Please refer to important disclosures at the end of this report
1
Y/E March (` cr)
2QFY20
2QFY19
% yoy
1QFY19
% qoq
Net sales
640
573
11.6
630
1.6
EBITDA
55
58
(4.5)
57
(2.4)
EBITDA margin (%)
8.7
10.1
(146bp)
9.0
(36bp)
Adjusted PAT
29
30
(6.4)
28
3.6
For 2QFY2020, Parag Milk Foods (PMFL) posted healthy numbers on top-
line
front, however bottom-line was below expectation. T
by ~12% yoy, while the operating margins contracted by 146bps
yoy. On the
bottom-line front, PMFL reported de-growth of ~6% yoy to `29
cr on the back of
poor operating performance.
Healthy volume growth drives top-line: PMFL’s top-line grew by ~12
% yoy due to
strong growth in value added products like cheese, ghee, paneer, etc., which
grew
by ~11% yoy, whereas liquid milk registered growth of 15% yoy
and skimmed milk
grew by ~4% yoy.
Increase in milk procurement prices impacted the overall operating margin:
On
the operating front, the company reported margin contraction of 146bps
yoy at
8.7%, which is mainly due to an increase in milk procurement prices (
due to
disruptions in milk availability caused by prolonged monsoons).
However, the
company expect milk price will go down post Diwali. On the bottom-
line front,
PMFL reported de-growth of ~6% yoy to `29
cr on the back of poor operating
performance.
Outlook and Valuation: Parag Milk Foods is anticipated to pos
t strong growth in
value added products on the back of its diversified product
basket, strong brands
and wide distribution network. Further, PMFL would benefit from
a shift in mix in
favor of the organized market for dairy products. A
t the current market price, the
company trades at a P/E of 7.4x its FY2021E EPS. Thus, we maintain our Hold
recommendation on PMFL.
Key Financials
Y/E March (` cr) FY2018
FY2019
FY2020E FY2021E
Net Sales
1,986
2,396
2,694
3,099
% chg
14.8
20.6
12.5
15.0
Net Profit
89.2
120.7
127.1
169.3
% chg
(69.6)
35.4
5.3
33.1
OPM (%)
10.0
9.3
9.4
10.2
EPS (Rs)
10.6
14.3
15.1
20.1
P/E (x)
14.1
10.4
9.9
7.4
P/BV (x)
2.9
2.5
2.2
1.9
RoE (%)
12.4
14.
4
13.2
15.0
RoCE (%)
14.9
16.5
16.8
19.0
EV/Sales (x)
0.7
0.6
0.5
0.4
EV/EBITDA (x)
7.4
6.5
5.6
4.3
Source: Company, Angel Research
Parag Milk Foods
Performance Update
2
QFY2020 Result Update | Dairy Products
October 25, 2019
Hold
CMP `149
Target Price `200
Stock Info
Sector
Bloomberg Code
Shareholding Pattern (%)
Promoters
MF / Banks / Indian Fls
FII / NRIs / OCBs
Indian Public / Others
Abs. (%) 3m 1yr 3yr
Sensex 3.1 14.7 38.5
PARAG (42.2) (41.2) -
46.0
7.5
19.8
26.8
Net Debt (` cr)
Market Cap (` cr) 1,206
202
Beta 1.1
52 Week High / Low 279/131
Avg. Daily Volume 33,463
Face Value (`) 10
BSE Sensex 39,020
Nifty 11,582
PAMF.NSReuters Code
PARAG.IN
Dairy Products
Price Chart
Source: Company, Angel Research
Amarjeet S Maurya
022 – 3935 7800 Ext: 6831
Amarjeet.ma[email protected]ngelbroking.com
Parag Milk Foods |2QFY2020 Result Update
October 25, 2019
2
Exhibit 1: 2QFY2020 Performance
Y/E March (` cr) 2
QFY20
2QFY19
% yoy
1QFY20
% qoq
1HFY20
1HFY19
% chg
Net Sales
640
573
11.6
630
1.6
1,270
1,123
13.1
Consumption of RM
476
397
19.9
461
3.1
937
779
20.2
(% of Sales)
74.3
69.2
73.3
73.8
69.4
Staff Costs
26
23
11.5
27
(2.9)
52.6
43.7
20.5
(% of Sales)
4.1
4.1
4.2
4.1
3.9
Other Expenses
83
95
(13.1)
85
(2.3) 167.
