Parag Milk Foods Q1FY18 Concall Summary

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Awards received in Q1 FY18

  • Consumer Voice Award for Gowardhan Ghee in the Cow Ghee Category
  • Parag has been ranked No.1 in the Next 500 companies by Fortune India
  • Recently about a couple of months back, Parag Milk Foods won Consumer Voice Award from JagoGrahakJago which is government of India initiative on being the number one brand in the cow ghee category

Financial Highlights

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  • The revenue from operation for Q1FY18 have grown by 7.7% to Rs. 412.8 crores compared to Rs. 383.5 crores in quarter Q1FY17
  • Growth was driven by the consumer product segment and expansion of distribution network
  • Consumer product category observed an 8% growth from Rs. 238.9 crores to 257.7 crores in quarter Q1FY18
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Fresh Milk

  • Fresh milk growth was lower than expected at 5% year-on-year due to farmer strikes in the months of May and June which caused delay in distribution in supply of milk

Skimmed Milk

  • The share of skimmed milk powder remained stable year-on-year at 12.5% along with an increase in its revenue by 7% year-on-year from Rs. 48.1 crores in Q1FY17 to Rs. 51.4 crores in Q1FY18, which is mainly due to better realization in the market

Gross Margin

  • The company has seen a marginal increase in gross margin of 40 bps from 28.6% in quarter one FY17 to 29% in Q1FY18
  • There is probability of expansion of 100-200 basis pointsin gross margins because there is good monsoon down the line


  • Company’s EBITDA declined by 120 bps from Rs. 31.8 crores in the Q1FY17 to Rs. 29.4 crores in the Q1FY18
  • The impact on EBITDA margin was due to higher expenditure on marketing and distribution

Marketing and distribution spend

  •  Primarily due to new product launches like Avvatar and the Slurp
  • Company also increased depots, so the new depot rent  and expenses contributed to the other expenses
  • Company appointed Vector Consulting, so their initial expenses also contributed to the other expenses
  • On an annualized basis annual marketing spend was roughly around 2.7%-2.8%, would be in the range this year as well
  • Raw material price increase during this quarter on YoY basis were flat


  • The increase in depreciation from Rs. 9.8 crores in Q1FY17 to Rs. 11.6 crores in Q1FY18 was offset by a decrease in the finance cost from Rs. 9.6 crores in Q1FY 17 to Rs. 7.9 crores in Q1FY18

Net Profit

  • Company's net profit has increased by 3% from Rs. 10.2 crores in Q1FY17 to Rs. 10.5 crores in Q1FY1
  • PAT margin remained stable at 2.5% in Q1FY18 as compared to 2.7% in Q1FY17

Tax rate

  • Company received tax benefit of 80IB in the cheese and whey protein.So it fell under the MAT provision, minimum alternative tax
  • Company also had Ind-AS adjustment, so tax rate has come down to 10% in Q1
  • The company will be in the range of 20%-25% tax rate

Working Capital cycle in Q1

  • Creditors in FY17 were around 300 crores
  • Creditor Days in FY17 was abnormal because in Q4FY17 company received more milk and the milk cycle was extended to two cycles
  • Majorly around 50% amount contributed to the milk suppliers and rest of thecreditors are related to the materials and packing creditors
  • Going forward creditor days will come down in the range of around 40-45 days


  • Company has 3-year CAPEX plan
  • Company has taken 150 crores from the IPO from which 85 crores have already been deployed
  • Remaining 60-65 crores and around 100 crores from internal accruals
  • So over the next 3 years, company will have approximately 150-175 crores

Strategic Focus Areas

  •  Priority area identified was supply chain strengthening and distribution expansion with Focus on Freshness
  • Towards this endeavour Parag Milk Foods is working with Vector Consulting

