PRABHAT DAIRY LTD : SAY CHEESE !!!!

Scrip Code: 539351 / PRABHAT

CMP:  Rs. 126.45; Market Cap: Rs. 1,235.11 Cr; 52 Week High/Low: Rs. 151.00 / Rs. 71.00

Total Shares: 9,76,76,131 shares; Promoters : 4,33,34,483 shares – 44.37 %; Total Public holding : 5,43,41,648 shares – 55.63 %; Book Value: Rs. 53.59; Face Value: Rs. 10.00; EPS: Rs. 2.36; Dividend: 4.00 % ; P/E: 53.58 times; Ind. P/E: 50.43; EV/EBITDA: 9.55 times. Total Debt: Rs. 158.56 Cr; Enterprise Value: Rs. 1,381.99 Cr.

   

PRABHAT DAIRY LTD: The Company was incorporated in 1998 and based in Ahemdnagar. Prabhat Dairy Limited is an integrated milk and dairy products company. The Company is engaged in the business of procurement and processing of milk and sale of milk and milk products, such as ghee, flavored milk, skimmed milk powder, whole milk powder and condensed milk. Its portfolio consists of dairy products, including pasteurized and sweetened milk; clarified butter (ghee); yoghurt; dairy whitener; cheese; paneer; milk powder; lassi, and chaas. It also offers products, such as ultra-pasteurized or ultra-high temperature (UHT) milk, Shrikhand, mishti doi, gulab jamun mix, Prabhat Gold, Prabhat Fresh, Prabhat Popular and Prabhat Rich. The Company sells its products under their retail consumer brands, as well as ingredient products or co manufactured products to various institutional and multinational companies. The Company's milk collection platform consists of approximately 440 milk collection centers, over 20 milk chilling centers and 100 bulk milk coolers. The company came out with an IPO on August 28, 2015 offering 4,07,92,956  equity shares of Rs. 10 each for Rs. 115 per share with retail discount of Rs. 5 per share raising Rs. 470 Cr. The shares of the company got listed on September 21, 2015 at Rs. 115 making a high of Rs. 120 and low of Rs. 112.40 on listing day. The object of the issue was to make part prepayment of loans availed by the company and its wholly owned subsidiary SAIPL, to meet capital expenditure and for general corporate purposes. The Company offers products under categories, such as ghee, including pure ghee, pure cow ghee and low cholesterol ghee; butter; milk powder, including whole milk powder and skimmed milk powder; dairy whitener; milk, including full cream milk, toned milk and double toned milk, and curd, including set curd and pouched curd. Its product portfolio also includes flavored milk, sweet lassi, paneer, chaach, dairy creamer and cheese. The Company offers milk in pouches, and curd in variants, such as regular, probiotic, meethi dahi, low fat, sugar lite and raita. The Company primarily markets and sells its products under the brand, Dairy Best. PRABHAT DAIRY Ltd is locally compared with Kwality Ltd, Parag Milk Foods Ltd, Hatsun Agro Products, Anik Industries Ltd, Modern Dairies Ltd, Umang Dairies Ltd, Heritage Foods Ltd globally compared with Nestle of Switzerland, Lactalis of Italy, Danone of France, Fonterra of New Zealand, Dairy farmers of America of USA, FrieslandCampina of Netherlands, Arla Foods of Denmark, Saputo of Canada, Dean Foods of USA, Yili of China, Mengniu of China, Unilever of UK, Sodiaal of France, Kraft foods of USA, Meiji of Japan, Muller of Germany.  

   

Investment Rationale:

Prabhat Dairy Ltd was incorporated in 1998, and is an integrated milk and dairy producer with aggregate milk processing capacity of 1.5 mn litres per day. Over the years, the company has diversified into pasteurised milk, flavoured milk, sweetened condensed milk, ultrapasteurised or ultra-high temperature (UHT) milk, yoghurt, dairy whitener, clarified butter (ghee), and milk powder, ingredients for baby foods, lassi and chaas. It sells these products under retail consumer brands as well as ingredient products or as co-manufactured products to a number of institutional and multinational companies. Prabhat commenced commercial production of cheese, paneer and shrikhand in FY16. The company has clientels namely Mondelez International, Britannia Ind, Inbisco, Abbott, Parle, Lotte, Yakult, UNIBIC, Drytech, ITC, FDC, Nestle, Wrigley’s, Perfetti van Melle, Heritage foods, Haldiram’s, Chisholm, Interfood, Vadilal, Olam, Mother Dairy, Dmart, FutureGroup, Danone. India is the largest milk producing nation in the world with production of 147 mn tones in 2016, accounting for one fifth of the world’s production. Domestic milk production in India grew at 4.3 % CAGR, to nearly 134 billion litres in Fiscal 2015, from 113 billion litres in Fiscal 2010. The growth in milk production in India outpaced other large milk producing nations such as United States of America and China, which grew at 2-3 % CAGR in the past five years. Milk production is growing at a rate of 4.3 % while consumption is growing at 5 % leaving a gap between demand and supply. Indian dairy market is worth Rs. 4.3 Trillion and among that organized sector is worth Rs. 75,000 Cr. Revenue share of organized segment is likely to reach 25 % in 2018 from 20 % in 2015 on the back of shift in consumer preference towards branded products. Out of the total production, unorganized sector has majority of the market share with 41 % and organized sector with market share of 20 %. There is another major segment which is the farmers who has 40 % market share and uses for household consumption. Indian Dairy volumes have been growing at CAGR of 4 % in last five years whereas organized sector is growing at 8 % CAGR in the same period. Evolving Indian consumerism will likely lead to volume growth of 13 % for the organized segment by 2018 whereas the sector volumes are likely to grow at CAGR of 5 %, according to Industry estimates. However, in terms of value, it has grown at CAGR of 17 % in the last five years, driven by Value Added Products (VAP) which has seen higher growth of 23 % in the same period compared to 15 % for liquid milk. Organized players are focusing more on VAP products such as paneer, cheese, curd, butter, ice cream & lassi as they get twice the margins of liquid milk products. Share of VAP as shot up to 43 % in 2016 from 35 % in 2010. Over the next few years, branded milk and VAP are likely to grow at 14 % & 23 % respectively. Domestic demand for milk is likely to increase by CAGR of 4 % annually and to reach 172 mn tons by 2022 from the current levels of 138 mn tons in 2015. Production has been increasing in order to meet the rising demand from growing Indian population. In order to ensure stable supply of milk, more number of processing centers has to be set up near procurement locations as the shelf life of products is less. More number of plants will be set up near major milk producing locations as organized players expand rapidly in next few years to ensure uninterrupted supply. North India produces 35 % of India’s milk production with the likes of major states such as UP, Punjab; Haryana & Bihar followed by west which contributes 25 % and major states include Rajasthan, Gujarat & Maharashtra. With changing consumer lifestyles, favourable demographics and increasing urbanisation the demand for consumer foods is rapidly increasing which in turn will boost the demand for milk and milk products ingredients. According to the research estimates the market size of the consumer foods industry in India at Rs. 850 billion in 2013-14. It is believed that the industry will continue to grow at a healthy pace over the medium term, driven by a number of macroeconomic, demographic and social factors. This is expected to have a positive impact on those involved in the supply of key milk related ingredients. Still the contract manufacturing model is not used widely in Indian dairy and milk products industry. Manufacturing through the contract model, which accounts for 5-10 % of the overall industry’s production, is prevalent in cases where a large company either a co-operative or a private company wants to expand its product bouquet without incurring significant capital expenditure. For example, Britannia and Mother Dairy partly produce dairy and milk products in this manner. Companies in the milk and milk products market, generally, evolve from being a mere contract manufacturer to establishing themselves as a full-fledged brand. Those working on the forward integrated model do not enjoy the pricing advantage while procuring raw milk in comparison to those using the fully integrated model, as discussed in section above. Further, there is a price differential even amongst the fully integrated players depending upon whether they operate under the co-operative such as Amul, Mother Dairy etc or the corporate route like Parag Milk Foods, Heritage Foods, Prabhat Dairy etc. 

