PARAG MILK FOOD IPO VALUATIONS ARE VERY HIGH
GREY MARKET PREMIUM MAY BE A TRAP FOR INVESTORS
Parag Milk Foods IPO Starting from 4th May 2016 to 6th May 2016
Issue Size 220 Rs – 227 Per Share
( Rs 10 Per Equity Share )
Lot Size 65 Equity Share
Issue Type : 100% Book Building
Over view
Parag Milk Foods sells milk, ghee, cheese, paneer, curd and other dairy-based products under Gowardhan, Go,Topp Up and Pride of Cows brands, with an aggregate milk processing capacity of 2 million litres per day. It has cheese production capacity of 40 MT per day and distribution network comprising of 15 depots, 104 super stockists and over 3,000 distributors, as of February 29, 2016. Geographically, nearly 55% of company revenues are contributed by western regions.
For FY15, consolidated revenue rose 32% YoY to Rs. 1,441 crore. Dairy business having wafer thin net margin, standing at 1.8% for FY15, led to net profit of just Rs. 26 crore, yielding an EPS (basic) of Rs. 4.47, calculated on higher equity base, post bonus issue on 26-5-15. Although EBITDA rose 28% YoY to Rs. 108 crore, EBITDA margin slipped to 7.5% in FY15, from 7.7% of FY14. Despite sales CAGR of 24.6% over FY13-15, PAT CAGR registered only 12%, as rise in finance cost and employee expenses restricted bottomline growth.
At upper end of the price band, Parag Milk will have market cap of Rs. 1,598 crore and Enterprise Value of Rs. 1,838 crore, which leads to EV/EBITDA of about 12 times, on an estimated EBITDA of Rs. 154 crore for FY16. Company is likely to close FY16 with an EPS below Rs.7, on an equity base of Rs. 70.42 crore, leading to a PE multiple of over 32 times. While the growth and margin expansion in 9MFY16 are quite encouraging, valuations seem stretched, vis-à-vis peers.
1. Kwality Limited, having 3 million litres per day milk processing capacity, which is not only 50% more thanthat of Parag, across 6 units in North India, but also has nearly 4 times the sales of the latter, at Rs. 6,000 crore, indicating higher value added products. It is currently ruling atEV/EBITDA and PE multiples of 10x and 18x respectively, based on FY16 estimated earnings.
2. Heritage Foods, with current milk processing capacity of 1.5 million litres per day and retail network of 1,08,000 outlets, is currently ruling at PE multiple of about 25x.
3. Prabhat Dairy, which made its debut on the bourses in September 2015, has milk processing capacity of 1.5 million litres per day, is currently trading at EV/EBITDA multiple of less than 10 times, based on annualized 9mFY16 earnings.
HENCE WE THINK ITS NOT A GOOD ISSUE TO SUBSCRIBE AS THERE IS LIMITED UPSIDE AND THERE ARE BETTER OPPORTUNITY AVAILABLE IN MARKET
DISCLAIMER I AM NOT A SEBI REGISTERED RESEARCH ANALYSTS SO ALWAYS CONSULT YOUR FINANCIAL ADVISOR BEFORE INVESTING
