PRABHAT DAIRY. Discovering greener pastures. India Midcaps

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1 India Midcaps INITIATING COVERAGE PRABHAT DAIRY Discovering greener pastures India Equity Research Dairy Prabhat Dairy (Prabhat) has established credentials as a specialty ingredients supplier logging 25% revenue CAGR over FY The company is on course to be a value-added player, catapulting its gross block >40% in FY16, to be the third-largest cheese player in India. Further, it is advancing as a B2C player (sales mix to rise from 27% to 37% over FY16-18E) with aggressive brand spends (~49% ad spends CAGR over FY16-18E). We estimate Prabhat s value-added segment s capacities to yield 17% sales and 20% EBITDA CAGR and adjusted pre-tax RoCE to jump an impressive 386bps over FY16-18E to 15% (17.1% including incentives). We estimate PAT to post 72% CAGR with full deployment of capex and repayment of debt. Initiate coverage with BUY and TP of INR144. Coursing ahead to be a value-added player Leveraging its strong track record as a specialty ingredients supplier to large global dairy players, Prabhat catapulted its gross block in value-added products >40% in FY16, to be the third largest cheese player in India. On the anvil is a 2-pronged strategy to scale up its value-added sales in HORECA and B2C segments via tier II/III cities with targeted ad spends at 1.3% of sales (0.8% in FY16). Consequently, share of valueadded products is expected to jump from 4% to 17% and B2C sales from 27% to 37% over FY16-18E. Management has set a target of B2C mix at ~50% of sales by FY20. Superior mix and utilisation: Margin and return ratio boosters Prabhat s gross and EBITDA margins are likely to surge 79bps and 56bps over FY16-18E, respectively, led by: a) rising share of B2C & value-added products; and b) increasing utilisation. Ergo, we estimate adjusted pre-tax RoCE to catapult 386bps over the period to 15.0%. Outlook and valuations: Emerging strong; initiate with BUY We estimate Prabhat to clock revenue/pat CAGR of 17%/72%, respectively, with adj. pre-tax RoCE of 15.0% in FY18E (17.1% incl incentives). In light of robust earnings visibility and strong growth in the organised dairy space, we have valued the stock at 18x FY18E EPS (at ~32% discount to Parag s consensus estimates). At CMP, it is available at 20.2x FY17E and 10.6x FY18E. We initiate with BUY and TP of INR144. Financials Year to March FY15 FY16 FY17E FY18E Revenues (INR mn) 10,034 11,705 13,134 16,034 Rev. growth (%) EBITDA (INR mn) 1,035 1,192 1,242 1,723 Adjusted Profit (INR mn) Adjusted Diluted EPS (INR) Diluted P/E (x) EV/EBITDA (x) RoACE (%)* RoAE (%)* *Adjusted for revaluation reserves, not including sales tax incentives EDELWEISS RATINGS Absolute Rating Investment Characteristics BUY Growth MARKET DATA (R: PRDA.NS, B: PRABHAT IN) CMP : INR 79 Target Price : INR week range (INR) : 167 / 72 Share in issue (mn) : 97.7 M cap (INR bn/usd mn) : 8 / 115 Avg. Daily Vol. BSE/NSE ( 000) : SHARE HOLDING PATTERN (%) Current Q4FY15 Q3FY15 Promoters * MF's, FI's & BKs FII's Others * Promoters pledged shares (% of share in issue) : NIL PRICE PERFORMANCE (%) Sensex Stock Stock over Sensex 1 month 0.6 (18.9) (19.5) 3 months 11.0 (21.5) (32.5) 12 months 1.7 (32.4) (34.1) Shradha Sheth Shradha.sheth@edelweissfin.com (Click on image for video) Nihal Mahesh Jham nihal.jham@edelweissfin.com August 22, Edelweiss Securities Limited

2 Investment Rationale Mr. Vivek Nirmal Joint MD We are seeing a lot of increase in value- added products as well as our ingredient business of speciality milk powders; B2C is targeted to be 50% of sales mix by 2020 Prabhat is primarily a specialty ingredients supplier and comanufacturer for large dairy players like Mondelez, Abott, Britannia, leveraging on absence of strong domestic player in the space Scaling the value chain: Prabhat, after establishing strong franchisees with institutional players in SMP and SCM, is moving up the value chain with focus on value-added products cheese, paneer, shrikhand, curd, ice cream, flavoured and UHT milk. Hence, we estimate share of value-added products sales to catapult from 4% to 17% over FY This will be led by moving up the channel mix to HORECA and retail. Expanding retail mix: While Prabhat is strong in institutional segment (73% of sales in FY16), it is now primarily focusing on the retail segment, led by ghee, curd, UHT milk and eventually cheese, shrikhand and paneer. As a result, we expect share of B2C sales to rise from 27% to 37% over FY16-18E. Capacity expansion in value-added products: In FY16, Prabhat s gross block catapulted by over 40% predominantly in value-added products. Notably, the company has set up the third largest 30MT/day cheese plant in India. As a result, we expect the sales trajectory to sustain at 17% sales CAGR over FY16-18E. Ramping up distribution network and ad spends: Prabhat is ramping up its distribution network from 50,000 to 100,000 outlets over the next 2 years, with >100 Prabhat mini stockists. It is also targeting higher ad spends at 1.3% of sales in FY18 from 0.8% in FY16 to bolster its brand equity. Superior product mix, increasing utilization potent margin kickers: We anticipate gross margin to spurt 79bps to 23.1% and EBITDA margin to jump 56bps to 10.7% (despite higher ad spends) over FY16-18 led by improving sales & channel mix, capacity utilisation and commencement of captive co-gen. RoCE to scale up: RoCE is estimated to catapult 386bps over FY16-18 from 11.2% to 15.0% (17.1% including incentives) as utilisation of various products ramp up. Robust free cash flow from FY18: Based on 20% EBITDA CAGR over FY16-18E, debt repayment and declining capex, we estimate Prabhat to post PAT CAGR of 72% and strong free cash flow of INR841mn in FY18. Moving up value chain in: a ) Products: Cheese, paneer and shrikhand b) Channels: Progressing from B2B to HORECA and B2C Leveraging manufacturing excellence to scale up the value chain Prabhat, a leading player in the Indian dairy industry, supplies specialty ingredient products such as milk powder for baby food and sweetened condensed milk. Drawing on its manufacturing excellence stemming from use of advanced equipment and stringent quality control processes, the company has forged partnerships with marquee institutional players such as Mondelez, Britannia, Nestle, Abbott, among others, despite having entered the dairy ingredients space only in 2006, leveraging absence of a strong domestic player in the space. Having established its credentials as a specialty ingredients supplier in the institutional category, Prabhat has set up manufacturing capability in high growth and margin segments like cheese, paneer and shrikhand. Longer shelf life of these products compared to milk/curd, thus enabling pan India distribution, will enable the company scale up from a regional to national player gradually. 2 Edelweiss Securities Limited

