NEW DELHI: Smart money is chasing milk and milk-based value-added businesses on Dalal Street on hopes of better margins and robust growth in the organised dairy sector.Shares of Parag Milk, Prabhat Dairy, Umang Dairies and other existing players like Heritage Foods and Hatsun Agro have attracted many biggest investors, including institutional players, in recent months.
Indias milk production grew 4.4 per cent last year, which when counted with 5-6 per cent inflation, shows around 10 per cent growth in revenues.Brokerage ICICIdirect, which is overweight on the dairy sector, cites strong revenue growth momentum, a drop in procurement prices leading to better margins, steady improvement in distribution, new launches and a favourable base.Organised players account for just 26 per cent of the overall milk market and this share is expected to grow quickly now.
A drop in milk procurement prices should benefit by B2C players, resulting in higher margins, ICICIdirect said.Renowned investor Vijay Kedia held 1 per cent stake in Heritage Foods as of June 30, while Ashish Kacholia and Mukul Agrawal held 1.70 per cent and 1.20 per cent stakes in Parag Milk Foods.
Institutional investors such as SBI Mutual Fund and DSP Blackrock Mutual Fund held 1.5 per cent stake each in Hatsun Agro at the end of June quarter.
DSP Blackrock Micro Cap Fund and Sundaram Alternative Opportunities Fund held over 1 per cent stake each in Prabhat Dairy.
ICICIdirect is positive on Heritage Foods, Parag Milk Foods and Prabhat Dairy with price targets of Rs 860, Rs 331 and Rs 185 against Fridays prices of Rs 607, Rs 195 and Rs 151, respectively.Heritage sells fresh milk and fresh milk-based products under the Heritage brand and generates most part of its revenues from south India.
The company recently entered north India by acquiring Reliance Dairy.Hatsun Agro is focused on fresh milk and milk-based value-added products.
It has plans to expand its business in Andhra Pradesh and Maharashtra.
Hatsun reported Rs 37.90 crore profit for the June quarter against Rs 35.20 crore reported for the same quarter last year.KR Choksey Shares and Securities said the company is in expansion mode and the capex cycle should get over in the next couple of quarters.
Debt, depreciation and interest cost would put pressure its bottom line in the near term.
We remain optimistic on the companys growth prospects and also on the factors that can lead to an expansion in industry.
India being the largest producer and consumer of dairy in the world, a rise in demand for different products, increase in disposable income, business shift from unorganised to organised sector will expand the sector in the days ahead, the brokerage said.Indias diary sector has been buzzing in recent time.
Godrej Agrovet, Indias largest animal feed manufacturing company, in 2015 acquired a majority stake in Hyderabad-based Creamline Dairy, to make a foray into the dairy business.
French dairy giant Lactalis acquired Tirumala dairy in 2014.
Prudent funding mix and better cash generation will keep capital structure of organised dairies satisfactory with gearing of 1.0-1.2 times, in spite of sizeable capex, says Poonam Upadhyay, Associate Director, Crisil Ratings.
Crisil estimates revenue from value-added dairy products (VAP) to grow at a healthy 14-15 per cent annually over the next three years, or around 50 per cent faster than the overall sectoral growth rate.That, along with a steady growth in milk sales should crank up sectoral revenue to Rs 7.5 lakh crore by financial year 2021 from Rs 5.7 lakh crore in financial year 2018, it said.
Diary stocks have not delivered positive returns to investors this year.
Shares of Hatsun Agro, Heritage Foods, Parag Milk Foods, Prabhat Dairy and Umang Dairies were all down up to 31 per cent YTD till July 25.Milk is Indias largest crop worth around Rs 6.5 lakh crore, much more than that of paddy and wheat put together.Indias per capita milk consumption has jumped from 110 gm per day per person in the 1970s to 360 gm at present.
Some estimates peg Indias per capita milk consumption to grow rapidly in the coming years to equal that of the US and Europe at about 800 gm over the next few decades.
India Ratings expects the milk production to grow at 6.29 per cent to 186 million tonnes in 2018-19.
The size of the liquid milk industry is expected to expand to Rs 7.45 lakh crore in the same period.
With increasing production, per capita milk availability is set to rise to 383 gm a day in FY19, it said.Growth in the sector is likely to come from two factors increase in consumption and a shift from unorganised to organised players.The organised segment is expected to grow at a CAGR of 19.5 per cent over 2015-20, and account for around 25.5 per cent of Indias dairy industry by 2020.
New categories like cheese and cream may grow at 20 per cent and 30 per cent, respectively, while old categories like butter, ghee may grow at around 8-10 per cent.Value-added dairy products account for a meagre 2.3 per cent of the total dairy industry at present.Globally, the EU, India and the US are the largest milk and dairy product producers and consumers.
These countries account for 20.3 per cent, 18.3 per cent and 11.9 per cent share, respectively, in global dairy production.