Parag Milk Foodsjmflresearch.com/JMnew/JMCRM/analystreports/pdf/Parag... · 2018. 3. 12. · Parag Milk Foods (Parag) has created a well-diversified product portfolio and firmly established

12 March 2018

INDIA I CONSUMER I INITIATING COVERAGE

Parag Milk Foods

Positive cash generation, improving ROIC

JM Financial Institutional Securities Limited

3

4

5

6

16

17

20

21

24

25

Introduction

Key charts

Company overview

Investment thesis

Valuation

Key financials - a summary

Key risks

Dairy industry overview

Management profile

Financial tables

India's dairy industry is valued at INR 4trn, presenting a strong opportunity for the organised sector. With increasing urbanisation and a rise in migration to cities, the way India consumes dairy is changing. While liquid milk and ghee still dominate consumption, the preference for modern dairy products such as cheese and whey protein is rapidly rising.

We believe this would be a key growth driver for organised players such as Parag, that already have well-established brands in the value-added dairy segment.

RECENT INITIATIONS

WESTLIFE DEVELOPMENT

COCHINSHIPYARD

CDSL PRATAAPSNACKS

RELIANCE NIPPONLIFE ASSET MANAGEMENT

TABLE OF CONTENTS

JM Financial Research is also available on: Bloomberg - JMFR <GO>, Thomson Publisher & Reuters S&P Capital IQ and FactSet

You can also access our portal: www.jmflresearch.com

Page 2

12 March 2018

INDIA | CONSUMER | INITIATING COVERAGE

JM Financial Institutional Securities Limited

http://jmflresearch.com/JMnew/JMCRM/analystreports/pdf/COCHIN_IC_Jan2018.pdf

http://www.jmflresearch.com/JMnew/JMCRM/analystreports/pdf/Westlife%20-%20Initiation%20-%203%20Oct%2017.pdf

http://www.jmflresearch.com/JMnew/JMCRM/analystreports/pdf/CDSL_IC_09Jan18.pdf

http://www.jmflresearch.com/JMnew/JMCRM/analystreports/pdf/Prataap%20-%20Initiation%20-%2017%20Jan%2018.pdf

http://www.jmflresearch.com/JMnew/JMCRM/analystreports/pdf/RNLAM%20_IC_09Jan2018.pdf

Parag Milk Foods (Parag) has created a well-diversified product portfolio and firmly established its brands in the Indian dairy industry. This has helped it become the second largest cheese player in the country, boosting its value-added products (VAP) business to 66% of revenue and aiding a 567bps GPM expansion over the past 3 years. With rising consumer demand, a strong culture of innovation, robust brand portfolio and disruption effects (GST and Demonetization) now behind, we expect growth trajectory to improve after a subdued performance over the past 15-18 months; we forecast revenue, EBITDA and net profit CAGR of 13%, 15% and 22%, respectively, over FY17-20E. The company is also expected to be cash-generative in the next 2-3 years as a significant part of expansion capex is now out of the way. This, plus an improving growth trajectory drive our positive bias.

We initiate with BUY and a target price of INR 330 based on 24x FY20E EPS (marginally higher than its current trading multiple, which is at a discount to peers such as Prabhat and Heritage Foods). We see 22% upside from the current market price. However, ROIC remains a sore point in our view, as we see a challenge for Parag to scale up beyond 20%, given its high working capital requirements.

Strong brand portfolio to help leverage 20%+ CAGR opportunity in value-added dairy: The organised sector has a mere 20% share in India’s dairy sector; even within this, traditional products such as liquid milk, ghee and paneer constitute c.90% of sales. Given the severe under-penetration, VAP are likely to grow at 20%+ levels over the next few years. Parag’s investments in brand-building and innovation have helped it create a portfolio of 7 brands, of which ‘Gowardhan’ and ‘Go’ are now well-established in their respective categories (‘Go’ is the second largest cheese brand in India). VAP constitute 66% of Parag’s revenues (vs. 30% for the organised industry), giving it a better growth opportunity vs. peers.

Positive cash generation to help valuations:

Parag’s free cash flows (FCFs) in the past have been impacted by high capex, but operating cash flows (OCF) have been healthy (positive OCF in each of the past 7 years). With capacity expansion largely over, we expect capex to be at INR 600mn-700mn over the medium term, which should help Parag generate INR 350mn-400mn FCF (net of interest costs) on average over FY18-20E. A better growth trajectory and positive FCF would aid valuations, which are at a discount to peers (23x NTM earnings vs. 25x for Prabhat and 33x for Heritage). However, we expect ROIC to remain at 13-14%, with further scale-up being possible only through better asset utilisation and working capital reduction as margin is at a healthy level already.

Please see Appendix I at the end of this report for Important Disclosures and Disclaimers and Research Analyst Certification.

Vicky [email protected] Tel: (91 22) 66303065

Richard [email protected]: (91 22) 66303064

P a r a g M i l k F o o d s ( P A R A G I N )

M i l k i n g a s t r o n g b r a n d p o r t f o l i o

Page 3JM Financial Institutional Securities Limited

12 March 2018

INDIA | CONSUMER | INITIATING COVERAGE

Parag Milk Foods 12 March 2018

JM Financial Institutional Securities Limited Page 4

Key Charts

The organised sector constitutes a mere 20% of India’s Exhibit 1.dairy industry

Source: Company, JM Financial

Liquid milk and ghee account for c.80% of India’s dairy Exhibit 2.industry


Parag’s revenue growth to be in double-digits after a Exhibit 3.subdued performance in FY17 and FY18E (INR mn)

Source: Company, Euromonitor, JM Financial

Value-added products constitute 66% of Parag’s turnover – Exhibit 4.more than 2x India’s dairy industry

Source: Company,Euromonitor JM Financial

Expecting the company to turn cash generative on a more Exhibit 5.normalised capex (INR mn)


ROE’s expected to scale -up to early-teens aided largely by Exhibit 6.improving asset turns


Indian Dairy Industry (USD63bn)

Organised Sector

USD13bn

Parag Milk Foods

Liquid Milk, 64.5%

Ghee, 15.2%

Paneer, 7.2%

Curd, 5.3%

Butter, 4.1%

Others, 3.6%

8,757 8,949

10,387

13,783

15,80116,828

18,404

20,299

23,312

0

5,000

10,000

15,000

20,000

25,000

FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

Net Sales - INR mn

30.1%

65.6%

Organised Dairy industry Parag

Value Added Products - % of turnover

-767-808

-620

130

-276

-599

190

483415

704

560 586

304 312

983

644710 699

-1,000

-500

0

500

1,000


FCFF (net of interest cost) Capex

2.1

1.7 1.7

2.1

2.2

2.01.9

2.0

2.2

1.7%2.5%

1.4%2.2%

3.0%2.1%

4.2%4.9% 5.0%

15%14%

7%

13%

15%

7%

11%

13%13%

0%

4%

8%

12%

16%

1.0

1.5

2.0

2.5


Asset Turnover - LHS Net Profit Margin - RHS ROE - RHS



Company Overview

Parag Milk Foods (Parag) is a branded dairy company focused on value-added dairy

products. The company operates a branded foods and beverages business, which

commenced operations in 1992 through the collection and distribution of milk. Over the

years, Parag has transformed into a branded consumer products company with a diverse

range of products including fresh milk, ghee, cheese, whey protein, milk powder, UHT

products and dairy-based beverages. It targets a wide range of consumer groups with a

portfolio of 7 brands.