Vector Consulting

  • Vector Consulting, has expertise is in two parts:
  • One is the backend in terms of the supply chain in logistics
  • Second is the frontend in terms of distribution expansion
  • Primary focus of hiring consultant is improving the freshness of the products in the marketplace and ensuring the width of distribution
  • One of the mandates on the distribution expansion is more than doubleHoReCa direct customers
  • Vector consultants are working on fixed plus variable pay

Consumer Product Portfolio

  • Growth rate on the consumer product portfolio is around 8%

Cheese business

  • Production has increased by around 50% but still the revenue is not getting reflected
  • Cheese business particularly export and institutional business because of hardening of Indian rupee and the increase in pricing in domestic market company lost business for a temporary period of 2-3 months
  • Overall sentiment of the consumer was low and hence there was an offtake which was slightly lower in the QSR segment which has led to decline in revenue

Cheese capacity

  • Cheese capacity per day in terms of tonnes ramped up from 40 to 60 in Q1 of FY18
  • Current capacity utilisation of 60%-65% (around 50 tonnes) of maximum utilisation of 85%
  • Dairy industry would run at an 85% installed capacity i.e.60 tonnes per day


  • New Paneer plant is now operational and the distribution expansion across the country is under progress


  • Early signs in July month, show a decent pipeline and re-stocking
  • Company has factored in the GST rates as end June and took a marginal price correction of Rs. 10 in the month of July on the ghee MRPs

Farmers strike in Maharashtra

  • Maharashtra saw the farmers strike which impacted liquid milk dispatches

Price increase

  • Post the price increase in Q3FY17, company hasn’t taken any further price increases
  • There has been some impact on cheese institutional and exports sales due to price correction
  • Overall for milk products the price increase was in the range of around 12%-13%
  • Company is looking at a little softening of prices going forward in Q3 particularly
  • The price decrease is going to happen post September - post Diwali purchases are done and those will last only till end of January or February
  • In terms of quantum there won’t be much decrease as annualized rate of inflation y-o-y is 5-6%
  • Company does not have plans to discount its products
  • Once they into a direct HoReCa customers, service becomes more important than the pricing
  • Pricing is only confined to large customers who have a direct relationship


  • Parag Milk Foods will now be able to take input tax credits for excise on packaging material, service tax & octroi, etc.
  • GST will drive operational efficiencies by reducing the complexity of inter-state transportation and uniform law across states
  • Company witnessed pre-GST destocking in the last two weeks of June, which impacted growth during Q1
  • Trends post 1st July, indicate that there was no major loss of consumer sales and the pipeline filling at retail level is getting back

PAT Guidance

  • PAT Guidance of 5% given in Q4FY17 does not include impact of GST
  • Company normally gets mega project incentive around 6.5 crores
  • Q1FY18 PAT is 10.5 crores and in coming quarters because of festive season and GST benefits PAT will increase beyond 10.5 crores

Project with Government

  • Company has got the in-principle approval and are now at the last stage of compliance
  • Mega project incentive may be effective from July-August and will continue for 7 years

New product performance

Avvatar (100% absolute whey protein)

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  • Company is now into the expansion mode with a plan to cover all major markets with direct distribution and with the e-commerce business
  • Company received certification from Informed Sports which certifies Avvatar being free from any abusive substances

Avvatar product line

  •  Avvatar plant has got 3 product lines
    • One is the basic product which is WPC
    • Second is next level of filtration, it comes to a grade which is used as ingredients in basic foods and pharma
    • The final nano-filtration stage gives the product which is useable as the direct consumer product - Avvatar
  • If company produced only Avvatar and not produced the mid level intermediate, they would be able to produce 4 tonnes per day
  • Whey is a by-product of cheese manufacture and is linked with demand for cheese production

Marketing strategy for Avvatar

  • Advertising spends are going to be disproportionately higher than standardized budget over the entire consumer product business
  • The marketing campaigns will focus on key influencers like Gym trainers, nutritionists and dieticians apart from digital plans
  • A large proportion of company’s initiatives in terms of campaigns are going to revolve around influencers and to bring the brand alive in the consumer’s mind throughsocial media
  • Company has started initiation of discussions with sports authorities and that will be the next level of getting into a direct touch with the sportsman and the consumers of the product

