Parag Milk Foods' Q3FY19 results (Outperformer) - Strong volumes & gross margins drive earnings
Q3FY19 result highlights
- Net sales increased by 15.7% yoy to Rs6bn (est: Rs5.95bn), EBITDA increased by 6% yoy to Rs621m (est: Rs634m), PAT increased by 21% yoy to Rs308m (estRs307m)
- Volume growth was ~20% yoy for the quarter.
- In terms of key segments, SMP sales increased by 4% yoy to Rs759m,Fresh milk sales increased by 11% yoy to Rs1.03bn,Milk products sales increased by 19% yoy to Rs4.05bn.
- Gross margins improved by 190bps yoy to 32.6% aided by lower milk prices, improved mix and export benefits.
- Staff cost and other expenses increased by 23.5% yoy & 35% yoy respectively. Other expenses were higher on account of investments behind distribution & brand building. Resultant EBITDA margins declined by 100bps yoy to 10.3%.
- Depreciation expense was up 2% yoy, interest cost & other income declined by 6% & 72% yoy respectively, tax rate was lower by 1030bps yoy resulting in PAT growth of 21% yoy.
Key positives: Healthy revenue growth in value added milk products
Key negatives: Higher other overheads.
Impact on financials: We have increased FY19/20E estimates by 6% each
Valuations & view
Parag Milk Foods yet another strong earnings print led by double digit growth in value added products and highest ever gross margins. 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 milk price benefit now in base and some inflation likely going forward, gross margin expansion could be lower, however, mix led improvement with traction in value added products, benefit of operating efficiencies and leverage would aid overall EBITDA growth. We are factoring revenue/ earnings CAGR of 16% /28% over FY18-20E, which coupled with continued improvement in working capital levels should aid overall return profile for the company. Valuations at 12x FY20E, are at steep discount to peers. 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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