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Jun 15, 2017 03:41 PM IST | Source:

Prabhat Dairy gains 4% as ICICIdirect initiates coverage with buy

ICICIdirect expects Prabhat Dairy's revenue and adjusted PAT to grow at a CAGR of 14.3 percent and 45.1 percent, respectively, in FY17-19

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ICICIdirect has initiated coverage with a buy rating on Prabhat Dairy and expects the stock to hit Rs 140 as it is a strong player to bet on value addition in dairy industry. The stock was up 4.5 percent intraday Thursday.

The research house believes that with improving capacity utilisation levels and initiatives undertaken to expand the distribution as well as procurement network, Prabhat is all set to take off with its gears in place.

It expects company's revenue and adjusted PAT to grow at a CAGR of 14.3 percent and 45.1 percent, respectively, in FY17-19 with an operating margin of 10 percent in FY19.

With the end of the investment phase and increasing capacity utilisations across categories, earnings visibility and improving return ratios provide comfort, it feels.

Established in 1998, Prabhat Dairy has evolved from a specialty dairy ingredients company to an emerging brand in the dairy industry. It sells its products as ingredient products or co-manufactured products to institutional clients, which currently constitute 70 percent of its sales; and retail consumer brands (Prabhat, Prabhat Milk Magic, Prabhat Flava, Volup), which comprise the remaining sales.

ICICIdirect feels structural shift in dairy industry will provide a huge opportunity for the company.

Changing customers' preferences and spending patterns are leading to two major structural shifts in dairy industry – shift from loose milk to branded products and from liquid milk to value added dairy products (VADPs), it said.

With a growing urban population, higher disposable income and rising health consciousness, the organised dairy industry is expected to grow at 19.6 percent CAGR in 2016E-20 to Rs 2.5 lakh crore with increase in market share from 22 percent to 26 percent, according to ICICIdirect.

Increasing share of VADPs and high focus on B2C will drive growth, the research house feels.

The share of VADPs (ex-SMP) in Prabhat's sales portfolio was 46.0 percent in FY17. ICICIdirect estimates it will reach 48.4 percent by FY19 aided by an increase in capacity utilisation.

To tap the opportunity in the high growth cheese industry (around 31 percent CAGR in FY16E-20), Prabhat has commissioned the third largest cheese plant in India at its Shrirampur plant with a capacity of 30 MT per day in 2015. Additionally, the share of the consumer business in the company has grown from mere 11 percent in FY12 to 30 percent in FY17. Prabhat is determined to increase it to 50 percent by FY20, it said.

Currently, ghee, curd, UHT, flavoured milk, etc, are key focus areas for the B2C segment. Eventually, the company plans to launch cheese & paneer also in the B2C segment.

At 15:15 hours IST, the stock price was quoting at Rs 121.50, up Rs 3.25, or 2.75 percent on the BSE.

Posted by Sunil Shankar Matkar
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