Parag Milk Foods' Q1FY20 results (Outperformer) - Revenue traction healthy, higher input cost impacts margins
Q1FY20 result highlights
- Net sales increased by 14.6% yoy to Rs6.3bn (est: Rs6.5bn), EBITDA decreased by 5% yoy to Rs569m (est: Rs630m), PAT decreased by 3% yoy to Rs275m (estRs323m).
- Milk products grew by ~16% yoy, while SMP sales grew by ~21% yoy & Liquid milk grew by 7% yoy.
- Gross margins declined by 370bps yoy to 26.7% impacted due to increase in milk procurement prices.
- Staff cost increased by 31% yoy and other expenses decreased by 2% yoy. Resultant EBITDA margins declined by 190bps yoy to 9%. Adj for IND AS 116 impact, EBITDA declined by 6% yoy.
- Depreciation expense was down 2% yoy, interest cost down 9% yoy & other income increased by 58% yoy respectively, resulting in PAT decline of 3% yoy.
Key positives: Healthy volume led revenue growth in value added milk products
Key negatives: Decline in gross margins considering higher input costs.
Impact on financials: Factoring lower gross margins we have cut our FY20/21E EPS by 7-8%
Valuations & view
Parag Milk Foods reported strong revenue growth led by continued traction in the value added products, however, higher input costs and lag in price hikes resulted in EBITDA margins & earnings being below estimates. High single digit volume led growth in current market context is healthy which coupled with full benefit of price hikes should improve the margin and earnings trajectory in coming quarters. Overall management remains confident of achieving its Vision 2020 target on revenue & margin front. New CEO’s strategy in terms of strengthening position in current categories and scaling up distribution is a step in right direction & execution of the same will be a key monitorable. We are now factoring revenue/ earnings CAGR of 15% /24% over FY19-21E, which coupled with continued improvement in working capital levels should aid overall return profile for the company. 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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