Govardhan is our flagship brand for Cow Ghee: Devendra Shah, Parag Milk

Gowardhan is our flagship brand for cow ghee at India-level and it is a consumer product, says Devendra Shah, Chairman, Parag Milk Foods. In an interview with Swati Khandelwal, Zee Business, Shah said “Milk prices are at its peak point and they won’t increase further as well as remain stable for the next 2-3 months. Edited excerpts: 

Q: What are your company’s business plans for growth in a competitive market like this one?

A: Procurement in the dairy industry has grown by 8-11% country-wise. We have a focus on cheese business, which is a high value-added product and is growing by 25%.  The company had graphed this opportunity earlier and is also focused on distribution for the last three years. 

Q: How do you see your company’s growth on the next level and what are your plans for FY20 and how important is this fiscal for you? 

A: We have provided our guidance for the next 3 years and we will be achieving a growth of around 15-20%  and crossed the journey last year. We faced milk rate challenges this year, but we have settled it down in the first quarter itself. The monsoon in the country is good. The international prices are suppressed and there was an impact of the drought of Maharashtra and the southern states of India from the past 1.5-2 months. The impact will resettle in the next 1-1.5 months and milk production will resume. We will be able to continue the growth path.  

Q: The procurement prices were increased by Rs5-6 per litre by the dairy co-operatives. What is your cost of procurement?  

A: The prices of our consumer products were increased in May 2019 and milk price realisation of Rs28.50 is being given to the farmers. This has happened especially in Maharashtra. The productivity increases when the farmer gets better prices, which further leads to increased production. This turns out to be helpful. We feel the production will remain constant for the next 3 quarters and milk production will increase. 

Q: The company seems to be more focused on value-added products, which is the by-products of milk. How much revenue can this generate and how will it positively impact the business? On which products will you focus on, in terms of value-added products?

A: Gowardhan is our flagship brand for cow ghee at India-level and it is a consumer product. We will be focused on it as it has a high demand during the festival seasons of Diwali and until December. ‘Go’ is the brand for cheese and other products.  The consumption of cheese is growing at 25-30% in the country and we are taking advantage of this situation by increasing our distribution in the cheese business. Recently, we have developed an infrastructure for our whey protein brand ‘AVVATAR’ which will focus our business towards healthy nutrition.

Q: What is the impact of value-added products which includes whey protein, Go and Gowardhan on your business? Can you quantify it? How are the profitability margins of the value-added products?

A: The value-added products’ business accounts for 67% out of which ghee holds 22-23%, cheese business holds 23-23.5% and other products hold the rest. We will be able to maintain the profitability margins of 5-7% for the next 3 years and we can maintain it.

Q: What are the plans for expanding your graphical reach in the domestic and international markets? How much will you be spending on advertisements and what is the amount of CAPEX that you are expecting?

A: We have a budget of 3% on marketing spends and we are distributing our product domestically across India.  We have to distribute the product and make it available according to its needs in certain geographical areas, for example, Paneer, that has a ling-shelf life of 75 days. We have worked a lot last year to make it available and distribute across the nation. Our whey protein product was accepted well, and it stood well when compared with international brands. There was a dedicated distribution system for it and we were able to develop a market like nutrition shops and gym for it. Earlier, this market was quite dependent on the international market. We are a pioneer in ‘locals-first.’ The product is based on pure vegetarian sources, is fresh and it has created confidence in the consumers.

Q: Will the prices of milk increase further and what is your outlook regarding it? Do you think dairy products will get some relief in the GST council and what is your demand for the industry?

A: The prices are at its peak point and they won’t increase further as well as they will remain stable for the next 2-3 months. There is a 12% GST on cheese and our company had earlier submitted a representation to the Finance Ministry as well as dairy organisations, but we don’t hope anything on cheese. However, the GST on Ghee should be brought down to 5% from 12%. The government is thinking seriously about it.