8
182.1
(7.9)
(% of Sales)
13.0
16.6
13.5
13.2
16.2
Total Expenditure
585
515
13.4
573
2.0
1,157
1,005
15.1
Operating Profit
55
58
(4.5)
57
(2.4)
112
118
(4.6)
OPM
8.7
10.1
9.0
8.8
10.5
Interest
9
8
13.1
9
(7.4)
18
18
1.0
Depreciation
13
13
(2.5)
13
(2.0)
26
27
(2.2)
Other Income
3
1
109.5
3
9.6
6
3
81.2
PBT (excl. Ext Items)
37
39
(4.4)
37
(0.4)
74
76
(3.1)
Ext (Income)/Expense
-
-
-
-
-
PBT (incl. Ext Items)
37
39
(4.4)
37
(0.4)
74
76
(3.1)
(% of Sales)
5.8
6.7
5.9
5.8
6.8
Provision for Taxation
8
8
3.2
10
(11.9)
18
18
2.1
(% of PBT)
22.8
21.1
25.8
24.3
23.1
Reported PAT
29
30
(6.4)
28
3.6
56.00
59
(4.6)
PATM
4.5
5.3
4.4
4.4
5.2
Minority Interest After NP
Reported PAT
29
30
(6.4)
28
3.6
56
59
(4.6)
Extra-ordinary Items
Adj PAT
29
30
(6.4)
28
3.6
56
59
(4.6)
Equity shares (cr)
8
8
8
8
8
FDEPS (Rs)
3.4
3.6
(6.4)
3.3 3.6
6.7
7.0
(4.6)
Source: Company, Angel Research
Parag Milk Foods |2QFY2020 Result Update
October 25, 2019
3
Outlook and Valuation
Parag Milk Foods is anticipated to post strong growth in value added products on
the back of its diversified product basket, strong brands and wide distribution
network. Further, PMFL would benefit from a shift in mix in favor of the organized
market for dairy products. At the current market price, the company trades at a P/E
of 7.4x its FY2021E EPS. Thus, we maintain our Hold recommendation on PMFL.
Risks to our estimates
1) Inability to procure sufficient good quality raw milk at commercially viable
prices.
2) Increase in competitive intensity.
Parag Milk Foods |2QFY2020 Result Update
October 25, 2019
4
Consolidated Profit & Loss Statement
Y/E March ( ` cr)
FY2018
FY2019
FY2020E FY2021E
Total operating income
1,986
2,396
2,694
3,099
% chg
14.8
20.6
12.5
15.0
Total Expenditure
1,788
2,172
2,440
2,782
Raw Material
1,303
1,657
1,886
2,169
Personnel
85
95
107
1
23
Others Expenses
400
420
447
490
EBITDA
198
224
254
317
% chg
(42.8)
12.9
13.7
24.8
(% of Net Sales)
10.0
9.3
9.4
10.2
Depreciation& Amortisation
52
50
57
61
EBIT
146
173
198
256
% chg
(50.8)
18.5
14.0
29.5
(% of Net Sales)
7.4
7.2
7.3
8.3
Interest & other Charges
36
36
38
40
Other Income
9
10
10
10
(% of PBT)
7.9
6.9
6.0
4.5
Share in profit of Associates
-
-
-
-
Recurring PBT
119
148
170
226
% chg
(56.6)
23.9
15.0
33.1
Tax
30
27
43
57
(% of PBT)
25.3
18.3
25.2
25.2
PAT (reported)
89
121
127
169
Extraordinary Items
-
-
-
-
Less: Minority interest (MI)
PAT after MI (reported)
89
121
127
169
ADJ. PAT
89
121
127
169
% chg
(69.6)
35.4
5.3
33.1
(% of Net Sales)
4.5
5.0
4.7
5.5
Fully Diluted EPS (`)
10.6
14.3
15.1
20.1
% chg
148.1
35.4
5.3
33.1
Parag Milk Foods |2QFY2020 Result Update
October 25, 2019
5
Consolidated Balance Sheet
Y/E March (` cr)
FY2018
FY2019 FY2020E
FY2021E
SOURCES OF FUNDS
Equity Share Capital
84
84 84
84
Reserves& Surplus
633
753 879
1,047
Shareholders Funds
717
837 963
1,132
Equity Share Warrants
-
- -
-
Total Loans
264
214 214
214
Deferred Tax Liability
-
- -
-
Other liabilties
9.4
9.4 9.4
9.4
Total Liabilities
990
1,060 1,186
1,355
APPLICATION OF FUNDS
Gross Block
645
705 765
825
Less: Acc. Depreciation
