19 June 2017

Prabhat Dairy

spotlight

The Idea Junction

Stock Info

Bloomberg

PRABHAT IN

CMP (INR)

122

Equity Shares (m)

97.7

M.Cap. (INR b)/(USD b)

11.8/0.2

52-Week Range (INR)

150/77

1,6,12 Rel. Perf. (%)

-3/6/2

Solid institutional player

Moving toward consumer business

Incorporated in 1998 by the Nirmal family, Prabhat Dairy (Prabhat) is a fully integrated

milk & dairy products company engaged in the sale of products to institutional and retail

customers. The company sells specialty and co-manufactured products to its institutional

customers, as well as branded dairy products under the brand names of

Prabhat,

Prabhat Flava, Prabhat Milk Magic

and

Volup

(a recently launched brand for ice-cream).

It aims to become a larger and stronger regional player with a good mix of liquid milk,

fresh value-added products and longer-shelf-life products.



The consumer branded business (B2C) is expected to account for ~50% of its overall

revenues by 2020 (30% as on FY17), led by Hotels, Restaurants and Caterers

(HoReCa), and Retail.

The B2B business already has a solid foundation with a healthy list of clients, which

can be leveraged to develop new products and add new clients to drive steady

growth over FY17-20.

Prabhat targets 80% direct sourcing of milk by FY20 (~70% currently), which should

help it source higher volumes of good-quality raw milk on a consistent basis.

Utilization at its cheese manufacturing facility (third largest in India after Parag Milk

Foods and Amul, with capacity of 30 MT/day) is expected to increase from ~20%

currently to 40% in FY18 and 80% by FY20.

The company has delivered a strong operating performance over past four years,

with revenue, EBITDA and PAT CAGR of 22%, 15% and 25%, respectively. At CMP, the

stock trades at 19x FY19E EPS.

Financials & Valuation (INR m)

Y/E March

Sales

EBITDA

NP

EPS (INR)

EPS Gr. (%)

BV/Sh(INR)

RoE (%)

RoCE (%)

P/E (x)

P/BV (x)

2017 2018E 2019E

14.1

1.3

0.3

3.5

48.9

70.5

5.2

4.6

34.3

1.7

17.0

1.4

0.3

3.5

-1.5

72.5

4.9

5.7

34.8

1.7

19.6

1.8

0.6

6.4

83.8

77.7

8.5

8.2

18.9

1.6







Shareholding pattern (%)

As on

Mar-17

Promoter 48.9

DII

3.9

FII

2.6

Others

44.6

Dec-16

44.4

3.0

2.8

49.9

Mar-16

44.2

26.5

4.6

24.7



Notes: FII includes depository receipts

Stock performance (1 year)

Branded business to be revenue and margin driver

Prabhat is one of the emerging names in the value-added dairy products space,

launching a range of products under the Prabhat brand over past two years. The

focus on the B2C business will not only help grow revenues, but also aid

margins as it commands higher gross margins. The company sells pouched milk

& fresh dairy products in and around Maharashtra, while it sells long-shelf-life

products (like ghee and UHT milk) across the country. Management aims to

increase the contribution of the B2C segment to 50% of overall revenues,

mainly led by growth in value-added products like cheese, ghee, dahi and

paneer. In terms of distribution, the company now has presence across 26

states (was present in just Maharashtra in 2012), with around 1,200 distributors

and 0.1m retail outlets. It plans to expand its reach to ~0.2m outlets by FY19.

Our coverage universe is a wide representation of investment opportunities in India. However, there are many

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on fundamental analysis and site visits, without initiating formal coverage on them. Spotlight adopts a descriptive

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Motilal Oswal Research in its entirety, and not draw inferences from the ratings alone. Ratings should not be

used or relied upon as investment advice.

Interesting: Currently, the

analyst believes that this is an

interesting stock based on its

fundamental strength

Cautious: Currently, the analyst

does not have adequate

conviction based on fundamental

assessment of the stock

In Transition: Currently, the

analyst thinks that the stock is

in transition from "Cautious" to

"Interesting"

Vishal Punmiya

(Vishal.Punmiya@MotilalOswal.com); +91 22 3980 4261

Krishnan Sambamoorthy

(Krishnan.Sambamoorthy@MotilalOswal.com); +91 22 3982 5428

Investors are advised to refer through important disclosures made at the last page of the Research Report.

Motilal Oswal research is available on

www.motilaloswal.com/Institutional-Equities,

Bloomberg, Thomson Reuters, Factset and S&P Capital.

spotlight

| Prabhat Dairy

Stable institutional business

The institutional business contributes ~70% of revenues (as of FY17). State-of-art

manufacturing facilities, strict quality control & food standards and a marquee list of

clients have helped the business grow impressively in the past. Apart from

developing products for its existing clients, the company has also struck deals with

many new customers in India and globally. As majority of its clients operate on a cost-

plus model, the business is somewhat immune to fluctuations in milk prices.

Expansion of direct milk procurement network

Prabhat currently procures ~9llpd of milk, which management expects to increase to

14llpd by FY20. Around 60% of milk is sourced from milk-rich Ahmednagar, while the

rest is sourced from Pune, Nashik and adjoining districts in Maharashtra. Five years

back, it procured >90% of its milk requirement directly from agents. However, it now

sources 70% of milk directly from ~85,000 farmers across ~1,700 villages twice a day

(i.e. >700 procurement cycles a year). The company is targeting to increase the

proportion of direct sourcing to 80% by FY20, which will help it get higher volumes of

milk for use in value-added products. We believe that it is logical for Prabhat to have

some portion of procurement from agents, given the sizable portion of its B2B

business.

