Parag Milk Foods Limited: Favourable Dynamics and Product Launches Make Up A Case

Summary

To enhance product reach, Parag Milk Foods Limited plans to strengthen distributor & stockists base to target higher retail penetration. Parag Milk Foods Limited plans to increase Ad spend on various channels like television, newsprint, digital media to strengthen its brands. Target of increasing value-added product portfolio should be achieved by focusing on health and nutritional aspect in development of premium products.

About Parag Milk Foods Ltd

Established in 1992, Parag Milk Foods Limited is largest private dairy FMCG Company, which has pan-India presence. It has its own manufacturing facilities with in-house technology which are strategically located at Manchar in Maharashtra, Palamner in Andhra Pradesh and Sonipat in Haryana. Its goal is to be a largest dairy FMCG Company, emphasizing on health and nutrition to consumers through innovation.

Business Model

Parag Milk Foods Limited has an integrated business model, encompassing entire value chain of dairy-based F&B business and includes activities such as manufacturing and processing to branding and distributing a wide variety of products. The company has well-established relationships with farmers in proximity of its facilities, and its continuous engagement with them helps Parag Milk Foods Limited to consistently procure raw milk at competitive prices.

Growth Enablers of Parag Milk Foods Ltd

• Healthy Financial Results for FY22: Consolidated revenue from operations for FY22 came in at INR20,718 million, reporting 12.5% growth in comparison to INR18,418 million in FY21. This growth stemmed from improvement in core categories that saw 20% growth. Further, improvement in distribution and buoyancy in overall demand supported performance. Share of value added products for FY22 was 68% of total revenue, while that of liquid milk was 9.5% and same for skimmed milk powder came at 19%.
• India’s Favourable Dynamics Should Provide Growth Opportunities: Parag Milk Foods Limited should seek support from favourable sectoral dynamics as middle-class households should grow from 255 million in 2015 to 586 million in 2025. Consumption of milk & dairy products should be benefited from rising disposable income. India should see its urban population to grow and organised dairy industry should get some help from preference for clean, hygienic & ready-to-eat milk & dairy products. Milk is an important source of vital nutrients specially for vegetarians and consumers are shifting away from cereals to milk and dairy products. Continuous demand for milk & dairy products is ensured given that 31% of Indian population is vegetarian.
• Focus on Enhancing Product Reach and Strengthen Brands: Parag Milk Foods Limited has its focus on value creation by leveraging operational efficiencies and increasing milk procurement. The company plans to leverage in-house technological and R&D capabilities to maintain strict operational controls and develop customised systems & processes. It also plans to strengthen its existing farmer relations and offer quality & quantity-based incentives. Sales volume should see an increase as the company identifies specific states and regions in India.
• Strategic Priorities Should Help Achieve Growth: The company has its focus on operational efficiencies and technology should help in achieving this. It continues to ensure greater technology adoption and automation. Parag Milk Foods Limited plans to expand its portfolio and achieve depth in distribution. Its annual report emphasises that distribution reach spans across ~3.5 Lakh outlets. It will focus on achieving depth into categories it caters to. It is growing and strengthening association with stockists and distributors so that greater penetration can be achieved. Technology is backbone of the company’s processes. It believes in maintaining futuristic approach to stay relevant. Parag Milk Foods Limited has integrated advanced technology across all verticals.
• New Launches Should Lend Support: The company continues to introduce products across price points for fast-moving beverage segments. During 4Q22, the company added mango milkshake and mango lassi in its portfolio. With this new launch, now its beverages portfolio of Go milkshake has 5 flavours such as Vanilla, Coffee, Chocolate, Strawberry and Mango.

Absurdly Cheap Valuations Means Going Long

Parag Milk Foods Limited has compounded its revenues at ~10.3%, EBITDA at ~9.2% and PAT at ~18.6% over FY16-FY20. The company’s profitability measures should be supported by strong distribution network and cost rationalization measures. Even though milk consumption has been increasing, per capita consumption is still meagre, when compared with other developed markets such as US and EU, and markets like Russia and Brazil. India is a milk drinking nation. Society values dairy products as they are an important source of protein and nation is home to largest population of vegetarians. All these points hint for large headroom which is available for growth. Indian dairy industry is seeing large-scale changes due to consumer behaviour. The company’s presence across various consumer distribution channels and collaborations with channel partners should support it to foster a stronger connect and respond to unique needs.

The company plans to introduce products across price points servicing all strata of consumers and giving them healthy, nutritious and quality dairy products. Focus will be on its core categories of ghee, cheese, paneer and curd. The company saw continued buoyancy in demand, led by opening up of economy in a structured manner post COVID 19. E-commerce emerged as fast-growing leg and has gained strong prominence in overall distribution.

Parag Milk Foods Limited has a total market cap of ~INR86,935.08 lakhs and has a free float market cap of ~INR40,926.73 lakhs.