PowerPoint Presentation

Hain Celestial Group (NASDAQ: HAIN)Kevin FarshchiKushal ChukkapalliHua Haixing

December 2nd, 2014Todays AgendaIntroductionHains BusinessMacroeconomic OverviewIndustry AnalysisRecent Stock Market PerformanceFinancial AnalysisValuationRecommendation

Introduction to HainHain Celestial Group produces, markets, distributes and sells organic and natural products under various brand names in the U.S, Canada and EuropeHeadquartered in Lake Success, New York Offers one of the strongest growth portfolios in the industrySome of the prominent brand names include Arrowhead Mills, Ellas Kitchen, Avalon Organics and Earths BestSource: Page 2,Hain Celestial Annual report 2014

3The BusinessHain produces, markets, distributes and sells organic and natural products under various brand names in the U.S, Canada and EuropeThe firm sells to natural food distributors, supermarkets, natural food stores and other retail outletsIts business model includes acquiring natural/organic food and personal care companies or product linesRevenue drivers: mostly organic price premium, but also has the benefits of strong distribution networks and multitude of brands to increase quantity sold

Business SegmentsGroceryProducts include infant formula, kids foods, rice, non-dairy beverages, cereals, pasta etc. Accounted for approximately 77% of net sales in 2014SnacksSnack products include variety of potato, root vegetable, tortilla chips, baked puffs, popcorn etc. Accounted for approximately 12% of net sales in 2014TeaLeading 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 2014Personal careCover a variety of personal care categories including skin, hair and oral care, deodorants, body washes, sunscreens etc. Source: Hain Celestial Annual report 2014, Page 45ManagementCEO and founder Irwin Simon has continued confidence in the companys ability to sustain high top line growth and maintain a business model involving strategic acquisitionsBy 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=1986645Business Overview Acquisition StrategiesTargetMain MarketMain ProductsYearTilda LimitedUKOrganic rice2014Rudis BakeryUSOrganic bread and baked goods2014Ellas KitchenUKOrganic baby food2013UK Ambient UKDistribution channel in UK2013BluePrintUSNatural cold-pressed juice2013Quickly expanded through distribution channel right after acquisition to gain immediate revenue synergiesIn Ellas 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 MarketSource:http://blogs.wsj.com/numbers/who-owns-what-in-organic-packaged-foods-1613/ Source: Hain Celestial Annual report 2014, Page 3Macroeconomic ReviewKey catalysts:Consumer trends is clearly moving towards healthier & natural foods: CAGR of 14% from 2013-2018Discretionary income continues to increase after the recessionThe success of organic & natural food products is really a shift from using discretionary income to using ordinary or defensive income on organic productsThe Organic Trade Association found that 81% of American Families reported purchasing organic foodWhat is interesting is that just 18% of consumers are power shoppers, who account for over half of net salesThis 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

9Stable Sales Growth in USSource: http://www.organicnewsroom.com/2014/05/american_appetite_for_organic.html ,http://www.thepacker.com/fruit-vegetable-news/222580921.html 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 AssociationIndustry Porters Five Forces AnalysisThreat of new entrants (Low)Mature industryEntry of smaller players not that threatening Bargaining Power of Suppliers (Medium)Suppliers are globally diversifiedRely on overseas suppliers

Bargaining power of Consumers (Low)Buyers are usually price takers in food industryThreat of Substitutes (Low)Few true substitutes (organic)A lot more inorganic substitutes

Rivalry among existing firms (High)Very competitive market, main competitors including Whitewave, Kelloge, General Mills, Mondelez International;

Stock Market PerformanceClosing Price 12/1/2014 = $114.3352 Week Range = $80.02-$115.68Market Cap = 5.766 BEnterprise Value = 6.508 BSector: Consumer Staples

Imminent Stock SplitHain Celestial announced on November 25th, 2014 that stockholders approved a 2-for-1 stock split in the form of a 100% dividendStockholders at the close of December 12, 2014 will receive an additional share of common stock for each share ownedInvestors 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