Improving capacity utilization and operational efficiencies

We believe capacity utilization will improve but only gradually over next few years,

aided by demand growth and distribution expansion. Prabhat expects to increase

utilization at its recently set-up cheese manufacturing facility (capacity of 30MT/day)

from 20% currently to around 40% by FY18, led by higher sales to the HoReCa and QSR

segments, as well as exports. Gradual improvement in utilization, coupled with

operational efficiencies from the cogeneration plant, will aid margins in the near

term, in our view.

Expect RoCE to improve with no major capex over next 2-3 years

The company has delivered a strong operating performance over past four years,

with revenue, EBITDA and PAT CAGR of 22%, 15% and 25%, respectively. Management

aims to exceed revenue of INR20b by FY20, led by growth in fresh and long-shelf-life

value-added products. This would only be possible with an increase in milk

procurement, distribution expansion and brand-building initiatives. Increased

contribution of higher-margin B2C products to the portfolio, operating leverage and

operational efficiencies are expected to lead to EBITDA margin expansion to 10% by

FY20, from 9% in FY17. We, however, believe that EBITDA margin expansion could be

somewhat restricted due to higher spending toward the B2C business. Management

has guided for lower capex and a further reduction in debt over next 2-3 years. We

believe that these initiatives will help to gradually improve RoE and RoCE over FY17-

FY20 to 11.9% and 10.8%, respectively. Net working capital days are expected to

remain in the range of 80-85, as (1) inventory days will increase with better cheese

salience (cheese needs ageing before being sold), (2) debtor days will decline with

improved B2C salience (has lower receivable days compared to B2B) and (2) creditor

days are unlikely to see any major change from current levels.

19 June 2017

2

Spotlight |Prabhat Dairy

Consumer business to be revenue and margin driver

Led by Retail and HoReCa segments



Incorporated in 1998, Prabhat started selling liquid milk consumer packs under

the brand “Prabhat” in 1999. It was only in 2005 that it introduced value-added

products such as ghee and milk powder. Over the years, the company has

developed a large distribution network to market and distribute its branded

products (including pasteurized milk, cheese, paneer, UHT milk, flavored milk,

sweetened condensed milk, dairy whitener, milk powder, lassi, curd (dahi), misti

doi, shrikhand, chaas and cow ghee), which are sold under the brand names of

Prabhat, Prabhat Flava

and

Prabhat Milk Magic.

It also recently launched an ice

cream brand

Volup.

They are planning to enter the milk-based beverages

category as well as cheese in the retail segment over next two years.

Exhibit 1:

Current array of branded products

Brand

Prabhat

Prabhat Milk Magic

Prabhat Flava

Volup

Products

Pouch milk, cheese, paneer, cow ghee, dairy whitener, skimmed/whole milk

powder, curd, misti doi, shrikhand, uht milk, flavored milk, lassi and chaas

Sweetened condensed milk

Flavored milk

Ice-cream

Source: Company, MOSL





Prabhat’s consumer business includes the retail and HoReCa segments. There is

a common team for both these segments, as the distribution channel is common

and many retail products are also sold via HoReCa. In terms of distribution, the

company has presence in 26 states (it was just present in Maharashtra in 2012)

with ~1,200 distributors and ~0.1m retail outlets (~60-65k direct and rest

indirect). It plans to expand its reach to ~0.2m outlets by end-FY19.

Revenue contribution from the B2C business has increased from 14.6% in FY13

to 30% in FY17. The company aims to increase this share to 50% by FY20 by

leveraging established brands to expand its retail consumer product offerings

and by increasing the availability of branded products in both existing and new

markets across India. It has recently appointed Mr Muthar Basha (ex-HUL) to

spearhead the marketing and sales efforts of the consumer business.

Exhibit 2:

B2C is expected to be ~50% of business, led by retail and HoReCa segments

B2B

11

15

15

24

30

B2C

30

35

42

48

89

85

85

76

70

70

65

58

52

FY12

FY13

FY14

FY15

FY16

FY17

FY18E

FY19E

FY20E

Source: Company, MOSL

19 June 2017

3

Spotlight |Prabhat Dairy

Exhibit 3:

Scope in food service division

Source: Company, MOSL



HoReCa:

The company supplies cheese, paneer and, to some extent, butter to

HoReCa players, majorly in Maharashtra and Gujarat. It aims to grow the

business by adding more players in the existing regions and expanding its

distribution reach to other regions. It has already established a distribution

network in some south and north Indian states. With large cheese capacity

(utilization expected to reach 40% by the end of FY18 from just ~20% till FY17-

end), Prabhat is well placed to deliver high volumes of cheese to the HoReCa

segment, wherein competition is very low and margins are between the B2B

and retail segments.

Exhibit 4:

Retail product portfolio under the brand

Prabhat

Source: Company, MOSL

19 June 2017

4

Spotlight |Prabhat Dairy



Retail:

Over past two years, Prabhat has aggressively launched various fresh and

long-shelf-life products to build a wide portfolio to cater to the retail segment.

Its fresh products like paneer, dahi, lassi, chaas and shrikhand continue to gain

traction, and are now also available in the major modern trade stores in

Maharashtra and Gujarat. The company aims to focus on increasing its

distribution reach in tier II/III towns, with measures also being taken to expand

its retail presence in north and south India to cater to demand for long-shelf-life

products.

We note that profitability in B2C is usually higher than that in B2B across a

similar product line. Gross margins in the B2C business range from 28-30%,

while those in the B2B business range from 18-2%. Prabhat is one of the

companies to have transitioned from a pure B2B to a B2C model over past few

years while continuing to be a dedicated supplier of specialty ingredients to

large companies.