Value-added products constitute a major share of Parag's revenues. Parag reported net

revenue of INR 17.3bn in FY17, of which fresh milk constituted 21%, and the remaining

was largely driven by more premium value-added products.

It has, over the past few years, established strong brands within India’s dairy industry and

now has a portfolio of 7 brands. Its brand portfolio includes Gowardhan, Go, Topp Up,

Pride of Cows, Milkrich, Avvatar and Slurp encompassing 170+ SKUs that cater to a wide

range of customers.

The company has an aggregate milk processing capacity of over 2 million litres per day

and cheese/paneer production capacity of 60MT/20MT per day. Its cheese capacity is the

largest in India.

Parag’s manufacturing facilities are strategically located in densely cow-populated regions

such as Manchar (Pune, Maharashtra) and Palamaner (Chittoor, Andhra Pradesh), with

milk processing capacities of 1.2 million litres per day and 0.8 million litres per day,

respectively.

It has a pan-India distribution network of 17 depots, 140 super-stockists and 3,000+

distributors.

Parag’s brand portfolio Exhibit 7.Product Description

Gowardhan Includes traditional products such as Ghee, liquid milk and Paneer.

GO Targeted at children and youth and includes products such as cheese

blocks, cheese spreads and cheese wedges.

Pride of Cows Premium quality cow’s milk.

Topp Up Flavoured milk beverage for on-the-go consumption..

Milkrich Skimmed milk powder for traditional Indian recipes.

Avvatar Premium whey protein powder.

Slurp Mango-based fruit juice with a dash of milk.

Source: JM Financial, Company



Investment thesis

Strong brands with a diversified revenue stream in India’s dairy industry; challenges in boosting return ratios could cap valuations

Parag has, over the years, successfully diversified its revenue stream within India’s dairy

industry and has created a niche for itself with c.66% of its revenues derived from value-

added products. A more attractive feature of its value-added business is that c.60% of

turnover from this segment is derived from its consumer brands. Parag has established strong

brands in the dairy industry that has historically been dominated by dairy co-operatives such

as Amul and Mother Dairy. The company now has a diversified portfolio of 7 brands.

However, while it remains largely under-penetrated, revenue growth for value-added

products has decelerated sharply to mid-single digit levels. The deceleration has been despite

new product launches and entry in new segments such as juices and sports nutritional

powders; this has been one of the key investor concerns on the stock.

The company’s profitability has also fallen in recent times on account of the adverse

operating environment (sharp inflation in dairy prices), poor macro conditions and increased

competition. Parag has effected price hikes across its product portfolio to negate the impact

of cost inflation, which adversely impacted its volume trajectory. With milk prices now

deflating and consumer demand improving gradually, we believe Parag’s near-term earnings

growth trajectory would sharply improve.

Over the longer term, the company needs to enhance its aggression on distribution

expansion and focus on increasing the scale of its value-added products, especially ghee,

cheese and milk beverages, given the large opportunity in these segments. Enhancement of

profitability depends on various factors including higher contribution from the B2C business,

improvement in working capital (especially in cheese business) and the success of new

launches. Another imponderable is its multiple-brand strategy, which could probably enhance

the cost for driving revenues and pressure profitability.



An attractive opportunity

The Indian dairy industry presents a huge opportunity given the mere 20% penetration of the Organised Sector

The Indian dairy industry is valued at INR 4tn: India’s dairy industry was valued at INR 4trn

in FY15, but the organised sector accounted for a mere c.20% of it. Liquid milk

constitutes c.64% of the organised market which has the least value addition. Ghee is the

second largest product in this segment and accounts for c.14% of the market. The dairy

industry also remains rather fragmented despite the presence of large dairy cooperatives,

with many smaller players largely operating in a single region.

Organised industry constitutes a mere 20% of India’s dairy industry Exhibit 8.


Liquid milk and ghee constitute 80% of the Indian dairy industry Exhibit 9.


Traditional products constitute c.90% of the organised Indian Dairy market and

innovation would be the key to drive dairy consumption: India’s dairy market can broadly

be divided into traditional and modern products. Traditional products include liquid milk,

ghee, yoghurt, etc., which constitutes more than 90% of the organised market (including

SMP), while modern products such as UHT milk, cheese, whey, frozen yoghurt account

for the remaining. Most Indian dairy companies have a larger proportion of revenues from

traditional products (largely liquid milk), where there is limited value-addition and

therefore a lower gross margin with high volatility. The reason for a lower gross margin is

that the products are commoditised in nature, which makes differential pricing rather

difficult. However, as liquid milk is predominantly a B2C business, cash generation has

been superior.

Indian Dairy Industry (USD63bn)

Organised Sector

USD13bn

Parag Milk Foods

Liquid Milk, 64.5%

Ghee, 15.2%

Paneer, 7.2%

Curd, 5.3%

Butter, 4.1%

Others, 3.6%



It is also interesting to note that all modern value-added products (UHT milk, flavoured

milk, cheese, whey cream, etc.) combined would be smaller than the organised ghee

segment – reflecting the fact that value-added products are still at a nascent stage in

India. Under-penetration is also quite evident when we look at cheese per capita

consumption in India, which is a mere 100 grams (within the target set of population

which equates to 30% of total Indian population) relative to the 3kg average per-capita

consumption globally. In our view, promoting the consumption of modern dairy products

among Indians through innovation in products as well as delivery formats would be the

key to leveraging the growth opportunity within this segment.

Modern dairy products constitute a mere 10% of the organised dairy market Exhibit 10.


Value-added products (VAP) size pegged at a mere INR 245bn and expected to clock

c.21% CAGR; VAP constitutes c.66% of Parag’s turnover: The organised VAP (dairy

products excluding liquid milk and SMP) market size in India stood at INR 245bn in FY15

(excluding liquid milk and skimmed milk powder) of which ghee constitutes 45%. The

opportunity in the value-added space - is still in a nascent stage - is a mere INR 134bn,

excluding ghee and is expected to post a 23% CAGR and reach INR 465bn by 2020.

While the segment size appears quite small at present, it presents a high growth

opportunity given the convenience and nutrition attributes presented by modern dairy

products like UHT milk, cheese and whey. Parag’s diversified product base, well-

established brands and higher exposure to VAP places it well to leverage the opportunity

in this segment.

Parag has a reasonably higher presence in the ghee market, which constitutes 17% of its

turnover. However, its liquid milk exposure is limited to merely 21% vs. 65%+ for its

peers such as Hatsun Agro and Heritage. The company’s focus is on scaling up its VAP

business (including ghee), while growth rates in liquid milk and SMP would be subdued.

Given the higher growth opportunity in the value-added space and Parag’s strong

portfolio of brands, it appears to be reasonably well-placed to leverage this opportunity.

In FY17 though, the company’s value-added segment did underperform as the poor

macro-environment impacted demand for cheese, especially in the institutional segment.

Additional reasons for this are higher competitive intensity (Parag implemented price

hikes 1-1.5 months before peers, which adversely impacted volumes) and

Demonetization-led sales disruption.

