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PARAG MILK FOODS LTD.

Dairy Industry

Source : CRISIL Report


Source : CRISIL Report
Source : Parag Foods Investors Presentation
Revenue 17-18 Milk Processing
Company Name (in crores) Capacity (LPD) Territory Products
Pan India although lower penetration in Milk, Icecreams, Curds, Indian Sweets (Rabdi
South India due to presence of KMF, etc), Milkshakes, Paneer, Cheese, Chocolate,
AMUL (GCMMF) ₹ 29,224.80 5 million OMFED and other co-operatives Cream, Milk Powder

Milk, Milkshakes, Ghee, Curds, Butter, Milk


Nandini (KMF) ₹ 13,556.00 0.7 million Primarily South India powder, Icecream, Frozen Desserts, Chocolates

Milk, Milkshakes, Ghee, Curds, Butter, Milk


powder, Paneer, Probiotic Drinks, Icecream,
Mother Dairy ₹ 7,000.00 .7 million Delhi NCR and surrounding areas Frozen Desserts

North India (primarily Delhi NCR and


Kwality Ltd. ₹ 6,737.88 4.3 million surrounding areas) Milk, Curd, Buttermilk, Cream, Milkshakes

TN, Karnataka, AP, Telangana, Puducherry,


Goa (Plans to open in MH, KL, Orissa, Milk, Icecreams, Curd, Ghee, Milk Powder,
Hatsun Agro ₹ 4,298.11 3 million Chattishgarh) Chocolates

Andhra Pradesh, Telangana, Karnataka, Kerala, Fresh milk, curd, butter milk, lassi, ice-cream,
Tamil Nadu, Maharastra, Odisha, NCR
Delhi,Haryana, Rajasthan, Madhya Pradesh, panner, table butter, milk powder, flavored
Heritage ₹ 2,343.70 2.57 million Punjab, Uttar Pradesh, Gujarat and Uttarakhand. milk, UHT milk and dairy whitener

Milk, ghee, butter, cheese, curd, milk powder,


Tier 1 cities and parts of Maharashtra, MP, paneer, gulab jamun mix, UHT milk, fresh
Parag Milk Fods ₹ 1,954.51 2.9 million Karnataka cream, cheese, yoghurt, buttermilk, lassi
Milk, Icecreams, Curds, Indian Sweets (Rabdi
etc), Cottage Cheese, Khoa, Milkshakes
OMFED ₹ 753.10 0.67 million Limited to Orissa
ESTIMATED GROWTH POTENTIAL

Source : Parag Foods Investors Presentation


PARAG MILK FOODS LTD.

• Started in 1992 in Manchar, Maharashtra

• Vision: "To become one of the largest FMCG dairy organizations with focus on health
and nutrition segments. Click to add text

• It endeavors to boost milk productivity, reduce cost of production and make it affordable
for the masses.

• Turnover (in crores)


2014 2015 2016 2017 2018
1079.22 1420.20 1622.95 1701.09 1989.2

Source:
Source : Parag Foods Investors Presentation
PRODUCT PORTFOLIO

Source : Parag Foods Investors Presentation


PORTER’S GENERIC STRATEGY FRAMEWORK
Source of competitive advantage

Cost Differentiation
Cost Leadership Differentiation

Broad • Govardhan • Pride of Cow


• Go • AURUM
• ToppUp • Avvatar
Scope

• Slurp

Cost Focus Differentiation focus


Narrow

• NA • NA

http://www.paragmilkfoods.com/about-us.php
STRATEGIC INITIATIVES TAKEN

Partnering with TajSATS


The company tie-up with Taj Group to
supply its products on international
flights in December 2017 Collaboration with
ColoPlus AB
Collaboration with Swedish
Acquisition of Danone’s M &A research organization ColoPlus
Sonipat facility AB to launch a colostrum-based
Acquired the dairy factory of Danone nutrition product in India by
Foods and Beverages India Pvt. Ltd, acquiring the patent rights for this
Danone technology from the Swedish
the local entity of French dairy firm
Danone SA Danone’s Unit in Sonipat, company in 2018
Haryana in 2018 to cover Northern
states

Source: https://economictimes.indiatimes.com/industry/cons-products/food/parag-milk-foods
STRONG PRESENCE ACROSS VALUE CHAIN

Dairy Farming Processing Branding


Owns 2500 Holstein Capacity of processing Owns 7 Brands –
Freisan cows 2.9 Million litres per day Targeting distinct
consumer groups
with distinct needs

Milk Distribution
Procurement Network of 7 depots,
Relationship with over 140+ Stockiest, 3000+
Distributors –
2 Lakh farmers – Forward Integration
Backward Integration