Product expected to drive volumes and margin for Prabhat, going forward



Cheese:

Cheese is one of the fastest-growing product categories in the value-

added dairy products industry in India, but constitutes only a miniscule portion

of the organized dairy market (1.4% as on 2014, as per IMARC). The IMARC

expects Indian cheese market CAGR of 30% until 2020 (after 27% over 2007-14)

in value terms, led by increasing consumption of Indian fast food/western

foods. Cheese, along with paneer and shrikhand, formed less than 1% of the

company’s revenues (as of FY16). Prabhat has set up a cheese plant (third-

largest cheese plant in India after Parag Milk Foods and Amul) with capacity of

30MT/day to capitalize on this fast-growing and huge opportunity. The

company’s strategy is to grow the business in India by focusing on HoReCa,

institutional clients and exports (mostly to Gulf countries). It also provides

cheese to major pizza and burger chains in the country like Dominos, Pizza Hut

and McDonalds. The company sells processed, mozzarella and ricotta cheese to

HoReCa (~60% of cheese and paneer sales) and QSR (~40% of cheese and

paneer sales). It expects capacity utilization to reach ~40% in FY18 from current

20% levels, driven by the HoReCa and QSR segments, driving its revenues and

margins. The company had hinted in its quarterly results call that it has plans to

enter the cheese retail segment and will incur some capital expenditure in FY18

for setting up a retail packaging line for cheese. It had earlier also mentioned

that it might take them 1-2 years to make a foray into whey-based products due

to current low levels of cheese capacity utilization.



Exhibit 5:

Prabhat offers processed, mozzarella and ricotta cheese to HoReCa, QSR and for

exports

Source: Company, MOSL

19 June 2017

5

Spotlight |Prabhat Dairy



Ghee:

Among the dairy products, ghee is one of the largest consumed products

in India. The ghee market in India (largely dominated by unorganized players,

like other dairy products) is expected to grow at a 14% CAGR until 2020 (after

17% over 2007-14, as per IMARC) in value terms, led by a shift from

unorganized to organized trade. Prabhat has presence in the cow ghee market,

which is growing faster than the ghee market. Ghee & butter, which is sold

through both B2B and B2C channels, accounted for ~14% of the company’s

revenues as of FY16. This share is likely to increase by FY20, with the cow ghee

market gaining prominence after the entry of Patanjali. The ghee products are

available in 26 states via 500+ distributors and 0.1m+ retail touch points. Ghee

is a long-shelf-life product, and has helped Prabhat to go national along with

UHT milk and now cheese.

Exhibit 6:

Prabhat sells pure cow ghee to B2C as well as to B2B clients

Source: Company, MOSL



Paneer (cottage cheese):

It is a traditional product supplied largely by

unorganized regional players and consumed largely at the institutional level.

The paneer market in India is expected to grow at a 14% CAGR in value terms till

2020 (as per IMARC), led by a shift from unorganized to organized trade, and

increasing use of paneer in traditional as well as western food items. Paneer’s

contribution to overall revenues is very small, but the company is gaining good

traction. The company also set up a manufacturing plant for paneer in 2015

with capacity of 5MT/day. Like other fresh products, paneer is sold across retail

and modern trade stores in Maharashtra and Gujarat. On the institutional side,

the company has started supplying to major pizza/burger chains and some key

clients over last four quarters.

Exhibit 7:

Prabhat launched paneer in thermoform packaging with extended shelf life of 21

days (higher than 15-day shelf life offered at some prominent modern trade outlets)

Source: Company, MOSL

19 June 2017

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Spotlight |Prabhat Dairy



Dahi (curd):

With increasing urbanization, demand for packaged curd has

also gained momentum. The curd market in India is expected to grow at a

15% CAGR until 2020 in value terms (after 16% over 2007-14, as per IMARC),

driven by retail and institutional demand. For Prabhat, curd forms <2% of

overall revenues and a higher portion of that comes from the B2B segment.

With the company’s increasing focus on the B2C segment (in terms of

introducing fresh dahi under the project Raftaar) and expanding distribution

in retail/modern trade outlets, B2C is likely to contribute majorly to segment

sales.

Exhibit 8:

Under the project Raftaar, Prabhat delivers fresh dahi in chilled vans/mopeds to 10k grocery shops in Mumbai

Source: Company, MOSL

Exhibit 9:

India dairy market, 2014 and 2020E

Category

2014 sales 2014 share

2020E

2014 sales 2014 sales of the

of the

sales

(INR m)

(%)

organized organized

(INR m)

sector (%) sector

2,621,460

26,045

12,636

216,496

2,268

12,470

13,822

11,721

167,638

618,225

293,300

49,568

12,730

3,009

4,061,390

64.5

0.6

0.3

5.3

0.1

0.3

0.3

0.3

4.1

15.2

7.2

1.2

0.3

0.1

100.0

63.8

3.2

1.6

1.5

0.3

1.5

1.7

1.4

2.6

13.6

0.8

6.1

1.6

0.4

100.0

20%

100%

100%

6%

100%

NA

NA

100%

13%

18%

2%

100%

NA

100%

20%

6,068,000

103,778

47,828

492,690

12,075

39,298

43,092

59,388

382,238

1,367,212

653,576

112,773

29,704

9,712

9,397,344

2020E

2020E

Total Organized

sales of share of

market

2020E

market

the

the

CAGR

CAGR

sales (%)

organized organized

2014-2020 2014-2020

sector (%) sector

64.6

1.1

0.5

5.2

0.1

0.4

0.5

0.6

4.1

14.5

7.0

1.2

0.3

0.1

100.0

64.8

4.2

1.9

1.4

0.5

1.6

1.8

2.4

2.5

11.7

0.9

4.6

1.2

0.4

100.0

26%

100%

100%

7%

100%

NA

NA

100%

16%

21%

3%

100%

NA

100%

26%

15%

26%

25%

15%

32%

21%

21%

31%

15%

14%

14%

15%

15%

22%

15%

21%

26%

25%

20%

32%

21%

21%

31%

19%

17%

24%

15%

15%

22%

20%

Liquid Milk

UHT Milk

Flavored Milk

Curd

Flavored & Frozen Yoghurt

Lassi

Buttermilk

Cheese

Butter

Ghee

Paneer

Skimmed Milk Powder

Cream

Whey

Total

Source: IMARC, Company, MOSL

19 June 2017

7

Spotlight |Prabhat Dairy



Product pipeline:

The company recently (in Mar’17) launched its ice-cream

brand in Maharashtra (Ahmednagar, Aurangabad, Jalgaon and Dhule). The

popular range of ice creams will be sold under the

Volup

brand and the

premium range will be sold under the

Volup Sinsane

brand. Prabhat would

not be incurring high capex for the product (which has gross margins at

about 40%) as it has been already manufacturing ice creams for Mother

Dairy since last 2-3 years.