Unorganised80%

Modern Products2%

Traditional Products18%

Other20%

Indian Dairy Industry break-up



Parag’s VAP contribution is more than double vs. the Exhibit 11.industry


VAP ex-ghee have a more attractive growth opportunity Exhibit 12.relative to Liquid milk and Ghee


30.1%

65.6%

Organised Dairy industry Parag

Value Added Products - % of turnover

20.6%

17.4%

23.0%

Liquid Milk Ghee VAP ex-Ghee CAGR - %

% CAGR - 2014-2020



Parag’s strong portfolio of brands in the value-added space has helped diversify its revenue stream

Parag has created strong portfolio of brands by offering unique propositions: Parag has,

over the years, invested in establishing its brands by consistently innovating and delivering

improved products to consumers as well as through focused brand-building initiatives.

The company sells its products under 7 brands: Gowardhan, Go, Pride of Cows, Topp Up,

Milkrich, Avvatar and Slurp.

Parag sells fresh milk, ghee, butter, milk-powder, paneer, etc. under its ‘Gowardhan’

brand, while UHT milk, fresh cream, cheese, yoghurt and beverages are sold under the

‘Go’ brand. Predominantly dairy-based beverages for instant consumption are sold under

the Topp Up brand, while it recently ventured into the fruit beverage space with its brand

‘Slurp’. ‘Pride of Cows’ is a premium brand which is currently used for marketing ‘farm to

home’ fresh milk – with a potential to expand into several other premium offerings. It is

also the first Indian company to launch branded whey protein powder under the ‘Avvatar’

brand.

With most of its brands being at a nascent stage, headroom for growth remains quite.

However, with multiple product segments under each brand, the company could find it

challenging to scale up all the brands at the same time.

Parag’s brand portfolio Exhibit 13.Product Description

Gowardhan

Includes traditional products such as Ghee, liquid milk and Paneer.

GO

Targeted at children and youth and includes products such as cheese

blocks, cheese spreads and cheese wedges.

Pride of Cows

Premium quality cow’s milk.

Topp Up

Flavoured milk beverage for on-the-go consumption..

Milkrich

Skimmed milk powder for traditional Indian recipes.

Avvatar

Premium whey protein powder.

Slurp

Mango-based fruit juice with a dash of milk.




Parag's product portfolio overview Exhibit 14.


Higher proportion of modern dairy products enhances the growth opportunity: As discussed earlier, ghee constitutes a large proportion of value-added dairy products

(dairy products excluding skimmed milk powder and liquid milk) in India, with the share

being pegged at nearly 45% in 2014. Given its high penetration, the growth opportunity

in this category is expectedly lower at c.15%; however, it still appears quite attractive

given that the unorganised segment accounts for nearly 82% of turnover. Within the

organised space, c.45% of sales are to institutional clients (in pack sizes of 10-15kgs)

while smaller packs for the retail market account for only 55% of the total ghee market.

Furthermore, the category is more commoditised with little scope for differentiation.

Compared with the 45% share in VAP, ghee constitutes a much lower c.25% of VAP

revenues for Parag. The remaining mostly comprises modern value-added dairy products,

which are expected to grow much faster, driven by changing consumer preferences,

urbanisation and convenience. Modern products such as UHT milk, flavoured milk, cheese

and whey (powder) are forecasted by FY21 to post an over 25% CAGR and constitute the

remaining 75% of the portfolio.

Overall, even if Parag manages to merely hold market shares within these segments, its

VAP portfolio could post 20% CAGR based on these estimated growth rates over FY15-

21E. Recent years have, however, been challenging for the dairy industry on subdued

consumer demand; growth rates have lagged previous estimates. With demand trends

now showing some signs of recovery and milk prices being more benign, we expect the

VAP segment’s growth to stage a healthy recovery.



Traditional dairy products expected to post a 15% CAGR Exhibit 15.


Modern dairy products are expected to grow much faster, Exhibit 16.posting a 25-28% CAGR


Strength of the ‘Go’ brand and leadership in institutional segment to help leverage high growth expected in the cheese category: The size of the Indian

cheese market is pegged at INR 12bn (2014). Processed cheese accounted for 88.8% of

this market while cheese spreads and special cheese accounted for merely 10.9% and

0.3%, respectively. Retail and institutional consumption accounted for c.50% each of the

total market. Parag is currently India’s second largest player in the cheese market with a

32% market share. It commands a market leadership position in the institutional segment

and also maintains a competitive positioning in the retail segment.

Institutional demand for cheese in recent times has been impacted by a poor macro-

environment, which led to a lower spends on the eating-out segment, as well as some

disruptions such as Demonetization and GST. However, in recent results, QSR companies

such as Jubilant Foodworks (Dominos) and Westlife Development (McDonalds) have

reported high growth in revenues, which is also expected to aid companies such as Parag,

given its high exposure to this segment.

Sale of cheese constitutes c.32% of VAP sales for Parag and c.50% of this comes from

the institutional segment. With most disruptions now a thing of the past, Parag appears

to be well-positioned to leverage the underlying growth opportunity here.

Similarly, UHT milk and flavoured milk-based beverages also have an attractive growth

potential. However, the segment is currently dominated by cooperatives such as Amul

and The Karnataka Milk Federation. Parag, so far, has a limited presence in these areas

but the potential remains high given its strong brands such as GO and Top-Up.

Strong innovation capabilities and inherent strengths to aid in driving new product launches: Parag’s focus has now moved to transforming itself from a mere

dairy-based company to one being focussed on health and nutrition. In keeping with this

endeavour, it has recently launched a whey protein powder under the Avvatar brand in

the sports nutrition segment. It is available as a nutrition supplement in pharmacies,

modern retail stores and e-commerce portals. The product is a natural extension given its

high presence in the cheese segment and whey is a by-product generated during the

manufacture of cheese. Parag has also launched other nutritional products such as

Colostrom (a daily supplement) and high protein plus low-fat cheese products.

15.0%

14.8% 14.8% 14.8%

12%

13%

14%

15%

16%

Liquid Milk Ghee Paneer Curd

Traditional Products - % CAGR 2014-20

25.4%

25.9%

26.4%

28.0%

20%

22%

24%

26%

28%

30%

Flavoured Milk Whey (Powder) UHT Milk Cheese

Modern Products - % CAGR 2014-20



Operating margin stable; improvement in profitability to be more gradual henceforth

The increased share of VAP has helped drive gross margins: Parag has consistently been

enhancing the share of VAP in its overall sales, aided by its thrust on innovation, new

product development such as branded whey protein, leadership in the cheese segment

and scaling-up of high-end products such as UHT milk and flavoured milk beverages. The

gross margin delivered by these products is also better vs. lower-commoditised offerings

such as liquid milk and skimmed milk powder. The gross margin of VAP is at least 2x that

of fresh milk and 5x that of skimmed milk powder. However, a further increase in the

share of VAP could be more gradual going forward. However, within the VAP basket, the

share of higher-gross-margin categories such as whey protein and cheese has the

potential to be further boosted. We are presently building in near-flat gross margins over

FY18-20E as the base year (FY18) also has benefits of lower milk procurement prices.

Higher share of VAP has aided gross margin in the past Exhibit 17.