3 Prabhat dairy Chart 1: Transitioning product mix toward value-added products FY16 Sweet Condensed milk 23% Flavoured Milk, UHT 1% Value Added Products Ice Cream 1% Ghee 21% Curd Cheese, Pa 2% Others 3% neer, Shrik hand 0.2% Processed and Pouch Milk 21% SMP/ WMP/DW 28% Value Added Products Ice Cream 1% Flavoured Milk, UHT 3% Sweet Condensed milk 11% Source: Company, Edelweiss research Note: We classify Flavored milk, UHT milk, Ice cream, Curd, Cheese, Paneer and Shrikhand under value added sales We classify the segments with gross margin higher than ~25% and estimated EBITDA margin higher than~13% under value added sales Curd 4% Ghee 20% FY18 Cheese, Pa neer, Shrik hand 9% Others 1% Processed and Pouch Milk 18% SMP/ WMP/DW 33% Longer shelf life of products will help Prabhat graduate from a regional to national player Cheese: In Q2FY16, Prabhat commissioned its 30-tonne per day capacity cheese plant, third largest in India. The company is currently focused on HORECA (Hotel, restaurant and catering) and B2B segments to spur cheese sales. It has already commenced supply to large pizza and burger chains like McDonalds, Pizza Hut and Dominos. The company aspires to expand its HORECA sales distribution pan-india. Under HORECA, Prabhat is setting up a nation-wide distribution network. It has started supplying in Maharashtra and Gujarat and is planning expansion in South and North India. It has received sizeable enquiries for its products from Bengaluru, Delhi, Kolkata and Chennai. Prabhat has started setting up a nation-wide distribution network to cater to the HORECA segment for its cheese and paneer plants wherein margins are higher than the B2B segment. While the HORECA segment will fetch lower margins than B2C segment, it has medium gestation period and lower branding spend. After establishing its foothold in HORECA and B2B segments, we expect Prabhat to scale up in B2C segment. Difficulty in sourcing right quality of milk coupled with huge capex and high gestation period are significant entry barriers to cheese business Management speak We have already started supplying in West, which is mainly Maharashtra and Gujarat which are the largest markets for cheese in India. But shortly, in the next quarter, we will be also starting South India and North India, where we are already in process of appointing distributors for cheese, specially the HORECA segment. Long-term competitive advantage: The quality of milk required for cheese is critical and requires handling of 3-4 times of milk to get the right quality. Moreover, cheese business entails huge initial capex and high gestation period. In our view, having established a cheese facility ahead of other players, acts as a huge entry barrier for small cooperatives/unorganised players. As a result, there are only 3-4 large players in the cheese 3 Edelweiss Securities Limited

4 business and Prabhat with its strategy to target B2B, HORECA and eventually B2C segments should ramp up well and will have advantage over the long term. With mere ~1% utilisation level in cheese in FY16, we have assumed 19%, 40% and 70% utilisation levels in FY17, FY18 and FY19, respectively. As per management, Prabhat s cheese facility can clock ~INR2.5bn revenue at ~80% utilisation. Paneer: Prabhat commissioned its 5-tonne per day capacity paneer plant in Q2FY16. It has already established supplier relationships with reputed fast food chains for supply of paneer. Fresh paneer is a new product with 28 days shelf life due to differential treatment and slightly different packaging. The company is also focusing on malai paneer (high fat paneer). Fresh paneer segment presents huge growth opportunity as it needs a highly R&D-led product delivered with special logistic needs at low temperatures (4 degree celcius). Shrikhand: Prabhat successfully commissioned its 5-tonne per day capacity manufacturing unit and commercially launched shrikhand in Q4FY16. We expect combined share of cheese, paneer and shrikhand within value-added products at ~9% of sales in FY18 from <1% in FY16... and overall value-added sales to jump from 4% to 17% of sales over FY16-18E Having commenced commercial production of cheese, paneer and shrikhand, we expect combined sales of these 3 value-added products to be ~9% of sales in FY18E, up from <1% in FY16. Table 1: Combined sales of cheese, paneer and shrikhand Productwise sales (INR mn) FY16 FY17 FY18 Cheese ,069 Paneer Shrikhand Total ,461 Overall sales 11,705 13,134 16,034 % of overall sales Source: Company, Edelweiss research Table 2: Gross margins of value-added segments lending impetus to overall gross margins Productwise margins (%) FY16 FY17 FY18 Cheese Paneer Shrikhand Overall Gross margins Source: Company, Edelweiss research Note: Gross margins are excluding processing costs Further, the company is scaling up sales of other value-added segments such as curd, UHT milk, ice cream and flavoured milk. Hence, we estimate Prabhat s overall value-added sales to catapult from 4% to 17% of sales over FY Edelweiss Securities Limited

5 Prabhat dairy We expect B2C sales to contribute ~37% to sales in FY18E versus ~27% in FY16 on account of expanding retail sales of ghee, cheese, paneer, shrikhand Expanding retail business While Prabhat is well entrenched in the institutional segment (73% of sales in FY16), the company has significantly ramped up its retail business in recent years as well and is planning to enhance contribution of the B2C business. It is looking to expand its product offerings and increase availability of Flava branded products in both existing and new markets across India. While retail markets in tier-i cities are competitive, Prabhat is planning to penetrate tier II and III towns where presence of major dairy brands is low. The company has seen strong demand growth in the B2C market, primarily for pouch milk, curd and ghee. Though a few players are already present in these categories, there is a dearth of reasonably priced products; Prabhat s aim is to capture this demand. The company is already comanufacturing these products for market leaders and has created some brand recognition in retail markets. With a little push in terms of investment on marketing and branding, Prabhat will be able to create good market presence in the B2C segment. It is mainly focusing on ghee, curd and UHT milk in the B2C segment. Further it will scale up its B2C sales mix in cheese, shrikhand and paneer post scaling up in HORECA segment. Prabhat is targeting differentiated offerings/audiences to ensure its success in the retail business. For instance, it has priced its UHT pouch milk at INR50 versus peers tetrapacks priced at INR60-70 with same shelf life and convenient usage. Earlier, Prabhat targeted urban audience, while its UHT products had higher acceptance in rural areas where electricity is an issue and milk storage a problem. We expect strong growth in UHT milk sales, which already has ~90% mix from B2C sales. Table 3: Offering quality at lower prices for mid segment Milk Price per litre Nestle tetrapack Nestle 60 Amul Taaza Amul 58 Prabhat Tetrapak Prabhat Dairy 50 Source: Edelweiss research Ghee is another segment where Prabhat is seeing good traction. Prabhat ghee is competitively priced at INR415 per kg versus Patanjali s INR460 and Parag s INR450. Patanjali is helping grow the cow ghee market and Prabhat does not perceive it as competition. As ghee is a low-margin product, Patanjali may not be able to usher disruptive pricing like it did in honey to wrest market share from peers. Prabhat is now tying up with modern trade players like D-Mart (already available), Hypercity and Big Bazaar (already manufactures its in-house brand). Led by these measures, we expect strong sales growth in ghee and ghee s B2C sales mix to be 70% in FY18 of sales versus 56% in FY16. 5 Edelweiss Securities Limited

