Parag Milk Foods (PARAG) is one of the leading dairy products companies in India. The company has been successful in creating strong brands like GO, Gowardhan and in introducing new products like Whey Protein. It has become the 2nd player in processed cheese (after Amul) in a short span of 10 years and commands 33% market share. Rising revenue share of high-margin value added products (VAP) is likely to boost its margins in coming years.
Outlook and valuation: We expect PARAG to report net revenue/PAT CAGR of 13%/27% respectively over FY2018-20E. The stock currently trades at a P/E of 14.9x FY2020E EPS. It is increasingly becoming a stable brand strory while it is still valued as commodity business. We feel that the company should somewhere start enjoying the valuation of FMCG companies. We initiate coverage on the stock with a BUY recommendation and Target Price of `333 (20x FY2020E EPS), an upside of 34% from the current levels.
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