Prabhat dairy is in segments like Ghee, Paneer, Cheese, Curd and related products, Icecream, Milk Powder, and Sweetened condensed milk. The Ghee segment- The market for ghee is the second-largest segment after processed milk, expanded by 13-14 % CAGR to Rs. 455 to Rs. 460 billion in Fiscal 2016, from around Rs. 275 billion in Fiscal 2012. In terms of volume, the growth is estimated around 3 % CAGR. Growing preference of households mainly in urban areas for processed ghee, instead of home-made ghee, led to the evolution of the ghee segment in India. However, growth over the past five years, of 13 % to 14 % in CAGR terms, was mainly driven by realisations. Realisations rose by about 10-11 % CAGR mainly due to a 9-10 % CAGR rise in milk prices, in the same period. With demand for toned and skimmed cow milk on the rise, the demand for branded ghee is expected to increase as ghee cannot be prepared using toned/ skimmed milk. Realisations in this segment are directly linked to milk prices and are thus expected to increase by about 7-8% CAGR until Fiscal 2017. Thus, in terms of value, the overall segment is estimated to grow at about 9-10% CAGR until Fiscal 2017. Unorganized players are prominent in ghee segment, where organized players account for just 10 % of the entire ghee segment. Paneer- The size of domestic paneer segment has expanded at about 15 % CAGR to Rs. 240 to Rs. 245 billion in Fiscal 2016, from about Rs. 136 billion in Fiscal 2012 and about 5 % CAGR in terms of volume. Growth can be attributed to rising demand from the food services industry, which as per the industry interactions grew by about 25 % CAGR over the past five years. Higher milk prices drove up realisations by about 10 % in CAGR terms. Paneer volumes are expected to record about 5-6 % CAGR until Fiscal 2017, backed by rising demand from the food services industry, with changing tastes and preferences of consumers. Quick Service Restaurants (QSRs) are estimated to grow by about 26 % CAGR until Fiscal 2017. The key demand drivers for paneer include the rise in domestic travel and frequency of out-of-home food consumption. About 50-60% of total paneer consumption is driven by bulk sales. Household demand is also increasing as paneer is increasingly perceived as an easy-to-cook ingredient. Realisations in this segment are linked to movements in milk prices and are estimated to record about 7-8% CAGR, until Fiscal 2017. The overall growth in the paneer segment is expected to be about 13-14% in terms of CAGR, over the next three years. There is a growing demand for paneer (cottage cheese) in the international market too. In order to meet the export requirement companies such as Amul, Prabhat Dairy, and Britannia have been engaging in the production of paneer which will have an increased shelf life. Cheese- Cheese is the fastest growing segment in the domestic dairy and milk products industry. The cheese market grew by around 20 % CAGR, to reach Rs. 50 to Rs. 55 billion in Fiscal 2016, from Rs. 26 billion in Fiscal 2012. Growth was mainly driven by the urban population, which accounted for about 80-90% of total cheese consumption in India. Bulk sales have grown at a faster pace, with emergence of food service formats. Thus, with rising demand from the food service industry, growth in disposable incomes and consumption of fast/instant food gaining ground in India, consumption of cheese is expected to continue to grow at a faster pace. The consumption is expected to grow at around 10% until Fiscal 2017. Changing lifestyles of consumers, who prefer to eat out more often, and increasing consumption of fast foods such as pizzas, pastas, burgers, etc. will support growth in this segment. Realisations are estimated to grow by about 10-11 % CAGR until Fiscal 2017. Though it would be partly driven by higher milk prices, a change in product mix, with increasing share of pizza cheese, cheese spreads, cheese slices, etc., will also support realisations. Overall growth in the segment would be about 20-21% CAGR in terms of value until Fiscal 2017. Curd and related products- Curd market is estimated to be size of Rs. 25,100 Cr and is expected to grow at CAGR of 18 % in next five years and reach Rs. 49,300 Cr by 2020. Butter market is next large segment in VAP with estimated size of Rs. 19,500 Cr and to grow a similar pace and reach Rs. 38,200 Cr by 2020, according to International Market Analysis Research and Consultant (IMARC) report. Growth can be attributed to a gradual shift in consumption pattern, over the years. The market is evolving from loose curd available at local shops to plain and flavoured packaged curd and drinkable, flavoured and frozen yogurt. According to industry sources, notwithstanding a rise in prices, consumption has grown at a faster pace in the past two years, as compared to a long-term growth trajectory of about 7-8%. Going forward, consumption is expected to grow at a stronger rate