6 Table 4: Comparative ghee pricing Brand Company Price of 1ltr pack Cow Ghee Pure Parsi Dairy 710 Desi Ghee Patanjali 460 Premium Ghee Gowardhan 450 Cow Ghee Pure Heritage 440 Cow Ghee Pure Dynamix 435 Prabhat Ghee Prabhat 415 Amul Pure Ghee Amul 402 Pure Ghee Chitale Dairy 400 Ghee Paras 390 Pure Ghee Nandini 385 Ghee Mothers Dairy 349 Source: Edelweiss research Recently, Prabhat launched Ghar jaisa dahi campaign (home made curd) in Mumbai and Pune and is targeting presence in at least 15,000 outlets in both these cities from 6,500 currently. The company even sells pouch curd in the South where there is requirement for curd which may not be in firm shape as required by North Indians. Its packaged curd pouches have been an instant hit versus plastic container curd, as the former is cheaper. As a result, the company s B2C sales mix of curd catapulted to 60% of sales in FY16 from 35% in FY15 and is expected to sustain. Within cheese, paneer and shrikhand, the company is planning to expand B2C sales after having grown in the HORECA segment. We expect contribution of B2C sales from these 3 segments to increase from 10% in FY16 to 35% in FY18E. Chart 2: Improving product mix: Increasing B2C pie With rising contribution of B2C sales within segments, we expect total overall B2C sales to rise to ~37% in FY18 from ~27% in FY16. Further, Prabhat is targeting to increase the B2C sales mix to 50% of overall company sales by FY20. FY16 FY18 B2C 27% B2C 37% B2B 73% B2B 63% Source: Company, Edelweiss research 6 Edelweiss Securities Limited

7 Prabhat dairy Ad focus to bolster brand equity Prabhat sells its products to retail consumers under brands Prabhat and Flava. The company markets its products across a wide range of product segments and consumer groups and engages in a variety of marketing and promotional activities. Table 5: Rising retail sales Pasteurized milk, UHT milk, clarified butter, whole milk powder, curd, lassi and chaas Flavoured milk Source: Company The company engages in various marketing and promotional activities tailored for different consumer groups including advertising in print, electronic and other advertisement media, exhibitions and outdoor promotions as well as through social media. It provides marketing assistance and free sampling of its products and undertakes other activities through Prabhat milk stockists to ensure brand visibility. In FY15, Prabhat also resorted to TV advertising using local channels to promote its brands in the interiors of Maharashtra. The company advertised on regional (Marathi) channels to ensure effective and targeted advertising at low costs. Going forward, it will incur higher adspends as well as promotional expenses. As a result, there will be steep increase in marketing expenditure as the company focuses on penetrating the retail market (which stood at mere 27% of sales in FY16), and capitalise on growing consumer demand for highgrowth and value-added products. We expect Prabhat s ad and marketing spends to increase to 1.3% of sales in FY18E from 0.8% in FY16. Further, we expect combined advertising and promotional expenses to jump to ~3.0% of sales over FY17-18 from 1.2% in FY16. 7 Edelweiss Securities Limited

8 Chart 3: Sharp rise in ad spends to strengthen brands (INR mn) (%) FY12 FY13 FY14 FY15 FY16 FY17E FY18E Ad Spends and Promotions % of sales Source: Company, Edelweiss research Prabhat is targeting tierii/iii cities to capture share in B2C segment. It is looking to expand retail reach from 50,000 outlets in FY16 to 100,000 outlets in 2 years Added innovative channels like Raftar and targeting 15,000 outlets in 2 years from 6,500 currently Deepening distribution network to fuel growth As of FY16, Prabhat catered to 50,000 retail outlets for its dairy brands, Prabhat and Flava through 500 distributors. The company is planning to expand its reach to 100,000 retail outlets in next 2 years. Prabhat s retail consumer products are distributed in Mumbai and nearby cities & towns through a large number of retail outlets and more than 100 Prabhat mini stockists. The company also has an alternative distribution model, Raftar, for shorter shelf life products like curd. Under Raftar, it directly distributes products to several retail outlets in Mumbai and nearby cities & towns through a network of specially insulated and refrigerated vehicles. Prabhat operates 80 plus routes with 80 plus vehicles with mini refrigerators through this distribution platform and caters to 6,500 outlets. The company is targeting expansion to 15,000 outlets over 2 years. In addition, it also uses third-party distributors to penetrate new markets to benefit from its established relationships with local sales channels. The company intends to increase the number of Prabhat mini stockists in Mumbai as well as other existing and new markets in various states. It is targeting tier II/III cities for entering the B2C segment under its own brand, Prabhat Fresh. These markets are not cluttered and do not have stiff competition from national and MNC majors. 8 Edelweiss Securities Limited

9 Prabhat dairy Gross block expanded by more than 40% in FY16, primarily in value-added segments Building scale in value added and growth segments Prabhat s gross block jumped by more than 40% YoY in FY16, primarily in high-growth and value-added segments. As a result, the company added fresh capacity in value-added segments like cheese at 30MT/day, paneer and shrikhand capacity at 5MT/day each. Table 6: Strong capacity expansion in value-added segments Capacity per day FY15 FY16 Cheese (in kg) 30,000 Paneer (in kg) - 5,000 Shrikhand (in kg) - 5,000 Processed and Pouch Milk (in ltrs) 500, ,000 SMP / WMP/ DW (in kg) 36,000 36,000 Condensed milk added sugar (SCM) (in kg) 180, ,000 Ghee & Butter (in kg) 45,000 45,000 Flavoured Milk (in ltrs) 15,000 15,000 Ice Cream (in ltrs) 10,000 10,000 Curd (in kg) 40,000 40,000 Long shelf Milk (UHT Milk) (in ltrs) 40,000 40,000 Chart 4: Robust gross block spurt in FY16 7, , , , ,400 1, FY12 FY13 FY14 FY15 FY16 Gross block(inr mn) Yoy increase (INR mn) (% YoY increase) We expect 17% sales CAGR over FY16-18E as utilisation scales up across segments Enhanced capacity to buoy robust growth trajectory Prabhat has nurtured institutional relationships, which reflects in its strong growth and financial performance. Total revenues clocked 25% CAGR to INR11.7bn in FY16 from INR4.8bn in FY12. This was led by strong volume of milk procured which posted 23% CAGR to 10.1 lakh litres per day in FY16 from 4.5 lakh litres per day in FY12. The company s net profit after tax registered a robust CAGR of 41% to INR245mn in FY16 from INR63mn in FY12. Going by overall utilisation of 68% in FY16 and underutilised capacity in high-growth segments, we expect 17% sales CAGR over FY16-18E leading to utilisation of 88%. Chart 5: Strong sales growth trajectory 20,000 16,000 EBITDA margin likely to further spurt on: 1) rising share of valueadded products from 4% to 17% of sales; 2) increasing share of B2C sales from 27% to 37%; and 3) spurt in capacity utilisation from 68% to 88% (INR mn) 12,000 8,000 4,000 0 FY12 FY13 FY14 FY15 FY16 FY17E FY18E Revenues Source: Company, Edelweiss research 9 Edelweiss Securities Limited

