4QFY2018 Result Update | Dairy Products

May 14, 2018

Parag Milk Foods

BUY

CMP

`336

Performance Update

Target Price

`410

Y/E March (` cr)

Q4FY18

Q4FY17

% yoy

Q3FY18

% qoq

Investment Period

12 Months

Net sales

518

428

20.9

519

0.3

EBITDA

Stock Info

EBITDA margin (%)

10.6%

9.0%

161bps

11.3%

(68.3)bps

Sector

Dairy Products

Adjusted PAT

26.2

22.1

18.3

25.5

12.5

Market Cap (` cr)

2,830

Net Debt (` cr)

209

For Q4FY2018, Parag Milk Foods (PARAG) posted decent performance with

Beta

1.1

20%/18% yoy growth in revenue/ PAT and decent margin expansion. The

52 Week High / Low

346/206

company is introducing many new products/ variants and improving its supply

Avg. Daily Volume

2,43,852

chain management which would drive 20%+ earnings growth in next two years.

Face Value (`)

Revenue rose 21%: Its Q4’s top-line rose due to aggressive distribution expansion

BSE Sensex

35,557

and new variants addition in the high-margin Value Added Products (VAP)

Nifty

10,480

segment. It is introducing many new products/ variants of existing products like

Reuters Code

PAMF.NS

premium ghee, protein powder, Mishti Doi which would boost its revenue.

Bloomberg Code

PARAG.IN

Margins were decent: On the operating front, the company’s margin were robust

at 10.6% due to better revenue mix. The company has slightly upgraded margins

Shareholding Pattern (%)

guidance to 11-12% from earlier 10-11% for the next two years.

Outlook and Valuation: We have slightly upgraded our earnings estimates in view

Promoters

48.7

of new products pipeline, better off take in whey protein and the revised margin

MF / Banks / Indian Fls

13.4

guidance from the management. We now expect PARAG to report a CAGR of

FII / NRIs / OCBs

16.6

~18%/37% in revenue/ earnings over FY18-20E. The stock has given 35% return

Indian Public / Others

21.4

since our initiation in April. The stock is currently trading at 17.5x its FY2020

earnings, which still looks attractive looking at its evolving FMCG story. Hence we

Abs. (%)

3m 1yr

3yr

recommend BUY with a target price of `410 (21x FY2020E EPS).

Sensex

1.5

13.5

35.3

Key Financials

PARAG

12.8

33.5

Y/E March (Rs cr)

FY2016

FY2017

FY2018E

FY2019E

FY2020E

Net Sales

1,645

1,731

1,955

2,271

2,706

Price Chart

% chg

13.9

5.2

12.9

16.2

19.2

400

Net Profit

49.4

35.9

87.1

115.4

162.1

300

200

% chg

33.0

(27.2)

142.2

32.6

40.5

100

OPM (%)

9.0

5.1

9.9

10.4

11.1

EPS (Rs)

5.9

4.3

10.3

13.7

19.3

P/E (x)

57.3

78.7

32.5

24.5

17.5

P/BV (x)

5.8

3.2

2.8

2.4

2.1

Source: Company, Angel Research

RoE (%)

13.6

5.5

11.7

13.4

15.9

Nidhi Agrawal

RoCE (%)

15.3

4.3

14.9

17.2

20.8

022 - 3935 7800 Ext: 6872

EV/Sales (x)

2.0

1.7

1.5

1.3

1.1

[email protected]

EV/EBITDA (x)