and volumes could rise by about 8-9%, until Fiscal 2017. Change in consumer lifestyle, led by growing urbanisation, increasing nuclear families, need for convenience, and good taste and quality of packaged curd are expected to drive demand, especially in the branded market. The buttermilk and lassi segment has expanded at about 10-11 per cent CAGR to Rs. 110-115 billion in 2015-16, from Rs 90 billion in 2012-13. Buttermilk, in particular, has been considered a healthy beverage in India since ages, but sales have been largely confined to the unorganized sector. Lassi is largely consumed in the northern region along with daily meals, and is also catered mainly by the unorganized players. The segment is expected to continue growing at about 10-11 per cent CAGR between 2013-14 and 2016-17, similar to the trend in the past. Ice-cream- Ice cream is one of the fastest growing segments in the domestic dairy and milk products industry. Between Fiscal 2012 and Fiscal 2016, the segment grew at about 20-22 % CAGR in terms of value to Rs. 35-40 billion, from Rs. 15-20 billion and about 7-8 % CAGR in terms of volumes. An 11 % CAGR raise in milk prices increased realisations by about 13-14 % CAGR in the same period. Industry sources indicate that ice cream consumption has grown at a faster pace in the past two years, despite price hikes, as compared to the long term growth trajectory of 7-8 % CAGR. Consumption is likely to grow further, with the segment expected to record about 10 % CAGR, until Fiscal 2017. Rise in consumption in the non-summer months, growth in urbanisation, disposable incomes and out-of-home food consumption, improved cold chain infrastructure and emergence of modern format retail facilities are key growth drivers for this segment. The segment is expected to record an overall growth of about 19-20 % CAGR in terms of value, until Fiscal 2017. Milk powder-The market size of the milk powder segment, which is directly consumed in India, is estimated at Rs. 25-27 billion in Fiscal 2016. A significant portion of the milk powder produced is exported or used as an intermediate in manufacturing dairy and other value added products such as confectionary, bakery products, etc. Owing to adequate availability of milk in India, we are well placed to cater to the increasing demand for milk powder from milk scarce countries such as Italy, Germany, Belgium, Portugal etc. While the domestic consumption of milk powder has increased at a healthy CAGR of 15-16 % over the past few years, the export market has expanded manifold. Going ahead, the market for milk powder is expected to continue to grow at a healthy and steady annual average rate of about 15 % driven by growing preference (higher shelf life) by households and industrial consumption. Sweetened condensed milk- Sweetened condensed milk (SCM) is sold both as a finished product and as a vital ingredient for the manufacturing of certain consumer foods (such as chocolates, confectionaries, bakery products, etc.). SCM is gaining popularity as it serves as a ready to use processed milk to prepare sweets. Some of the key companies in this segment include Nestle as in Brand: Milkmaid, Amul as in Brand: Mithai Mate and Prabhat Dairy as in Brand: Milk Magic. The demand for SCM (as a finished product) is believed to increase in the long term mainly in the urban areas. SCM is also widely used as an ingredient in chocolate and confectionary business. Dairy players act as dedicated suppliers of SCM to major manufacturers of consumer foods, for instance Prabhat Dairy is the leading supplier of sweetened condensed milk to Mondelez International, a chocolate manufacturing company. On the back of expected growth in the consumer foods industry, the outlook for SCM remains positive in the long term. Companies such as Mondelez International (Cadbury), Heinz (Complan) and GSK Consumer (Horlicks) enter into contracts with corporates in dairy and milk products industry to provide them with consistent quality of ingredients such as processed milk, sweet and condensed milk, milk powder etc. under the ingredient supply model of business. The growth of the B2B segment is driven by the continuous demand for consistent quality milk and milk products which serve as vital inputs in the manufacturing of end products such as biscuits, confectionaries, etc. The expected healthy growth in the consumer foods industry shall augur well for dairy companies who operate in the B2B segment. Major FMCG players are on the verge of entering into Dairy business, and the company is likely to be beneficiary as it has good institutional business and repetitive orders from Britannia, Mother dairy, HUL, Coffee Day and ITC. PRABHAT DAIRY Ltd being one amongst the leader in the industry has very strong footing and has strong cash flow which thrusts the growth for the company, and strong financials with sustained cash flow makes it attractive for long term investment.

