Parag Milk Foods Ltd - Angel · PDF filePlease refer to important disclosures at the end of...

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Transcript of Parag Milk Foods Ltd - Angel · PDF filePlease refer to important disclosures at the end of...

  • Please refer to important disclosures at the end of this report 1

    Parag Milk Foods (PMFL) is one of the leading manufacturers and marketers of dairy-based branded foods in India. The company has well recognized brands like Gowardhan and Go in its portfolio and has a pan-India network comprising of 15 depots, 104 super stockists and over 3,000 distributors. It has also been growing in the lowly penetrated Indian cheese market (household penetration of ~5%) where it current market share stands at 32%. Going ahead, we expect PMFL to report a top-line CAGR of ~16% to ~`2,231cr and net profit CAGR of ~39% to `91cr over FY2016-18E. Shift in trend from unorganized to organized sector to drive growth: The Indian dairy industry is currently valued at ~`4,061bn and is mainly dominated by the unorganized sector which accounts for an 80% share. Industry reports indicate that the Indian dairy industry is expected to grow at a CAGR of 14.9% over FY2015-20E to ~`9,397bn and within it the organized segment is expected to grow at a faster pace, thus resulting in its share improving from 20% to ~26% in FY2020E. We believe that this shift in industry will benefit branded players like PMFL. Low consumption of cheese in India presents opportunity for PMFL: The cheese industry in the country is in its nascent stage with cheese only accounting for a fraction of the total dairy industry. Indias household penetration of cheese is also very low compared to other developed countries. Going forward, we expect consumption to increase on account of increase in home consumption due to increasing disposable incomes, faster growth expected in the Indian fast food industry, and shift in food consumption trends in tier II and III cities. Considering PMFLs strong brands (Go Cheese) and distribution network, we believe that the company will benefit from growth in the overall cheese industry in India. Margins to improve on account of branded product sales: The company derives approximately two-thirds of its revenues from the sale of high margin branded consumer products like ghee, cheese, UHT, whey products etc. We believe the company will be able to continue its strong growth in the above products going forward on the back of its strong brands and distribution network. Outlook Valuation: PMFL is anticipated to post strong growth in value added products on back of its diversified product basket, strong brands and wide distribution network. Also PMFL would benefit from a shift in mix in favor of the organized market for dairy products. Moreover, PMFL is also reducing its debt significantly, which will enable cost savings. At the current market price, the company trades at a P/E of 21.4x its FY2018E EPS. We initiate coverage on the stock with a Buy recommendation and target price of `336, indicating an upside of ~21% from the current levels. Key financials Y/E March (` cr) FY2015 FY2016 FY2017 FY2018 Net sales 1,444 1,645 1,919 2,231 % chg 32.7 13.9 16.6 16.2 Net profit 32 47 67 91 % chg 101.7 46.9 40.6 36.9 EBITDA margin (%) 7.4 9.0 9.3 9.6 EPS (`) 4.6 6.7 9.4 12.9 P/E (x) 60.6 41.2 29.3 21.4 P/BV (x) 15.8 5.4 4.6 3.8 RoE (%) 26.2 13.1 15.5 17.5 RoCE (%) 14.4 15.2 19.4 21.3 EV/Sales (x) 1.6 1.4 1.2 1.0 EV/EBITDA (x) 22.2 15.8 12.5 10.3 Source: Company, Angel Research, Note: CMP as of July 1, 2016

    BUY CMP `277 Target Price `336

    Investment Period 12 Months

    Stock Info


    Net Debt (` cr) 382

    Bloomberg Code

    Shareholding Pattern (%)

    Promoters 47.5

    MF / Banks / Indian Fls 4.5

    FII / NRIs / OCBs 25.8

    Indian Public / Others 22.2

    Abs. (%) 1m 1yr 3yr

    Sensex 1.0 (2.8) 39.2

    PMFL 17.3 - -

    Dairy Products

    Market Cap (` cr) 2,326

    Beta 0.1

    52 Week High / Low 287/ 202

    Avg. Daily Volume 333,344

    Face Value (`) 10

    BSE Sensex 26,999

    Nifty 8,287

    Reuters Code PAMF.NS


    3 year daily price chart

    Source: Company, Angel Research

    Amarjeet S Maurya

    022-39357800 Ext: 6831

    [email protected]

    Noel Vaz

    022-39357800 Ext: 6847

    [email protected]
















