PARAG MILK FOODS- BUY
Ideas for a new day
CMP 313 Parag Milk Foods is Pune based dairy-based branded food producer.
Market capitalization 25.46 B The company is involved in collection, distribution of milk and
Recommendation producing dairy-based branded consumer products including cheese,
Sector Dairy Product ghee, whey proteins, paneer, curd, yoghurt, milk powders and dairy
Beta 1.1 based beverages. All products of the company are made from cow milk.
52 Week High/Low 368.95/219.95
Company has presence in the international markets like UAE,
Bloomberg Code [Link]
Singapore, Oman, Kuwait, Mauritius, New Zealand, Australia Congo,
Seychelles, Iraq. Company has extensive Cheese demand from
Shareholding Pattern international market and supplying bulk Cheese to Philippines, Sri
Dec- Sep-
Lanka,
Mar-18 17 17
UAE and Bangladesh. During the year the company's Export of
Promoters 48.71 48.7 48.7 consumer products increased by 79 % as compared to the year 2015 -
FII's 15.05 15.95 19.9
16. The total export sale for financial year was Rs, 568 Million against
Rs, 318 Million last year. Company has significantly enhanced the
DII's 13.38 12.95 12.16 capacity built up by way of capital expenditure in plant and machinery
at Manchar and Palamaner plant from time to time. The Company has
Others 22.87 22.39 19.23
made additions amounting to'' 588.39 Million as on March 31, 2017 as
Total 100 100 100 against additions of '' 891.26 Million as on March 31, 2016 in the Gross
block of Fixed Assets for the year ended March 31, 2017
INDUSTRY OUTLOOK
Indian dairy industry is valued at Rs 6 lakhs crore. Overall, the dairy
and milk industry is estimated to grow at 12-13% CAGR in the next
three years, driven by rising milk prices, change in the product mix,
rising share of branded products and increased consumption of
value-added products. This shows strong opportunity for organized
sector to grow. By 2020, the revenues of the sector are forecasted to
reach US$ 104 billion. India’s milk production is estimated at 165.5
mt for 2017-18, an increase of 3.8 per cent from the previous year.
In the long run, with the system becoming more transparent and
easily compliable, demonetisation is expected to benefit organised
players in the FMCG industry. Direct selling sector in India is
expected to reach Rs 159.3 billion (US$ 2.5 billion) by 2021, if
provided with a conducive environment through reforms and
regulation.
The focus on agriculture, MSMEs, education, healthcare, infrastructure and employment under the Union Budget
2018-19 is expected to directly impact the FMCG sector. These initiatives are expected to increase the disposable
Rising demand for value added products to drive strong industry growth
income in the hands of the common people, especially in the rural area, which will be beneficial for the sector.
Increasing investments and Government support in infrastructure building to aid growth of organized players
Commodity Product Traditional VADP Emerging VADP
•Liquid Milk •Butter •Cheese
•Milk Powder •Ghee •Yogurt
•Share in Industry-67% •Paneer •Flavoured milk
•Growth-10-11% •Share in Industry-29% •Icecream
•Penetration- High •Growth-12-13% •Share in Industry-4%
•Penetration- High •Growth-15-20%
•Penetration- High
INVESTMENT RATIONALE
Parag Milk Foods' profit is estimated to rise 49 per cent over FY17-20, due to a focus on value-
added products, with established brands and capex already undertaken.
RECENT PRODUCT LAUNCH
1. Parag Milk Foods announced the launch of a unique variant in cheese - 'Go Chocolate
Cheese'. This is a product that combines the taste of chocolate in the form of cheese. The
product will be available across Retail and Modern Trade outlets in India and will be
promoted through a 360-degree campaign that will commence shortly.
2. The company also launched Avvatar Advanced Muscle Gainer which is first in its type
in India. The product has immense head room to grow as the Sports nutrition segment is
estimated to be around INR 1,500 Cr which is very under penetrated market. The dairy
company has been focusing on adding high-margin value-added products such as when-
protein sports nutrition brand Avvataar to its portfolio.
3. The company also launched Misthi Doi under the Gowardhan brand and targets to sell
in all major metros.
KEY EVENTS/COM CALL HIGHLIGHTS
1. Parag Milk buys Danone dairy factory in Haryana
The acquisition of Danone’s dairy factory will help Parag Milk expand its footprint in North
India and strengthen distribution of milk and milk products in Delhi NCR and Haryana, says
chairman Devendra Shah
2. Parag Milk Foods ties up with Swedish company ColoPlus AB for colostrum-
Parag Milk Foods (PMFL) said that it is collaborating with Swedish research organisation
ColoPlus AB to launch a colostrum-based nutrition product in [Link] this
collaboration, PMFL will manufacture colostrum-based health food product GO Colo Power
by acquiring the patent rights for this technology from the Swedish company.