Outlook and Valuation:

Prabhat Dairy Ltd. is one of the largest processor of dairy products in the private sector in India. Prabhat has 2 state of the art manufacturing unit at Shrirampur and Turbhe, Navi Mumbai. They have established automated production facilities at our Shrirampur and Navi Mumbai facilities equipped with advanced technology which ensures operational efficiencies including lower production losses, strict quality control and ability to process large orders. In addition, the technology infrastructure connects the procurement and production processes. They use computerized milk testing facilities and comprehensive enterprise management programs covering production, sales, finance, purchase, stores, and inventory, storage and payroll functions. The manufacturing facility is complimented with a wide range of packing and filling machines supplied by Indian and overseas suppliers. All the manufacturing and packing facilities follow proper zoning to ensure HACCP compliance. India continued to be the largest milk producing nation in the world, with an estimated milk production of 134 billion liters for the Fiscal 2016, an increase of 3.9 % over the previous Fiscal 2015. The estimated per capita availability of milk increased to 302 grams per day which is more than the world average of 294 grams per day. Additionally, the per capita availability of milk in developed countries was estimated at 831 grams per day and in Asia it was estimated at 186 grams per day. The dairy cooperatives procured about 12.5 million tonnes of milk in Fiscal 2016 as compared to 12.2 million tonnes in Fiscal 2015, registering a growth of 2.5 %. Liquid milk marketing by the cooperatives stood at 11 million tonnes in Fiscal 2016 as compared to 10.4 million tonnes in Fiscal 2015, registering an increase of about 5.8 %. Currently, about 42 % of the total milk produced in India is purchased by consumers directly from milk farmers in a raw form. The remaining 58 % goes for processing and is sold as processed milk and milk products like curd, yogurt, buttermilk, lassi, butter, ghee, ice cream, frozen desserts, cheese, paneer, khoa and milk powder (including skimmed and whole). The processed dairy industry in India was estimated to be around Rs. 3,650 to Rs. 3,700 billion, out of which milk products accounted for around Rs. 1,490 to Rs. 1,530 billion. Paneer and khoa accounts to 32 %, ghee 30 % and curd products 22 % account for the major portion of the milk products segment. The processed milk and milk products segment is expected to record about 12-13 % CAGR between Fiscal 2015 and Fiscal 2018. Growth will be driven by several factors such as changing lifestyle of consumers, growth in the food services industry, increasing urbanisation, rising need for convenience, better health awareness among end-users, etc. Sensing higher demand for processed milk and milk products, several domestic and global players forayed into different value added segments (leading to higher margins) to gain a higher market share. While demand for processed milk grew by 5.3 % CAGR in Fiscal 2012 to Fiscal 2016, realisations rose by about 9-10 % CAGR in the same period. Higher realisations could be attributed to rise in milk prices and growth in consumption of flavoured milk and tetra pack milk. As a result, the processed milk segment recorded 14-15 % CAGR, reaching Rs. 2,160-2,170 billion in Fiscal 2016, from about Rs. 1,250 billion in Fiscal 2012. Milk prices are expected to rise by 7-8 % CAGR over the next three years, primarily driven by an increase in fodder prices, which in turn, are expected to be driven by a similar rise in minimum support prices of key crops. Overall, the segment is expected to grow by 12-13 % CAGR, in terms of value, from Fiscal 2016 to Fiscal 2018 to reach Rs. 3,090-3,100 billion. The private companies operate in either or a combination of various business models like forward integrated; fully integrated; supplier of Ingredients; and contract manufacturing. The fully integrated business model is very similar to the co-operative business model. The major difference lies in the structure of payment to the dairy farmers. In the fully integrated private company business model, the farmer is paid only once, as opposed to dual payments made in the co-operative model. However, the private company pays the farmer 10-15 % higher than what is paid by co-operatives as the initial