Buy Prabhat Dairy; target of Rs 165: ICICI Direct

ICICI Direct's research report on Prabhat Dairy

Prabhat Dairy (Prabhat) is all set to enter new geographies (various northern, eastern, western and central Indian markets), primarily in the tier II and tier III towns with new value-added dairy products (VADPs). This is in line with the company’s strategy to increase the B2C share from 30% in FY17 to 50% by FY20E. This would help the company increase its capacity utilisation substantially, mainly in the VADP category. We continue to maintain our revenue CAGR estimate of 16.0% over FY17-19E with EBITDA margin of 9.4% in FY19E.

Outlook

We maintain our estimates for Prabhat and expect revenues to grow at a CAGR of 16.0% with EBITDA margin of 9.4% in FY19E. Aided by a) no substantial increase in the interest cost (with completion of investment phase) and b) cumulative Indirect tax (GST / VAT) refund of ~42 cores in FY18E and FY19E, adjusted PAT is estimated to clock 43.8% CAGR over the same period. The recent updates about the company further give confidence. Hence, we raise our target price to Rs 165/share based on triangulated valuation.