Apart from the soft launch of its ice cream brand, the company in its

quarterly call also mentioned about the launch of a few more products by

FY18 and FY19. It hinted at entering the milk-based beverages category and

cheese in the retail segment.

19 June 2017

8

Spotlight |Prabhat Dairy

Well established and stable institutional business

Global standard in quality to aid growth in B2B



With 70% of sales (as of FY17), the institutional business forms a significant

portion of Prabhat’s operations.

Prabhat started selling condensed milk to Mondelez India Foods (earlier known

as Cadburys) in 2008, marking its entry into the institutional business. Later in

2010, the company set up a dedicated condensed milk plant for Mondelez and

also started production of milk powder (capacity of 30MT/day) to cater to other

institutional clients. The company now produces and sells a range of premium

ingredient products (~60% of institutional business) and co-manufactured

products (~40%) to a large number of Indian and multinational companies. The

institutional business has been stable for Prabhat; however, its share has

declined (as percentage of overall revenues) recently due to rapid expansion of

the consumer business (~50% CAGR over FY12-FY17, as against ~18% for B2B).

Premium ingredients:

Prabhat is one of the leading suppliers of premium

ingredient products in India. It supplies a range of ingredients (such as

sweetened condensed milk, skimmed/whole milk powder, nutrients

supplements for baby food and full cream milk) to many multinational and

Indian companies (e.g. Mondelez India Foods, GSK Consumer Healthcare, Abbott

Healthcare) for the production of other milk and food products. The premium

ingredients business has been stable as the company has developed and

maintained strong relationships with its clients via supply of quality ingredients.

The company has employed a margins cost-plus model in this business, which

has helped protect margins. Prabhat is looking to leverage its relationships with

leading global and domestic companies to offer more products to existing

clients and to add new clients in India/globally.

Specialty ingredient products

Sweetened condensed milk, skimmed/whole milk

powder

Skimmed/whole milk powder

Nutrition supplements for baby food

Full cream milk

Source: Company, MOSL





Exhibit 10:

Customers for specialty ingredient products

Customer

Mondelez India Foods Pvt. Ltd

GSK Consumer Healthcare, Heinz

Abbot Healthcare Pvt. Ltd

Mondelez India Foods Pvt. Ltd



Co-manufactured products:

The company also supplies co-manufactured

products (includes production and packaging), which are sold by clients under

their own brand name. It forms a small portion of the overall institutional

business. Products include UHT milk, lassi, yogurt, dairy whitener, clarified

butter (ghee), curd (dahi), flavored milk for Britannia, and ice-cream and candies

for Mother Dairy Fruits & Vegetables Ltd.

19 June 2017

9

Spotlight |Prabhat Dairy

Exhibit 11:

Customers for co-manufactured products

Customer

Britannia Industries Limited

Mother Dairy Fruits & Vegetables Pvt. Ltd

Co-manufactured Products

UHT milk, lassi, yogurt, dairy whitener, clarified butter

(ghee), curd (dahi), flavored milk

Ice-cream, candies

Source: Company, MOSL



Prabhat has a strong track record of association with prominent global and

domestic FMCG companies, providing it an edge in product quality/capabilities.

Exhibit 12:

Extensive list of clients for its institutional business

Source: Company, MOSL







After a healthy 18% over FY12-17, institutional sales CAGR is expected at ~7%

over FY17-FY20, primarily led by continued sales to multinationals and major

domestic companies as they prefer buying raw materials rather than directly

procuring raw milk from farmers due to the cooperative model in India.

Management is of the view that the recent quality concerns raised by the FSSAI

have forced many companies to think about the quality of their sourcing. This, in

turn, will help Prabhat to grow its institutional business as it is known as the

premium dairy ingredient supplier in the space.

The institutional business will remain a major part of Prabhat’s operations, but

its share (as a proportion of total sales) is likely to come down in future as the

company is now looking to expand the B2C business. Management aims to grow

its B2C operations to 50% of overall business by 2020 by leveraging the Prabhat

brand and innovating/expanding product offerings to the retail market.

19 June 2017

10

Spotlight |Prabhat Dairy

Expansion of direct milk procurement network

Direct sourcing will ensure high quality and volume of milk





Prabhat is based out of the Ahmednagar district, which is the highest milk-

producing belt in Maharashtra (~2m liters per day (mlpd) of milk). The company

has milk processing capacity of 1.5mlpd. It procures on an average 0.9mlpd of

milk, either directly (70% of sourcing) from Ahmednagar, Pune, Nashik and

adjoining districts in Maharashtra, or from third-party agents/contract suppliers.

The company has over 475 milk collection centers, ~20 milk chilling plants and

over 121 bulk milk coolers across areas from where it procures raw milk directly

from farmers. Each center is equipped with advanced equipment for collection,

testing and storage of milk collected from farmers.

Exhibit 13:

Strong milk procurement system

Source: Company, MOSL







The company is targeting to procure on average 1.4mlpd of milk by FY20 for

manufacturing higher proportion of value-added products. Prabhat has been

expanding its procurement network by setting up bulk milk cooling stations in

the current regions as well as procuring from adjacent districts of Ahmednagar.

The company believes Ahmednagar itself has abundant milk and can

accommodate a couple of more players.

