Parag Milk IPO hits Dalal Street: All that you need to know before investing

Source : Businesstoday

The Rs 760-crore IPO of dairy firm Parag Milk Foods was subscribed 10 per cent on the first day of the issue on Wednesday. The offer received bids for 19,71,385 shares against the total issue size of 1,91,85,714 shares, data available with the NSE till 1700 hrs showed.

The issue closes on May 6.

Parag Milk is looking to raise around Rs 760 corer through the IPO, whose price band has been fixed at Rs 220-227 per share. The offer comprises fresh issue of equity shares worth Rs 300 crore and an offer for sale of over 2 crore equity shares. The company raised nearly Rs 343 crore from anchor investors on Tuesday and allotted shares at Rs 227 apiece, the upper end of the price band fixed for the IPO. Retail investors are being given a discount of Rs 12 per share.

Brokerage firm Angel Broking recommended investors to subscribe to the issue from a longer term perspective. “Considering the company has a diversified product basket, strong brands and wide distribution network, we believe that the company will continue to perform well on both the top-line and the bottom-line front,” said the brokerage. Below is all that you need to know about the company before subscribing:

ABOUT THE COMPANY

Parag Milk Foods is one of the leading manufacturers and marketers of dairy-based branded foods in India. The company has well recognized brands like “Gowardhan” and “Go” in its portfolio and has a pan-India network comprising of 15 depots, 104 super stockists and over 3,000 distributors. It has also been growing in the cheese segment where it currently has a market share of 32 per cent.

WHY YOU SHOULD INVEST

Well established brands

“Media and consulting agencies have recognized ‘Gowardhan’ as the most trusted brand in the food products category and and ‘Go’ as the most promising brand in the FMCG category,” said Angel Broking in its IPO note.

‘Go’ cheese has gained enormous momentum since its launch and has been competing with Amul, a name synonymous with cheese and butter in India for a long period of time. Its other brands include ‘Pride of Cows’ (premium quality cow milk) and ‘Topp Up'(beverages).

57% of sales from value-added products

Brokerage Prabhudas Liladhar said unlike most other dairy players where liquid milk and skimmed milk powder account for majority of sales, Parag derives 57 per cent of sales from value-added products like Cheese, UHT Milk, Ghee, Whey products, Flavored milk, Buttermilk and other value-added products.

“Value-added products offer higher margins and profitability although it requires higher inventory levels than fresh products,” the brokerage added.

Established track record of growth

Aided by growing popularity of its brands, the company has posted a revenue Compound Annual Growth Rate (CAGR) of nearly 22 per cent over FY2011-2015 to Rs 1,439 crore. Going forward, Angel Broking expects the company to be able to maintain its growth on the back of shift in share from unorganized market to organized market for products like ghee, paneer, curd, etc.

Diversified client base, B2B only 12% of sales

Prabhudas Liladhar said Parag Milk is the preferred cheese supplier to Dominos, KFC, Pizza Hut and other quick service restaurants in the country and is one of the leading suppliers of whey protein in B2B segment.

“It drives 12 per cent of sales from B2B segment including hotels, restaurants and caterers; with no single client constituting more than 2 per cent of sales,” added the brokerage.

KEY RISKS

Milk procurement: The company relies on procuring raw milk at competitive rates from milk farmers in the milk procurement belt. Inability to procure sufficient good quality raw milk at commercially viable prices may adversely impact the company’s operation as raw milk is key raw material for all dairy products.

Intense competition: The dairy industry is highly competitive, with multiple players sourcing milk from the same region. Such competition can have an impact on raw milk prices.
Regulatory risk: The company is subject to various regulations relating to product liability, particularly relating to food safety of its products. Product contamination or similar occurrences can result in regulatory actions against the company and impact the business performance.

Threat of Patanjali: Indian and multinational FMCG companies are expected to face stiffer competition from the Patanjali brand. Patanjali has significant presence in the ghee segment, thus posing competition to PMFL.

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