Heritage Foods to increase its value-added products offering

Strong development projections given by the Parag Milk management during the experts meet sparked a rally in the shares of dairy product manufacturers on Monday. Analysts are optimistic on the sector, with expectations of a normal monsoon and fall in milk procurement prices.

Shares of Parag Milk Food gained 9 per cent to Rs 337 while Umang Dairies and Prabhat Dairy gained 5 per cent each to close at Rs 90.75 and Rs 179, respectively. Tasty Dairy Specialities gained 14 per cent to Rs 49.

The Parag management revealed its Vision 2020 wherein it plans to achieve revenue of Rs 2,700-3,000 crore by FY 2020, implying a CAGR of 18-24 per cent over the period FY 2018-20.

“India’s organised dairy sector is up for accelerated growth with present share at just around 20 per cent of total dairy sector, given higher disposable incomes and low penetration of value added products (VAP),” said Mehul Mehta, senior analyst, Sharekhan.

With the Parag management significantly increasing guidance for revenue growth and operating profit margin, analysts increased their earnings estimates and expect the company’s bottom-line to register 40 per cent CAGR over FY 2018-20, led by higher contribution to revenue from value-added products.

“Rising innovation agenda, scaling up presence in health & nutrition segment, and increasing the distribution network along with a professional management team would provide greater visibility to Parag’s earnings trajectory going forward,” said Harit Kapoor, analyst, IDFC Securities.

“Further, improved profitability and minimal capex requirement will drive positive free cash flow and uptick in overall return profile, thereby driving re-rating in the stock” he added.

The stock of Parag Milk Foods has been range bound for the past few months. It is back on investors’ radar considering the company’s increasing share of value-added products, lower milk procurement cost and cheaper stock valuation.

Milk procurement prices have corrected by 8-10 per cent in March quarter from their peak in June 2017 quarter. Milk prices are expected to stabilise at lower levels for next few months considering lower fodder prices as well as decline in global SMP prices.

Analysts say they expect lower input prices to aid margin expansion of dairy firms. The trend may persist given the prognosis of a normal rainfall in the current year as well.

“With monsoons expected to be normal and the government push likely in the next few months, the firms in the dairy products and other agri related firms would get a lot more business opportunities than in the previous few years,” industry body ASSOCHAM said recently.

One of the leading chocolate manufacturers The Hershey Company has announced its quarter3 global earnings and revenue.

According to a statement by the company, Hershey India has recorded a strong double digit constant currency net sales growth. Among its global earnings, the constant currency net sales for Brazil in the third quarter increased by 3.3 per cent, while for Mexico net sales increased by 10 per cent. India has registered the highest net sales growth of 16 per cent, exceeding plan.

Outside of North America, India is one of only four focus markets for The Hershey Company (Other focus markets China, Brazil and Mexico).

Michele Buck, President and Chief Executive Officer, The Hershey Company said, “We're making measured investments in our core markets of Mexico, Brazil and India, where we're seeing solid marketplace gains. Combined constant currency net sales growth in these markets was 8 per cent, and we're improving on operating income trends at the same time. I'm pleased with our progress in this segment.”

Hershey India has multi category portfolio that includes Hershey milk shake, Hershey sofit, Milk booster etc.

Patricia A. Little, CFO, the Hershey Co, said, “Constant currency net sales in India increased 16 per cent and slightly exceeded our plan. Growth in the brands we're investing behind continues to be solid. Our transition of the India portfolio is enabling a higher margin business, and we are on track to expand gross margins here by 1,000 basis points in 2017. This is enabling adjustments in the local marketplace that should result in a sustainable operating model”.