Parag Milk Foods' Q4FY18 results (Upgrade to Outperformer) - Sharp 4Q earnings beat… Strong growth outlook!
Q4FY18 result highlights
- Consolidated net sales increased by 21% yoy to Rs5.2bn (est: Rs4.8bn), EBITDA increased by 43% yoy to Rs 551m (est: Rs482m), PBT (bei) was up 147% yoy to Rs 374m (est: Rs267m). Reported PAT increased by 18% yoy to Rs 262m (est: Rs184m).
- Revenue growth was led by launch of new variants and aggressive distribution expansion.
- In terms of key segments, Milk products and Liquid Milk segment sales grew by 40% and 13% yoy respectively while Skimmed milk powder sales declined by 1% yoy for the quarter.
- Gross margins declined by 30 bps yoy to 32%, however operating leverage benefit resulted in EBITDA margins increasing by 160bps to 10.6%.
- Depreciation expense declined by 26% yoy on high base (4QFY17 had prior period adjustment of Rs 53m) further boosting the PBT growth.
Key positives: Strong growth in value added product segment
Impact on financials: Factoring strong performance we have increased our FY19/20E estimates by 11%/10%.
Valuation & view
Volatility in growth with weakness in value added milk product segment has been the key concern for Parag Milk Foods. However, initial turnaround signs are encouraging with 27% yoy growth in milk product segment in 2HFY18 which coupled with favourable input cost scenario has resulted in company achieving all time high EBITDA margins in FY18. Moreover, rising innovation agenda, scaling up presence in health & nutrition segment, increasing distribution network along with a professional management team in place provides a greater visibility to PMFs earnings trajectory going forward (23% over FY18-20E). Further, improved profitability and minimal capex requirement will drive positive FCF and uptick in overall return profile, thereby driving re-rating in the stock. We value the stock at 25x FY20E (20%+ discount to peers with higher ROE/earnings CAGR); upgrade the stock to Outperformer with a revised target price of Rs391.
Parag Milk Foods Ltd. Parag Milk Foods Limited is engaged in manufacturing and processing of milk and milk products. The Company offers a range of products, which include cheese, ghee, whey proteins, paneer, curd, yoghurt, milk products, liquid milk, milk-based beverages and milk powders. The Company's brands include Gowardhan, under which traditional dairy products, such as ghee, are marketed; Go, under which western lifestyle dairy products, such as cheese, are marketed; Pride of Cows, under which premium milk is sold, and Topp Up, under which flavored milk is marketed. The Company has an aggregate milk processing capacity of approximately two million liters per day. The Company has a product basket comprising over 150 stock keeping units (SKUs). Its manufacturing facilities are located in Manchar (Pune district) and Palamaner (Chittoor district).
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