Parag Milk Foods IPO – Milk this Opportunity!
India bears the unique distinction of being the world’s largest producer and consumer of milk and a country where milk is hailed as ‘bovine elixir’ by a section of people. Juxtapose this with your love for the cheese in your pizzas, milk in your quintessential tea, lassi and buttermilk in the sweltering summer heat, curd in your meal, and voila, you probably have a good investment opportunity. Parag Milk Foods, is one such dairy company, which will launch its IPO next week and we recommend to subscribe to this issue. The key strengths of the company have been highlighted below:
Investment Arguments
- Integrated Business Model – ‘Farm to Home’ —
Over the years, Parag has established a fairy robust milk procurement infrastructure, which forms the backbone of a dairy company. The company currently procures a significant portion of its milk requirement directly from farmers in 29 districts across Maharashtra, Andhra Pradesh, Karnataka& Tamil Nadu. The procured milk is aggregated, tested at village and regional levels, and then processed at company’s plants. A pan-India 3,000+ distributor network aids in its products being available at traditional and modern trade channels. Parag’s brands like Gowardhan& Go also enjoy a fairly good brand recall.
- Best-in-class Dairy Product Mix: Larger Share of High-Margin Value Added Products —
As of 9MFY16, the company derives nearly 70% of its revenues from high margin value-added products like cheese, paneer, whey, UHT milk. This product mix is in sharp contrast to its B2C peers like Hatsun, Heritage which have a nearly 70% revenue share from low-margin plain pouch milk operations. The premiumization to value added products could be margin accretive in the long run, notwithstanding the investments in branding and distribution.
- Structural Tailwinds provide Long-term Growth Visibility —
In India, the mega trends of growing urbanization, middle class, working population, disposable income accompanied by changing dietary habits & preference for packaged foods, will facilitate the shift from ‘unorganized to organized’market and from ‘plain milk to value-added products’ in dairy industry. As these trends play out in the coming decade, Parag could witness strong growth in the coming years.
GreenEdge Wealth Services’ View
At the higher price band of Rs. 227, the company is valued at ~50x FY16 earnings, which is not cheap but is comparable to the valuations commanded by its peers like Hatsun&Prabhat Dairy. We recommend to subscribe to the IPO as Parag is well positioned to capture market share in a burgeoning organized dairy industry in India.
Issue Details
| Issue Open Date | 4th May, 2016, Wednesday |
| Issue Close Date | 6th May, 2016, Friday |
| Issue Price (Rs.) | 220 to 227 |
| Market Lot | 65 |
| Minimum Application Size for Retail (Rs.) | 14,755 |
| Discount for Retail Investors (Rs.) | 12 |