natural industry. Along with its impressive brand quantity,
Hain owns several giants in the organic goods space. Its top performing
company is Earths Best, which makes organic food products for infants,
toddlers and children. Earth's Best has 2.6 percent of the market share.

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International Sales Representation
in Net Global Sales
Source: 10K

Hain has a strong global expansion momentum. Its products are sold to
customers in more than 65 countries. International sales have been continuously
growing in the past three fiscal years. Its business in both U.S. and U.K. posted
record sales. It has also forged a partnership withHutchison Whampoa Limited,
billionaire Li Ka Shings retail and financial colossus, to take on Chinese market
and other emerging markets such as Thailand, Indonesia and Vietnam.

Hain is led by an entrepreneurial and visionary CEO. Irwin Simon is the

founder of Hain and has been the CEO for 21 years since 1993. After his exit
from Slim-Fast, the weight-loss company, Irwin Simon decided to build his own
business based on natural and healthy food at a time when going organic meant
someone had to be weird. He is also a rampant consolidator, having bought
three-dozen companies in 20 years. He eats his own merchandise, and eating
well is part of his life.

Irwin Simon

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Source: Google

Hain makes its products accessible to customers with different economic

status. Thanks to the expansion of organic good retailers such as Whole Foods,
Hain is seeing a rapid growth in recent years. That being said, Hain products are
also in demand by Costco, Wal-Mart and other mass-market grocers, allowing
Hain to expand its sale channels and increase the accessibility of its products.

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Why Should We Invest in Hain Now?

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Source: Google

Hain is still improving its M&A environment by recent and future

acquisitions of international and local companies.

1. Tilda. Hain finished its acquisition of British rice company Tilda for $357
million last year. Given Tildas international presence, this acquisition
provides Hain a tremendous platform to expand into faster-growth markets
such as India and the Middle East. Hain also plans to foster growth of the
Tilda business by expanding the iconic Basmati rice brand in the U.S.,
where it generates just 2.5% of sales. We believe that the growth will benefit
FY16E sales numbers.

2. Empire Kosher Poultry. Hain announced in early March that it had
purchased the remaining 80% of Empire Kosher Poultrys parent
corporation, for $57.6 million as a strategic acquisition. As a leader of
selling kosher brands at outlets in the U.S., Empire will provide Hain with
the opportunity to broaden its existing portfolio of organic and natural
brands into healthier kosher products.

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Hain has committed to higher level of corporate social responsibility to

better public relations and to improve company image. Hain recently
announced a three-year charitable commitment to CARE(R), a leading
humanitarian organization that fights global poverty. With this commitment,
three of Hains personal care brands have been named the founding partners to
the Empower Her through Education campaign, a multi-brand movement
dedicated to eliminating barriers to education for young women in developing
countries. The partnership could largely raise the reputation and value of Hains
brands by allowing consumers to relate organic and natural products to the
concept of healthier life.

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Hain is actively involved in product innovation and penetration to ecommerce. In order to open up broader growth channels, Hain is investing in
products with digital initiatives and e-commerce platforms that exemplify high
standards for quality. During the Natural Products Expo West 2015, over 100
new products of Hain were featured. These brands and the new product
innovation demonstrate Hains continued leadership in the organic and natural
space.

What are the Risks Associated with this Investment?

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A Highly Competitive Industry

Organic foods market is highly competitive. No single organic food brand

owns a market share more than 5%, and there is uncertainty that Hain would
outperform some multinational competitors with larger scales and greater
resources. To survive and grow in this competitive market, Hain has been
expanding its market presence by acquiring other established organic food
producers and integrating the brands to create synergies. Hain now owns the
largest number of brands in the market.

Hain Celestial may fail to expand its business through acquisitions. Frequent
acquisition and the fact that its portfolio consists of a large amount of brands
may divert management team from daily operation and increase the likelihood
of miscommunication regarding operational decision-making. In reaction to the
potential management inefficiency due to frequent acquisitions, Hain invites the
executive members of acquired companies joining Hains senior management
team. In its 2014 acquisitions, Hain invited the Tilda team led by Rohit Samani
to Hain Celestial United Kingdom and the Rudis Organic Bakery team to Hain
Celestial United States.