Operating margin dip in FY17 was a one-off; higher share of VAP should help reduce

volatility: Parag’s EBITDA margin remained steady at 7-10% over FY11-16, with volatility

being largely on account of milk price fluctuations. However, its operating margin saw a

sharp dip in FY17 (contracted 285bps during the year) due to a sudden sharp inflation in

liquid milk prices (procurement prices increased 40%+ over the preceding 6 months)

during Demonetization; its gross margin fell 770bps YoY in 3QFY17. The company was

unable to implement price hikes due to disruption in trade channels and subdued

demand from consumers, which also led to a 5.7% decline in sales on a sequential basis.

However, after normalisation in 4QFY17, the operating margin reverted to healthy levels,

aided in part by price hikes. The dip in profitability in FY17 was attributable to the one-off

impact of Demonetization-led disruption and adverse operating leverage (SG&A grew

23.7% vs. 6.5% growth in sales). Henceforth, given a low probability of the recurrence of

a similar disruption and SG&A now well under control (fixed costs fell 0.7% in 9MFY18),

we expect Parag’s EBITDA margin to be steady at c.10%.

The stability in operating margin would be led by the increased share of higher margin

VAP, expected to outpace growth in liquid milk and SMP segments, given lower

penetration levels and Parag’s higher focus on scaling up its branded business. We

estimate VAP share to increase to 67.7% of total revenue by FY20 vs. 64% in FY17.

46%

49%

58%

67%

64%

22.8%

19.5%

23.0%

23.9%

25.2%

15%

18%

21%

24%

27%

20%

30%

40%

50%

60%

70%

FY13 FY14 FY15 FY16 FY17

Share of Value-added products - LHS Gross margin - % - RHS



EBITDA margin trends (%) Exhibit 18.


Subdued skimmed milk powder prices and lower milk procurement prices should aid

margins in the near term: A sharp rise in skimmed milk powder prices tends to have a

consequent inflationary impact on domestic milk procurement prices. Skimmed milk price

inflation in FY12 (+19.1%) and FY14 (52.9%) had adversely impacted Parag’s gross

margin, which compressed by 126bps and 329bps, respectively. Similarly a drop in SMP

prices over FY14-17 has also partially aided in driving 567bps GPM expansion over the

same period. SMP prices have remained subdued in recent times and are currently 32%

lower YoY, which has consequently led to c.11% drop in milk procurement prices. This -

coupled with some increase in the share of VAP - is expected to aid operating margin

expansion.

SMP prices - on a declining trajectory (INR/kg) Exhibit 19.

Source: Company, JM Financial, Bloomberg

ROIC to sustain near early-teen levels in the near future: Parag’s ROIC increased from a

mere 7.8% in FY11 to 13.7% in FY16 on improvements in EBIT margin from 5.1% to

7.3%. This was aided by a higher gross margin (+260bps) on the increased share of VAP

coupled with higher asset turns (invested capital turns rose from 1.7x to 2.1x as gross

fixed asset turns improved, though working capital was largely maintained at c.25% of

net sales).

7.9%

9.0%

9.5%

8.1%

7.8%

9.4%

6.4%

9.9%

10.5%10.3%

5%

7%

9%

11%

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

EBITDA margin trends - %

Sharp dip on demonetization

disruption and milkprice inflation

0

50

100

150

200

250

300

350

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18

SMP - INR/Kg



ROIC, however, dropped sharply to 6.8% in FY17 on margin pressures as explained

above. As the operating margin has now reverted to healthy levels (9.6% for 9MFY18),

we expect ROIC to largely sustain at 12.5-14% over the coming years.

ROIC expected to improve on improved margin and better asset utilisation Exhibit 20.


Cash generation to turn positive but scale of FCF generation to be modest: Parag’s capital

expenditure is expected to be at 3.5-4% over the next 2-3 years while we expect revenue

CAGR to be modest at 11-12%. Given the net working capital of 24-25% of net sales,

we expect operating cash flow generation of INR 1.1bn-1.4bn per annum over FY17-20.

However, high capex requirement and interest payments would constrict FCF generation

from equity holders’ perspective as interest expenses could take away 40-50% of FCFF in

FY19-20, as per our workings. This would restrict net debt reduction to INR 793mn over

FY17-20. In our view, given Parag’s operating margin would sustain around 10-11%

levels and it would need to reduce its net working capital to enhance potential for free

cash flow generation.

Moderation in capex costs expected to FCF henceforth Exhibit 21.

Source: Company, Bloomberg

2.0

1.7 1.7

2.1

2.2

2.1 2.12.2

2.4

6.3%

6.3%

5.4% 5.5%6.2%

3.2%

5.9% 6.0% 5.8%

12%

11%

9%

11%

14%

7%

13%13%

14%

0%

4%

8%

12%

16%

1.0

1.5

2.0

2.5


Invested Capital turns - LHS NOPAT Margin - % - RHS ROIC - % - RHS

-767 -808

-620

130

-276

-599

190

483415

704

560 586

304 312

983

644710 699

-1,000

-500

0

500

1,000


FCFF (net of interest cost) Capex



Valuation

Our price target of INR 330 implies a c.22% upside from current levels.

We value Parag at 24x FY20E EPS and arrive at a price target of INR 330, which

represents c.22% upside from current levels. This is in line with its average trading

multiple over the past year and is marginally higher than the multiple it is presently

quoting at. We expect Parag to clock EPS CAGR of 22% over FY18-20 (excluding FY17 as

the reported earnings were depressed on Demonetization-led disruption), which implies

that the entire upside is attributable to earnings growth. At our price target, Parag will be

quoting at c.12x on NTM EV/EBITDA which is also marginally higher than its current

trading multiple (11x)

Our valuation multiple is also in line with its peer Prabhat, although Parag has a better

ROCE profile. However, this represents a discount of 27% to Heritage (33x FY19E

earnings) and is probably justified given its better return ratios - ROCE (pre-tax) of 25%

relative to 16-17% for Parag.

Peer group valuation comparison Exhibit 22.


Parag PE Band Exhibit 23.


We have also valued Parag on DCF, based on the following assumptions:

1. c.14% CAGR in free cash flows over FY19-29E.

2. 6% terminal growth rate

3. 11.5% WACC

Parag’s DCF-based valuation model works out to INR 315, which is marginally lower than

our multiple-based approach. However, we are building in a marginal improvement in

both operating margin and net working capital. A better-than-expected performance on

those two parameters could eventually help enhance the value of business considerably

and the scope for this also remains high once the company can scale up its operations.

FY17 FY18 FY19 FY17 FY18 FY19 FY17 FY18 FY19 FY17 FY18 FY19

PARAG MILK FOODS LTD 64.6 29.1 22.8 22.5 13.3 11.2 5.4% 10.7% 12.2% 7.2% 15.1% 16.9%

PRABHAT DAIRY LTD 34.3 35.3 24.8 14.2 13.0 10.8 6.8% 6.3% 8.3% 9.5% 9.9% 12.4%

HATSUN AGRO PRODUCTS LTD 82.5 73.7 48.6 30.7 26.3 19.7 38.6% 30.8% 33.5% 23.8% 24.3% 29.3%

HERITAGE FOODS LTD 48.3 48.9 33.3 23.6 23.6 16.9 22.2% 17.0% 20.6% 25.1% 21.5% 26.8%

PE EV/EBITDA ROE ROCE (pre-tax)

50

100

150

200

250

300

350

400

May-16 Jul-16 Sep-16 Nov-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18

24x

28x

20x

32x



Key Financials – A summary

Expecting 11.5% revenue CAGR over FY17-20: Parag clocked revenue CAGR of 14%

over FY12-17, which was impacted by a mere 6.5% growth in FY17 on account of

Demonetization. Excluding FY17, Parag grew at 15.9% p.a. over FY12-16. Both fresh

milk and value-added milk products have grown well during this period but growth rates

for skimmed milk powder were subdued, as it is largely a commoditised category.