Source : Parag Foods Investors Presentation


EXISTING PRESENCE OF PARAG IN INDIA

Source : Parag Foods Investors Presentation


PORTER’S 5 FORCE ANALYSIS
THREAT OF NEW ENTRY -
MEDIUM COMPETITIVE RIVALRY -
Government is providing subsidies to HIGH
encourage milk production especially in NE
states. There is a huge untapped market, but 01 05 There are lot of competitors including state
cooperative societies. There are number of
requirement of high capital investment players who are fighting for the market share.
makes it challenging to new players There is also competition from the
unorganised sector in rural areas. In rural
areas branded milk faces tough competition
SUPPLIER POWER - LOW from local dairy farmers who sells milk door
Dairy industry has a larger supplier base in to door (doodhwalas)
rural area and they are not united. It is
fragmented. It is not organised, they are
02 04
united by milk cooperatives THREAT OF SUBSTITUTION
- LOW
BUYER POWER - HIGH 03 Even lot of other beverage try to be a
substitute for milk. Due to its high protein
Since we have a multiple player are operating content they are nowhere closer to milk
in the industry, customers have lot of options
EXPANSION TO EAST & NORTH EAST INDIA
SCOPE IN NORTH-EAST INDIA

• Regions with wet climate are favourable for setting up dairy farms and processing unit
• Co-op & Private players already offering skimmed milk and want to increase offering to Value
added Products
• Largely unorganised and untapped market where farmers can be connected to the dairy supply
chain/market
• Scope/strategy – to forge alliances with local players and sell products under existing brand name
• Mother Dairy and ITC already selling dairy whiteners in the region for some time
• Market study by PwC shows that there is immense demand for value added dairy products
(cheese, ice-cream, paneer etc)
SCOPE IN NORTH-EAST INDIA

• Milk – deficit region , requirement is largely serviced from other states


• Lower milk production in this region has been a major deterrent for investments in procurement and
processing in N-E states

• Existing local players( don’t have any threat to their business) will turn supportive to set up the logistics
infrastructure for new big entrants and increase production
• Government is positive towards bringing new players by providing subsidies
• Policies have been framed which allow both Indian and Bangladesh currency for business
• Existing small-time players (nearly 5-8 including co-op & private)
• Face issues like low feed supply, lack of infrastructure, low capacity of indigenous animals
• Currently satisfying need through hybrid animals which increased production
DEMAND SUPPLY GAP IN NORTH-EAST

Gap gms
Recommended milk Per capita availability of /day per Gap MT Gap in 1000' MT
State per day (gms) Milk (gms) Population person per day per year
Arunachal Pradesh 220 109 15,28,296 111 169.64 61.92

Assam 220 71 345,86,234 149 5153.35 1880.97


Manipur 220 75 30,08,546 145 436.24 159.23
Meghalaya 220 83 32,76,323 137 448.86 163.83
Mizoram 220 62 12,05,974 158 190.54 69.55
Nagaland 220 91 21,89,297 129 282.42 103.08
Sikkim 220 228 6,71,720 0 0.00 0.00
Tripura 220 114 40,57,847 106 430.13 157.00
Total 7111.18 2595.58
Total demand supply gap : 7105.80 MT per day . 2595.58 1000’ tonne per year
(calculations based on data obtained from NDDB for the year 2017-18)
CONSTRAINTS IN NORTH EASTERN
STATES
• Major deterrents
• Inadequate Infrastructure i.e. warehouses & cold storages
• Unavailability of nutritious fodder for cattle and
• Dearth of quality planting material,
• Illegal market routes for livestock and poultry in the region
HOW THESE CONSTRAINTS CAN BE
TACKLED????
• Acquiring Red Cow Dairy can pave the procurement and supply channels in Siliguri
• Construct 2 new Processing plants in the NE states and tie-up with milk collection
cooperatives
• Provide good quality fodder to
STRATEGIC LOCATION
WHY SILIGURI ?

• Siliguri is the best trading centre for traders in the North East Region as it
connects the entire North East Region with the adjoining countries, such as, Nepal,
Bhutan and Tibet
• Siliguri has highly favourable climate conditions conducive to dairy farming
• Need to develop local entrepreneurs for local and neighbouring markets and adding
value to the products with a touch of glamour like souvenirs for tourists
• National Dairy Development Board (NDDB) encourages private players and helps in
creating logistics infrastructure setup
THE NEW PLANT SETUP AT SILIGURI

Estimated Capital Cost: Rs: 30,00,00,000


• Products to be manufactured
Pouched Milk, Flavoured Milk, Pouched Butter Milk, Cup Curd, Mishti Dahi,Yogurt
• Plant Capacity
75000 liters per day of raw milk
• Timeline for setting up of plant
2020 - 2023
FINANCING OPTIONS

Long Term Finances


• Holding Company Bank
• Subsidiary Company Bank
• Financial Institution
• Non-Convertible Debentures
• Internal Reserves of Rs. 29 Cr
• FPO since it is a listed company
GOVT. SUPPORT IN EAST AND NORTH EAST

