Hold Parag Milk Foods: target of Rs 104: ICICI Securities

ICICI Securities research report on Parag Milk Foods

Key reasons for weak Q1FY21 performance: (1) Steep decline in sales to B2B segment (i.e. HoReCa segment and ingredient user industry) due to lockdown. However, there was some recovery in in-home consumption, (2) Lower sales of SMP with decline in SMP prices and (3) 220bps lower EBITDA margin due to consumption of higher priced inventory carried from earlier quarters. We expect the (1) revenues of core products (paneer, cheese, ghee etc.) to gradually recover Q2FY21 onwards, (2) There will be slower recovery in HoReCa segment, (3) Liquid milk segment is expected to reported single digit growth in FY21 and (4) with reduction in milk procurement prices, EBITDA margin is likely to expand to 9.6% in FY22 from 8.7% in FY20.

Outlook

Maintain HOLD rating with a DCF based revised target price of Rs104 (8x FY22E EPS; earlier TP Rs100).