21.7

33.7

15.2

12.6

9.8

Source: Company, Angel Research

Please refer to important disclosures at the end of this report

Parag Milk Foods |4QFY2018 Result Update

Exhibit 1: Q4FY2018 Performance

In Cr

Q4FY18

Q4FY17

YOY %

FY18

FY17

YOY %

Net Sales

518

428

20.9%

1955

1731

12.9%

Raw Material Consumed

374

296

26.2%

1304

1341

-2.7%

Stock Adjustment

-36

-27

32.6%

-5

-155

-96.7%

Purchase of Finished Goods

-31.6%

-6.3%

Employee Expenses

11.6%

8.9%

Other Expenses

10.9%

307

323

-5.0%

Total Expenditure

463

390

18.7%

1761

1661

6.0%

As a % of sales

Raw Material Consumed

72%

68%

66%

77%

Stock Adjustment

-7%

-6%

-9%

Purchase of Finished Goods

COGS

68%

67%

70%

72%

Gross Margin %

32%

33%

30%

28%

Employee Expenses

Other Expenses

17%

18%

16%

19%

Total Expenditure

89%

90%

95%

EBITDA

42.5%

193

178.2%

Other Income

-6.8%

3.0%

Interest

13.2%

13.1%

PBDT

43.1%

170

242.2%

Depreciation

-25.8%

3.3%

PBT

107.3%

119

Tax

-7

-260.6%

-6

-580.8%

Reported Profit After Tax

4.6%

1641.2%

Extra-ordinary Items

-3

-19

-100.0%

Adjusted PAT

18.3%

341.3%

Ratios

EBITDA margin (%)

10.6%

9.0%

9.9%

4.0%

PAT margin %

5.0%

5.8%

4.5%

0.3%

Tax rate %

30.0%

-38.7%

26.2%

Source: Company, Angel Research

May 14, 2018

Parag Milk Foods |4QFY2018 Result Update

Outlook and Valuation

 We have slightly upgraded our earnings estimates in view of new products

pipeline, better off take in whey protein and the upgraded margin

guidance from the management. We now expect PARAG to report a

CAGR of ~18%/37% in revenue/ earnings over FY18-20E.

 We also feel that the higher contribution of nutrition and wellness ( 30%

gross margin segment expected to touch 7% from current 2% share)

would further boost margins. Also, the other products in pipeline like

Mishti Doi, premium ghee etc. holds great potential.

 Its effort to improve its supply chain under the consultation of VECTOR

CONSULTING is also likely to improve its working capital cycle as well as

utilization of production capacity.

 Its recent acquisition of Danone facilty in North India is likely to improve

its presence there across various products like curd etc. PARAG is also in

talks with various farmers to improve supply chain in north India.

Valuation

The stock has given 35% return since our initiation in April. The stock is currently

trading at 17.5x its FY2020 earnings, which still looks attractive looking at its

evolving FMCG story. Hence, we recommend a buy with a target price of `410

(21x FY2020E EPS).

Risks to our estimates

1) Inability to procure sufficient good quality raw milk at commercially viable

prices

2) Increase in competitive intensity

May 14, 2018

Parag Milk Foods |4QFY2018 Result Update

Profit & Loss Statement

Y/E March (` cr)

FY2016

FY2017

FY2018E FY2019E FY2020E

Total operating income

1,645

1,731

1,955

2,271

2,706

% chg

13.9

5.2

12.9

16.2

19.2

Total Expenditure

1,497

1,642

1,761

2,036

2,406

Raw Material

1,333

1,414

1,675

1,754

2,070

Personnel

114

Selling and Administration Expenses

82.4

113.1

140.8

167.8

Others Expenses

EBITDA

148

193

235

300

% chg

38.2

(40.1)

117.7

21.8

27.7

(% of Net Sales)

9.0

5.1

9.9

10.4

11.1

Depreciation& Amortisation

EBIT

115

143

176

236

% chg

44.1

(65.3)

258.4

23.3

34.0

(% of Net Sales)

7.0

2.3

7.3

7.7

8.7

Interest & other Charges

Other Income

(% of PBT)

2.3

62.7

10.1

3.1

2.2

Share in profit of Associates

Recurring PBT

119

159

227

% chg

94.9

(73.8)

579.0

33.8

42.4

Tax

(% of PBT)

29.2

2.3

26.8

27.5

28.5

PAT (reported)

115

162

Extraordinary Items

(2)

(19)

Less: Minority interest (MI)

PAT after MI (reported)

115

162

ADJ. PAT

115

162

% chg

33.0

(27.2)

142.2

32.6

40.5

(% of Net Sales)

3.0

2.1

4.5

5.1

6.0

Fully Diluted EPS

5.9

4.3

10.3

13.7

19.3

% chg

33.0

(27.2)

142.2

32.6

40.5

May 14, 2018

Parag Milk Foods |4QFY2018 Result Update

Consolidated Balance Sheet

Y/E March (` cr)

