Fresh from a public offer, dairy products player Parag Milk Foods
is aiming for a steady growth in the current fiscal year. The company’s ambition is to grow operating margins to double digits in FY17, Bharat Kedia, Chief Financial Officer, Parag Milk Foods, told CNBC-TV18.
Kedia said that the company’s cheese business is growing at a faster pace than other products. Whey, a byproduct of cheese, has also been one of the drivers of growth, he added. Currently, whey products contribute 3 percent to total revenues and the company wants to grow the segment in volume and value, he said.
The proceeds of the IPO will be used for value addition of Parag Milk Foods’ products, he said.
Below is the verbatim transcript of Bharat Kedia's interview with Anuj Singhal and Sonia Shenoy on CNBC-TV18.
Sonia: Whey is doing very well for your company and that is giving you good margins as well. Take us through whether you expect margins to hit double digits very soon because in this quarter, you have just about got there at 9.6 percent?
A: Before I go down to margins, let me give you a background, we are a consumer value-added products company. We are a dairy-based company, cow milk is the only milk that we consume in our business. We are a well integrated business model company and most importantly, we are primarily a domestic company.
Whey is a product that we sell in India. This is a product that primarily imported in India today, there are not many suppliers of these products and therefore these products do encash us good and better margins.
Going forward, Whey would be a larger part of our portfolio and that probably will definitely improve our margins. Our operating margins, as we declared for the full year of financial year of 2016, is 9 percent. We are very close to double digit as you rightly said and our ambition obviously is to continue to grow it.
Anuj: Which products did best for you and going forward if you could break it in terms of product, what kind of growth would you expect?
A: As we are a consumer value-added product business, cheese remains a high part of our business and continuously growing at a faster speed than many other products that we have and cheese has been the core of our growth. In 2008, we set up the largest cheese plant in India, continue to have the largest cheese plant in India that has been the backbone of our success and not only that we have overtime been developed to develop the by-product of cheese which is Whey to improve the margins along with it. Therefore this has been the growth driver for us.
The dairy products -- the universe in which we deal with -- grows in industry about 12-13 percent we had a full year growth of around 17 percent and therefore we are ahead of the industry in the market and that is the driver of our growth. In addition to this, consumer value added products business which is roughly about two-third of our total portfolio is almost growing at double the speed of the natural growth of the industry and that is helping our margins too.
Sonia: Whey products currently form just 3 percent of your revenues, how much do you hope to grow it to in the next one year and who are your big clients now?
A: We would be growing Whey in two different dimensions, in terms of volumes and in terms of value. In terms of volume, Whey can be grown to an extent cheese can grow because whey is a by-product of cheese. The volume of cheese would be able to take Whey in a current scenario from 3-5 percent.
But we are looking more from a value addition to whey. What we are doing as part of the IPO proceeds, we have generated funds which we would be deploying to improve and refine the quality of whey and thereby derive value.
Today our Whey products are primarily an institutional products, even though they are high profile margins, they are institutional products. Once we have the investments up in-stream, we would be able to get into consumer value-added products for whey. That is the real time of growth for us and then the value addition will bring the real growth to whey just not the volumes.
Anuj: Since you are just recently listed, can you tell us what was the full year earnings per share (EPS) and what is the outlook for current financial year?
A: Company's EPS for full year was Rs 7.6. This is the consolidated diluted EPS. The earnings per share of the company is still in single digit, continue to stay little bit in that range right now. In the last five years, as an organisation our focus was topline to grow and capture the market. Therefore our focus has remained on revenue. This is the first year we started to try and balance our focus between driving the revenue to driving the profits.
As you would have seen in last five years, profits were very meagre or marginal and now all of a sudden we have started to get a great deal of focus on driving consumer value added products, higher margin products, new innovation with higher margins. All of those brings profitability, once they bring profitability, our earnings per share has to improve significantly.
Anuj: Rs 7.6 becomes how much in this year and more importantly in next year?
A: EPS is improving, it is not improving significantly this year because we have issued an initial public offering (IPO) as in part of the IPO, we have increased our equity base as the equity base has increased EPS would have a slight impact of this in the year one but overall if you look at it, earnings per share is a direct combination of your profitability versus the shareholding pattern. Our shareholding pattern is now pretty well established after the IPO. So we will continue to grow very rapidly.
Sonia: On your revenue front, it is a 14 percent growth you did last year, this year how much can you do?
A: Before you look at last year, please look at the last five years compounded annual growth rate (CAGR). The company has had a CAGR growth of 17 percent over the last five years that is from 2011-2016. The industry is growing about 12-13 percent in the universe of product that we play with.
What we have done over the period, we have been growing ahead of the industry but slowly and gradually we are now looking at very cautious approach to growth. That means we would be balancing more from our topline growth to the bottomline growth. So while the revenue has only growth 14 percent as compared to the CAGR of 17, our bottomline has been growing very fast and as you have seen the profit after tax (PAT) growth and EBITDA margin expansion has been the key witness to our strategy.