10 Superior product mix, increasing utilisation: Potent margin kickers Prabhat s overall gross margin jumped 91bps over FY14-16 to 22.3% led by rise in B2C contribution to sales mix from 14% to 27% over the period. The company has also expanded capacity in value-added high-margin products like cheese, paneer and shrikhand. Following increasing proportion of higher-margin value-added sales in overall mix from 4% to 17% of sales over FY16-18E and rise in contribution of B2C in the mix from 27% to 37%, we expect overall gross margin to expand 79bps over FY16-18 to 23.1%. Chart 6: Rising proportion of value-added sales from 4% to 17% Chart 7: Increasing proportion of B2C sales from 27% to 37% 3, , , , (INR mn) 1,800 1, (%) (INR mn) 4,200 2, (%) , FY14 FY15 FY16 FY17E FY18E Value added Sales(INR mn) % of sales 0 FY12 FY13 FY14 Sales(INRmn) FY15 FY16 FY17E FY18E % of Overall Sales 0.0 Source: Company, Edelweiss research Further, the company will scale up utilisation across segments which is bound to boost EBITDA margin. Also, Prabhat expects utility cost to dip led by the co-gen plant. Table 7: Growing utilisation to boost margins Product wise utilisation (%) FY16 FY17E FY18E Processed and Pouch Milk SMP / WMP/ DW Condensed milk added sugar (SCM) Ghee Flavoured Milk Butter Ice Cream Curd Long shelf Milk (UHT Milk) Cheese Paneer Shrikhand Source: Company, Edelweiss research 10 Edelweiss Securities Limited

11 Prabhat dairy Overall, we estimate EBITDA margin to jump 56bps to 10.7% in FY18 from 10.2% in FY16 led by: 1) rising share of value-added products; 2) rising B2C contribution to mix improving overall gross margin; and 3) utilisation jumping to 88% in FY18 from 68% in FY17. Chart 8: Gross and EBITDA margins set to surge (%) (%) FY12 FY13 FY14 FY15 FY16 FY17E FY18E 9.0 Gross Margins(%)-LHS EBITDA margins(%)-rhs Source: Company, Edelweiss research We estimate pre-tax RoCE to improve to 15.0% in FY18 from 11.2% in FY16 and further jump to 19.8% in FY19E based on improving utilisation in value-added products like cheese, paneer and shrikhand Return ratios to improve As of FY16, Prabhat s adjusted pre-tax RoCE stood at 11.2%. However, the company s gross block increased by a major INR1.8bn over FY As a result, utilisation will only scale up over FY This will lead to RoCE catapulting 386bps to 15.0% over FY16-18E (17.1% including incentives). Further, utilisation will completely scale in FY18-19 and lead to RoCE jumping 863bps to 19.8% over FY16-19E (22.1% including incentives). Chart 9: RoCE and RoE set to expand (%) FY13 FY14 FY15 FY16 FY17E FY18E FY19E RoE* RoCE* Source: Company, Edelweiss research Note: RoE & RoCE adjusted for revaluation reserves. Also, we have not considered receipt of mega incentive benefits in above calculations. Prabhat is entitled to receive maximum amount of INR2.61bn over a period of 7 years starting FY Edelweiss Securities Limited

12 We have not considered sales tax benefit which Prabhat is eligible to avail due to uncertainty regarding time of receipt of claims. Return ratios, as shown above, exclude incentive benefits. Adjusting for the same, FY18E RoE stands at 12.8% and adjusted RoCE at 17.1%. Strong free cash flow generation Prabhat is expected to generate strong free cash flow of INR841mn in FY18, leading to high reduction in debt. We expect net debt to dip to INR1.36bn in FY18 from INR1.93bn in FY17. As a result, net debt:equity ratio will stand lower at 0.18x in FY18E from 0.28x in FY17 (0.22x in FY16). Based on EBITDA CAGR of 20% over FY16-18E, debt repayment and declining capex, we expect Prabhat to post PAT CAGR of 72% and strong free cash flow of INR841mn in FY18. Chart 10: FCF to improve on declining capex 1, (INR mn) 300 (200) (700) (1,200) FY12 FY13 FY14 FY15 FY16 FY17E FY18E Source: Company, Edelweiss research 12 Edelweiss Securities Limited

13 Prabhat dairy Valuation The stock entails rerating potential riding market penetration in value-added segments. We estimate revenue, EBITDA and PAT CAGRs of 17.0%, 20.2% and 71.8%, respectively, over FY Pre-tax adj. RoCE is estimated to catapult 386bps to 15.0% (17.1% including incentives), supported by strong industry drivers and structural shift from unorganised to organised players. On declining capex, strong FCF generation and debt repayment, we expect net debt: equity ratio to improve to 0.18x in FY18E from 0.28x in FY17. We value the stock at P/E of 18x FY18E (at ~32% discount to Parag Milkfoods s consensus estimates) and initiate coverage with BUY and target price of INR144. We estimate Prabhat to clock revenue, EBITDA and PAT CAGRs of 17.0%, 20.2% and 71.8% over FY16-18E (25%, 25% and 41% CAGR during FY12-16), respectively. This will be riding jump in pre tax adj. RoCE by 386bps to 15.0% (17.1% including incentives) supported by strong industry drivers and structural shift from unorganised to organised players. Anchored by better earning matrix and increase in value-added sales and B2C mix, we perceive rerating potential in the stock. Further, with optimum utilisation of expanded capacity of value-added segments in FY19, we expect Pre-tax adj. RoCE to expand 863bps to 19.8% (22.1% including incentives). Given strong earnings growth visibility and improving return ratios, we expect the valuation gap between Prabhat and Parag to narrow going forward. However, given Prabhat s lower B2C sales mix versus Parag s, we value the stock at 18x FY18E EPS (at ~32% discount to Parag s consensus estimates, an established consumer-centric brand). Please note FY18 earnings are considering cheese plant utilisation at ~40%, which is expected to scale up to 70% by FY19. At current levels, the stock is trading at P/E of 20.2x FY17E and 10.6x FY18E. Further we have assigned an NPV to the sales tax incentive receivable over FY15-21, due to uncertainty regarding the time of receipt of claims, assigning a value of INR11 per share. We initiate coverage with BUY and target price of INR144. Note on incentives: Prabhat has entered into an agreement with government of Maharashtra where it is eligible to receive VAT incentive for its capital investment in Shrirampur. The criteria for eligibility of this scheme was to incur capital expenditure of INR2.61bn, which the company has over FY11-15, for setting up of a cheese plant and milk powder facility expansion. The company is expected to receive VAT incentive over FY However, due to uncertainty regarding the time of receipt of claims, we have considered the NPV of incentives for our valuation purposes. Thereby, we have considered INR1.5bn of incentives over FY17-21, NPV of incentives stands at INR1.1bn (per share value of INR11). 13 Edelweiss Securities Limited