278
328 385
446
Net Block
367
377 380
379
Capital Work-in-Progress
20
20 20
20
Investments
5
- -
-
Current Assets
905
938 1,091
1,296
Inventories
438
459 517
594
Sundry Debtors
252
282 317
365
Cash
50
12 49
98
Loans & Advances
166
185 208
239
Other Assets
-
- -
-
Current liabilities
396
242 275
317
Net Current Assets
509
696 815
980
Deferred Tax Asset
8
8 10
11
Mis. Exp. not written off
12
16 20
26
Total Assets 9
90
1,060 1,186
1,355
Parag Milk Foods |2QFY2020 Result Update
October 25, 2019
6
Consolidated Cash Flow
Y/E March (` cr) FY2018 FY2019
FY2020E
FY2021E
Profit before tax
119
148
170
226
Depreciation
52
50
57
61
Change in Working Capital
(64)
(225)
(82)
(115)
Interest / Dividend (Net)
36
36
38
40
Direct taxes paid
(30)
(27)
(43)
(57)
Others
0
0
0
0
Cash Flow from Operations
113
(18)
140
156
(Inc.)/ Dec. in Fixed Assets
(60)
(60)
(60)
(60)
(Inc.)/ Dec. in Investments
61
(4)
(5)
(6)
Cash Flow from Investing
1
(64)
(65)
(66)
Issue of Equity
0
0
0
0
Inc./(Dec.) in loans
1
(50)
0
0
Dividend Paid (Incl. Tax)
0
0
0
0
Interest / Dividend (Net)
(36)
(36)
(38)
(40)
Cash Flow from Financing
(35)
(85)
(38)
(40)
Inc./(Dec.) in Cash
78
(167)
37
49
Opening Cash balances
101
179
12
49
Closing Cash balances
179
12
49
98
Source: Company, Angel Research
Parag Milk Foods |2QFY2020 Result Update
October 25, 2019
7
Key Ratios
Y/E March FY2018 FY2019 FY2020E FY2021E
Valuation Ratio (x)
P/E (on FDEPS) 14.1 10.4 9.9 7.4
P/CEPS 14.9 14.9 12.3 11.4
P/BV 2.9 2.5 2.2 1.9
Dividend yield (%) 0.1 0.1 0.1 0.1
EV/Sales 0.7 0.6 0.5 0.4
EV/EBITDA 7.4 6.5 5.6 4.3
EV / Total Assets 1.6 1.3 1.1 1.0
Per Share Data (`)
EPS (Basic) 10.6 14.3 15.1 20.1
EPS (fully diluted) 10.6 14.3 15.1 20.1
Cash EPS 16.7 16.7 20.3 21.8
DPS 0.1 0.1 0.1 0.1
Book Value 85.2 99.5 114.5 134.5
Dupont Analysis
EBIT margin 7.4 7.2 7.3 8.3
Tax retention ratio 0.7 0.8 0.7 0.7
Asset turnover (x) 2.1 2.3 2.4 2.5
ROIC (Post-tax) 11.8 13.6 13.1 15.4
Cost of Debt (Post Tax) 0.1 0.1 0.1 0.1
Returns (%)
ROCE 14.9 16.5 16.8 19.0
Angel ROIC (Pre-tax) 15.8 16.7 17.5 20.5
ROE 12.4 14.4 13.2 15.0
Turnover ratios (x)
Asset Turnover (Gross Block) 3.1 3.4 3.5 3.8
Inventory / Sales (days) 92 80 70 70
Receivables (days) 53 45 43 43
Payables (days) 102 99 53 53
Working capital cycle (ex-cash) (days) 43 27 60 60
Source: Company, Angel Research
Parag Milk Foods |2QFY2020 Result Update
October 25, 2019
8
Research Team Tel: 022 - 39357800 E-mail: resea[email protected]king.com Website: www.angelbroking.com
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Ratings (
Based on Expected
Returns:
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (
-
5 to 5%)
over 12 months investment period) Reduce (-5% to -15%) Sell (< -15%)
Hold (Fresh purchase not recommended)
Disclosure of Interest Statement
Parag Milk Foods
1. Financial interest of research analyst or Angel or his Associate or his relative No
2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives No
3. Served as an officer, director or employee of the company covered under Research No
4. Broking relationship with company covered under Research No