Hain is subject to foreign currency risks associated with its international

sales. The expectation of Federal Reserve to raise interest rates in mid 2015
leads to the strongest U.S. dollar in a decade. Dollar appreciation may cause its
products to become less attractive in foreign markets. However, foreign currency
risks will not become a major concern when making long term investment
decision because global economy is unpredictable. Furthermore, dollar will
regain its stability after Federal Reserve set forth its monetary policy and the
effect of exchange rate changes on cash only impacted less than 4% of FY2014
cash net change and less than 0.01% of revenue.

Source: Google

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Strongest USD in a Decade

Source: Investing.com

Valuation !

Discounted Cash Flow Analysis Summary

Financial Discussion

Bear
12.50%
Sales Growth (%)
73.63%
COGS (% of Sales)
14.44%
SG&A (% of Sales)
30.00%
Effective Tax Rate
Perpetual Growth Rate 2.75%
6.52%
WACC
61.80
Implied Share Price

Even if Hain trades at higher multiples in the overall food

industry, its multiple is reasonable compared to other
organic food companies such as WhiteWave

EBITDA multiple is preferred because it reflects Hains
operational performance and organic growth

Acquisition expense is excluded from CapEx and thus
projected sales growth is lowered to 15.5% from 24%
sales growth in the trailing 3 years to factor out
acquisition contribution accordingly

The target price of 72.59 is the average of DCF base case
price and median EBITDA multiple price

Base
15.50%
73.63%
14.44%
30.00%
3.00%
6.52%
76.23

Bull
18.50%
73.63%
14.44%
30.00%
3.25%
6.52%
93.96

Discounted Cash Flow Analysis (Base) Details

Historical Year
2013
2014
1,735.00
2,154.00
1,260.00
1,586.00
475.00
568.00

2015
2,487.87
1,831.83
656.04

2016
2,873.49
2,115.76
757.73

Projected Year
2017
2018
3,318.88
3,833.31
2,443.71
2,822.48
875.17
1,010.83

Sales
COGS
Gross Profit

2012
1,378.00
996.00
382.00

2019
4,427.47
3,259.97
1,167.50

SG&A
EBITDA
% Margin

230.00
152.00
11.03%

275.00
200.00
11.53%

311.00
257.00
11.93%

359.21
296.84
11.93%

414.88
342.84
11.93%

479.19
395.99
11.93%

553.46
457.36
11.93%

639.25
528.25
11.93%

Less: Depreciation & Amortization

EBIT
% Margin

1.40
150.60
10.93%

26.00
174.00
10.03%

28.00
229.00
10.63%

28.00
268.84
10.81%

28.00
314.84
10.96%

28.00
367.99
11.09%

28.00
429.36
11.20%

28.00
500.25
11.30%

Less: Interest
Less: Taxes
Net Income

17.30
41.15
92.15

20.49
34.32
119.19

20.14
70.10
138.76

20.14
74.61
174.08

20.14
88.41
206.29

20.14
104.35
243.49

20.14
122.77
286.45

20.14
144.03
336.08

Plus: Depreciation & Amortization

Less: Capital Expenditures
Less: Change in Working Capital
Unlevered Free Cash Flow

1.40
20.43
0.33
72.78

26.00
72.88
(47.11)
119.42

28.00
41.61
(11.35)
136.50

28.00
41.61
(11.35)
171.83

28.00
41.61
(11.35)
204.03

28.00
41.61
(11.35)
241.23

28.00
41.61
(11.35)
284.20

28.00
41.61
(11.35)
333.82

Comparables Analysis Details

Company Name

Ticker

General Mills, Inc.

Kraft Foods Group, Inc.
The WhiteWave Foods Company
Treehouse Foods, Inc.
Median
Mean
The Hain Celestial Group, Inc.

GIS
KRFT
WWAV
THS

Market Cap ($bn)

3/13/2015
32.17
36.25
7.28
3.62

HAIN

6.38

15.38
6844.10
6568.10
64.57

15.88
7066.60
6790.60
66.76

Implied EV
Implied Market Cap
Implied Share Price

EBITDA ($mm) Price / Earnings (x)

LTM
LTM
3,496.10
20.3
2,384.00
35.4
254.55
52.9
366.69
38.0
36.7
36.6
288.34
43.8
EBITDA Multiples
16.38
7289.10
7013.10
68.95

16.88
7511.60
7235.60
71.13

EV / EBITDA (x)
LTM
13.9
18.9
22.6
13.7
16.4
17.3
25.3

17.38
7734.10
7458.10
73.32