We expect Parag to clock 11.5% revenue CAGR over FY17-20. With consumer demand

now recovering well, we expect traction to improve in the value-added milk products

space, which could clock c.14% CAGR. However, fresh milk and skimmed milk powder

categories are expected to grow much slower, at 7-8%. Higher growth in fresh milk

would require successful penetration in new regions.

Revenue growth expected to revert to double-digit levels after a subdued Exhibit 24.performance in FY17-18 (INR mn)


Financial leverage and favourable base to help drive 49.2% net profit CAGR over FY17-

20: Parag achieved a net profit CAGR of 18.4% over FY12-17, which was depressed by a

25% decline in net profit in FY17 on operating margin pressures. Excluding this, the

company clocked 33% profit CAGR over FY12-16. Operating profit CAGR (FY12-17) was

even lower, at merely 6.6%, while net profit CAGR was aided by financial leverage and

lower tax rates.

We expect Parag to clock 49.2% net profit CAGR over FY17-20, partially aided by a

rather benign base as FY17 net profit declined 25%. Even excluding the steep rise in

profits in FY18 (+120.5%), we expect net profit to grow 27.6% and 17.1% in FY19 and

FY20, respectively, aided largely by a decline in net financial costs (expected to decline

27% over FY17-20).

We expect Parag to report EPS of INR 9.3, INR 11.9 and INR 13.9 for FY18, FY19 and

FY20, respectively.

8,757 8,949

10,387

13,783

15,80116,828

18,404

20,299

23,312

0

5,000

10,000

15,000

20,000

25,000


Net Sales - INR mn



Expecting earnings growth trajectory to be healthy, aided by a reduction in Exhibit 25.interest costs. (INR mn)


ROEs expected to nearly double to 13% by FY20 from depressed levels in FY17: Over

FY12-17, Parag’s ROEs have been volatile and have oscillated at 7-15%. It touched a

trough of 6.9% in FY17 due to margin pressures owing to Demonetization and an

expanded equity base (raised INR 2.8bn through IPO proceeds in FY17 net of expenses).

With operating margin reverting to near 10% in FY18E, we expect ROE to improve to

11.2% in FY18 vs. 6.9% in FY17. Consistent improvement in asset turns would be

partially offset by reduced leverage, driving marginal improvement in ROE to 13.4% by

FY20, as per our workings.

ROE’s expected to touch c.13% over the next 3 years (%) Exhibit 26.


152220

146

298

469

352

782

998

1,168

0

200

400

600

800

1,000

1,200

1,400


Adjusted Net Profit - INR Mn

2.1

1.7 1.7

2.1

2.2

2.01.9

2.0

2.2

1.7%2.5%

1.4%2.2%

3.0%2.1%

4.2%4.9% 5.0%

15%14%

7%

13%

15%

7%

11%

13%13%

0%

4%

8%

12%

16%

1.0

1.5

2.0

2.5


Asset Turnover - LHS Net Profit Margin - RHS ROE - RHS



Improved cash generation is expected to aid in debt reduction Exhibit 27.


4.54.3

5.1

3.9

2.6

1.5

0.80.5

0.3

3.2

1.81.9

1.7

1.1

0.2 0.2 0.1 0.1

0

1

2

3

4

5

6


Net Debt to EBITDA Net Debt to Equity



Key Risks

A sharp rise in milk procurement prices: Parag’s operating margin has been historically

sensitive to steep inflation in milk procurement prices; its operating profit grew a mere

7.8% in FY13 and declined 1% in FY14. The company’s institutional business works on

contract pricing and there is a lag in passing on cost inflation to customers. In the interim,

the company tends to see a sharp decline in its operating margin, which has a

consequent adverse impact on earnings. While milk procurement prices are expected to

be benign in the near term, any sudden change in the pricing trajectory could impact

earnings and share price performance. However, the increased share of VAP should help

reduce the price-volatility impact as these products have higher profitability.

Reduced investments behind scaling up core categories and brands: Parag has scaled up

its brand portfolio aggressively in recent years and now has 7 brands vs. 4 in FY16. While

this speaks well of its strong focus on innovation, multiple and relatively small brands

could pose a challenge to management’s bandwidth. There also remains a possibility of

Parag’s focus reducing on its core brands - Gowardhan and Go - which could hurt

categories such as cheese and ghee, where it has already established a strong presence.

Higher competitive intensity from national players: Recently, India’s dairy industry has

seen multiple products launches from newer companies such as ITC (Ashirvaad Swasti

Ghee) and Patanjali as well as increased competition from co-operatives such as Amul and

Mother Dairy. While this could help boost the organised dairy industry, given its limited

penetration, this could also pose a challenge to relatively small dairy companies such as

Parag, given their limited financial strength.

Inability to comply with concerned regulatory standards on safety, health and

environmental laws could pose regulatory and reputational risks: Parag’s operations are

subject to laws and government regulations in relation to safety, health and

environmental protection. The Food Safety and Standards Act, 2006 is also applicable to

the company’s operations. It has recently prescribed certain additional labelling

requirements for dairy-based products such as yoghurts, spreads and cheese and is in

discussion to introduce legislations to toughen product recalls. Any failure on the

company’s part in complying with these regulations could adversely impact its operations

and pose reputational risks to its brands, which would have a consequent long-term

adverse impact on its business.



Dairy Industry Overview

India remains the largest milk-producing country in the world: India is largest producer

of milk in the world on a country-wise basis, producing 147mn tonnes in FY15. Milk

production volumes in India grew rapidly, from 17mn tonnes in FY52 to 147mn tonnes

at end-FY15. As mentioned earlier, Indian dairy production is expected to post a 4.2%

CAGR over 2014-20, which will enable it to overtake the EU region by 2020.

The per-capita consumption of milk in India is, however, very low at just 97 litres per

annum; this is nearly 1/3rd of USA and EU27 and 62% of Brazil. China’s per-capita

consumption is even lower (lowest in the world) at 24 litres per year.

Per capita milk consumption: India is 1/3rd of USA and EU27 Exhibit 28.


Consumption growth has outpaced production growth in India: Indian dairy production

saw a CAGR of 4.8% over FY11-15 and stood at 147mn tonnes in FY15. Consumption

growth has, however, outpaced production growth, registering a CAGR of 5.1% over

the same period. India is the largest consumer of milk globally, with dairy consumption

of 138mn tonnes in FY15.

Indian dairy production clocked a 4.8% CAGR Exhibit 29.


Dairy consumption has grown even faster at 5.1% Exhibit 30.


