"We like Parag Milk Foods and expect a target of Rs 350 by year end. Long term investors can also have a slice in this company as it’s a robust play on Indian dairy industry," says Akash Jain, Vice-president, Equity Research at Ajcon Global Services.
We like Parag Milk Foods and expect a target of Rs 350 by year end. Long term investors can also have a slice in this company as it’s a robust play on Indian dairy industry, growing aggressively and establishing strong distribution network across India to reach the end consumer.
It has become one of the leading dairy products company in India in a short span of time as compared to its peers. The company is presented with a big opportunity in Indian dairy industry which is valued at Rs 6,00,000 crore, and witnessing a CAGR of 10 percent+.
Over the last 10 years, the company has established strong brands like GO, Gowardhan and has recently entered into high margin Whey Protien segment. The company is very aggressive and has gained significant market share in processed cheese market at 33 percent and is ranked second after Amul.
It has a good product mix and has value added products in its basket which commands premium as compared to peers with strong acceptance from customers. The company’s value added products like cheese, whey protein enjoy higher gross margins of 25-45 percent as against 6-8 percent entailed in liquid milk. The high margin products account for 66 percent to its revenue (the highest among the listed players versus 25- 30 percent for others).
Recently, Parag Milk Foods Limited has acquired Danone's (a French, Dairy Based MNC) Manufacturing Facility in Sonipat, Haryana and has expanded its footprints in North India. With this acquisition, it has expanded its existing footprints in North and North-East India by having a manufacturing facility near the End Consumer and double the current consumer base in the Fresh dairy category.
The company will leverage existing strong distribution network in North India for effective marketing and distribution of dairy products including Cheese, Ghee, Curd and other products.
Acquisition will establish Parag as the largest player in the Indian private dairy sector involved in the procurement, manufacturing, marketing and distribution of products produced exclusively from pure and fresh cow’s milk.
The company plans to invest Rs 30 crore which includes setting up additional manufacturing units for pouch milk, flavored milk, buttermilk and curd.This acquisition would help expand the company’s footprints in North India and strengthen company’s fresh category distribution of Milk, Flavoured Milk, Buttermilk, Curd, Fresh Paneer and Yogurt in this region.
As a part of investment, the company will refurbish the new facility with additional amenities to increase its product portfolio in the region. This acquisition is in line with its long term strategy to make the goodness of cow’s milk reach different parts of the country.
At current market price of Rs 286, the company is fairly valued at a P/E of 27x on trailing twelve months EPS. We would like to assign premium to its valuations owing to the above factors.Disclaimer: The author is Vice-president, Equity Research at Ajcon Global Services. The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.The Great Diwali Discount!
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