Gross margins declined by 2.5-2.8% for following reasons.
SMP sales higher than average, 1-1.5% reduction due to this.
Milk prices started going up, effect of 0.8-1% due to this. Lag effect in passing of milk price increase, passed on this quarter.
Drop in EBITDA margin is temporary and will be normalised going forward. Following were the reasons for decline.
Other expenses were higher this year, going forward they will be reduced, not sustainable at these levels.
Rs. 16-17 cr were one time expense booked in Q4FY19. Earlier made provision of CGST receivable of Rs. 8 cr from government. This was reversed this quarter and booked in other expenses as itâs unlikely that it will be received. Balance due to change in accounting method and one time provision done for that.
Total Capex of Rs. 80 cr in FY 19. This includes Rs. 30 cr of IPO proceeds utilised for stated purpose, Rs. 20-23 cr for Danone Plant and balance is maintenance capped.
In FY19 daily processing of milk was 14-15 lac litre. Volume growth is 25% yoy in FY19.
Inventory days reduced from 82 days to 71 days in FY19. It will get better going forward. 50% of business is from QSR so working capital requirements will be there.
Tax rate is lower in Q4 due to write backs of previous years on completion of previous yearâs assessment. It will be at 25% for FY20.
Depreciation came down in Q4FY19 due to some reversal done by auditor, itâs a one off thing. It will resume back to normal levels from this quarter.
Procurement prices of milk for FY19 was 24-25 litre. It will be around Rs. 26-27 per litre in FY20.
Amount receivable under PSI scheme from govt. is Rs. 52 cr as on 31.03.2019 (it was Rs. 62 cr. as on 31.03.2018). During the year received Rs. 29 cr from govt. and accrued was 20-21 cr in FY19. Annual PSI run rate at Rs. 20-25 cr.
Milk subsidy outstanding at 38-40 cr as on 31.03.2019. Received Rs. 28 cr. in April 2019.
SMP will remain at 13-14% of sales on yearly basis. It should not be seen on QoQ basis. Sale of SMP depends on market situation and demand at the time.
60% of SMP comes from customised products sold to large companies like Nestle, Unilever and others.
Health nutrition segment sales target to be 6-7% in FY21.
Revenue from Avvatar is currently at Rs. 3.5 cr per month. In FY 20 itâs going to be at Rs. 5 cr. p.m.
Revenue from Danone plant was at Rs. 4 cr per month for Q4. It will be Rs. 7-8 cr. per month for FY20.
Swarna Gowardhan Ghee launched in south at Rs. 605 per KG, itâs higher by 18% than the regular Gowardhan Brand.
Pledging of shares was increased due to change of lender during the year. Change was done due lower interest rate with new lender. Hair cut is higher with new lender therefore pledging increased.
Hi @harshitgoel, thank you for a very detailed and informative presentation. I too have been researching about Parag since some time now, and I feel it has long runway for growth with itâs product profile, especially VADP. However, one thing that keeps bothering me is the promoter pledging, as mentioned in your risks portion. How do you view that, considering todayâs overall scenario where the market is very sensitive towards corporate governance and promoter integrity? Does that affect your confidence in the company? Would like your take on this.
When it comes to Promoter pledging, itâs a material risk. Itâs something which we have to closely monitor. I start with small allocation and then look for improvement/deterioration in Loan or Pledge shares. Also listening to con-calls helps in understanding the promoterâs view point and their intention regarding pledge shares.
I like the new commercial. Its like the Nerolacâs recent strategy âmeregadipenerolacâ. They are leveraging their success in B2B market for alluring B2C clients. Most Consumers donât know that Go Cheese is used in most QSRs.
Venkat Shankar is a seasoned FMCG professional with over three decades of experience in dairy, FMCG, private equity, media and advertising roles. Prior to joining Parag, he was the VP & Head of the dairy business at Britannia Industries Ltd.
In FY2019, the operating margins declined to 9.4% from 10.1% in FY2018, as the Q4 FY2019 sales were dominated by SMP (lower gross margin product) in order to avail export benefits provided by the state and Central Governments.
It has a strong distribution network for pouched milk in Mumbai, Nagpur and Pune districts of Maharashtra as well as parts of Andhra Pradesh, Tamil Nadu and Karnataka.
PMFL also sells products such as SMP, cheese and butter to institutional clients.
The company receives payments from its institutional customers within 45 days.
Its inventory days are high primarily due to cheese, which is aged over months as a part of the manufacturing process. PMFL also maintains a high inventory of butter, which is used as buffer raw material for ensuring an uninterrupted flow of ghee etc.
The creditors are mostly milk aggregators, packaging vendors and transportation carriers. Some of the milk aggregators use LCs, which are paid after an extended credit period while other milk suppliers are paid within 23-35 days. PMFL also provides corporate guarantee for bill discounting facility to its suppliers.
The utilisation of working capital limits reduced to 91% in FY2019 from 98% in the previous year.
Donât understand why the Analysts think that the top line and bottomline of Indian dairy companies will be affected!
If this happens, then RM (milk) price will get reduced & also the companies will have to cut the price of the products they sell. So, margins shouldnât be affected for these companies. In fact margins can in fact increase if they choose not to reduce the price of the finished products in line with the RM.
So, IMO
Nothing will change for these companies. (Neutral)
Consumers will get lower priced dairy products. (Good)
Animal husbandry will become unviable in India. (Bad)
But, something will change for sure. Companies like Amul, Mother Dairy, Parag Milk etc. have created their procurement chain after years of effort. With this initiative the companies which were struggling to gain access to the Dairy chains of India, like the Dairy Division of Britannia will be benefitted. A level playing ground will be created which is certainly bad for existing strong players.
I do not understand how milk can be profitably imported and sold. Even in India, milk is sold only with in the vicinity of its different zones. Milk needs cooling infrastructure which India lacks. I think it would be the by products that would be imported such as cheese, yoghurt, cream, ice cream, flavour milk etc. which is where the margins are and this will be a negative for Indian companies.