    Parag Milk Foods Expanding dairy industry to unleash huge potential

    Quick take

  • Parag Milk Foods

    4 July, 2016 2

    Quick take

    Investment Arguments

    Well established brands and diversified product portfolio

    The company has well recognized brands in its portfolio that include Gowardhan and Go. It markets dairy products (milk, ghee, paneer, butter, etc) and processed cheese blocks under the Gowardhan brand which targets consumption at home. It has launched a wide range of cheese products, UHT, fresh cream etc, since 2008 under the Go brand targeting the younger generation and these have gained enormous traction since their launches. Gowardhan has been recognized by media houses and consulting agencies as most trusted brand in the food products category and Go has been acknowledged as the Most Promising Brand in the FMCG category. Go cheese especially has gained significant momentum since its launch and has been competing with products of Amul, whose name has been synonymous with cheese and butter in India for the longest period of time. Its other brands include Pride of Cows(premium quality cow milk) and Topp Up(beverages).

    Exhibit 1: Diversified Mix of Products

    Source: Company, Angel Research

    Over the years, the company has introduced a range of innovative and value added products in the market to cater to retail as well as institutional customers. Its manufactured product mix is made up of fresh milk, skimmed milk powder, milk products and other products which accounted for 18%, 12%, 67%, and 2% of revenue from manufactured products respectively.

  • Parag Milk Foods

    4 July, 2016 3

    Quick take

    Exhibit 2: Manufactured products revenue mix FY2016

    Source: Company, Angel Research *Milk Products includes cheese, paneer UHT, whey and beverages

    Integrated business model

    The company has an integrated business model which is present across the entire value chain ranging from manufacturing and processing to branding and distribution of a wide variety of products. It has a robust milk procurement network with 3,400 village level collection centers that are present in 29 districts across the states of Maharashtra, Andhra Pradesh, Karnataka and Tamil Nadu. It has built strong relationships with milk farmers through continuous engagement and its milk procurement belt lies in close proximity to its facilities at Manchar and Palamaner which have high population of dairy cows. This enables the company to procure quality milk at reasonable costs, reduce transportation time and costs, and reduce wastages.

    Growing pan-India distribution network

    The company has a pan-India distribution network which comprises of 15 depots, 104 super stockists and over 3,000 distributors as of February 29, 2016. Its depots are present in 13 states and union territories in India. It also has a dedicated sales and marketing team comprising 560 personnel (~35% of total workforce) based in key distribution centres. Its products with shorter life (fresh milk and milk products) are sold in the western and southern regions of India, in proximity to its manufacturing facilities. It has established a separate route-to-market to focus on the distribution of low unit price products including ghee, flavoured milk, UHT milk, dairy whiteners and gulab jamun mix in tier 3 cities and rural areas in India. Going forward, the company intends to appoint additional distributors and super stockists to increase the availability of products in smaller towns in India and introduce new low unit price products in tier 3 cities and rural areas.





    Skimmed Milk Powder Fresh Milk Milk Products Other Revenues

  • Parag Milk Foods

    4 July, 2016 4

    Quick take

    Exhibit 3: Pan-India presence

    Source: Company, Angel Research

    Projected financial performance

    Going forward, we expect the company to report a top-line CAGR of 16% over FY2016-18E on the back of robust sales growth in consumer driven products like cheese/paneer and UHT. Further, we expect the company to be able to maintain its growth on the back of shift in share from unorganized market to organized market for products (branded) like ghee, paneer, curd, etc. Further, penetration in the cheese segment in India is expected to grow and we believe with its strong brand, the company will be able to report significant growth in the cheese segment. Currently the company commands a market share of 32% in the cheese segment.

    On the bottom-line front, we expect the company to post a CAGR of 39% over FY2016-18 aided by improvement in operating margin with sale of higher value products like cheese/paneer, ghee, UHT, etc. Further the company is also reducing debt which will boost its profitability.

  • Parag Milk Foods

    4 July, 2016 5

    Quick take

    Exhibit 4: 16% Revenue CAGR over FY2016-18E

    Source: Company, Angel Research; Note: - 9MFY2016 annualised number

    Exhibit 5: 39% Net Profit CAGR over FY2016-18E

    Source: Company, Angel Research; Note: - 9MFY2016 annualised number

    900 925 1,088

    1,444 1,645























    ( cr


    Net Sales

    19 21 16