Parag Milk Foods initial public offer hit capital markets on May 4 to raise Rs Rs 760 crore from the equity market at a price band of Rs 220-227 per equity share. The company raised nearly Rs 343 crore from anchor investors on Tuesday
The company allotted shares to the anchor investors at Rs 227 apiece, the upper end of the price band fixed for the IPO.
This would be the third initial public offer in less than one week to hit the market after Thyrocare Technologies and Ujjivan Financial Services.
The issue has opened on Wednesday and will close on May 6.
The company is one of the leading manufacturers and marketers of dairy-based branded foods in India.
Below are 5 brokerage houses and their expectations from the IPO
According to Sharekhan, at a price band of Rs 220-227, the issue is priced at 56.1-57.8x its price-earnings (PE) ratio for FY2015 consolidated earnings per share (EPS) of Rs 3.9. Despite similar margin profile, Parag Milk Foods Ltd’s valuations at the offer price are at a premium to some of its nearest peers. The improvement in profitability and operating cash flows will be the key performance drivers for the company in the near to medium term.
The brokerage house in a research note said, “At the upper end of the price band, the issue is priced at price earnings ratio of 44.7x based on annualised FY16 net profit and diluted equity base, while peers like Prabhat, Hatsun and Heritage Foods trade at 49 times, 47 times and 24 times, respectively. However, on EV/EBITDA basis, Parag Milk would trade at 15.6 times compared to 9.3 times for Prabhat and 9.9 times for Heritage Foods based on annualised FY16 performance. Similarly, its ROCE at 12.3 per cent would be lower compared to Hatsun (18.1 per cent) and Heritage Foods (19.6 per cent).”
According to Prabhudas Lilladher, sustained 15-20 per cent sales growth, debt repayment of Rs 100 crore and improvement in cash flows will enable the company achieve 30 per cent net profit CAGR over FY16-18. The stock at 37 times FY16E would offer limited listing gains. Long-term prospects look encouraging with scope of decent returns over the coming 2-3 years. The brokerage house has ‘Subscribe’ rating on the IPO.
The company is growing its business in value added products like ghee, butter, cheese, paneer and whey protein and is having 32 per cent market share in cheese market. Revenue for 9MFY16 is around 12,311.8 million and is growing around 21.6 per cent CAGR over 5 years. Its EBIDTA for 9MFY16 is around 8.8 per cent which was 7.8 per cent in FY11. Net profit for 9MFY16 stood at around 319.2 million and the margin was around 2.6 per cent compared to 0.1 per cent in FY11. Brokerage house gives ‘Subscribe’ ratings for long term perspective on Parag Milk Foods IPO.
At the upper end of the issue price band, the company is seeking a P/E multiple of 37.6x its 9MFY2016 annualized earnings based on pre-issue outstanding shares. This is lower than its close peer Prabhat Dairy’s valuation, which is trading at a higher multiple of 49.8x its 9MFY2016 annualised earnings (despite of PMFL’s better return ratios). Further, retail investors will be given a discount of Rs 12 per share. The company will continue to perform well on both the top-line and the bottom-line front. The brokerage house recommends ‘Subscribe’ rating from a longer term perspective.