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Review By Dilip Davda on August 24, 2015

Prabhat Dairy Ltd (PDL) is promoted by first generation farmer family. PDL is an integrated milk and dairy products company in India catering to institutional as well as retail customers. It produces fresh, dry, frozen, cultured and fermented dairy products, including pasteurized milk, flavoured milk, sweetened condensed milk, ultra-pasteurised or ultra-high temperature (UHT) milk, yoghurt, dairy whitener, clarified butter (ghee), milk powder, ingredients for baby foods, lassi and chaas. PDL has recently commenced commercial production of cheese, paneer and shrikhand in Fiscal 2016. The company markets its products under retail consumer brands as well as ingredient products or as co-manufactured products to a number of institutional and multinational companies. As of June 30, 2015, it had an aggregate milk processing capacity of 1.5 million litres per day. PDL's integrated business model encompasses almost all aspects of the dairy industry value chain, including cattle feed supply, engaging with farmers on cattle health and milk production, procurement of raw milk, and the production, supply and sale of a range of processed milk and dairy products.

In Fiscal 2013, 2014 and 2015, sales of institutional products represented 85.42%, 85.29% and 75.76%, respectively, of its sale of finished goods (net) in such periods, while sales of retail consumer products represented 14.58%, 14.71% and 24.24%, respectively. While sales of institutional products have historically contributed to a majority of company's revenues, it has significantly grown retail consumer products business in the past few years, and expects the retail business to contribute an increasing proportion of total sales in the future while the company continues to grow institutional products business. In institutional clients, it has Cadbury (Now Kraft), Nestle, ITC, Britannia, Mother Dairy, Gokul, Mahananda Dairy etc with whom it has contract manufacturing deals of long term. Over the period, it hopes to attain 50:50 of contract manufacturing and own brand manufacturing and aims to enroll over 5 lakh farmers against 75000 it currently has.

For part pre-payment of loans of its subsidiary and raise general corpus funds, the company is coming out with a maiden IPO of Rs. 516 crore that includes approx 2.05 crore fresh equity shares worth Rs. 300 crore and the rest (14706000 equity shares) by way of 'Offer for Sale' by existing stakeholders. The issue is being made via book building route and the price band is fixed at Rs. 140-147. Issue opens for subscription on 28.08.15 and will close on 01.09.15. Minimum application is to be made for 102 shares and in multiples thereon, thereafter. BRLMs to this IPO are Edelweiss Financial Services Ltd, Macquarie Capital Securities (India) Pvt Ltd, SBI Capital Markets Ltd and registrar to the issue is Karvy Computershare Pvt Ltd. Post allotment shares will be listed on BSE/NSE.

Having issued equity shares at par till February 2011, it made preferential allotment of Rs. 1 paid up share at a price of Rs. 11.10 in April 2012, the conversion of CCP issued at a price of Rs. 58 per share in Sept 12 and June 13 and in March 2015 it issued bonus shares in the ratio of 14 shares for every 1 share held that brought its current equity capital to Rs. 71.43 crore that will rise to approximately Rs. 92.00 crore post IPO.

On performance front for last five fiscals, it has been posting 37% CAGR in top line and around 47% CAGR in EBIDTA. The company has posted an average EPS of Rs. 2.95 (On consolidated and diluted basis) and Rs. 0.49 (on standalone and diluted basis) for last three fiscals. For the said periods, its RONW has hovered around 6%. On consolidated basis it has reported net profit of Rs. 21.04 crore on a turnover of Rs. 1001.74 crore for FY15 against net profit of Rs. 20.78 crore on a turnover of Rs. 857.68 crore expresses pressure on margins. If we attribute FY15 earnings to fully diluted equity of Rs. 92 crore then the asking price at the upper band is at a P/E of 64 against industry composite of 24. It has a listed peer i.e. Hatsun Agro that is quoting at a P/E of around 71 (as on 24.08.15). To retail investors it will cost at a P/E of around 62 as they are getting Rs. 5 special discount on the final cut off price. Due to fancy witnessed for white revolution segment, this IPO is set to generate interest. PDL is emerging as a leading organized player in dairy products with world class latest technology and manufacturing facility.

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