Know chalk from cheese! How Parag Milk Foods founder built a Rs 2,000-cr dairy giant

From just one dairy farm 25 years ago, Shah’s company has a diversified dairy products portfolio today. Parag Milk Foods manufactures milk products under brand names such as Gowardhan, Go, Topp Up and Pride of Cows. Its product portfolio includes ghee, fresh milk, skim milk powder, whole milk powder, paneer, an array of processed and natural cheese, cheese spreads, butter, dahi, dairy whitener and gulab jamun mix under the Gowardhan and Go brands.

Shah, also the Chairman and Managing Director of the company, reckons the ground realities of the dairy sector were completely different when he first entered the segment. “At the time, the dairy sector was monopolised by the co-operatives and the semi-government agencies,” he said.  The market was characterised by an informal supply chain of milk from dairy farmers directly to the cooperatives and there was a small market for ghee, he adds.

The troubles he faced fall in the early 90s, when the government de-licensed the dairy sector. India was opening up as an economy, allowing foreign direct investment in a bid to spur economic growth.

Between 1997 and 2004, Shah capitalised on the opening up of the economy, ramping up his dairy unit’s milk production capacity to 3 lakh litres a day. He also made use of the reducing red tape to shore up milk powder exports at a rapid pace.

Perseverance Pays

“Two little mice fell in a bucket of cream. The first mouse quickly gave up and drowned. The second mouse, wouldn't quit. He struggled so hard that eventually he churned that cream into butter and crawled out. Gentlemen, as of this moment, I am that second mouse.” – Frank Abagnale Senior, Catch Me if You Can.

Shah and Parag Milk Foods’ success resonates with these quotes from the 2002 Steven Spielberg film. In 2011, when the government banned export of milk products for a year. The move dealt a blow to dairy exporters, but not to Shah and Parag Milk Foods.

“I always look at any obstacle or a hurdle as an opportunity,” Shah says.

He noticed the untapped potential for milk-products. At the time, the country’s consumption of dairy was largely restricted to milk and ghee. Anticipating a change in India’s dairy consumption patterns, Parag Milk Foods had in 2008 opened one the country’s largest cheese manufacturing plants.

Building upon the plant’s capabilities, Shah set his sights on creating quality “value-added milk products” such as cheese, and mozzarella cheese for pizzas. Subsequently, the company positioned the Gowardhan brand for traditional Indian dairy products, whereas the Go brand was lined up as a provider of contemporary milk items.

“Where brands such as Amul and Britannia were producing 700-800 metric tonnes of cheese from 2008-2009, Parag Milk Foods was producing close to 1,200 metric tonnes,” Shah says.

This was way before fast-food and pizza joints began to really pick up in the country. Today, Parag Milk Foods is sought by the likes of Pizza Hut, Domino’s Pizza and Papa John’s for their dairy requirements.

Shah claims that Parag Milk Foods dominates the Indian cheese market with a 33 percent share, inching close to established players such as Amul. The Go cheese brand has now become the second-most consumed dairy product in India.

India’s Rs 4.5 lakh crore dairy sector is expected to grow at a compounded annual growth rate of 15 percent over 2016 to 2020, according to an Edelweiss report. Factors such as growth, increasing consumer maturity and the shift towards more value‐added products makes the Indian dairy sector a “very white, bright and freely flowing opportunity”, the report stated.

D-Street debut

In May, Parag Milk Foods debuted on Indian bourses. The stock opened at Rs 215 apiece, before closing at Rs 247.80 on the BSE, up 15.26% from its offer price of Rs 215 a share.

Six months later, the Parag Milk Foods stock is now trading at Rs 247, against a weighted average price of Rs 247.26. The stock closed at Rs 247.45 on Thursday. A this price, the company's market capitalisation is currently at Rs 2,082 crore.

Edelwiess expects the company's revenue, operating income and net profit to grow at a compounded annual growth rate of 14 percent, 32 percent and 49 percent, respectively by March 2020.

"We expect margins to expand by 335 basis points to 9.6 percent by March 2020, led by improving utilisations and return on capital employed is likely to expand by 1,064 basis points to 19 percent by March 2020," Edelweiss report stated.

‘Gau Seva’

Shah’s alertness in capitalising upon opportunities doesn’t come at the cost of neglecting core operations. He follows a simple mantra – “Our enterprise relies on the happiness of the cow”. “If the cow is happy, the farmer will be happy as he will see more milk of a good quality. This will ultimately keep our consumers happy,” he said.

The quality of the product is maintained right from “grass to glass”, according to Shah. An average Indian cow produces close to three to four litres of milk a day, way below the average of 14-15 litres from other cows.

The cows at Shah’s ranch are given the royal treatment, right from being fed alfa-alfa in their daily feed to drinking reverse osmosis (RO) filtered drinking water. Around 3,000 Holstein-Friesian cows, producing an average of 28 litres each a day, attest the effort the company makes in taking care of the milch animal.

Health-conscious consumer

As for the opportunities of today, Shah keeps a lookout for the health-conscious consumer. In 2013, Parag Milk Foods launched Pride of Cows, a premium milk brand priced twice as much as regular milk products. In February 2017, the company also launched the Whey protein brand, targeting young consumers who are geared towards sports and nutrition.

Parag Milk Foods is now keen to step up its presence in global markets. “We have are also looking to expand our market outside of India. Currently, we do have a market presence in countries such as the UAE, Singapore and Malaysia,” Shah said.

As he keeps a keen eye on new opportunities, Shah believes some things can be can be continually expected of Parag Milk Foods — green grass, happy cows and diversified dairy offerings.