14 Key Risks Availability and price volatility of raw milk Prabhat s business depends on its ability to procure sufficient good quality raw milk at commercially viable prices. Though the company has longstanding relationships with milk farmers and other suppliers, it has not entered into any formal supply agreements. In the event, it is unable to increase the supply of raw milk at reasonable prices or at all, or even maintain current milk supplies due to increasing competition, its growth may get impacted. However, Prabhat has built strong relationships with milk farmers through continuous engagements and support (cattle rearing education, cattle feed and veterinary support). Overdependence on few institutional customers In FY12, FY13, FY14, FY15, FY16 sales contribution from top-5 customers represented 44%, 41%, 41%, 36% and 38%, respectively, while sales to largest customers represented 33%, 27%, 21%, 18% and 16.5% of total revenues, respectively. Prabhat has identified this risk and is working on it. The company is looking to increase share from HORECA/B2C segments to mitigate this risk. Trademark and brand infringement Although Prabhat sells retail consumer products under its own trademarks and brands such as Prabhat, Flava and Milk Magic, these trademarks and brands have not yet been registered. The company has applied for registration of these trademarks and word marks, but some of these applications have been objected or opposed by third parties. In the absence of protection, the company may not be able to prevent infringement of trademarks. Product quality of utmost importance Prabhat is subject to various regulations relating to product liability, particularly food safety. Since the company sells products for human consumption, it involves risks such as product contamination or spoilage, product tampering and other adulteration of products, especially as milk is a perishable product. If the institutional end-product is contaminated, and if contamination is ultimately traced back to Prabhat s milk or ingredient products, the company could be subject to product liability claims and damages. Thus, Prabhat maintains high quality control standards and keeps a check on quality at every level from collection to conversion to final product. 14 Edelweiss Securities Limited

15 Prabhat dairy Company Description Prabhat Dairy (Prabhat) is a western region dairy specialty ingredients supplier with milk processing capacity of 1.5mn litres per day. The company is a strong player in dairy ingredients space with skimmed milk powder and sweet condensed milk contributing 28% and 23% to its sales, respectively, in FY16. Further, it is strong in ghee at 21% of its sales. While the company is well entrenched in the institutional segment (73% of sales in FY16), it is gradually increasing share of retail sales by penetrating tier II and III cities. Prabhat is expanding capacity in value-added segments like cheese, paneer and shrikhand. It has set up a 30MT/day capacity cheese plant (third largest in India), which is envisaged to drive growth going ahead. About the company Prabhat, incorporated in 1998, is an integrated milk and dairy products player in India with aggregate milk processing capacity of 1.5mn litres per day. Over the years, the company has diversified into pasteurised milk, flavoured milk, sweetened condensed milk, ultrapasteurised or ultra-high temperature (UHT) milk, yoghurt, dairy whitener, clarified butter (ghee), milk powder, ingredients for baby foods, lassi and chaas. It sells these products under retail consumer brands as well as ingredient products or as co-manufactured products to a number of institutional and multinational companies. Prabhat commenced commercial production of cheese, paneer and shrikhand in FY16. Chart 11: Revenue mix (FY16) Value Added Products Flavoured Milk, UHT 1% Ice Cream 1% Curd 2% Cheese, Paneer, Shrikhand 0.2% Others 3% Processed and Pouch Milk 21% Sweet Condensed milk 23% Ghee 21% SMP/ WMP/DW 28% Source: Company, Edelweiss research 15 Edelweiss Securities Limited

16 Fig. 1: Evolution of Prabhat 2015 Commenced trial run of the facility for manufacturing cheese with a capacity of 30 metric tons per day at Shrirampur plant subject to backup 2014 Entered into brand building tie-up with one of the leading marketing agencies 2013 Commencement of manufacturing plant at Navi Mumbai with a capacity of processing of 300,000 litres of milk per day subject to backup 2013 Infused Private Equity in the company by Proparco (a subsidiary of Agence Française de Développement) 2012 Infused Private Equity in the company by IABF (a private equity fund managed by the Rabobank Group, Netherlands) 2010 Commencement of production of milk powder with a capacity of 30 metric tonnes per day 2008 Started supply of ingredients to Mondelez India Foods Private Limited 1999 Commenced commercial production and sale of cow milk in plastic pouches 1998 Prabhat Dairy Private Limited was incorporated Source: Company, Edelweiss research Prabhat is an integrated milk and dairy products company in India catering to institutional (~73% revenue contribution in 2016) as well as retail customers (27% revenue contribution). Institutional business Prabhat produces a range of milk and dairy products including milk-based specialty ingredient products and co-manufactured products for institutional clients and MNCs. Specialty ingredient products are used in the production of other milk and food products by the company s customers, while co-manufactured products are sold by institutional customers/mncs under their own brands. Sales of institutional products represented 86%, 86%, 75% and 73% of total sales in FY13, FY14, FY15 and FY16, respectively. 16 Edelweiss Securities Limited

17 Prabhat dairy Specialty ingredient products: Includes nutrition supplements and formulations for baby food, sweetened condensed milk, partially skimmed milk, skimmed milk powder, skimmed milk preparations, full cream milk powder and specialty milk powder for various reputed consumer product companies including Mondelez India, Abbott Healthcare, other MNCs and Indian companies. Has long standing relationships with global players in food space being a specialty ingredient player as well co-manufacturer for companies like Mondelez and Abbott, among others Table 8: Institutional customers for specialty ingredient products Customer Speciality Ingredient Products Mondelez India Foods Private Limited, Partially skimmed milk sugar concentrate; formerly Cadbury India Limited skim milk powder; skimmed milk preparations; full cream milk powder Abbott Healthcare Private Limited Speciality milk powder for baby food Other multinational and Indian Speciality milk powder; sweetened companies condensed milk Source: Company, Edelweiss research Co-manufactured products: Includes UHT milk, specialty milk powders, curd (dahi), clarified butter (ghee), flavoured milk, dairy whiteners, yogurts, processed and concentrated milk, and ice creams for various institutional customers including Britannia, Mother Dairy and Heritage Foods. Table 9: Institutional customers for co-manufactured products Customer Co-Manufactured Products Heritage Foods Limited UHT milk; lassi; yogurt; dairy whitener; clarified butter (ghee); curd (dahi); flavoured milk Britannia Industries Limited Curd (dahi) Britannia Dairy Private Limited Clarified butter (ghee) Mother Dairy Fruit and Vegetable Pvt. Ltd. Ice cream; milk ice; milk candies Source: Company, Edelweiss research Retail business Retail consumer products include pasteurised milk, UHT milk, flavoured milk, milk powder, lassi, curd (dahi), chaas and clarified butter (ghee) sold under Prabhat and Flava brands. Though the products are mainly sold in Maharashtra, those with longer shelf life are also sold in Gujarat, Rajasthan, Goa, Madhya Pradesh, Himachal Pradesh, Jammu and Kashmir, West Bengal, Kerala and other north-eastern states. Thus, Prabhat derives its revenues from sales of a variety of products to a diverse range of customers, which helps in mitigating the concentration risks associated with operations in a specific product and customer segment. Automated production facilities Prabhat has set up automated production facilities at Shrirampur (Ahmednagar) and at Navi Mumbai, which are strategically located in close proximity to their milk procurement regions as well as target markets, with aggregate milk processing capacity of 1.5mn litres per day. It procures majority of its raw material requirements directly from the milk farmers and registered milk vendors in Ahmednagar, Pune, Nashik and adjoining districts in Maharashtra, which is a significant cow milk producing region in India. Their average daily milk 17 Edelweiss Securities Limited