It aims to procure 80% of the requirement directly by FY20 (currently 70%; five

years back >90% of milk requirement was met through agents). Even though

direct procurement requires the payment to be made on a weekly basis, it

enables the company to control its raw material costs, and more importantly,

gives them greater control over consistent supply of quality raw milk. The

company also procures a lot of ingredients like cream and butter when its

pricing is lower and converts it into other products like condensed milk, whole

milk powder, etc. Prabhat has also recently appointed Mr Sridhar Vishwanath as

commercial director. He is a veteran with 16 years of experience in the supply

chain and commercial side of the business with firms like ITC and Mondelez.

The milk procured is processed at the Srirampur (Ahmednagar) and Navi

Mumbai facilities. These are at close proximity to the collection centers and the

target market, ensuring low transportation costs for the company.

19 June 2017

11

Spotlight |Prabhat Dairy

Major capex done with

Focus now on improving utilization and efficiencies in operations





Prabhat is done with investments in adding capacities over last 2-3 years, and is

unlikely to incur any major capex over next few years. The company may incur

regular maintenance capex and some capex on the procurement side. Its aim

will be to improve capacity utilization and operating efficiency.

The company actively increased its processing capacities to manufacture

existing dairy products and introduced production lines for high-margin dairy

products over last few years. In 2015, the company expanded capacity at its

Shrirampur facility for the manufacture of mozzarella cheese, cheddar cheese,

processed cheese, paneer (cottage cheese) and shrikhand. It believes these

measures will result in significant additions to its existing product portfolio and

capacities, enabling it to effectively capture demand for such products among

B2C and institutional customers.

Exhibit 14:

Company has no plans for additional capacities for next couple of years

In m kg/Liters per day

Product

Aggregate milk processing capacity

Pasteurized and Pouch Milk

Milk Powders (includes Skimmed Milk Powder/

Whole Milk Powder/ Dairy Whiteners)

Condensed Milk

Clarified Butter (Ghee) & Butter

Flavored Milk

Ice Cream

Curd (Flavored Yogurt, Pouch Curd)

UHT Milk

Cheese (Cheddar/ Mozzarella/Processed)

Paneer

Shrikhand

Production/ Processing Capacity

Shrirampur

Navi Mumbai

Total

Facility

Facility

1.10

0.40

1.50

0.20

0.40

0.60

0.04

0.18

0.05

0.02

0.00

0.00

0.04

0.03

0.01

0.01

0.00

0.00

0.00

0.00

0.02

0.04

0.00

0.00

0.00

0.00

0.04

0.18

0.05

0.02

0.02

0.04

0.04

0.03

0.01

0.01

Source: Company, MOSL

Exhibit 15:

Two state-of-the-art manufacturing facilities in Shrirampur and Navi Mumbai

Source: Company, MOSL

19 June 2017

12

Spotlight |Prabhat Dairy

Exhibit 16:

Processing facilities of Prabhat

Source: Company, MOSL

Exhibit 17:

Focus on volumes will increase utilization levels going forward

Capacity utilization (%)

Pasteurized and Pouch Milk

Milk Powders (includes Skimmed Milk Powder/ Whole Milk

Powder/ Dairy Whiteners)

Condensed Milk

Clarified Butter (Ghee)

Flavored Milk

Butter

Ice Cream

Curd (Flavored Yogurt, Pouch Curd)

UHT Milk

Cheese (Cheddar/ Mozzarella/Processed)

Paneer

Shrikhand

FY12

68.2

53.2

51.2

30.2

28.2

54.2

0.0

0.0

0.0

0.0

0.0

0.0

FY13

47.0

35.4

64.1

30.7

19.1

14.4

0.0

0.0

0.0

0.0

0.0

0.0

FY14

52.4

87.1

76.1

47.2

21.1

FY15

45.7

99.7

69.9

64.3

5.3

FY16

40.2

141.6

88.9

59.3

2.5

Included in

9.2

19.6

Ghee

22.2

53.6

29.6

8.3

21.7

34.3

1.1

20.8

26.9

0.0

0.0

1.2

0.0

0.0

0.0

0.0

0.0

0.0

Source: RHP, Company, MOSL



Prabhat has set up a captive co-generation power facility, which is expected to

lead to ~50bp savings on fuel & power costs starting FY18. This, along with

technology up-gradation of certain plants and machineries, will bring

operational efficiencies.

19 June 2017

13

Spotlight |Prabhat Dairy

Expect revenues to grow 17% CAGR over FY17-20

Led by 37% CAGR in B2C business

Exhibit 18:

Expected to register 17% revenue CAGR over

FY17-20

Total Income (INR b)

32.7

33.6

20.7

20.3

15.4

15.4

Total income growth (%)

20.9

17.1

16.4

21.4

21.5

Exhibit 19:

Gross margin expected to expand with mix

improvement and stable raw milk prices

Gross margin (%)

22.6

20.5

19.4

18.7

20.2

21.3

6.4

FY13

8.6

FY14

10.0

FY15

11.7

FY16

14.1

17.0

19.6

22.6

FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

Source: Bloomberg, Company, MOSL

FY17 FY18E FY19E FY20E

Source: Bloomberg, Company, MOSL

Exhibit 20:

EBITDA margin expansion to be lower than gross

margin due to higher spend toward B2C business

EBITDA margin (%)

11.4

Exhibit 21:

PAT margin will also be aided by lower interest

cost

PAT margin (%)

4.2

10.1

10.6

10.3

9.9

9.0

8.1

9.1

10.0

2.4

2.6

2.0

2.4

2.0

3.2

2.2

2.0

FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

Source: Bloomberg, Company, MOSL

FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

Source: Bloomberg, Company, MOSL

Exhibit 22:

PAT to register 40% CAGR over FY17-20

PAT (INR b)