payment, to incentivise farmers to supply milk. In the forward integrated business model, the private company does not deal directly with the dairy farmers. Instead, the company procures milk (processed/ unprocessed) through other routes such as village collection centres, franchisee chilling centres, bulk private coolers, district union factories and regional co-operative federation factories. Companies, working on this model, usually get into higher value-added products and exports, as the cost of procuring milk usually ranges between Rs. 32-34 per litre for cow milk and Rs. 44-46 per litre for buffalo milk and at such cost; it becomes non-remunerative to enter the high volume pouched milk segment. Given the fragmented landscape of the Indian dairy farmers (in terms of smaller animal holdings), most of the private companies prefer forward integration rather than becoming a fully integrated company. The latter requires building a strong procurement system (at the farmer level) and further undertaking production of value-added products. Within the corporate segment, few companies have been successful in establishing themselves as fully integrated players such as Prabhat Dairy and Parag Milk Foods. On the other hand, the entry barriers are fewer in case of forward integration as building a strong raw material procurement platform is not required. However, we understand that those working on the fully integrated model have been successful in establishing their brand and are relatively well placed to face the competition in the market. Dairy and milk products are changing and some of the major growth drivers for the dairy and milk products industry in India are rising share of high margin milk products which accounts 15-20 % of the total milk produced in India, greater value-addition by companies driven by the rise in urbanisation and change in consumer lifestyle is likely to drive up player-wise growth rates. Rising trends in urbanisation, migration across the country, number of working women and disposable incomes has increased consumers' access to packaged dairy products. Companies are increasingly innovating and manufacturing products across all price points to cater to consumers, with varying tastes and preferences. This, coupled with enhanced packaging, longer shelf-life and better quality of products, will drive further penetration of processed milk products and thereby, support long-term growth. With cold storage facilities, transportation and other critical supply chain infrastructure improving across India, companies will be able to manufacture and sell more products, over the medium term. This would help increase the penetration of processed milk products in towns and villages, thus driving growth of the dairy and milk products industry, over the next 3-4 years. Prabhat, in Q2 FY16, commissioned its 30 tonnes per day cheese plant which is third highest capacity in India. The company is currently targeting the HORECA i.e. hotel, restaurants and cafe & B2B space which comprises 70 % of the total cheese consumption in India. This strategy goes well with management’s blueprint of initially focusing on institutional and B2B sales, and ultimately launching the same in the B2C segment once the product gains steady traction. The Cheese segment offers higher gross margins compared to other dairy products. As the capacity utilization of the cheese plant gradually increases, it will have a positive impact on the overall gross margin. Recently Prabhat received its first export order for the supply of cheddar cheese to Iraq, while the order is small Rs 1 Cr; it is significant as it could open up new revenue streams from geographical expansion. In order to increase its product offering, Prabhat commissioned a 5 tpd paneer plant in FY16. The company launched paneer in an attractive thermoform packaging which has extended its shelf-life from 15 to 21 days. Prabhat launched Dahi with no preservatives in Mumbai. It has also adopted a unique model for distribution of fresh Dahi for the first time in India under the project called ‘Raftaar’ which delivers fresh Dahi in chilled vans / mopeds with chilled carrier boxes to 10,000 grocery shops in Mumbai. Prabhat started commercial operations of its newly set up 5 tpd capacity shrikhand plant in Q1 FY17. Products like Paneer, Dahi, Lassi and Shrikhand are retailed in Modern Trade shelves like Big Bazaar, Star