18 Table 10: Overall capacity of Prabhat (per day) Product procurement for FY16 was ~1.02mn litres. Prabhat has more than 450 milk collection centres, ~15 milk chilling plants and 80 plus bulk milk coolers. Shrirampur Facility Production Capacity Navi Mumbai Facility Production Capacity Total Production Capacity Aggregate milk processing capacity (in litres per day) 1,100, ,000 1,500,000 Pasteurized and Pouch Milk (in litres per day) 200, , ,000 Milk Powders (includes Skimmed Milk Powder/ Whole Milk Powder/ Dairy Whiteners) (in metric tons per day) Condensed Milk (in metric tons per day) Clarified Butter (Ghee) (in metric tons per day) Flavored Milk (in litres per day) 15,000-15,000 Butter (in metric tons per day) Ice Cream (in litres per day) NIL 10,000 10,000 Curd (Flavored Yogurt, Pouch Curd) (in metric tons per day) NIL UHT Milk (in litres per day) 40,000-40,000 Cheese (Cheddar/ Mozzarella/Processed) (in metric tons per day) Paneer (in metric tons per day) 5-5 Shrikhand (in metric tons per day) 5-5 Source: Company, Edelweiss research 18 Edelweiss Securities Limited

19 Strong management team Prabhat dairy Prabhat is building a strong team to scale up its market share in the dairy industry. The company has a strong management team with significant industry experience. It is promoted by Mr. Sarangdhar Ramchandra Nirmal, who has approximately 16 years of professional experience in the dairy industry. Mr. Vivek Sarangdhar Nirmal is the Joint Managing Director and has approximately 8 years of experience in the dairy industry. He is member of the CII National Committee on Dairy: Their experience has helped the company develop a robust direct procurement model and strengthen relationships with vendors including farmers, institutional customers, dealers and distributors. Table 11: Key Management profile Position Age/Qualifications Experience/Responsibilities Sarangdhar Ramchandra Nirmal, Chairman and Managing Director Vivek Sarangdhar Nirmal, Joint Managing Director 58, B.Com from the University of Poona and MBA from the University of Poona 31, B.Com from the University of Pune He has been Director of Prabhat Dairy since inception. He has ~16 years of professional experience in the dairy industry. He is involved in business operations, management and operation of the company He has been Director of the company since May 1, He was a director on the board of SAIPL since its incorporation. He also has ~8 years of professional experience in the dairy industry. He is involved in operational activities of the company. Ravi Vahadane, CFO Chartered Accountant He has 10 years of experience in Audit, Corporate Finance, Raising debt and Private Equity, Rating etc. He was part of management team for handling IPO process. He is associated with Company since last 7 years and part of Prabhat Group's journey since 2009 Priya Nagmoti, Company Secretary Anil Goel, Senior Vice President of Corporate Business Development of SAIPL 35, B.Com and M.Com from Devi Ahilya University, Member of the Institute of Company Secretaries of India 62, Bachelor s degree in Law from Meerut University and Bachelor s degree in Science from Meerut University She is a Company secretary and currently heading IR function of company. He has held various managerial positions in Wood Craft Products Ltd., Sartin Alloys Private Limited, Synamix Milk & Food Industries Ltd. Source: Company, Edelweiss research 19 Edelweiss Securities Limited

20 Financial Outlook We have built sales CAGR of 17% led by strong scale up in capacity utilisation in valueadded products over FY16-18E. Gross margin will catapult 79bps over the period to 23.1% on rising share of B2C and value-added high-margin segment sales. EBITDA margin will jump 56bps to 10.7% in FY18E from 10.2% in FY16 on improving gross margin and capacity utilisation leading to 20% EBITDA CAGR over FY16-18E. Prabhat s pre-tax adj. RoCE will improve to 15.0% in FY18E from 11.2% in FY16. Further, its free cash flow is likely to improve on better profitability. We have built in sales CAGR of 17% over FY16-18, led by increasing capacity and penetration in highgrowth, value-added segments Robust sales momentum to sustain Prabhat clocked revenue CAGR of 25% over FY12-16 primarily led by procured milk volume posting 23% CAGR coupled with strong penetration among institutional customers. While growth in the past was primarily led by SMP, going forward we believe volume growth momentum will sustain bolstered by strong brand spending and rising penetration in highgrowth value-added categories like curd, UHT milk, flavoured milk and recently added cheese, paneer and shrikhand. Hence, we estimate overall revenue CAGR of 17% over FY Chart 12: Strong sales growth trajectory 20,000 16,000 (INR mn) 12,000 8,000 4,000 0 FY12 FY13 FY14 FY15 FY16 FY17E FY18E Processed and Pouch Milk SMP / WMP/ DW Condensed milk added sugar (SCM) Ghee Cheese Curd Flavoured Milk Others Source: Company, Edelweiss research 20 Edelweiss Securities Limited

21 Prabhat dairy We estimate gross and EBITDA margins to jump 79bps and 56bps over FY16-18E to 23.1% and 10.7%, respectively Value-added products, B2C mix: Potent margin kickers We estimate gross margin to jump 79bps to 23.1% in FY18 from 22.3% in FY16 led by: a) rising share of high-margin value-added products from 4% to 17% of sales; and b) increasing share of B2C sales within the product mix to 37% in FY18 from 27% in FY16. Further, with improved utilisation across segments in FY18, we expect EBITDA CAGR of 20% over FY Chart 13: Margins set to surge EBITDA CAGR trajectory at strong 20 % over FY16-18E 2, , (%) (%) (INR mn) 1, (%) FY12 FY13 FY14 FY15 FY16 FY17EFY18E 9.0 FY12 FY13 FY14 FY15 FY16 FY17E FY18E Gross Margins(%)-LHS EBITDA margins(%)-rhs EBITDA EBITDA margins Source: Company, Edelweiss research However, we estimate robust 72% PAT CAGR led by declining capex and gradual repayment of debt. Chart 14: Robust PAT growth to sustain We estimate PAT CAGR at 72% over FY16-18, much ahead of EBITDA CAGR of 20%, led by declining capex and gradual repayment of debt (INR mn) FY12 FY13 FY14 FY15 FY16 FY17E FY18E Source: Company, Edelweiss research 21 Edelweiss Securities Limited

22 Improving balance sheet and return ratios Prabhat s net debt:equity stood at 1.1x in FY15. The company raised INR3bn equity via IPO in FY15 and used the proceeds to repay INR1.85bn debt, meet expansion capex and modernisation to the extent of INR350mn and drive future growth. As a result, debt:equity ratio improved to 0.22x in FY16. Further, with improving utlisation and earnings we estimate the ratio at 0.18x in FY18. With repayment of debt, major capex done with and improvement in cash flows, we expect debt equity to improve from 0.22x in FY16 to 0.18x in FY18E Chart 15: Deleveraging the balance sheet 4,500 3,600 (INR mn) 2,700 1, (x) FY12 FY13 FY14 FY15 FY16 FY17E FY18E 0.0 Debt (INR mn) Debt/Equity(x) We expect healthy free cash flow generation during FY17-18, with improvement in operating cash flow led by rising share of B2C in sales mix Source: Company, Edelweiss research Prabhat s adj. pre-tax RoCE stood at 11.2% in FY16. We expect it to improve to 15.0% in FY18 (17.1% including incentives), primarily aided by improvement in EBITDA margin from 10.2% in FY16 to 10.7% in FY18. Also, we estimate fixed asset turn to improve to 3.8x in FY18 from 3.1x in FY16 with increased sales. This will be led by improvement in overall utilisation from 68% to 88%, with increase in cheese utilisation from ~1% in FY16 to 40% in FY18. Further we believe improved utilisation of cheese plant from 40% in FY18 to ~70% in FY19E will improve fixed asset turn to 4.9x and EBITDA margin to 11.6% in FY19. Hence, we estimate adj. pre-tax RoCE to improve by a substantial 863bps to 19.8% (22.1% including incentives) over FY16-19E. 22 Edelweiss Securities Limited

