SENSEX: 36519.96 196.19

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Multi Baggers

Ventura Securities

12.00 AM Oct 17th 2016

Prabhat Dairy

BSE ID : 539351     NSE ID : PRABHAT


PEAK FROM RECO 258.00 123.18%

CURRENT PRICE 168.60 45.85%

Prabhat, incorporated in 1998, is an integrated milk and dairy producer with aggregate milk processing capacity of 1.5 mn litres per day. We initiate coverage on Prabhat Dairy Ltd as a BUY with a price objective of Rs 220.

Prabhat Dairy

Prabhat Dairy Ltd (Prabhat) has established itself as a preferred specialty ingredient supplier to top MNC clientele. Its recent shift to focus on the B2C segment and introduction of a complete portfolio of dairy products augurs well for the next leg of growth. The strong outlook of the organized dairy sector and boost in consumption of VADP is expected to drive the revenues for the company. Moderate pricing, aggressive A&P spend (1.4% of revenues) and focus on increasing distribution reach of B2C products is expected to help build the brand and drive product reach. Over the period FY16-19, we expect revenues to grow at a CAGR of 18% to Rs 1,924.6 cr while earnings are expected to grow at a faster clip (63.7% CAGR) to Rs 107.6 cr.

We Initiate coverage on Prabhat Dairy Ltd as a BUY with a price objective of Rs 220 representing a potential upside of 86% from the CMP of Rs 118. At the CMP of Rs 115.6 the stock is trading at 10.7X its estimated earnings for FY19. We have assigned a PE multiple of 20X on FY19 EPS of Rs 11 to arrive at the target price.

We are optimistic about the company's prospects given that:

India's dairy industry is expected to maintain growth at a CAGR of approximately 14.9% between 2015 to 2020, to reach a value of Rs 9,397 billion by 2020 from Rs 4,061 billion clocked in FY14. 

Share of the high margin VADP (value added dairy products) is expected to surge to 36% in FY19 from the existing 25%. 

Commissioning of its 30 tpd cheese plant (third highest capacity in India) is expected to be the growth lever for Prabhat going forth. We expect Prabhat to generate Rs 104.8 crore of revenues from cheese by FY19. 

In order to downsize its dependence on B2B sales, Prabhat is constantly ramping up its B2C business over the last couple of years. Through new product launches and higher A&P spend, share of B2C business has risen from 11.3% in FY12 to 30% in FY16 which is expected to scale upto 44% BY FY19.

Prabhat's strategy of increasing its penetration in tier II and tier III cities is a step in the right direction since the presence of top dairy player in these cities is low. With moderate pricing policy Prabhat is expected to gain market share at a brisk pace in key markets.

Prabhat has clocked highest EBITDA margins in the dairy space. With steady monsoon and firm availability of milk, we expect EBITDA margins to take an upswing 130 bps from 10.2% in FY16 to 11.5% in FY19.

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