3. Parag Milk Foods plans to increase operational efficiency by leveraging in house
technology and strengthening research and development capabilities.
4. To increase the visibility of its brand the company launched ‘Cheese lovers day’ campaign
on 20th January 2018 across leading newspapers, food channels, Zee TV, Sony SAB, etc to
increase in marketing and advertising spend.
KEY RISKS
• Increase in the procurement prices
• High capex intensity
• Inability to procure sufficient good quality raw milk at commercially viable prices may adversely
impact the operation as milk is a key raw material for all dairy products
• The dairy industry is highly competitive with multiple players sourcing milk from the same region
and price war. Such competition can have an impact on raw milk prices.
INFOGRAPHICS
1. Sales to profit before tax in the last 10 years
PARAG MILK FOODS: Sales To profit
Before Tax
600
400
200
0
1 2 3 4 5 6 7 8 9 10
-200
Sales Profit before tax
2. Graph depicting sales and YOY growth in sales
3. Debt/Equity trend since March’11 to March’18
Parag Milk Foods: Debt/Equity Trend
10.00
8.00
6.00
4.00
2.00
-
1 2 3 4 5 6 7
4. Return on Invested Capital versus Return on equity trend since March’11 to March’18
1.50
1.00
0.50
-
1 2 3 4 5 6 7
(0.50)
ROIC ROE
5. PAT/EPS from March’11 to March’18
PARAG MILK FOODS : PAT/EPS TREND
50
40
30
20
10
0
1 2 3 4 5 6 7
-10
PAT EPS
5. Technical analysis chart
Following line chart depicts the movement of prices of Parag Milk Foods stock over the last three
years. Technical analysis with a trading volume of 160745. Various technical analysis indicators are
used to assess and predict the up and down movement of prices. Few of the clearly seen indicators
are head and shoulder, triangle, and inverted triangle. The stock has been consistent with the overall
movement of the economy and has performed well over the given holding period.
FINANCIALS
• Consolidated revenue for the fourth quarter rose by 20.89% and stood at Rs15718.37 millions as
against Rs 4283.58 million in the corresponding period of previous year
• During Q FY 18 consolidated EBITA was Rs 594.56 million as compared to Rs [Link] Q4 FY 17, up
by 37.21%
• Consolidated PBT stood at Rs 373.56 million in the current quarter of FY 18 from Rs 151.32 million
in Q4 FY17
• Consolidated net profit rose by 18.27 % and stood at Rs 261.5 million in the current quarter as
against 221.1 million in the corresponding period of PY
• EPS of the company stood at Rs 3.12 and shared during the quarter.
• Consolidated revenue for FY 18 stood at Rs 19545.06 million as compared to 17307.39 million for FY
17, representing growth of 13% [Link] driven by valueadded products mainly by cheese,
paneer,and ghee
• PAT for FY 18 stood at Rs 870.56 million with PAT margin of 4.5 % driven by higher EBITA margin
and volume leverage
INCOME STATEMENT
Expected growth rate assumptions:
• Before IPO, the company had a high growth trajectory. After IPO in 2016, the profit dipped from previous
95%. This was an exception as the capital raised from equity was put into capital expenditure (90cr
from 160 cr was capex).
• The company’s sales to expenses ratio has been approximately constant over the years, showing stability
in operational efficiency and in tandem with top line growth
• Hence, going by the growth rate of FY16 and con call highlights (14% CAGR 3Years) we have
assumed a growth rate of 13%
BALANCE SHEET
Parag Milk Foods Ltd recommended a dividend of 7.5 % for the FY 2018.
FINANCIAL RATIOS
May-15 May-16 May-17
Debtor Days 43.19 52.36 45.35
5 YEARS 3 YEARS
Inventory Turnover 6.82 6.04 4.04
Fixed Asset
Turnover 4.96 4.77 4.82 Sales Growth 14.0% 16.7%
Debt/Equity 4.40 1.07 0.40
PBT Growth -3.1% 12.6%
Return on Equity 0.26 0.13 0.03
Return on Capital
Employed 0.12 0.13 0.04 PBT Margin 2.1% 2.5%
FREE CASH FLOWS
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