47.9

47.7

PAT growth (%)

83.8

48.9

25.1

-10.9

-1.5

52.1

Exhibit 23:

Gross FA turnover to improve as major capex is

done away with

Gross Fixed Asset Turnover (x)

3.2

2.7

1.8

2.1

2.3

2.1

2.3

2.9

2.5

0.1

FY13

0.2

FY14

0.3

FY15

0.2

FY16

0.3

0.3

0.6

0.9

FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

Source: Bloomberg, Company, MOSL

FY17 FY18E FY19E FY20E

Source: Bloomberg, Company, MOSL

19 June 2017

14

Spotlight |Prabhat Dairy

Exhibit 24:

Inventory days likely to rise as salience of cheese increases (needs ageing); debtor days to come down as B2C

salience increases (lower receivable days compared to B2B clients); Creditor days not likely to see major change

Days

Inventory days

Debtor days

Creditor days

Cash conversion cycle

FY12

18

35

22

30

FY13

17

36

16

37

FY14

17

50

15

52

FY15

19

66

19

66

FY16

24

68

18

74

FY17

29

64

14

79

FY18E

32

64

13

83

FY19E

34

62

13

83

FY20E

36

60

12

84

Exhibit 25:

Gradual improvement likely in RoE…

RoE (%)

16.8

Exhibit 26:

…and RoCE over FY17-20

RoCE (%)

10.8

11.9

10.8

7.8

8.5

9.2

6.2

4.6

5.7

8.2

8.0

7.5

7.8

4.6

5.2

4.9

8.5

FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

Source: Bloomberg, Company, MOSL

FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

Source: Bloomberg, Company, MOSL

19 June 2017

15

Spotlight |Prabhat Dairy

Peer analysis

B2C salience lower, still decent performance over last three years

Exhibit 27:

Decent last three years’ performance

Last 3 year CAGR (%)

Sales EBITDA Adj. PAT

Exhibit 28:

B2C salience to improve to 50% by FY20

Current business mix (%)

B2B

B2C

30

87

70

13

Parag Milk Foods

Prabhat Dairy

Hatsun Agro Product

96

Parag Milk Foods

4

Prabhat Dairy Hatsun Agro Product

Source: Capitaline, Company, MOSL

Source: Capitaline, Company, MOSL

Exhibit 29:

Gross margins currently lower than peers

Gross Margin (%)

Parag Milk Foods Prabhat Dairy Hatsun Agro Product

Exhibit 30:

…while EBITDA margins are higher due to low

spends on B2C which is expected to increase

EBITDA Margin (%)

Parag Milk Foods Prabhat Dairy Hatsun Agro Product

FY13

FY14

FY15

FY16

FY17

FY13

FY14

FY15

FY16

FY17

Source: Capitaline, Company, MOSL

Source: Capitaline, Company, MOSL

Exhibit 31:

Employee expenses will go up…

Employee expenses(%)

Parag Milk Foods Prabhat Dairy Hatsun Agro Product

Exhibit 32:

…ad spends to support retail business growth

Ad spends (%)

Parag Milk Foods Prabhat Dairy

Hatsun Agro Product

FY13

FY14

FY15

FY16

FY17

FY12

FY13

FY14

FY15

FY16

Source: Capitaline, Company, MOSL

Source: Capitaline, Company, MOSL

19 June 2017

16

Spotlight |Prabhat Dairy

Exhibit 33:

Return ratios compared to peers…

RoCE post-tax (%)

Parag Milk Foods Prabhat Dairy Hatsun Agro Product

Exhibit 34:

…currently on the lower side

Parag Milk Foods

RoE (%)

Prabhat Dairy

Hatsun Agro Product

FY13

FY14

FY15

FY16

FY17

FY13

FY14

FY15

FY16

FY17

Source: Capitaline, Company, MOSL

Source: Capitaline, Company, MOSL

Exhibit 35:

High B2B mix leads to higher receivable days

compared to peers

Receivable days

Parag Milk Foods Prabhat Dairy Hatsun Agro Product

Exhibit 36:

Inventory days currently lower, will go up

Inventory days

Parag Milk Foods Prabhat Dairy

Hatsun Agro Product

FY13

FY14

FY15

FY16

FY17

FY13

FY14

FY15

FY16

FY17

Source: Capitaline, Company, MOSL

Source: Capitaline, Company, MOSL

Exhibit 37:

Creditor days to remain in the same range

Parag Milk Foods

Payable days

Prabhat Dairy

Hatsun Agro Product

Exhibit 38:

Net working capital days higher than peers

Parag Milk Foods

Working capital days

Prabhat Dairy Hatsun Agro Product

FY13

FY14

FY15

FY16

FY17

FY13

FY14

FY15

FY16

FY17

Source: Capitaline, Company, MOSL

Source: Capitaline, Company, MOSL

19 June 2017

17

Spotlight |Prabhat Dairy

Key risks



Competition risk

Prabhat operates in a highly competitive industry, which has presence of some

biggest cooperatives in India (e.g. GCMMF – which owns the

AMUL

brand),

other cooperatives and private regional players.

Seasonality risk

Prabhat’s manufacturing operations are largely dependent on the supply of cow

milk, which is the primary raw material for all dairy products. Given the seasonal

nature of the industry, cattle farming patterns and no formal agreements with

the farmers, the availability of raw milk keeps on fluctuating and could thus

adversely impact the company’s operations.

Brand equity risk

Given that Prabhat’s products are for human consumption, they are vulnerable

to risks such as contamination, adulteration and product tampering during their

manufacturing, transportation or storage. Any real or perceived contamination

in products could open the door to regulatory action, damaging its brand equity.

Execution risk

Delay in procurement network expansion will affect the availability of adequate

quantity/quality of milk, and deferment in distribution will lead to unavailability

of products at the store level.







