Parag Milk Foods IPO – Let This Drink Go

Date 4^th May 2016
Price range: Rs. 220-227 and Period: 4 – 6^th May 2016
Small Cap – Rs 1900 cr. Mkt Cap
Industry – Dairy Foods
Advice: Average offering. AVOID.

IPO highlights

IPO is open from 4-6^th May, with Issue Price band: Rs.220-227 /share, Retail Discount is Rs 12 /share
Shares offered to public: 3.37 cr. of Face Value: Rs. 10 per share, Market Lot is multiples of 65
Shares offered are 40.4% of post equity. Promoter holding will fall from 61% to 44%.
IPO is of Rs 767 cr. of which Rs. 467 cr. is OFS and Rs 300 cr. is a fresh issue of shares.
The fresh issue proceeds would be used for
- Expansion and modernization of plants (Rs 147.7 cr.)
- Investment in Subsidiary (Rs 2.3 cr.)
- Repayment of Working Capital Loan (Rs 100 cr.)
- Balance for general corporate purpose – Rs 50 cr.
The offering is available to institutional, non-institutional and retail in ratio of 75:15:10.

Summary

Parag Milk Foods (PMF) makes a range of branded milk and dairy products.
PMF had revenues and profits of Rs 1442 cr. and Rs 29.47 cr. in FY15. PMF’s revenue, EBITDA and PAT has grown 21.6%, 20.8% and 24.8% CAGR over the last 3-4 years.
They derive all of their products only from cow’s milk. Their milk processing capacity is 2 million litres per day and their cheese plant has the largest capacity in India, of 40 MT per day.
Their brands of ‘Gowardhan’, ‘Go’, ‘Pride of Cows’ and ‘Topp Up’ are growing fast.
While the market is large and the premium segment they target is attractive, there is intense competition and PMF needs to be aggressive to be a significant national player.
The IPO pricing has been average leaving little on the table for current investors.
The IPO is rated as average, and Retail Investors can AVOID it.

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DISCLAIMER

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. JM has no known financial interests in Parag Milk Foods or any related group. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an Investment Advisor. Punit Jain is a registered Research Analyst (SEBI Registration No. INH200002747) under SEBI (Research Analysts) Regulations, 2014. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com.