We were long hereHuge price increase very recentlyKey question: can we get a good rate of return at this price???SSWOT Analysis17Recent Financial Performance2015 Quarterly Earnings HighlightsRevenue increased 35% Adjusted EPS increased 31% to $0.68Sales in the UK increased 51% YoYSuccess of recent acquisitions: 23 brands had double digit revenue growthThe sales increase primarily resulted from the acquisitions of HPPC in July 2014, Rudis in April 2014 and Tilda in January 2014, which collectively accounted for $131.6 millionMarkets reacted favorably to these numbers back in SeptemberHain Celestial Form 10Q, Page 22-23 Financial RatiosLiquidity20102011201220132014Current Ratio2.262.172.212.101.89Quick Ratio1.131.171.291.191.14Solvency20102011201220132014Debt/Assets21.31%18.36%23.83%29.63%26.07%Interest Coverage9.179.9210.3110.0010.00Profitability20102011201220132014Gross Margin27.75%27.63%26.38%27.66%27.66%ROA6.61%8.60%8.36%8.70%7.95%ROE10.34%13.23%14.50%16.35%14.56%Efficiency20102011201220132014A/R Turnover7.788.738.998.678.26A/P Turnover6.868.519.157.727.15Inventory Turnover4.064.815.585.755.56Days Sales Outstanding (DSO)46.9041.8240.5842.1244.20Days Payable Outstanding (DPO)53.2242.9039.9147.2751.08Days Inventory Outstanding (DIO)89.8875.8665.4663.4865.66Cash Conversion Cycle83.5674.7866.1358.3258.78Greenblatt Ratios20102011201220132014EBIT/ Tangible assets30%34%38%36%35%EBIT/Enterprise value1%2%2%3%4%DuPont AnalysisDuPont Analysis20102011201220132014EBIT Margin9.54%10.05%10.51%11.09%11.20%Interest Burden88.46%87.35%89.09%89.92%90.30%Tax Burden38.03%56.48%61.37%66.29%64.22%Asset Turnover0.740.830.820.770.73Financial Leverage1.561.541.741.881.83ROE3.73%6.34%8.21%9.54%8.64%AssumptionsCurrent Scenario: Base Scenario FY 2015FY 2016FY 2017FY 2018FY 2019Revenue Growth30.0% 27.0% 25.0% 20.0% 15.0% COGS as a % of Sales72.3% 72.3% 72.3% 72.3% 72.3% SG&A/Sales14.5% 14.5% 14.5% 14.5% 14.5% Amortization of Goodwill & Intangibles0.5% 0.5% 0.5% 0.5% 0.5% Interest Expense/Operating Income10.0% 10.0% 10.0% 10.0% 10.0% Tax Rate33.5% 33.5% 33.5% 33.5% 33.5% Depreciation as a % of Net PP&E7.8% 7.8% 7.8% 7.8% 7.8% Capital Expenditures as a % of Revenue1.4% 1.4% 1.4% 1.4% 1.4% A/R as a % of Revenue13.0% 13.0% 13.0% 13.0% 13.0% Inventory as % of COGS21.0% 21.0% 21.0% 21.0% 21.0% A/P as % of COGS13.6% 13.6% 13.6% 13.6% 13.6% Discount Rate CalculationCost of equity1 Year Beta (weekly returns)1.2Rf2.31%5 Year Beta Bloomberg0.0Beta0.3811 Year BetaMRP7.00%E[R]4.98%Realized Return YTD0.3Cost of Debtin Million USDTotal Debt867.9 34.9% Total Interest Expenses23.4Total Common Equity1619.9 65.1% Total Capital2487.8 100.0% Current portion of long-term debt100.096Long-term debt, less current portion767.827Shares outstanding50.4Other noncurrent liabilities5.02Current Price114.3Total Amount of Financial Debt872.943Total market value of equity5757.1Cost of Debt2.68%WACC CalculationKE15.42%WE65.11%KD (After Tax)1.78%WD34.89%WACC10.66%Business Risk Premium0.50%Discount Rate11.16%Discounted Cash Flow ValuationFCF BuildEBIT 355.7 451.7 564.7 677.6 779.2 $779.22 Plus: D&A 40.3 44.3 49.2 55.1 62.0 62.0 Less: Taxes (107.2) (136.2) (170.2) (204.3) (234.9)(234.9)Less: Capex (39.8) (50.6) (63.2) (75.9) (87.2)(87.2)Less: Changes in NWC 7.3 57.8 68.0 68.0 61.2 0.0 Unlevered FCF 241.7 251.4 312.5 384.6 457.8 519.0 Terminal Growth Rate3.0%Discount Rate (WACC + premium)11.16%Terminal Value 5,778.27 `Discount Period (t)12245PV of FCF's217.43203.49252.86251.89269.74PV of FCF'sPV of Terminal ValueEnterprise ValueNet DebtEquity ValueShares$/SharePerpetuity Method1,195.413,404.314,599.73 749.2 3,850.5348.88$78.78Current Scenario: Base Scenario23Discount Rate SensitivitySensitivity AnalysisDiscount Rate 78.78 10.66%10.91%11.16%11.4100%11.66%Terminal Growth Rate2.50% 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 ValuationWhiteWave Foods is the only real comparable company to Hain Hain has lower sales but better margin compared with its peers

Trading Comparables ValuationFocus on EV/EBITDA & P/E ratio50/50 Highest TP/Lowest TP: $122.5

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