• Income tax exemption for five years for the new industrial units set up in the region.
• Providing 90% transport subsidies for raw material procurement and 50% for finished goods marketing
• Capital investment subsidy (CIS) at 15% of investment in plant and machinery, subject to a maximum
ceiling of 30 lakh INR will be given. Eligibility conditions will be same as in case of tax benefits.
• Interest subsidy of 3% on working capital loans will be provided for a period of 10 years. Eligibility
conditions will be same as in case of tax benefit.
• A comprehensive insurance scheme for industrial units to be designed, in consultation with GIC and
100% premium to be borne by the Indian government for 10 years.
• Bangladeshi border - No local tax would be imposed on the trading, and both Indian as well as
Bangladeshi currencies will be accepted
BREAKEVEN ANALYSIS

(Amount in ₹ crores)
Capacity of plant 75000 lpd
Total qty/ yr 75000*365=2,73,75,000 ltr
Rate/ltr 25
Annual Sales 68.4375
Operating cost 47.90625
Investment cost 30
Profit /year 20.53125
Breakeven in years 2.46
STRATEGY MAP/ BALANCED SCORE CARD
NEW ACQUISITIONS

• In order to venture into East and North East market:


• Acquire smaller dairies such as Red Cow Dairy (West Bengal)

• Red Cow Dairy: Proprietership company


• Annual turnover of ₹255 crores
• New plants being constructed in Udayanarayanpur (50,000 LPD) and Jogra (3.5L LPD)
• 225 distribution centres across West Bengal
• Supply chain presence in Assam and Jharkhand

Source : www.theweekendeader.com
ADVANTAGES OF ACQUIRING RED COW

• Ready supply & distribution channel in West Bengal and some parts of Bihar, Jharkhand
and Asam
• Additional processing capacity of 4 Lakh LPD
• Increased procurement base in the Eastern region
• Hub for distributing milk across the Eastern and NE parts of the country

Source : www.theweekendeader.com
FINANCIAL FORECAST
FY18 FY19 FY20 FY21 FY22 FY23 FY24
Sales 1,924 2,116 2,828 3,181 3,579 4,026 4,601

Expenses 1,292 1,422 1,895 2,131 2,398 2,818 3,221

Gross Profit 632 694 933 1,050 1,181 1,208 1,380

Operating expenses 440 507 530 565 603 680 740

Operating Profit 192 187 403 484 577 528 640

Depreciation 49 49 60 65 67 75
70
EBIT 142 138 343 419 511 458 565

Interest 35 34 55 90 85 80 75

EBT 108 104 288 330 426 378 490

Tax 29 28 78 89 115 102 133


Net Profit 78 76 210 241 311 276 358

Acquired Red Set up


Cow Dairy Manufacturing
plant at Siliguri
PRODUCT LINE EXTENSION

Premium Segment- Product Differentiation Strategy


• Parag has its presence in the premium segment through its subsidiary Bhagyalaxmi Dairy under the brand
name ‘Pride of Cows’. It sells Premium milk at 2x times the price of normal milk.
• This segment which has been having a CAGR of 21.7% can further expand its product line by introducing
new healthy and organic herb-based milk.
• REBBL is a US based beverage company that excels in natural herb-based beverages. They use 100% organic
and finest herbs to form a range of health beverages. Their beverages are based out of coconut milk.
Parag can incorporate the same in their own brand of ‘Pride of Cows’ milk.
• The R&D team will perform experiments on how organic herbs can be fused with milk and sold as premium
beverages.
• The variety will include coffee and chocolate that can be mixed with herbs such as Turmeric,
Ashwagandha, Ginger and such organic herbs.

http://www.paragmilkfoods.com/about-us.php
REBBL PRODUCTS

https://rebbl.co/
NEW PRODUCT LINES

Ice Creams
• Ice creams are easy to make and sell in paper cups or plastic containers. They maximize sales as they are
sold through different channels and outlets. But India has many major players in this field like Amul,
Mother Diary, Havmor Vadilal, etc.
• Therefore for Parag to enter into ice creams, it can only look for acquiring stakes in existing ice cream
brands. The prospective brands can be Vadilal or Dinshaw.
• Vadilal is a prospective brand because it’s recent performance and drop in share price gives Parag the
chance to restore this ice cream brand.
• Dinshaw is a prospective brand and is popular in Maharashtra and Central India. Since Parag also has a
strong hold in these regions, they can easily enter into the ice cream field through this acquisition.
NEW PRODUCT
LINES
Yak Milk
• Yak milk is rich in calcium and iron than
cow’s milk. It has high levels of amino, fatty
acids and antioxidant vitamins.
• Yak is predominantly found in the Himalayan
regions of India.
• Based on the plan for expansion to the
North Eastern region, Parag can start its
supply of Yak milk. The milk can be procured
from the local yak breeders, processed,
bottled and sold under its wing.

https://www.thebetterindia.com/173064/milk-cow-camel-almond-coconut-yak-goat-soy-coconut-alternative-india/

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