Parag Milk Foods' Q1FY19 results (Outperformer) - Beat driven by value added products…
Q1FY19 result highlights
- Parag Milk Foods net sales increased by 33.1% yoy to Rs5.5bn(est: Rs5.2bn), EBITDA increased by 109% to Rs597m (est: Rs499m), PAT increased by 169% yoy to Rs283m (est: Rs209m)
- Fresh milk sales increased by 9% yoy while Milk product sales were up 41% yoy. SMP sales increased 35% yoy during the quarter.
- Gross margins improved by 140bps to 30.4%, aided by moderation in milk prices and improved mix
- Staff cost grew by a 26.8% yoy and other expenses increased by 15% yoy, resulting in EBITDA margin increased by 400bps to 10.9%.
- Depreciation and interest cost increased by 17% and 46% yoy respectively while other income was up by 15% yoy. Resultant PAT was up 169% yoy for the quarter.
Key positives: Strong revenue growth in value added milk products
Key negatives: Higher interest expense
Impact on financials: Factoring strong performance, we have increased our FY19/20E estimate by 5%/3%.
Valuations & view
Parag Milk Foods has begun FY19 on a strong note with a highest ever quarterly revenue performance. Double digit growth in the value added segment, benign input cost environment coupled with benefit of internal initiatives in terms of innovation and distribution expansion have resulted in sharp acceleration in overall earnings growth for the company. We are factoring revenue CAGR of 16% over FY18-20E, which coupled with stable input costs and leverage benefit will drive 26% earnings CAGR over the same period. With continued improvement in execution and earnings delivery, we expect valuation discount to peers to reduce. Maintain Outperformer.
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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