Mango drink – Slurp

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  • National expansion plans will be implemented within next two quarters
  • USP - made from 100% alphonso mango with a dash of milk
  • Marketing campaign revolves around “Yeh Aam, Aam Nahi” and will be exemplified across digital, consumer sampling and point of consumption stores

Operariinal efficiency in the Palamaner plant in South India

  •  The utilization of the Palamaner plant with respect to the UHT linesis about 55% to 60% and hence company hasenough capacity to expand in that sense
  • In order to ensure efficiency and optimum utilization of the UHT plant, the endeavour was of getting into newer product lines and one of them was Slurp

Average daily procurement of raw milk

  • On an average, company procures around 12 lakhs litresper day
  • Company has an installed milk processing capacity of 20 lakhs litre per day procurement capacity
  • Q1FY18 there was little bit blip due to the farmer strikes in the June and the May month
  • Procurement was around 5% lower than that in the Q1FY17 around 10.5 LLPD

Human Resource

  • Company short-listed candidates for CFO position and are currently in the process of finalizing a suitable candidate for the position

Organization Strategy as an FMCG company

  • Company intends to have very well defined personality for each of the brands
  • In terms of brands company has BTL initiatives, consumer sampling, bringing alive the brand at the trade level
  • These activities constitute a pretty high spend of close to about 6% of revenue
  • Net spends on the brand is close to about 8.5% - 9%
  • Once company has a well-established distribution model and strong trade connect, A&P spends will be in the range of 3.5% to 4%
  • Within major 3-4 brands, the marketing campaigns are strategically well designed to support a large amount of the money beyond the new brand. For example, once Avvatar gets established over the next 12-18 months, some other category comes into focus which will have a disproportionate spend and the other three will have a sustenance kind of a support

New product launch for future

  • From the next 3-years horizon, company will not be adding any new brand
  • Category expansions may happen, but there will not be a new brand
  • So any of the new category we get in will either be under the Go, Gowardhan or the Avvatar brand
  • Company doesn’t have plans for any new brand acquisition

Pride of Cows portfolio

  • Business model which has been designed behind Pride of Cows is by invitation brand
  • ‘Pride of Cows’ will continue to focus on the mainstream milk and it will remain at that level of milk
  • Company might add a couple of categories but they will still fall under the by invitation home delivery model

VISI coolers

  •  Increase in the number of VISI coolers deployed in the market would me multifold – 5x

Season time for business

  • Starting from August till end January is a typical season time for the business

Business in geography

  • Parag Milk Foods started operations in Manchar,Maharashtra
  • Over a period of time, company strengthened themselvesin Maharashtra and then in Gujarat and the Western region as a whole
  • In an endeavour to become a pan India company, they have distribution across the country
  • In the urban centers of the country, they have a distribution and presence felt in most of the markets
  • Company has expanded well in the North India and in parts of East India
  • In geographies like North East and states like Sikkim, company is pretty much strong because of well identified distribution pockets
  • Over the next 18 to 24 months, company’s endeavour is to cover the balance part of East and also get into South with a focus

Cow Ghee category

  • Company is a pioneer in the cow ghee category with a clear focus on cow’s ghee benefits
  • In the beginning of the year, company were awarded the most trusted brands for Gowardhan Ghee by Brand Trust Report and this was for second consecutive year
  • Company had number one ranking in 2016 and again in 2017 and in the overall brand rankings which cover all the categories, company has moved up 132 launches from rank 435 last year to 303 this year

Future outlook of Parag Milk Foods

  • The company is well poised in strategic growth journey and is on course to becoming an FMCG Dairy Company with a focus on health and nutrition
  • With the pan India distribution network, several strong brands, a pipeline of value added innovative product and a unique positioning of 100% cow’s milk, company is confident of a sustained mid-term and long-term growth