Parag Milk IPO review (Apply)

Parag Milk Foods Ltd (PMFL) is one of the leading manufacturers and marketers of dairy-based branded foods in India. Having started its business iin 1992 with collection and distribution of milk has now translated 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.  A significant portion of our product range includes long shelf-life food and beverage products that enable it to sell its products to retail and institutional customers across India.  PMFL derives all of our products only from cows‘ milk. Its aggregate milk processing capacity is 2 million litres per day and cheese plant has the largest production capacity in India, with a raw cheese production capacity of 40 MT per day.

PMFL’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. It produces cheese and whey products only at Manchar facility, UHT products only at Palamaner facility and other products at both facilities. We produce cheese in 75 stock keeping units at our cheese plant. As of February 29, 2016, PMFL employed 1,618 personnel across our operations. As on the said date the company had pan-India distribution network comprising 15 depots, 104 super stockists and over 3000 distributors. The company 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.

In 2005, it set up our Bhagyalaxmi Dairy Farm at Manchar, with an aim to educate farmers about best practices of breeding, feeding, animal management and improving productivity. Its dairy farm is fully automated and houses over 2,000 Holstein breed cows with higher yields of superior quality milk. It supplies farm-to-home premium fresh milk from Bhagyalaxmi Dairy Farm, which is marketed and sold under “Pride of Cows” in Mumbai and Pune. Currently the company sells its products under our ‘Gowardhan‘, ‘Go‘, ‘Pride of Cows‘ and ‘Topp Up‘ brands, are well recognized brands and have been developed to cater to various sections of the market for dairy based food and beverage products.  Its ‘Gowardhan‘brand was ranked among the top 25 most trusted brands in the food products category.  PMFL classifies its product portfolio into fresh milk, skimmed milk powder, ghee, cheese/paneer, UHT products, whey products and other products, which accounted for 18.2%, 20.9%, 18.3%, 18.5%, 3.2%, 1.6%, and 11.5% of its total revenues for the financial year 2015, respectively.  For last five fiscals its revenue grew at a CAFT of 21.6% with commensurate growth in bottom line.

To part finance its expansion/modernisation plans, repayment of old debts, addition working capital needs and provide exit to private equity partners, the company is coming out with an IPO of approx 33788430 equity shares of Rs. 10 each via book building route. It has fixed a price band of Rs. 220-227 per share the issue consists of primary (Rs. 300 crore) as well as secondary (Rs. 467 crore) offer making an aggregate size of Rs. 767 crore IPO at the upper price band of the issue. Issue opens for subscription on 04.5.16 and will close on 06.05.16. Minimum application is to be made for 65 shares and in multiples thereon, thereafter. The company is offering discount of Rs. 12 per share to eligible retail and employees bidders. Post allotment, shares will be listed on BSE and NSE. BRLMs to the issue are Kotak Mahindra Capital Co. Ltd, JM Financial Institutional Securities Ltd, IDFC Securities Ltd and Motilal Oswal Investment Advisors Pvt Ltd. Karvy Computershares Pvt Ltd is the registrar to the issue. Despite profit making company, due to some mismatch in SEBI IPO criteria, this issue has just 10% quota for retail investors. Having issues equity at par during 1992 to 2000, the company made preferential issues at a price of Rs. 200-250 per share in 2206 to 2009 and then at Rs. 113.71 to Rs. 314.09 from Sept 2012 till 21.04.2015. Thereafter is converted CCDs in the price range of Rs. 28.60 to Rs. 219.13 from Sept 2015 to January 2016. It has also issued bonus shares in the ratio of 3 for 1 in March 2009 and 2 for 1 in May 2015. Post IPO its current paid up equity capital of Rs. 70.41 crore will stand enhanced to around Rs. 83.62 crore.

On performance front, on a consolidated basis the company has posted turnover and profit of Rs. 900.54 cr. / Rs. 18.90 cr. (FY12), Rs. 927.15 cr. /Rs. 20.77 cr. (FY13), Rs. 1089.50 cr./ Rs. 15.97 cr. (FY14) and Rs. 1440.52 cr. /Rs. 25.97 cr. (FY15). For first nine months ended 31.12.15 it has earned net profit of Rs. 31.92 cr. on a turnover of Rs. 1231.19 cr. If we annualized these earnings and attribute to the fully diluted equity post IPO then asking price is at a P/E of 44 plus at the higher price band. This augurs well against listed peers that are quoting at a P/E of 56 plus.

On merchant bankers’ front, they have mixed trends for their past mandates post listings.