19 June 2017

18

Spotlight |Prabhat Dairy

Annexure I – Company details

Exhibit 39:

Key events at Prabhat Dairy

Year

1998

1999

2005

2008

2010

2010

2011

2011

2012

2013

2013

2013

2014

2015

2016

2017

Details

Incorporation of the company by the Nirmal family

Sale of liquid milk consumer pack in ‘Prabhat’ brand

Value-added products introduced (ghee, powders)

Commenced condensed milk sales to Cadburys

Dedicated condensed milk plant set up for Cadburys

HACCP and ISO certification

Expanded B2B business with reputed industry players

Launched ‘Prabhat Dairy Quality Mission’ for direct farmer connect

Best Strategic Supplier Award by Kraft and Abbott

Private equity infused by leading private equity funds

New capacities added for curd, ice-cream, powders and cheese

New plant commissioned at Navi Mumbai to cater to Mumbai region

Initiated marketing & branding activities to expand the consumer business

Commenced manufacturing of cheese with capacity of 30MT/day (3rd largest in India),

paneer with capacity of 5MT/day and shrikhand with capacity of 5MT/day

Listing on BSE and NSE with a successful IPO

- INR3,000m fresh issue

- INR565.3m offer for sale

Launch of ice cream brand Volup (popular range and Volup Sinsane (Premium range)

Source: Company, MOSL

Exhibit 40:

Board of Directors

Name

Sarangdhar R Nirmal

Vivek S Nirmal

Ashok Sinha

Seemantinee Khot

Rajesh Shrivastava

Raphael Gabriel Roger Plihon

Soundararajan Bangaruswamy

Role

Chairman & Managing Director

Joint Managing Director

Independent Director

Independent Director

Independent Director

Non- Executive Director

Independent Director

Source: Company, MOSL

Details

He has approximately 16 years of professional experience in

the dairy industry.

He has approximately 7 years of professional experience in the

dairy industry.

Exhibit 41:

Subsidiaries considered in consolidated financial statements as per FY16

Name of the company

Relationship

Cheese Land Agro (India)

Subsidiary

Private Limited

Sunfresh Agro Industries Private Step down

Limited

Subsidiary

Ownership held by

Prabhat Dairy Limited

Cheese Land Agro (India) Private Limited and Prabhat

Dairy Limited

Source: Company, MOSL

19 June 2017

19

Spotlight |Prabhat Dairy

Exhibit 42:

Utilization of funds raised through IPO up to 31st Mar'17

Particulars

Issue proceeds

Less: Repayment of term loan from Indostar for Prabhat Dairy Ltd

Less: Infusion of funds in Sunfresh Agro Industries Pvt. Ltd. by way of subscription to its

equity shares, of which INR1,388m have been utilized toward repayment of term loan

from Indostar Capital Finance Ltd., and INR339.8m have been utilized toward capex

Less: Fund utilized for payment of expense in relation to IPO

Less: Fund utilized for general corporate purpose

Unutilized balance

INR m

3,000

462

1,739

198

601

0

Source: Company, MOSL

Exhibit 43:

Shareholding as on 31st Mar'17

Particulars

Total Foreign

Total Institutions

Total Govt. Holding

Total Non-Promoter Corporate Holding

Total Promoters

Total Public & Others

Total

No. of shares

25,527,338

3,768,085

0

11,730,822

47,806,395

8,843,491

97,676,131

% of holding

26.1

3.9

0.0

12.0

48.9

9.1

100.0

Source: Company, MOSL

19 June 2017

20

Spotlight |Prabhat Dairy

Financials and valuations

Consolidated - Income Statement

Y/E March

Total Income from Operations

Change (%)

Raw Materials

Gross Profit

Gross margin (%)

Total Expenditure

% of Sales

EBITDA

Change (%)

Margin (%)

Depreciation

EBIT

Int. and Finance Charges

Other Income

PBT

Total Tax

Tax Rate (%)

EO Items

Reported PAT

Adjusted PAT

Change (%)

Margin (%)

FY13

6,411

32.7

5,036

1,375

21.4

5,683

88.6

728

49.6

11.4

244

484

297

8

195

55

27.9

0

141

141

47.9

2.2

0.0

FY13

169

2,205

2,374

2,731

151

5,256

3,027

0

3,027

389

0

2,338

361

797

62

1,119

499

256

205

38

1,840

5,256

FY14

8,567

33.6

6,726

1,841

21.5

7,659

89.4

907

24.7

10.6

335

573

330

10

253

45

17.8

0

208

208

47.7

2.4

0.0

FY14

271

2,909

3,181

2,965

181

6,326

3,187

0

3,187

923

1

2,957

435

1,557

44

921

741

436

251

54

2,216

6,327

FY15

10,034

17.1

7,762

2,272

22.6

8,999

89.7

1,035

14.1

10.3

344

691

412

10

289

29

10.0

0

260

260

25.1

2.6

0.0

FY15

714

2,802

3,516

4,118

178

7,812

4,277

1,218

3,058

1,591

1

3,986

634

2,084

215

1,052

824

622

141

61

3,162

7,812

FY16

11,677

16.4

9,283

2,394

20.5

10,525

90.1

1,152

11.3

9.9

396

757

405

15

366

135

36.8

0

231

231

-10.9

2.0

0.0

FY16

977

5,480

6,456

1,582

57

8,095

5,595

1,617

3,977

245

1

4,554

879

2,263

120

1,292

681

521

114

46

3,873

8,096

FY17

14,099

20.7

11,358

2,740

19.4

12,831

91.0

1,268

10.0

9.0

432

836

294

13

554

274

49.4

189

469

345

48.9

2.4

0.0

FY17

977

5,905

6,882

3,579

159

10,619

6,260

2,049

4,210

265

0

7,010

1,333

2,711

1,656

1,311

867

538

196

133

6,144

10,619

FY18E

16,966

20.3

13,795

3,171

18.7

15,596

91.9

1,370

8.0

8.1

484

885

385

14

514

175

34.0

0

339

339

-1.5

2.0

0.0

FY18E

977

6,102

7,079

3,179

159

10,416

6,660

2,534

4,126

265

0

7,117

1,642

3,239

795

1,441

1,092

680

215

197

6,025

10,416

(INR Million)