India’s dairy industry estimated to post 14.8% CAGR over 2014-20: The size of the

Indian dairy industry was pegged at INR 4.1ttrn in 2014, posting CAGR of 15.4% over

2010-14. The industry size is estimated to grow to INR 9.4bn by 2020, implying a CAGR

of c.15% over this period.

Buffalo milk constituted 49% of milk consumption in India (in FY14), followed by cow

milk, which was quite close at 48%. However, cow milk is expected to grow faster and

account for the majority of milk consumed in India in future.

285 281

220

156

97

24

0

60

120

180

240

300

USA EU27 Russian Federation Brazil India China

Per-capita Milk Consumption - Litres per year

122

128

132

140

147

100

110

120

130

140

150


India - Dairy Production - mn tonnes

113

119

125

130

138

100

110

120

130

140


India - Dairy Consumption - mn tonnes



On a state-level basis, Uttar Pradesh, Rajasthan and Andhra Pradesh were the largest

milk producers accounting for 17.7%, 10.5% and 9.8%, respectively, of total milk

production in 2014. However, the top-5 cow-milk producing states are Tamil Nadu,

Uttar Pradesh, Rajasthan, Maharashtra and West Bengal.

Fragmented industry with largely regional players – organised sector constitutes a mere

20% by value: India’s dairy industry is highly fragmented by nature and the organised

sector accounted for only 20% of total milk and dairy products sold by value in 2014.

The industry comprises state-based co-operatives, private players, urban-oriented

national players and emerging national players. State-based cooperatives are largely

engaged in traditional dairy products such as pouch milk and yoghurt and have strong

distribution networks in specific states or regions. Contrarily, urban-centric national

players such as Britannia and Nestle focus mainly on VAP, which enjoy higher profit

margins. The Gujarat Cooperative Milk Marketing Federation (Amul) is the only national

player focussed on traditional as well as premium VAP.

Construct of India’s dairy market Exhibit 31.


Organised dairy market expected to continue growing at a Exhibit 32.faster pace…


… and is expected to constitute 25.5% of the industry by Exhibit 33.2020 vs. 16.7% in 2010


Regionalisation of the organised sector influenced by milk-procurement strategy and lack

of adequate cold-storage facilities: Milk procurement is one of the most significant areas

of operations for most dairy players. Building relationships with farmers and milk

collecting agents and negotiating prices with farmers are time-consuming processes and

hence tend to act as barriers for market players to expand outside their core regions.

Besides, milk products have short shelf lives typically and the lack of adequate cold chain

facilities in India makes long-distance transportation of dairy products difficult, which

creates some hindrance in the way of expansion. Other factors that tend to restrict the

presence of market players are lack of product differentiation, differing regional

preferences and brand image.

Liquid milk and ghee constitutes 80% of the dairy market; VAP expected to grow faster:

Although the dairy market comprises various products, 80% of the market in 2014 was

accounted for by liquid milk and ghee. By 2020, the share of liquid milk and ghee is

Indian Dairy

Market

Self -

ConsumptionMarketable Milk

Organized Unorganized

Private Players Cooperatives

46% 54%

30% 70%

55% 45%

15.4%15.0%

20.7%

19.7%

13%

15%

17%

19%

21%

2010-14 2014-20E

Indian Dairy Industry CAGR Organised Dairy Market CAGR

16.7%

20.0%

25.5%

13%

16%

19%

22%

25%

28%

2010 2014 2020E

Share of Organised Market



expected to fall marginally to 79% as smaller sized VAP such as cheese, flavoured

yoghurt and UHT milk are expected to growth faster.

Product-wise break-up of Indian dairy market Exhibit 34.


Liquid Milk, 64.5%

Ghee, 15.2%

Paneer, 7.2%

Curd, 5.3%

Butter, 4.1%

Others, 3.6%



Management profile

Leadership team Exhibit 35.

Devendra Shah - Executive Chairman.

- Been with the company since its inception in 1992 and has 25 years’ experience in the dairy industry.

- Also Director at the National Dairy Research Institute & Secretary of National Centre for Rural Development.

Pritam Shah

- Managing Director.

- Responsible for the company’s overall executional strategy.

- Has 25 years’ experience in the dairy industry.

- Holds a graduate degree from Pune University and has been with the company since inception.

Vimal Agarwal

- CFO.

- Has 18 years’ experience in leading FMCG companies in India.

- Worked in various Corporate Finance roles and his last assignment was with PepsiCo India.

- A qualified Chartered Accountant with an MBA.

H.S. Oberoi - President – Cheese Manufacturing.

- Has a B. Tech degree.

- Over 52 years’ experience in the dairy industry.

Akshali Shah - VP – Strategy (Sales & Marketing)

- MBA from S.P. Jain Institute of Management & Research.

- Leads branding, marketing & advertising strategy, category intelligence & competitive analysis.

Sachin Shah - VP Southern operations.

- Science graduate with over two decades of professional experience.

- Oversees the company’s operations at Palamaner.

Sanjay Mishra - General Manager, Manchar Plant

- Has over two decades of experience.

- Heads the company’s liquid milk procurement activities.

Sanjay Nakra - General Manager, Palamaner plant.

- A dairy technologist with over 25 years’ experience in dairy plant level manufacturing.

Rachana Sanganeria

- Company Secretary and Compliance Officer.

- A qualified CS and holds a bachelor’s degree in Commerce and Law.

- Over 12 years’ experience as Company Secretary. Has previously worked with Raymond, Elixir Netcom

Solutions, Parle International, Mirah Group, Aanya Real Estate and Elixir 360.Source: Company, JM Financial



Financial Tables (Consolidated)

Profi t & Loss Sta te me nt (INR mn) Ba la nce She e t (INR mn)

Ye a r-e nde d Ma rch FY16A FY17A FY18E FY19E FY20E Ye a r-e nde d Ma rch FY16A FY17A FY18E FY19E FY20E

Sa le s (Gross ) 15,801 16,828 18,404 20,299 23,312 Shareholders' Fund 3,619 6,574 7,278 8,176 9,228

Sales Growth 14.6% 6.5% 9.4% 10.3% 14.8% Share capital 704 841 841 841 841

Other Operating Income 651 480 847 934 1,073 Reserves & Surplus 2,915 5,733 6,437 7,335 8,387

Tota l Re ve nue 16,452 17,307 19,251 21,233 24,385 Preference Share Capital 0 0 0 0 0

Cost of Goods Sold/Op. Exp. 12,030 12,588 13,615 14,912 17,244 Minority Interest 0 0 0 0 0

Personnel cost 671 794 874 964 1,084 Total Loans 3,886 2,624 2,361 2,125 1,913

Other expenses 2,269 2,843 2,938 3,233 3,648 Def. Tax Liab / Assets (-) 110 99 99 99 99

EBITDA 1,482 1,082 1,824 2,123 2,410 Tota l - Equi ty & Lia b 7,614 9,297 9,738 10,400 11,239

EBITDA (%) 9.0% 6.2% 9.5% 10.0% 9.9% Net Fixed Assets 3,726 3,794 3,939 4,094 4,182

EBITDA Growth (%) 38.3% -27.0% 68.6% 16.4% 13.5% Gross Fixed Assets 5,237 5,850 6,494 7,204 7,904

