Kwality Ltd. all set to tap steady milk production & consumption growth As the per the Planning commission India’s milk production is expected to grow at 4% CAGR to touch ~172 mn tonnes by 2019-20 from ~147 mn tonnes in 2014. Meanwhile, consumption is expected to grow at 5% CAGR to ~138 mn tonnes, led by increase in population. Kwality Ltd. (KDIL) which is engaged in the business of processing and marketing of dairy products is one of the largest manufacturer and processor of dairy products in Indian private sector. KDIL plans to cater to increased demand by expanding its 24 Milk Chilling Centre (MCC) to 30 MCC in next 2 years. We believe KDIL with strong procurement network and equal presence in B2B & B2C segment stands at a sweet spot to capture India’s dairy growth story.
We maintain a positive outlook on “Indian Dairy industry” as it experiences consolidation and stands on the verge of a structural change. KDIL with equal exposure in B2B and B2C, pan India presence, adequate capacity and reasonable valuation makes it a strong buy. For valuation purpose we have applied P/E(x) methodology. From P/E(x) we arrive at a target price of Rs 183 (based on 14x FY17E EPS of 13.1) i.e. 42.2% upside, hence we recommend “Strong Buy”.