MOSL: PARAG MILK FOODS (Neutral)-Sales in-line-Medium-term target unchanged
​Parag Milk Foods: Sales in-line; Medium-term target unchanged
(PARAG IN, Mkt Cap USD0.3b, CMP INR236, TP INR245, 4% Upside, Neutral)
- PARAG reported net sales growth of 7.7% YoY (est. of +6%) to INR4.1b in 1QFY18. EBITDA declined 7.7% YoY (est. of -18.7%) to INR294m, while adj. PAT grew 3% YoY (est. of -24.3%) to INR105m. Sales in 1QFY18 were impacted by destocking (majorly in the last 15 days of June), farmer strike in Maharashtra (affected liquid milk sales in May/June), and impact on the cheese business from low exports (hardening of INR) and price hikes to institutional players.
- Gross margin expanded 50bp YoY to 29%. Higher other expenses (+160bp YoY to 17.3%) and employee costs (+10bp YoY to 4.6%) led to EBITDA margin contraction of 120bp YoY to 7.1%. Lower tax rate at 8.1% led to adj. PAT growth, despite the EBITDA decline.
- Key concall highlights: (1) RM prices higher YoY, but no change QoQ. Expect milk prices to come down 3QFY18 onward, but not sharply. (2) GST benefits will be neutral-to-positive for PARAG; will take one quarter to know the exact impact. (3) Target remains unchanged: 14-15% revenue CAGR with 5% net margin over next 2-3 years; margin target does not take into account GST-led benefits.
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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