A look at how dairy companies performed in the last 5 years

Kwality shares have cracked 13% in the last one month and 4% in the last one year

Kwality, one of India’s most well-known dairy companies, hit its lower circuit earlier this week at the bourses on speculations that the company may be facing some debt issues or pledged shares being sold in the market. The stock recovered partially on Tuesday, gaining over 5% after management declined the news. 
 
The management further said in an interview with a news channel that it is unaware of any significant information which is leading to the fall of the share prices.
  
The developments triggered a sharp fall in the stock, which lost around 25% between September 1 and September 4. The shares have cracked 13% in the last one month and 4% in the last one year. In comparison, the S&P BSE Sensex has fell 1.9% in one last month and gained over 9% in the past 1 year.

 

For the quarter ended June 30, 2017, the dairy firm in August posted a 34.06% drop in consolidated net profit at Rs 27.87 crore against Rs 42.27 crore in the same quarter of last year. The net profit took a beating as the company’s expenses, including finance cost, rose to Rs 1,536.96 crore in the April-June period of the current fiscal from Rs 1,418.92 crore in the year-ago period. 
 
However, the sudden decline in Kwality is an isolated event that did not have a rub-off effect on the other dairy stocks. According to AK Prabhakar, Head of Research, IDBI Capital, “the drop in Kwality will not affect the other dairy stocks as the business segment per se has not been affected. The stocks have maintained their market share and are growing consistently. Prabhat Dairy, for example, has been consistent in growth.” 

 
“That said, dairy stocks have always remained under margin pressure compared to other consumption stocks. But the conditions will improve if the sector is streamlined. I think 5-10 years from now, the sector will move towards the branded milk / products space. I think it is a very good sector to invest in if the corporate governance in the companies are up to the mark,” Prabhakar adds.
  
Mayuresh Joshi, Fund Manager, Angel Broking also agreed, saying,” For dairy industry, the growth prospects are looking very feasible, if you look at capacities, the kind of revenue one expects from the core businesses are very reasonable. Also the companies are getting into value-added products, like flavoured milk, cheese, so along with those, the blended margins look far better.” 

 
In FY17, the company posted a profit of Rs 194 crores, the highest in comparison to its peers, according to the data compiled by AceEquity. Heritage Foods, Prabhat Dairy and Parag Milk reported net profit of Rs 66 crore, Rs 46 crore and Rs 17 crore respectively. 
 
“The earnings seem to be pretty good and will only rise in the coming years. Valuations for a few stocks might be elevated, assuming growth at a certain pace, but largely as per the consumption patterns and expectations, earnings, reveue growth should be in the double digits in the coming years,” Joshi added.

 

	PAT ( Rs Crore)
Company	2013	2014	2015	2016	2017
Heritage Foods Ltd.	52.28	45.68	28.36	55.43	66.82
Kwality Ltd.	107.64	144.93	166.53	163.97	194.15
Parag Milk Foods Ltd.	NA	NA	32.21	47.32	17.13
Prabhat Dairy Ltd.	NA	NA	25.99	23.15	46.94

Source: Ace Equity 
 
For all the players, the net sales were seen rising consistently in the last 5 years. Kwality, however had the highest sales figures among its competitors during the period followed by Heritage Foods and Parag Milk.
 
 

	Sales (Rs Crore)
Company	2013	2014	2015	2016	2017
Heritage Foods Ltd.	1580.30	1695.06	2033.48	2328.95	2572.92
Kwality Ltd.	3929.01	5002.79	5876.99	6348.10	6871.83
Parag Milk Foods Ltd.	NA	NA	1444.14	1645.20	1730.74
Prabhat Dairy Ltd.	NA	NA	999.07	1167.70	1409.87

 Source: Ace Equity

 
The EBITDA for the company was also seen rising in the period. Apart from Parag Milk; Heritage Foods, Kwality and Parag Dairy all saw an uptick in the EBITDA for FY17.

	PBIDT (Rs crore)
Company	2013	2014	2015	2016	2017
Heritage Foods Ltd.	101.08	94.98	82.03	130.80	141.31
Kwality Ltd.	223.19	293.35	349.93	386.46	453.60
Parag Milk Foods Ltd.	NA	NA	107.19	148.20	108.16
Prabhat Dairy Ltd.	NA	NA	103.51	115.25	126.79

Source: Ace Equity