Depn & Amort 334 490 500 555 612 Intangible Assets 0 0 0 0 0

EBIT 1,148 592 1,324 1,569 1,798 Less: Depn. & Amort. 1,790 2,262 2,762 3,317 3,929

Other Income 15 110 93 90 90 Capital WIP 278 207 207 207 207

Finance Cost 496 333 374 292 242 Investments 0 0 0 0 0

PBT before Excep & Forex 668 369 1,043 1,367 1,646 Current Assets 6,184 9,504 9,653 10,270 11,615

Excep & forex Inc/Loss(-) 0 -194 0 0 0 Inventories 2,724 4,285 4,286 4,449 5,110

PBT 668 175 1,043 1,367 1,646 Sundry Debtors 2,360 2,150 2,301 2,482 2,851

Taxes 195 4 261 369 477 Cash & Bank Balances 77 1,008 858 1,004 1,090

Extraordinary Inc/Loss(-) 0 0 0 0 0 Loans & Advances 612 1,586 1,656 1,725 1,865

Assoc. Profit/Min. Int.(-) 0 0 0 0 0 Other Current Assets 411 475 552 609 699

Reported Net profit 473 171 782 998 1,168 Current Liab. & Prov. 2,296 4,002 3,854 3,964 4,558

Adjuste d Ne t Profi t 469 352 782 998 1,168 Current Liabilities 2,248 3,971 3,820 3,927 4,515

Net Margin (%) 3.0% 2.1% 4.2% 4.9% 5.0% Provisions & Others 48 31 34 38 42

Diluted share capital (mn) 70.4 84.1 84.1 84.1 84.1 Net Current Assets 3,888 5,502 5,800 6,306 7,058

Di lute d EPS (INR) 6.7 4.2 9.3 11.9 13.9 Appl ic a tion of Funds 7,614 9,297 9,738 10,400 11,239

Diluted EPS Growth -64.3% -37.2% 122.3% 27.6% 17.1% Source: Company, JM Financial

Total Dividend + Tax 0.0 0.0 78.2 99.8 116.8

Dividend Per Share (INR) 0.0 0.0 0.8 1.0 1.1


Ca sh Flow Sta te me nt (INR mn) Dupont Ana lys i s

Ye a r-e nde d Ma rch FY16A FY17A FY18E FY19E FY20E Y/E Ma rch FY16A FY17A FY18E FY19E FY20E

Profit before Tax 668 175 1,043 1,367 1,646 Net Margin 3.0% 2.1% 4.2% 4.9% 5.0%

Depn. & Amort. 334 490 500 555 612 Asset Turnover (x) 2.2 2.0 1.9 2.0 2.2

Net Interest Exp. / Inc. (-) 480 223 281 202 152 Leverage Factor (x) 3.0 1.7 1.4 1.3 1.2

Inc (-) / Dec in WCap. -918 -200 -448 -360 -665 RoE 19.3% 6.9% 11.3% 12.9% 13.4%

Others 160 116 0 0 0 Ke y Ra tios

Taxes Paid -136 -164 -261 -369 -477 Ye a r-e nde d Ma rch FY16A FY17A FY18E FY19E FY20E

Ope ra ting Ca sh Flow 587 641 1,115 1,395 1,267 BV/Share (INR) 51.4 78.2 86.5 97.2 109.7

Capex -312 -983 -644 -710 -699 ROIC (%) 12.7% 7.4% 11.7% 12.7% 13.2%

Free Cash Flow 275 -342 471 684 568 ROE (%) 19.3% 6.9% 11.3% 12.9% 13.4%

-Inc/dec in investments -1 0 0 0 0 Net Debt-equity ratio (x) 1.1 0.2 0.2 0.1 0.1

Other current assets -3 -523 93 90 90 PER 40.7 64.8 29.1 22.8 19.5

Inve sting Ca sh Flow -316 -1,506 -551 -620 -609 PBV 5.3 3.5 3.1 2.8 2.5

Inc/(dec) in capital 659 2,788 0 0 0 EV/EBITDA 15.4 22.6 13.3 11.3 9.8

Dividend+Tax Thereon 0 0 -78 -100 -117 EV/Net Sales 1.4 1.5 1.3 1.2 1.0

Inc/dec in loans -369 -1,250 -262 -236 -213 Debtor days 55 47 46 45 45

Other assets -555 -313 -374 -292 -242 Inventory days 63 93 85 80 80

Fina nc ing Ca sh Flow -264 1,225 -715 -628 -572 Creditor days 55 89 80 75 75

Inc / De c (-) in Ca sh 7 360 -151 147 86 Source: Company, JM Financial

Opening cash balance 70 649 1,008 858 1,004

Closing cash balance 77 1,009 858 1,004 1,090




APPENDIX I

JM Financial Inst itut ional Securit ies Limited ( fo rmer l y known as JM F inanc i a l Secu r i t i e s L im i ted )

Corporate Identity Number: U67100MH2017PLC296081 Member of BSE Ltd., National Stock Exchange of India Ltd. and Metropolitan Stock Exchange of India Ltd.

SEBI Registration Nos.: –Stock Broker - INZ000163434, Research Analyst – INH000000610 Registered Office: 7th Floor, Cnergy, Appasaheb Marathe Marg, Prabhadevi, Mumbai 400 025, India.

Board: +9122 6630 3030 | Fax: +91 22 6630 3488 | Email: [email protected] | www.jmfl.com

Compliance Officer: Mr. Sunny Shah | Tel: +91 22 6630 3383 | Email: [email protected]

Definition of ratings

Rating Meaning

Buy Total expected returns of more than 15%. Total expected return includes dividend yields.

Hold Price expected to move in the range of 10% downside to 15% upside from the current market price.

Sell Price expected to move downwards by more than 10%

Research Analyst(s) Certification

The Research Analyst(s), with respect to each issuer and its securities covered by them in this research report, certify that:

All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and

No part of his or her or their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research

report. Important Disclosures

This research report has been prepared by JM Financial Institutional Securities Limited (JM Financial Institutional Securities) to provide information about the

company(ies) and sector(s), if any, covered in the report and may be distributed by it and/or its associates solely for the purpose of information of the select

recipient of this report. This report and/or any part thereof, may not be duplicated in any form and/or reproduced or redistributed without the prior written

consent of JM Financial Institutional Securities. This report has been prepared independent of the companies covered herein.

JM Financial Institutional Securities is registered with the Securities and Exchange Board of India (SEBI) as a Research Analyst and a Stock Broker having trading

memberships of the BSE Ltd. (BSE), National Stock Exchange of India Ltd. (NSE) and Metropolitan Stock Exchange of India Ltd. (MSEI). No material disciplinary

action has been taken by SEBI against JM Financial Institutional Securities in the past two financial years which may impact the investment decision making of

the investor.

JM Financial Institutional Securities renders stock broking services primarily to institutional investors and provides the research services to its institutional

clients/investors. JM Financial Institutional Securities and its associates are part of a multi-service, integrated investment banking, investment management,

brokerage and financing group. JM Financial Institutional Securities and/or its associates might have provided or may provide services in respect of managing

offerings of securities, corporate finance, investment banking, mergers & acquisitions, broking, financing or any other advisory services to the company(ies)

covered herein. JM Financial Institutional Securities and/or its associates might have received during the past twelve months or may receive compensation from

the company(ies) mentioned in this report for rendering any of the above services.

