Incorporated in 1998 and promoted by Nirmal family, Prabhat Dairy Ltd. is an integrated milk and dairy product company in India catering to both institutional as well as retail customers. It produces variety of fresh, dry, frozen, cultured and fermented dairy products like flavoured milk, sweetened condensed milk, ghee, yoghurt, chaas, lassi, etc. The company has recently setup new facility for commercial production of cheese, paneer and shrikhand and currently has aggregate milk processing capacity of 1.5 million litres per day.
Key Investment Arguments
- Focus on increasing retail consumer product share to improve profitability
- New products and increasing capacities to drive growth
- Niche institutional clientele
Key Risks
- Risk of procuring milk of required quality at competitive price
- High regulatory risk
- Concentration risk
Valuation
At the offer price bands, the issue is available at P/E of 47.5x – 49.8x its FY15 EPS of ~`2.95, valuing the stock at 1.3x Market Cap to Sales. We believe there are great opportunities for dairy products in the FMCG industry with increasing premium products in the market. The company’s focus on retail consumer products, introduction of new high margin product like cheese and expanding capacities as well as capabilities, coupled with strong relationship with existing institutional clients; we believe the company fully equipped to benefit the growth opportunities in future. Hence, I recommend SUBSCRIBE to this issue.