Bazaar, Hypercity, D Mart etc which provides abundant brand recall for Prabhat. On the back of the above product launches we expect the share of VADP in overall revenues to propel from 25% in FY16 to 36% by FY19. Despite having a dominant presence in institutional business, Prabhat has enjoyed the highest EBITDA margins in the dairy space and is expected to take an upswing of 1.30 % to 11.5 % in FY19 led by increased share of high margin B2C business, increase in capacity utilization across all segments, with blended utilization rising from 64.3 % in FY16 to 88.6 % in FY19. In Septermber 2015, Prabhat had a debt of Rs 412 Cr with a debt to equity of 1.2X. The IPO proceeds of Rs. 300 Cr and internal accrual helped Prabhat to pare its debt by Rs. 250 Cr in FY16 which lead to an improvement in the debt to equity ratio to 0.24X in FY16. With major capex complete and cash flows augmenting, the debt to equity ratio is expected to dip to 0.22X in FY19. Management believes that in dairy sector there are different seasons and different cycles. Prabhat has seen transformation of business segment from specialty dairy ingredient supplier to consumer brand & dairy product company. Right now company revenue from B2b is 70 % and is expected to be 50 % in FY2020, Revenue from B2C is 30 % and expected to be 50 % in FY2020. Revenue from VAD id 80-86 % and is expected to be on similar lines in FY2020, Liquid milk id 15-20 % and is expected to be on similar lines in FY2020. For Prabhat, both B2B and B2C distributions are Pan India and products with long shelve life like Cow ghee, UHT milk and cheese are majorly distributed currently. In B2B business, company has introduced Ricotta cheese and Mozzarella cheese (for dominos), Paneer for dominos and Britannia, Shrikhand and SMP with Vadilal and other ice creams player. Also company has started exporting Shrikhand and ice-creams. In B2C business, products like Ghee, Paneer, butter, curd continue to gain and also distribution reach has increased to 25 states and more than 500 distribution and 1 lakh touch points. Also company has tied up with TajSats for supplying cheese. Modern business segment expanded in both Maharashtra and Gujarat. Their products like like Paneer, Dahi, Lassi and Shrikhand are retailed in Big Bazaar, Star Bazaar, Hypercity, D-Mart. Prabhat dairy ltd posted growth of 34.5 % yoy and 25.8 % qoq, with revenue of Rs. 408.10 Cr. During the quarter it being a flush season some of the region has faced draught situation while on other hand milk procurement price increased from Rs. 25.6 to Rs. 27.2. It has total procurement capacity of 1.5 Mn liters per day and out of which it procured 0.85 MLPD for Q3FY17. It procures around 75 % of its milk directly from 85000 farmers. It procures milk from Ahmednagar, Pune, Nashik and adjoining districts in Maharashtra. Also it has around 180 MTPD of condense milk and 30 MTPD of cheese plant. It’s a new in this segment of cheese and so its utilization level is low. For 9MFY17 revenue was at Rs. 1032.68 Cr which is the growth of 19.9 % yoy. EBIDTA for Q3FY17 stood at Rs. 37.66 Cr with growth of around 37.0% yoy and 36.6% qoq. Its margins were almost flat at around 9.2% with increase of 16bps yoy and 73bps qoq. Margins remain stable due to increase of price of milk and also other expense in the quarter. For 9MFY17 BIDT was at Rs. 96.95 Cr with 8 % growth but its margins shown de-growth of 104bps yoy and stood at 9.4 %. PAT before exceptional in Q3FY17 was at Rs. 8.16 Cr with de-growth of 8.2 % yoy and 8.8% qoq due to increase of depreciation and tax for the quarter. Its PAT margins decline by 93 bps yoy and 73 bps qoq with margin at 2.0%. Exceptional item remained at Rs. 25.59 Cr due to changing of accounting method to income accrual as per accounting standards. At the current market price of Rs. 126.45, the stock is trading at a PE of 36.12 x FY17E and 25.29 x FY18E respectively. The company can post Earnings per share (EPS) of Rs. 3.50 in FY17E and Rs. 5.00 in FY18E. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also.

KEY FINANCIALS	FY15	FY16A	FY17E	FY18E
SALES (₹ Crs)	1,003.36	1,170.50	1,369.49	1,602.30
NET PROFIT (₹ Cr)	25.90	24.52	33.98	48.58
EPS (₹)	3.60	2.50	3.50	5.00
PE (x)	34.10	49.4	35.60	24.90
P/BV (x)	2.50	1.80	1.80	1.70
EV/EBITDA (x)	13.10	12.70	10.70	8.80
ROE (%)	7.40	3.70	5.00	6.80
ROCE (%)	9.39	9.85	13.25	16.53

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