FY19E

19,583

15.4

15,631

3,952

20.2

17,798

90.9

1,785

30.3

9.1

507

1,278

348

15

945

321

34.0

0

624

624

83.8

3.2

0.0

FY19E

977

6,611

7,588

2,879

159

10,625

6,860

3,041

3,819

265

0

7,852

2,006

3,414

977

1,455

1,311

728

237

346

6,541

10,625

FY20E

22,601

15.4

17,798

4,803

21.3

20,345

90.0

2,257

26.4

10.0

522

1,735

314

17

1,438

489

34.0

0

949

949

52.1

4.2

0.0

FY20E

977

7,387

8,363

2,579

159

11,101

7,060

3,563

3,497

265

0

8,897

2,452

4,016

958

1,470

1,558

780

261

518

7,338

11,101

Consolidated - Balance Sheet

Y/E March

Equity Share Capital

Total Reserves

Net Worth

Total Loans

Deferred Tax Liabilities

Capital Employed

Gross Block

Less: Accum. Deprn.

Net Fixed Assets

Capital WIP

Total Investments

Curr. Assets, Loans&Adv.

Inventory

Account Receivables

Cash and Bank Balance

Loans and Advances

Curr. Liability & Prov.

Account Payables

Other Current Liabilities

Provisions

Net Current Assets

Appl. of Funds

E: MOSL Estimates

(INR Million)

19 June 2017

21

Spotlight |Prabhat Dairy

Financials and valuations

Ratios

Y/E March

Basic (INR)

EPS

Cash EPS

BV/Share

DPS

Payout (%)

Valuation (x)

P/E

Cash P/E

P/BV

EV/Sales

EV/EBITDA

Dividend Yield (%)

FCF per share

Return Ratios (%)

RoE

RoCE

RoIC

Working Capital Ratios

Fixed Asset Turnover (x)

Asset Turnover (x)

Inventory (Days)

Debtor (Days)

Creditor (Days)

Leverage Ratio (x)

Current Ratio

Interest Cover Ratio

Net Debt/Equity

FY13

1.4

3.9

24.3

0.0

0.0

FY14

2.1

5.6

32.6

0.0

0.0

FY15

2.7

6.2

36.0

0.0

2.2

45.5

19.6

3.4

1.6

15.2

0.0

-4.8

7.8

9.2

10.9

2.3

1.3

19

66

19

4.8

1.7

1.1

FY16

2.4

6.4

66.1

0.4

19.5

51.1

18.8

1.8

1.1

11.5

0.3

-0.1

4.6

6.2

7.0

2.1

1.4

24

68

18

6.7

1.9

0.2

FY17

3.5

8.0

70.5

0.7

18.3

34.3

15.2

1.7

1.0

10.8

0.6

-2.4

5.2

4.6

5.1

2.3

1.3

29

64

14

8.1

2.8

0.3

FY18E

3.5

8.4

72.5

0.5

18.3

34.8

14.3

1.7

0.8

10.4

0.4

0.5

4.9

5.7

6.5

2.5

1.6

32

64

13

6.5

2.3

0.3

FY19E

6.4

11.6

77.7

1.0

18.3

18.9

10.5

1.6

0.7

7.7

0.8

9.5

8.5

8.2

9.0

2.9

1.8

34

62

13

6.0

3.7

0.3

FY20E

9.7

15.1

85.6

1.5

18.3

12.5

8.0

1.4

0.6

6.0

1.2

7.7

11.9

10.8

11.9

3.2

2.0

36

60

12

5.7

5.5

0.2

0.0

-5.9

8.0

7.8

8.2

2.1

1.2

17

36

16

4.7

1.6

1.1

0.0

-5.7

7.5

8.5

9.3

2.7

1.4

17

50

15

4.0

1.7

0.9

Consolidated - Cash Flow Statement

Y/E March

OP/(Loss) before Tax

Interest & Finance Charges

Direct Taxes Paid

(Inc)/Dec in WC

CF from Operations

Others

CF from Operating incl EO

(Inc)/Dec in FA

Free Cash Flow

(Pur)/Sale of Investments

Others

CF from Investments

Issue of Shares

Inc/(Dec) in Debt

Dividend Paid

CF from Fin. Activity

Inc/Dec of Cash

Opening Balance

Closing Balance

Diff

FY13

195

297

-33

-142

561

-4

557

-1,135

-578

0

37

-1,098

800

163

0

574

33

29

62

0

FY14

253

330

-44

-783

90

-4

86

-645

-560

-1

40

-606

598

232

0

503

-18

62

44

0

FY15

289

412

-65

-959

20

-6

14

-481

-467

0

-53

-534

0

1,128

-6

691

172

44

215

FY16

381

427

-151

-765

291

-4

287

-300

-13

0

47

-253

2,834

-2,537

0

-130

-96

215

120

FY17

554

282

-274

-735

259

189

448

-686

-237

1

156

-529

0

1,997

-86

1,617

1,536

120

1,656

FY18E

514

371

-175

-742

454

0

454

-400

54

0

-67

-467

0

-400

-62

-847

-861

1,656

795

(INR Million)

FY19E

945

333

-321

-335

1,129

0

1,129

-200

929

0

15

-185

0

-300

-114

-762

182

795

977

FY20E

1,438

297

-489

-816

952

0

952

-200

752

0

17

-183

0

-300

-174

-787

-18

977

958

19 June 2017

22

Spotlight |Prabhat Dairy

NOTES

19 June 2017

23

Disclosures

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