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Parag Milk Foods Ltd.

BSE: 539889 Sector: Agri and agri inputs
NSE: PARAGMILK ISIN Code: INE883N01014
BSE LIVE 15:40 | 18 Aug 235.90 0.10
(0.04%)
OPEN

235.00

HIGH

236.90

LOW

232.10

NSE 15:48 | 18 Aug 235.75 -0.10
(-0.04%)
OPEN

234.50

HIGH

238.50

LOW

232.05

OPEN 235.00
PREVIOUS CLOSE 235.80
VOLUME 29610
52-Week high 354.00
52-Week low 203.00
P/E 73.95
Mkt Cap.(Rs cr) 1,984
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 235.00
CLOSE 235.80
VOLUME 29610
52-Week high 354.00
52-Week low 203.00
P/E 73.95
Mkt Cap.(Rs cr) 1,984
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Parag Milk Foods Ltd. (PARAGMILK) - Chairman Speech

Company chairman speech

I welcome shareholders to the first annual report following our going public on May 192016 – the most significant event in our business journey transforming our identityfrom a privately-held entity into a publicly-listed organisation.

The big message that I wish to send out to you is that India is one of the mostattractive global opportunities from a consumption perspective the country’s dairysector is one of its most attractive lifestyle FMCG sectors and Parag Milk Foods is thedairy industry’s most complete proxy.

The country sector and company are driven by national GDP growth evolving lifestylesand transforming eating habits inspiring the optimism that we are indeed at thebottom-end of a large and enduring J-curve.

The India argument

India is the fastest growing major economy catching up with the lost potential of thelast few decades. The country is investing extensively in agricultural reform with theobjective to strengthen incomes for millions of farmers. One of the principal objectivesis enhanced proportion of non-farmer revenues strengthening perennial incomes andreducing their complete dependence on monsoon-induced crop cycles.

There is attractive operating growth headroom in this regard. Even as India accountsfor the largest cattle head count in the world its average cattle yield is less than 7litres per day which is a mere 30% of the corresponding yield in a country like TheNetherlands (25 Litres). My estimation is that with enhanced awareness scientificbreeding practices and health security India’s cattle yield should trend upwards.Even a 1% increase in cattle yield could increase India’s milk output by a sizable 4million litres per day which widens our access to an abundant raw milk resource thebedrock of our organisational sustainability.

The point I am attempting to make is that India is sitting at the cusp of anunprecedented opportunity where even a moderate increase in cattle efficiency or headcountcould translate into a sizable ‘milk bank’. In the language of dairyprofessionals this potential opportunity represents attractive operating leveragetriggered by only reasonable increases in income exposure and aspirations.

The basic sectoral play

It is imperative that for any country with a sizable milk bank there should be acorresponding milk processing capacity and a large downstream consuming population.

India is distinctively fortunate in this regard. The country has the largest cattlecount in the world and the second largest consumption population.

India’s milk consumption of 97 litres per capita compares poorly with the UnitedStates consumption average of 285 litres per capita (Source: IMARC Report) - not becauseIndians do not desire to drink milk (quite the reverse as milk-drinking is embedded intothe national psyche) but because of a paucity of milk processing and packing centres.

The writing on the wall is clear: India represents an attractive dairy productopportunity for companies with long-term seriousness.

The value-added argument

In India it is not just the milk processing opportunity that appears attractive. Thereis a growing interest in productising milk into value-added downstream products.

Interestingly as India’s disposable income moves towards the Rs.100000 mark(expected to be cross in FY17) a higher proportion of India’s spending on food isevolving from loose products to packaged products – staples to brands.

This is most visible in the country’s dairy sector where a staple like milk isbeing evolved into branded and packaged downstream products like flavoured milk yogurtghee cheese paneer and milk powder. There is a quicker consumption of these packagedproducts for good reasons – traditional preferences are evolving from loose topackaged alternatives; there is a declining availability of domestic assistantsa growingincidence of working women and health and hygiene of packaged products are catalysing theuse of packaged foods; there is an increasing propensity to buy off modern retail formatsdriving the offtake of packaged foods and the growing availability of refrigeratorsenhancing product longevity.

The message is clear: India’s dietary consumption is evolving and the dairy sectoris expected to significantly capitalise on the transition.

Top-down to Parag Milk Foods

I am pleased to state that Parag Milk Foods (a cow milk company) is positioned tocapitalise most extensively on emerging opportunities.

The Company possesses one of the largest private milk collection franchises in India

The Company possesses one of the most extensive value chains within its sector in Indiathat makes it possible to absorb sectoral shocks better and report relatively stableperformance year-on-year better than peers who do not possess this encompassing presence.

The Company is essentially a value-added play with 2/3rd of its revenues derived fromnon-milk and non-SMP streams).

The Company innovates in niche categories as a result of which a sizeable proportionof its 2015-16 revenues were derived from products launched in just the preceding threeyears.

Overview

The important message to communicate is that Parag Milk Foods is transforming withspeed. In early 2015 the Company rebranded its corporate image to live its values. Overthe decade the Company invested consistently in proactive capacity creation stretchingits gearing to a peak. Two developments have helped address this reality; the IPO and anadditional investment by IDFC Spice helped grow revenues and moderate debt during thefinancial year and bring gearing down to what is considered safe and reasonable.

Going ahead Parag Milk Foods expects to maintain its annual revenue growth on accountof wider milk procurement stronger portfolio and a higher utilisation of its attractiveoperating leverage in its Andhra Pradesh facility. The Company intends to strengthenmargins through the enhanced proportion of value-added products and operatingefficiencies.

I am optimistic that a combination of an increase in revenues steady marginsrelatively low capital expenditure high level of corporate governance and a healthyBalance Sheet will graduate us to a position of financial robustness that enhances valuein a sustainable way for all those associated with our Company.

Devendra Shah Chairman