23 Prabhat dairy Chart 16: Return ratios to rise over FY (%) Chart 17: Cash-flow to improve 1, (INR mn) 200 (200) (600) 0.0 FY13 FY14 FY15 FY16 FY17E FY18E FY19E RoE* RoCE* Note: RoE & RoCE adjusted for revaluation reserves (1,000) FY12 FY13 FY14 FY15 FY16 FY17E FY18E Operating Cash flow Free Cash Flow Source: Company, Edelweiss research We have adjusted revaluation and capital reserves of INR660mn (over FY14-18) in our equity shareholders funds, as these reserves were created by revaluation of assets in the past and cannot be distributed to equity shareholders. Further we have not considered the sales tax benefit which Prabhat is eligible to receive due to uncertainty regarding time of receipt of claims. RoE (refer table below) is excluding the benefit of incentives. However, since this is due, we have adjusted NPV of incentives to the extent of INR1.1bn. Thus, adjusted RoE stands at 12.8% and adjusted RoCE stands at 17.1% in FY18E. Table 12: RoE calculation adjusted for revaluation reserves and sales tax incentives (INR mn) FY14 FY15 FY16 FY17E FY18E Reported Profit Share holders funds as reported 3,264 3,516 6,549 6,869 7,480 Less: Revaluation reserve Less: Capital Reserves Less: Capital Reserve on consolidation Share holders funds- Adjusted 2,598 2,856 5,888 6,209 6,819 Avg Shareholder Funds- Adjusted 2,279 2,727 4,372 6,049 6,514 Adjusted RoE (%) Incentives (INR mn) Adjusted RoE with incentives (%) Adjusted RoCE with incentives (%) Source: Edelweiss research 23 Edelweiss Securities Limited

24 Annexure Table 1: IPO proceeds (INR mn) Total FY16 FY17 Gross proceeds of the Fresh Issue 3,000 Less:-Utilisation of Proceeds Part pre-payment of loans 1,850 1,850 To meet capital expenditure Utilisation towards Capex and Loan repayment 2,201 2, Working Capital and other misc expenses 799 Total Utilisation of proceeds 3,000 Table 2: Capex break up Towards Capital Expenditure FY16 FY17 Total Construction of a 3 MW co-generation captive power facility Enhanced automation of some of the existing manufacturing processes at the facilities Total Capital Expenditure(INR mn) Source: Company 24 Edelweiss Securities Limited

25 Prabhat dairy Financial Statements Key assumptions Year to March FY15 FY16 FY17E FY18E Macro GVA(Y-o-Y %) Inflation (Avg) Repo rate (exit rate) Sector assumptions Milk purchase prices (INR/litre) Sales growth Processed and Pouch Milk (%) SMP / WMP/ DW (%) Condensed milk added sugar (SCM) (%) 1 (7) (44) 15 Ghee (%) Flavoured Milk (%) (70) Butter (%) 109 (100) NA NA Ice Cream (%) Curd (%) Long shelf Milk (UHT Milk) (%) 1, Cheese (%) 0 0 2, Paneer (%) 0 0 3, Shrikhand (%) 0 0 3, % of sales Processed and Pouch Milk (%) SMP / WMP/ DW (%) Condensed milk added sugar (SCM) (%) Ghee (%) Butter (%) Others Total other products (%) Flavoured Milk (%) Ice Cream (%) Curd (%) Long shelf Milk (UHT Milk) (%) Cheese (%) Paneer (%) Shrikhand (%) Total value added products (%) Capacity utilisation (%) Cheese (%) NA Channel mix B2B (%) B2C (%) Financial Assumptions Depreciation (% of gross block) Interest rate (%) Tax rate (%) Capex (INR mn) Income statement (INR mn) Year to March FY15 FY16 FY17E FY18E Net revenues 10,034 11,705 13,134 16,034 Raw material costs 7,762 9,097 10,262 12,334 Gross profit 2,272 2,608 2,872 3,700 Employee expenses Other expenses 981 1,134 1,301 1,597 Operating expenses 1,237 1,416 1,630 1,977 EBITDA 1,035 1,192 1,242 1,723 Depreciation & amortisation EBIT ,240 Less: Interest Expense Add: Other income Profit before tax ,080 Less: Provision for Tax Reported Profit Adjusted Profit No. of Shares outstanding (mn) Adjusted Basic EPS No. of Dil. shares outstanding (mn) Adjusted Diluted EPS Adjusted Cash EPS Dividend per share (DPS) Dividend Payout Ratio (%) Common size metrics (% net revenues) Year to March FY15 FY16 FY17E FY18E Gross margin Staff costs SG&A expenses Depreciation Interest EBITDA margins Net profit margin Growth metrics (%) Year to March FY15 FY16 FY17E FY18E Revenues Gross Profit EBITDA PBT Adjusted Profit 49.9 (5.6) EPS (37.0) (31.0) Edelweiss Securities Limited

26 Balance sheet (INR mn) As on 31st March FY15 FY16 FY17E FY18E Share capital Reserves & surplus 2,802 5,572 5,892 6,503 Shareholder equity 3,516 6,549 6,869 7,480 Long term borrowings 2, Short term borrowings 1,958 1,197 1,704 1,204 Total Borrowings 4,118 1,586 2,093 1,528 Deferred Tax Liability (net) Long Term Liabilities & Provisions Sources of funds 7,822 8,385 9,212 9,258 Gross Block 4,259 6,042 6,492 6,542 Net Block 3,049 4,433 4,419 3,987 Intangible assets Capital work in progress 1, Total net fixed assets 4,649 4,542 4,528 4,146 Non current investments Cash and cash equivalents Inventories ,140 1,300 Sundry Debtors 2,084 2,265 2,949 3,037 Loans & Advances 965 1,274 1,047 1,252 Other Current Assets Total Current Assets (ex cash) 3,770 4,437 5,153 5,607 Trade payable Other Current Liabilities & ST Prov Total Current Liabilities & Prov Net Current Assets (ex cash) 2,957 3,722 4,523 4,948 Uses of funds 7,822 8,385 9,212 9,258 Book Value per share (INR) Free cash flow (INR mn) Year to March FY15 FY16 FY17E FY18E Reported Profit Add: Depreciation Add: Interest Add:Others Less: Changes in working cap Operating cash flow Less: Capex Free cash flow (521) 38 (195) 841 Cash flow metrics Year to March FY15 FY16 FY17E FY18E Operating cash flow Financing cash flow 691 (134) 236 (838) Investing cash flow (533) (292) (450) (100) Net cash flow 173 (96) 41 3 Capex (536) (292) (450) (100) Dividends paid (6) (50) (59) (113) Profitability ratios Year to March FY15 FY16 FY17E FY18E Adjusted RoACE (%)* Adjusted ROAE (%)* Inventory (days) Receivables (days) Payables (days) Cash conversion cycle (days) Current ratio (x) Gross Debt/EBITDA (x) Gross Debt/Equity (x) Adjusted debt/equity (x) Net debt/equity (x) Interest coverage (x) *Adjusted for revaluation reserves, not including sales tax incentives Operating ratios (x) Year to March FY15 FY16 FY17E FY18E Total asset turnover Fixed asset turnover Equity turnover Valuation parameters Year to March FY15 FY16 FY17E FY18E Adjusted Diluted EPS (INR) Y-o-Y growth (%) (37.0) (31.0) Adjusted Cash EPS (INR) Diluted P/E (x) P/BV (x) EV/Sales (x) EV/EBITDA (x) Dividend Yield (%) Edelweiss Securities Limited

