ICICI Securities: Parag Milk Foods - Lower B2B Sales Leads To Q1 Revenue Decline

ICICI Securities Report

Key reasons for weak Q1 FY21 performance of Parag Milk Foods Ltd. -

1) Steep decline in sales to B2B segment (i.e. hotel restaurant cafe (HoReCa) segment and ingredient user industry) due to lockdown. However, there was some recovery in in-home consumption,

2) Lower sales of SMP with decline in skim milk powder (SMP) prices and

3) 220 basis points lower Ebitda margin due to consumption of higher priced inventory carried from earlier quarters.

We expect

1. Revenues of core products (paneer, cheese, ghee etc.) to gradually recover Q2 FY21 onwards,

2. There will be slower recovery in HoReCa segment,

3. Liquid milk segment is expected to reported single digit growth in FY21 and

4. with reduction in milk procurement prices, Ebitda margin is likely to expand to 9.6% in FY22 from 8.7% in FY20.

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