Subscribe to Parag Milk Foods IPO: Khambatta Securities
May 02, 2016,
Khambatta Securities has come out with its report on Parag Milk Foods IPO. The research firm has recommended to "SUBSCRIBE" the IPO in its research report as on May 06 , 2016.
Khambatta Securities report on Parag Milk Foods IPO
Company Profile Parag Milk Foods Limited is one of the leading manufacturers and marketers of dairy-based branded foods in India. Company commenced its business in 1992 with collection and distribution of milk and have now developed into a dairy-based branded consumer products company with an integrated business model, manufacturing a diverse range of products including cheese, ghee (clarified butter), fresh milk, whey proteins, paneer, curd, yoghurt, milk powders and dairy based beverages targeting a wide range of consumer groups through several brands. Parag derives all of its products only from cows „milk.
Parag‟s aggregate milk processing capacity is 2 million litres per day and its cheese plant has the largest production capacity in India, with a raw cheese production capacity of 40 MT per day. Company‟s „Gowardhan„ and „Go„, are flagship brands and are amongst the leading ghee, cheese and other value added product brands in India. Company‟s manufacturing facilities are strategically located at Manchar in the Pune district of Maharashtra and Palamaner in the Chittoor district of Andhra Pradesh, which have a high population of dairy cows, with milk processing capacities of 1.2 million litres per day and 0.8 million litres per day, respectively.
Company produces cheese and whey products only at its Manchar facility, UHT products only at its Palamaner facility and other products at both facilities. Company produces cheese in 75 stock keeping units at its cheese plant. As of February 29, 2016, company employed 1,618 personnel across its operations. Company also places significant emphasis on quality control and product safety at each step of the manufacturing process, right from the procurement of raw milk until the final product is packaged and ready for distribution. Company has also obtained several quality control certifications and registrations for its facilities.
Objective of the issue
Utilise the net proceed from the fresh issue towards expansion & modernisation of existing manufacturing facilities at Manchar & Palamaner. Also, to improve the marketing & distribution infrastructure. (INR 1,477 million) Investment in Bhagyalaxmi Dairy Farm Private Limited for expansion & modernisation of Bhagyalaxmi Dairy Farm (INR 23 million). Partial repayment of Parag‟s working capital consortium loan. (INR 1,000 million) General Corporate Purposes and receive the benefits of listing the Equity Shares on the BSE and the NSE. (INR 500 million)
At the price band of Rs 220-227, Parag‟s IPO is expensive compared to direct competitors. At upper price band of Rs 227, stock is available at 50.4x FY15 EPS and 34.9x FY16E EPS, while industry average is currently 29.8x. However, we believe that company is poised to grow at healthy rate, consequently, re-rating will render the valuation cheaper compared to industry average. Hence we recommend, investors with medium to long term view can “SUBSCRIBE” this IPO.
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