Parag Milk has a target to grow by 15-18% this year: Devendra Shah, Chairman

Devendra Shah, Chairman, Parag Milk Foods, talks about Q1FY2 numbers, margins, price hike plans, product pipeline, CapEx, export markets, promoter’s holding, growth opportunities and plans related to diversification among others during a candid chat with Swati Khandelwal, Zee Business. Edited Excerpts: 

 Q: The Company has seen good growth both on a yearly and quarterly basis. What has helped and how will you summarize the results of the quarter for the company? 

A: If we have a look at this quarter then the second round of lockdowns had started, due to which we had a little impact on the HORECA business and the rest of the business. However, the demand remained good in the consumer business like ghee, paneer and other consumer products. Of course, we got some help as the milk prices were a bit buried in the pandemic situation and we received some advantage of it. The same trend is continuing in the second quarter as well and it will help us in the same way. Currently, 80% of restaurants, HORECA chains and Pizza chains all across India are operational. So, I think, in a similar manner the second quarter – in which few festivals like Raksha Bandhan, Ganesh Puja and August 15 celebration will fall – will be. This is the look forward. 

Q: What has led to margin expansion and what is the outlook on margins that will sustain at these levels?

A: Absolutely, it will be sustained. It was 1-2% on the higher side in the first quarter but 4% of the margin is the average that will stay throughout the year. The monsoon trend, availability of the milk and the demand pattern gives us confidence that it will remain the same throughout the year. 

Q: Any price hike has the company has taken and what is the outlook on pricing going forward?

A: Recently, we took a price increase especially in fresh milk and related products. The second price hike may be there before Diwali and looking at that, we have maintained the average milk price and the inventory, which will help us in the bottom line.

Q: You said that there can a price hike before Diwali. What can be the quantum, i.e., the price hike we saw recently, or it will be more or less than it?

A: It will be the same quantum. But the top line remains better than this in the second and the third quarter and consumption increases in this period. 

Q: Your presentation says that your revenues from Milk products has come down from 74% of total revenues in Q1FY21 to 67% and Revenues from skimmed power has increased from 14% to 22%. Is there any change in strategy and what will be the focus segment going forward?

A:  Our focus is the same, Gowardhan Cow Ghee, Go Cheese, Paneer and Absolute whey protein. So, we will focus on these four products, and we will move ahead with these products. 

Q: Can we see few new product launches, if yes, which are the segments where you will focus in terms of launches?

A: Few of the products have already been launched like in the Pride of Cows, we have launched fat-free milk. We have also launched plain Yoghurt. We have also launched Pride of Cows ‘Single Origin Ghee’. So, our sales and marketing teams are making efforts to promote it. Absolutely, Parag is known, and Go Cheese is known for its innovation. We have introduced several innovative products in the country. Few of our products are in R&D and are in pipeline and in the coming days, we will be launching new types of innovative products. We will launch many new products in the next couple of quarters. 

Q: Can you provide some details about what can be the products, the category?

A: Maximum will happen in the cheese segment like during the last lockdown when people while being at homes were consuming Pizza more, so, we launched shredded variants of cheese like four-cheese pizza, mozzarella pizza, pizza cheese and more as well as new pizza ranges. On similar lines, we will launch few new products in the cheese category. 

Q: What is an update on the production capacity and what are the expansion plans of the company for this year and what is being lined up for the next two years? What is the CapEx and what is the debt situation of the company?

A: From the recent investment we took, we have enough CapEx for the top line and product-based manufacturing of up to Rs 3,500-4,000 crore. Further, CapEx will be done wherever it is needful through internal accruals and that is enough for us. Similarly, we have reduced our debt by Rs 150 crore (short-term and long-term debts) and by early 2023, Parag’s working capital debt will be zero. This is the long-term planning of the company. 

Q: What is your view on the export markets and where opportunities are visible? Also, what is exports contribution to the revenues?

A: Currently, export stands at around 3.50% to 4%. Internationally, there is a demand, and we have a focus on consumer products and in it, around this year our export business will reach around 4-5%. 

Q: Earlier this year the company has done fundraising of Rs 316 crores by preferential allotment of equity shares, FCCBs and other instruments, at that time company has told that the promoter stake will be maintained at 46%. But as per your shareholding, your stake has come down to 40.75% from 46% ~ Why this?

A: These are share warrants that should be done by the promoters, and this is why it is looking for that way. Currently, it is a total of 46% after being converted. 

Q: What are your plans to reward the shareholders and what should be expected from the shareholders perspective, i.e., do you have any plans related to buyback or bonus?

A: For the AGM, we have proposed the dividend of the last year. As far as next it is concerned, it is too early to say but absolutely, we are thinking nice for the shareholders also. We through our profit and margins of the distribution have a focus on the bottom line. Based on the same, we are planning the growth of around 15-18% and this year the monsoon and other environment is so good. Our team performed well even during the pandemic situation. 

Q: Update us about the inorganic growth opportunities that you have at present, and do you have any plans to diversify beyond your business?

A: We will focus on the same. But the business of whey protein has a great opportunity in the country and the government is also thinking very positively in the direction and is looking towards the ideas of supporting the Indian products. The government’s milk policy in which has decided to double the milk production in another five years will also help in the business. I think, our infrastructural advantage has an opportunity.