JM Financial Institutional Securities and/or its associates, their directors and employees may; (a) from time to time, have a long or short position in, and buy or

sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other

compensation or act as a market maker in the financial instruments of the company(ies) covered under this report or (c) act as an advisor or lender/borrower to,

or may have any financial interest in, such company(ies) or (d) considering the nature of business/activities that JM Financial Institutional Securities is engaged

in, it may have potential conflict of interest at the time of publication of this report on the subject company(ies).

Neither JM Financial Institutional Securities nor its associates or the Research Analyst(s) named in this report or his/her relatives individually own one per cent or

more securities of the company(ies) covered under this report, at the relevant date as specified in the SEBI (Research Analysts) Regulations, 2014.

The Research Analyst(s) principally responsible for the preparation of this research report and members of their household are prohibited from buying or selling

debt or equity securities, including but not limited to any option, right, warrant, future, long or short position issued by company(ies) covered under this report.

The Research Analyst(s) principally responsible for the preparation of this research report or their relatives (as defined under SEBI (Research Analysts)

Regulations, 2014); (a) do not have any financial interest in the company(ies) covered under this report or (b) did not receive any compensation from the

company(ies) covered under this report, or from any third party, in connection with this report or (c) do not have any other material conflict of interest at the

time of publication of this report. Research Analyst(s) are not serving as an officer, director or employee of the company(ies) covered under this report.

While reasonable care has been taken in the preparation of this report, it does not purport to be a complete description of the securities, markets or

developments referred to herein, and JM Financial Institutional Securities does not warrant its accuracy or completeness. JM Financial Institutional Securities

may not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report.

This report is provided for information only and is not an investment advice and must not alone be taken as the basis for an investment decision.



The investment discussed or views expressed or recommendations/opinions given herein may not be suitable for all investors. The user assumes the entire risk

of any use made of this information. The information contained herein may be changed without notice and JM Financial Institutional Securities reserves the

right to make modifications and alterations to this statement as they may deem fit from time to time.

This report is neither an offer nor solicitation of an offer to buy and/or sell any securities mentioned herein and/or not an official confirmation of any

transaction.

This report is not directed or intended for distribution to, or use by any person or entity who is a citizen or resident of or located in any locality, state, country

or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject JM Financial

Institutional Securities and/or its affiliated company(ies) to any registration or licensing requirement within such jurisdiction. The securities described herein may

or may not be eligible for sale in all jurisdictions or to a certain category of investors. Persons in whose possession this report may come, are required to inform

themselves of and to observe such restrictions.

Persons who receive this report from JM Financial Singapore Pte Ltd may contact Mr. Ruchir Jhunjhunwala ([email protected]) on +65 6422 1888

in respect of any matters arising from, or in connection with, this report.

Additional disclosure only for U.S. persons: JM Financial Institutional Securities has entered into an agreement with JM Financial Securities, Inc. ("JM Financial

Securities"), a U.S. registered broker-dealer and member of the Financial Industry Regulatory Authority ("FINRA") in order to conduct certain business in the

United States in reliance on the exemption from U.S. broker-dealer registration provided by Rule 15a-6, promulgated under the U.S. Securities Exchange Act of

1934 (the "Exchange Act"), as amended, and as interpreted by the staff of the U.S. Securities and Exchange Commission ("SEC") (together "Rule 15a-6").

This research report is distributed in the United States by JM Financial Securities in compliance with Rule 15a-6, and as a "third party research report" for

purposes of FINRA Rule 2241. In compliance with Rule 15a-6(a)(3) this research report is distributed only to "major U.S. institutional investors" as defined in

Rule 15a-6 and is not intended for use by any person or entity that is not a major U.S. institutional investor. If you have received a copy of this research report

and are not a major U.S. institutional investor, you are instructed not to read, rely on, or reproduce the contents hereof, and to destroy this research or return it

to JM Financial Institutional Securities or to JM Financial Securities.

This research report is a product of JM Financial Institutional Securities, which is the employer of the research analyst(s) solely responsible for its content. The

research analyst(s) preparing this research report is/are resident outside the United States and are not associated persons or employees of any U.S. registered

broker-dealer. Therefore, the analyst(s) are not subject to supervision by a U.S. broker-dealer, or otherwise required to satisfy the regulatory licensing

requirements of FINRA and may not be subject to the Rule 2241 restrictions on communications with a subject company, public appearances and trading

securities held by a research analyst account.

JM Financial Institutional Securities only accepts orders from major U.S. institutional investors. Pursuant to its agreement with JM Financial Institutional

Securities, JM Financial Securities effects the transactions for major U.S. institutional investors. Major U.S. institutional investors may place orders with JM

Financial Institutional Securities directly, or through JM Financial Securities, in the securities discussed in this research report.

Additional disclosure only for U.K. persons: Neither JM Financial Institutional Securities nor any of its affiliates is authorised in the United Kingdom (U.K.) by the

Financial Conduct Authority. As a result, this report is for distribution only to persons who (i) have professional experience in matters relating to investments

falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the "Financial Promotion Order"), (ii)

are persons falling within Article 49(2)(a) to (d) ("high net worth companies, unincorporated associations etc.") of the Financial Promotion Order, (iii) are

outside the United Kingdom, or (iv) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the

Financial Services and Markets Act 2000) in connection with the matters to which this report relates may otherwise lawfully be communicated or caused to be

communicated (all such persons together being referred to as "relevant persons"). This report is directed only at relevant persons and must not be acted on or

relied on by persons who are not relevant persons. Any investment or investment activity to which this report relates is available only to relevant persons and

will be engaged in only with relevant persons.

Additional disclosure only for Canadian persons: This report is not, and under no circumstances is to be construed as, an advertisement or a public offering of

the securities described herein in Canada or any province or territory thereof. Under no circumstances is this report to be construed as an offer to sell securities

or as a solicitation of an offer to buy securities in any jurisdiction of Canada. Any offer or sale of the securities described herein in Canada will be made only

under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under

applicable securities laws or, alternatively, pursuant to an exemption from the registration requirement in the relevant province or territory of Canada in which

such offer or sale is made. This report is not, and under no circumstances is it to be construed as, a prospectus or an offering memorandum. No securities

commission or similar regulatory authority in Canada has reviewed or in any way passed upon these materials, the information contained herein or the merits

of the securities described herein and any representation to the contrary is an offence. If you are located in Canada, this report has been made available to you

based on your representation that you are an “accredited investor” as such term is defined in National Instrument 45-106 Prospectus Exemptions and a

“permitted client” as such term is defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Under

no circumstances is the information contained herein to be construed as investment advice in any province or territory of Canada nor should it be construed as

being tailored to the needs of the recipient. Canadian recipients are advised that JM Financial Securities, Inc., JM Financial Institutional Securities Limited, their

affiliates and authorized agents are not responsible for, nor do they accept, any liability whatsoever for any direct or consequential loss arising from any use of

this research report or the information contained herein.

Documents

Parag Milk Foodsjmflresearch.com/JMnew/JMCRM/analystreports/pdf/Parag... · 2018. 3. 12. · Parag Milk Foods (Parag) has created a well-diversified product portfolio and firmly established