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Parag Milk Foods Ltd.

BSE: 539889 Sector: Agri and agri inputs
NSE: PARAGMILK ISIN Code: INE883N01014
BSE 00:00 | 18 Apr 244.30 -4.35
(-1.75%)
OPEN

248.65

HIGH

248.65

LOW

243.25

NSE 00:00 | 18 Apr 244.20 -4.35
(-1.75%)
OPEN

250.45

HIGH

250.45

LOW

243.10

OPEN 248.65
PREVIOUS CLOSE 248.65
VOLUME 3160
52-Week high 414.95
52-Week low 197.00
P/E 19.10
Mkt Cap.(Rs cr) 2,055
Buy Price 243.20
Buy Qty 10.00
Sell Price 244.00
Sell Qty 10.00
OPEN 248.65
CLOSE 248.65
VOLUME 3160
52-Week high 414.95
52-Week low 197.00
P/E 19.10
Mkt Cap.(Rs cr) 2,055
Buy Price 243.20
Buy Qty 10.00
Sell Price 244.00
Sell Qty 10.00

Parag Milk Foods Ltd. (PARAGMILK) - Chairman Speech

Company chairman speech

Dear Shareholders

It gives me immense pleasure to share my thoughts and insights on ourCompany through our annual report. Our current year's theme – ‘The GoodnessStory' – promises to capture our Company's great transformation from beinga dairy-based company to an industry-leading dairy FMCG player. This transformationreflects the way we have evolved as a formidable player in the dairy FMCG sector offeringan innovative value-added portfolio which is also one of the largest and most variedproduct portfolios available in the dairy-based food segment in India today.

At PMFL innovation has always been the cornerstone of our organisationand a part of our DNA. Besides innovation in the form of introducing new products thathave redefined categories you will also find innovation across our integrated valuechain. Right from dairy farming to milk procurement to product development processingdistribution as well as branding breakthrough innovations have allowed us to remainahead of the curve and provide an edge over other dairy players that are mainly focusingon fresh milk products. It has also allowed us to effectively meet the constantly-evolvingconsumer's needs and requirements. One such example is our consumer-centric andextremely innovative cheese portfolio which has allowed us to garner a 33%1 market sharein the Indian cheese market within a short span of time.

India's dairy FMCG sector is valued at ~$107 billion2 and israpidly growing due to rising urbanisation changing consumer lifestyles higherdisposable incomes a higher proportion of working women and a growing youth population.Two structural themes are evolving in this scenario that will drive multi-year growth inthe industry.

TRANSITIONAL SHIFT

VALUE-ADDED

PRODUCTS

MILK PRODUCTS

First is the shift from the ‘unorganised' to the‘organised' market and the second is the consumers' changing habits. Withthe changing lifestyle of the consumer and a higher disposable income we are seeing agrowing demand for ready-to-eat and high-quality milk products which has made value-addedproducts like cheese ghee paneer etc essential items in one's monthly grocerylist. Consumers have also become brand-conscious due to their preference for consistencyin quality and taste in products supplied by organised players like us as against thetraditional milkmen and unorganised players. We sensed this opportunity early and startedmaking the necessary changes to our existing business mix. Today we have the largestrange of value_added products which consists of ~66% of our sales – a figure farahead of the industry average. Moving forward we foresee tremendous opportunities forplayers like us who maintain consistency quality and a varied and customer-centricproduct portfolio.

We are also focusing on scaling up our presence in the Health andNutrition segment through a widening product portfolio and an expansion of distribution.Since the entire Whey protein segment in India is dominated by imported players we see ahuge opportunity to drive growth given our superior product offerings. We have seen ahealthy traction in the Whey protein segment and plan to widen our product range in thesports nutrition segment under the Avvatar brand through the launch of variants likeAvvatar Absolute Muscle Gainers as well as new flavours and formats. Given the nature ofand limited distributors in this segment we have set up bonding programmes with gym

1. IMARC Report June 2015

2. IMARC Report June 2015 (Assumed 1 USD = INR 67) trainers who arethe key influencers in this segment and have also set up a separate team for the Avvatarportfolio. We will soon be entering the milk-based protein segment with the launch of GoProtein Power a 100% cow milk product with a high protein content. With such products andthe launch of new products and a ramp-up in reach we plan to expand our Health andNutrition portfolio from 2.4% of sales as it stands today to a target of ~7% by FY21.

During the year we also undertook several initiatives towards ongoingimprovement in supply chain management at the back-end and the distribution network at ourfront-end. In the case of our supply chain we have set up new norms andauto-replenishment systems at each level of our distribution chain. On the distributionfront we are working on a two-pronged strategy that involves expanding our product rangeper retail outlet as well as adding new outlets. Greater focus will be placed onincreasing our reach in current geographies and expanding our presence in the North andEast. Currently given that our procurement and manufacturing base is in West and SouthIndia we derive a large proportion of our sales from these two geographies. However therecently acquired Danone facility in Sonipat Haryana will help us scale up our presencein the Northern and Eastern markets. This will also strategically benefit us by beingcloser to the end consumer as well as improving the freshness of products. Our focus tostrengthen our market share in the North and East is reiterated through our recently hiredSales Head specifically for these two regions. Moreover we have also strengthened ourtechnology quotient to get real-time results of all our activities – right fromprocurement and manufacturing to distribution and sales.

Our strategy going further will emphasise growing our consumer businessand strengthening our position as a strong dairy FMCG player with a pan-India presence.Our focus on moving up the scale of value addition backed by our R&D capabilitiesincreasing distribution reach and the new additions of seasoned FMCG professionals thatwe have recently made to our senior leadership will help us achieve the many ambitiousplans that we have set before ourselves. We are confident that our combined efforts willhelp us achieve our Vision 2020 of an annual revenue of Rs. 2700-3000 crore with astronger EBITDA margin and ROCE of 11-12% and 18-20% respectively.

As a closing note I would like to acknowledge our team for theirconsistent and sincere efforts in building the Company's brands across markets. Iappreciate the support from our Board of Directors and Shareholders for believing in ourpotential. Together I am sure we will continue to achieve one milestone a_er another andcontinue building ‘The Good Milk Story'.

Regards

Devendra Shah

Chairman