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Parag Milk Foods

BSE: 539889|NSE: PARAGMILK|ISIN: INE883N01014|SECTOR: Food Processing
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Chairman's Speech (Parag Milk Foods) Year : Mar '18

Dear Shareholders,

It gives me immense pleasure to share my thoughts and insights on our Company through our annual report. Our current year’s theme - ‘The Goodness Story’ - promises to capture our Company’s great transformation from being a dairy-based company to an industry-leading dairy FMCG player. This transformation reflects the way we have evolved as a formidable player in the dairy FMCG sector, offering an innovative value-added portfolio, which is also one of the largest and most varied product portfolios available in the dairy-based food segment in India today.

At PMFL, innovation has always been the cornerstone of our organisation and a part of our DNA. Besides innovation in the form of introducing new products that have redefined categories, you will also find innovation across our integrated value chain. Right from dairy farming, to milk procurement, to product development, processing, distribution, as well as branding, breakthrough innovations have allowed us to remain ahead of the curve and provide an edge over other dairy players that are mainly focusing on fresh milk products. It has also allowed us to effectively meet the constantly-evolving consumer’s needs and requirements. One such example is our consumer-centric and extremely innovative cheese portfolio, which has allowed us to garner a market share in the Indian cheese market within a short span of time.

India’s dairy FMCG sector is valued at ~7 billion2 and is rapidly growing due to rising urbanisation, changing consumer lifestyles, higher disposable incomes, a higher proportion of working women and a growingyouth population. Two structural themes are evolving in this scenario that will drive multi-year growth in the industry.

First is the shift from the ‘unorganised’ to the ‘organised’ market and the second is the consumers’ changing habits. With the changing lifestyle of the consumer and a higher disposable income, we are seeing a growing demand for ready-to-eat and high-quality milk products, which has made value-added products like cheese, ghee, paneer, etc, essential items in one’s monthly grocery list. Consumers have also become brand-conscious due to their preference for consistency in quality and taste in products supplied by organised players like us, as against the traditional milkmen and unorganised players. We sensed this opportunity early and started making the necessary changes to our existing business mix. Today, we have the largest range of value-added products, which consists of -66% of our sales -a figure far ahead of the industry average. Moving forward, we foresee tremendous opportunities for players like us, who maintain consistency, quality, and a varied and customer-centric product portfolio.

We are also focusing on scaling up our presence in the Health and Nutrition segment through a widening product portfolio and an expansion of distribution. Since the entire Whey protein segment in India is dominated by imported players, we see a huge opportunity to drive growth given our superior product offerings. We have seen a healthy traction in the Whey protein segment and plan to widen our product range in the sports nutrition segment under the Awatar brand through the launch of variants like Awatar Absolute Muscle Gainers, as well as new flavours and formats. Given the nature of and limited distributors in this segment, we have set up bonding programmes with gym trainers who are the key influencers in this segment, and have also set up a separate team for the Awatar portfolio.

We will soon be entering the milk-based protein segment with the launch of Go Protein Power, a 100% cow milk product with a high protein content. With such products and the launch of new products and a ramp-up in reach, we plan to expand our Health and Nutrition portfolio from 2.4% of sales, as it stands today, to a target of -7% by FY21.

During the year, we also undertook several initiatives towards ongoing improvement in supply chain management at the back-end and the distribution network at our front-end. In the case of our supply chain, we have set up new norms and auto-replenishment systems at each level of our distribution chain. On the distribution front, we are working on a two-pronged strategy that involves expanding our product range per retail outlet as well as adding new outlets. Greater focus will be placed on increasing our reach in current geographies and expanding our presence in the North and East. Currently, given that our procurement and manufacturing base is in West and South India, we derive a large proportion of our sales from these two geographies. However, the recently acquired Danone facility in Sonipat, Haryana, will help us scale up our presence in the Northern and Eastern markets. This will also strategically benefit us by being closer to the end consumer as well as improving the freshness of products. Our focus to strengthen our market share in the North and East is reiterated through our recently hired Sales Head specifically for these two regions. Moreover, we have also strengthened our technology quotient to get real-time results of all our activities - right from procurement and manufacturing, to distribution and sales.

Our strategy going further will emphasise growing our consumer business and strengthening our position as a strong dairy FMCG player with a pan-India presence. Our focus on moving up the scale of value addition, backed by our R&D capabilities, increasing distribution reach, and the new additions of seasoned FMCG professionals that we have recently made to our senior leadership, will help us achieve the many ambitious plans that we have set before ourselves. We are confident that our combined efforts will help us achieve our Vision 2020, of an annual revenue of Rs. 2,700-3,000 crore with a stronger EBITDA margin and ROCE of 11-12% and 18-20%, respectively.

As a closing note, I would like to acknowledge ourteam for their consistent and sincere efforts in building the Company’s brands across markets. I appreciate the support from our Board of Directors and Shareholders for believing in our potential. Together, I am sure, we will continue to achieve one milestone after another and continue building ‘The Good Milk Story’.

Regards,

Devendra Shah

Chairman

Source : Dion Global Solutions Limited
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