FY2016

FY2017

FY2018E

FY2019E

FY2020E

SOURCES OF FUNDS

Equity Share Capital

Reserves& Surplus

291

573

660

774

935

Shareholders’ Funds

362

657

744

858

1,019

Equity Share Warrants

Total Loans

389

262

212

162

112

Deferred Tax Liability

Other liabilities

18.7

18.1

Total Liabilities

769

938

974

1,039

1,150

APPLICATION OF FUNDS

Gross Block

528

585

645

705

765

Less: Acc. Depreciation

183

226

280

340

404

Net Block

345

359

365

361

Capital Work-in-Progress

Investments

Current Assets

602

878

954

1,012

1,178

Inventories

272

429

455

529

630

Sundry Debtors

236

215

241

280

334

Cash

101

108

Loans & Advances

133

151

175

209

Other Assets

Current liabilities

211

382

453

474

560

Net Current Assets

391

496

502

538

618

Deferred Tax Asset

(11)

(10)

(11)

(12)

Mis. Exp. not written off

123

160

Total Assets

769

938

974

1,038

1,150

May 14, 2018

Parag Milk Foods |4QFY2018 Result Update

Consolidated Cashflow Statement

Y/E March (` cr)

FY2016

FY2017

FY2018E FY2019E FY2020E

Profit before tax

119

159

227

Depreciation

Change in Working Capital

(116)

(103)

Interest / Dividend (Net)

Direct taxes paid

(14)

(16)

(32)

(44)

(65)

Others

(75)

(11)

Cash Flow from Operations

174

138

(Inc.)/ Dec. in Fixed Assets

(27)

(97)

(60)

(Inc.)/ Dec. in Investments

(4)

(22)

(28)

(37)

Cash Flow from Investing

(31)

(91)

(82)

(88)

(97)

Issue of Equity

278

Inc./(Dec.) in loans

(50)

Dividend Paid (Incl. Tax)

Interest / Dividend (Net)

(55)

(31)

(36)

(22)

(14)

Cash Flow from Financing

(26)

123

(86)

(72)

(64)

Inc./(Dec.) in Cash

(79)

(23)

Opening Cash balances

101

108

Closing Cash balances

101

108

May 14, 2018

Parag Milk Foods |4QFY2018 Result Update

Key Ratios

Y/E March

FY2016

FY2017

FY2018E

FY2019E

FY2020E

Valuation Ratio (x)

P/E (on FDEPS)

57.3

78.7

32.5

24.5

17.5

P/CEPS

26.0

31.7

15.2

12.0

9.2

P/BV

5.8

3.2

2.8

2.4

2.1

EV/Sales

2.0

1.7

1.5

1.3

1.1

EV/EBITDA

21.7

33.7

15.2

12.6

9.8

EV / Total Assets

4.2

3.2

3.0

2.9

2.6

Per Share Data (`)

EPS (fully diluted)

5.9

4.3

10.3

13.7

19.3

Cash EPS

9.6

7.9

16.4

20.8

27.0

DPS

0.2

0.4

0.1

Book Value

43.0

78.2

88.4

102.0

121.2

Dupont Analysis

EBIT margin

7.0

2.3

7.3

7.7

8.7

Tax retention ratio

0.7

1.0

0.7

Asset turnover (x)

2.2

2.1

2.3

2.4

ROIC (Post-tax)

10.9

4.8

12.3

12.9

15.0

Cost of Debt (Post Tax)

0.1

Returns (%)

ROCE

15.3

4.3

14.9

17.2

20.8

Angel ROIC (Pre-tax)

15.5

4.9

16.8

17.7

20.9

ROE

13.6

5.5

11.7

13.4

15.9

Turnover ratios (x)

Asset Turnover (Gross Block)

3.1

3.0

3.2

3.5

Inventory / Sales (days)

Receivables (days)

Payables (days)

Working capital cycle (ex-cash) (days)

Solvency ratios (x)

Net debt to equity

1.1

0.2

0.1

0.2

0.1

Net debt to EBITDA

2.6

1.8

0.5

0.6

0.4

Interest Coverage (EBIT / Interest)

2.3

1.2

4.0

8.1

16.8

Source: Company, Angel Research

May 14, 2018

Parag Milk Foods |4QFY2018 Result Update

Research Team Tel: 022 - 39357800

E-mail: [email protected]

Website: www.angelbroking.com

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investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this

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Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the

latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may

have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement

Parag Milk Foods

1. Analyst ownership of the stock

2. Angel and its Group companies ownership of the stock

3. Angel and its Group companies' Directors ownership of the stock

4. Broking relationship with company covered

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%)

Accumulate (5% to 15%)

Neutral (-5 to 5%)

Reduce (-5% to -15%)

Sell (< -15%)

May 14, 2018