Parag Milk Foods' Q2FY19 results (Outperformer) - Healthy volumes & benign input costs drive earnings
Q2FY19 result highlights
- Parag Milk Foods net sales increased by 13.7% yoy to Rs5.7bn(est: Rs5.7bn), EBITDA increased by 16% to Rs581m (est: Rs620m), PAT increased by 22% yoy to Rs304m (est: Rs313m)
- Overall volumes increased by 17-18% yoy. Fresh milk sales increased by 5% yoy while Milk product sales were up 14% yoy. SMP sales increased 24% yoy during the quarter.
- Gross margins improved by 270bps to 30.8%, aided by moderation in milk prices. Staff cost grew by a 4% yoy and other expenses increased by 38% yoy (albeit on low base), resulting in EBITDA margin increased by 20bps to 10.8%.
- Depreciation and interest cost increased by 3% and 4% yoy respectively while other income was up by 15% yoy, tax rate was down 420bps yoy. Resultant PAT was up 22% yoy for the quarter.
Key positives: Healthy revenue growth in value added milk products
Key negatives: Lower realisations. Higher other overheads.
Impact on financials: No change in estimates.
Valuations & view
Parag Milk Foods reported healthy 2QFY19 results led by high double digit volume growth. Going forward, we expect the healthy revenue growth trajectory to continue led by value added segment, overall distribution expansion as well as increasing contribution from North/East region with scale up in Sonipat facility. With benign input cost will now be in base too, the extent of gross margin expansion will be lower, however, mix improvement, leverage benefit and focus on cost efficiencies will drive overall earnings growth for the company. We are factoring revenue/ earnings CAGR of 16% /26% over FY18-20E, 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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