27 Additional Data Prabhat dairy Directors Data Sarangdhar R Nirmal Chairman and MD Vivek S Nirmal Jt Managing Director Ashok Sinha Independent Director Seemantinee Khot Independent Director Rajesh Srivastava Additional Non- Executive Director Raphael Gabriel Roger Plihon Additional Non- Executive Director Soundararajan Bangaruswamy Independent Director Omprakash V. Bundellu Independent Director Auditors - BSR & Co. *as per last annual report Holding Top -10 Perc. Holding Perc. Holding Indian Agribusiness Fund Societe Prom & Part Econom 8.68 IL&FS Trust Co Ltd 7.57 Styrax Commodities 6.28 Wasatch Advisors 3.25 Reliance Capital 2.81 Styrax Commodities 2.49 Ecap Equities 1.75 Genesis Emerge Sm Com Port 1.45 HDFC Asset Management 1.34 *as per last available data Bulk Deals Data Acquired / Seller B/S Qty Traded Price 22/Sep/15 Abhilasha Money Sell Operations Pvt Ltd 05/Oct/15 Reliance Mutual Fund Buy *in last one year Insider Trades Reporting Data Acquired / Seller B/S Qty Traded 02/Mar/16 Sarangdhar R.Nirmal - Trustee of Nirmal Family Trust Buy /Mar/16 Sarangdhar R.Nirmal - Trustee of Nirmal Family Trust Buy *in last one year 27 Edelweiss Securities Limited

28 Industry overview - Snapshot Table 13: Snapshot of Indian dairy sector Prabhat Parag Heritage Kwality Hatsun Vadilal Amul FY16 Revenues (INR mn) 11,705 16,451 23,290 64,139 34,386 4, ,050 Procurement mix Milk Processing capacity (mn litres per day) Milk procurement per day (mn litres per day) Procurement mix ratio (%) Direct procurement From middlemen Product mix (%) Liq Milk Milk Powder Sweetened Condensed Milk 23 Butter Ghee Processed foods 29 Others Value Added products Curd Cheese+Whey 23 3 Others 6 Icecreams UHT/Flavored milk Milk Non-Milk Channel mix Retail NA Institutional NA Key markets Key Procurement regions Maharashtra Maharashtra, AP, Karnataka, Tamil nadu AP, TN, Maharashtra, Karnataka, Rajasthan, Haryana UP,Haryana, Rajasthan Tamil Nadu, AP, Telangana, Karnataka, Maharashtra NA Gujarat, Rajasthan, Haryana, UP Key markets Maharashtra Maharashtra, Gujarat, Tamil Nadu, Karnataka, Assam, West Bengal and Jammu and Kashmir AP, Telangana, TN, Karnataka, Maharashtra NCR,Rajasthan, Haryana, Uttar Pradesh AP, TN, Karnataka Gujarat, Rajasthan, UP, Uttarakhand, Haryana, Chandigarh All over the country Key markets/brands Key Products Milk,Milk powder,scm,gh ee Cheese,Ghee,SMP,Fresh milk Milk,Curd,Ice cream,paneer,flavo ured Milk,Sweet Ghee,Milk powder,milk,c urd and Buttermilk Milk, Ice cream, Curd & other products Ice cream,packed foods Milk and milk products Brands Prabhat,Flava Go,Pride of Heritage Dairy best Arokya,Arun,IBACO Vadilal Amul Cows,Topp up Distribution reach Outlets-Retail 50, , ,000 32,000 NA 55,000 1,000,000 Distributors 500 3,000 5,750 1, ,000 Source: Company, Edelweiss research 28 Edelweiss Securities Limited

29 Industry overview Global dairy overview: Indian dairy to emerge largest producer by 2020 Global milk production has clocked 1.6% CAGR to 810MMT (~USD340bn) over the past 35 years. This growth was primarily driven by rising populations, increasing disposable incomes, urbanisation and westernisation of diets in developing countries such as India and China. India s dairy industry, over the same period, outperformed with 4.5% volume CAGR to 146MMT (INR4.2tn). Going ahead as well, domestic volumes are expected to outperform with 4.8% CAGR over FY15-20 and surpass EU to emerge the largest dairy producer with 185MMT volumes by Global dairy production clocked 1.6% CAGR over past 35 years Globally, milk production has been clocking 1.6% CAGR. India is the second largest milk producer, accounting for 18% of global production. Over the past 35 years, India has posted 4.5% CAGR. Going ahead, it is anticipated to surpass EU to become the largest milk and dairy products manufacturer by India outperformed in past 3.5 decades: 4.5% CAGR versus 1.6% global CAGR Global milk production registered mere 1.6% CAGR over the past 35 years ( ) from 466MMT in 1980 to 810MMT in This growth was primarily driven by population growth, rising disposable incomes, urbanisation and westernisation of diets in developing countries such as India and China. During the period, India was among the fastest growing milk producers in the world, with demand almost matching supply. Over the past 3.5 decades, India s milk production volumes clocked a notable 4.5% CAGR to 146MMT in FY15. Chart 18: Global production grew at mere 1.6% CAGR in past 35 years 1,000 India outpaced global milk production at 4.5% CAGR over the past 3.5 decades versus 1.6% global CAGR (M MT) Source: FAO 29 Edelweiss Securities Limited

30 Chart 19: India outpaced global production at 4.5% CAGR (M MT) Source: FAO Global growth was primarily spearheaded by developing nations with notable increase in milk production in China, India, Brazil and Pakistan. In contrast, in EU s, the largest milk producing region, growth was flat. Also, falling apart of the erstwhile USSR resulted in lower milk output from the region during the transformation period production declined at 2% CAGR in the Russian Federation. Meanwhile, China, India, Brazil and Pakistan logged 7.8%, 4.5%, 3.1% and 4.3% CAGRs, respectively, over Chart 20: Top countries milk production during Growth in past 3.5 decades was spearheaded by developing nations in contrast to flat or declining production in developed nations (M MT) India China Brazil USA Russian Fed Pakistan Europe Source: FAO The EU, India and US are the largest milk and dairy product producers and consumers worldwide. In 2014, they accounted for 20.3%, 18.4% and 11.9%, respectively, of global milk and dairy products production (refer chart below). India is the second largest milk producer and is emerging as the world s biggest producer and consumer of milk country-wise. 30 Edelweiss Securities Limited

31 EU cornered 20% of global market share, followed by India at 18% and US at 12% Chart 21: Share of global production in EU, India, US major players New Zealand 2.6% USA 11.9% Turkey 2.2% Brazil 4.3% Pakistan 4.9% India 18.4% Others 24.4% Argentina 1.5% Russian Federation 3.8% China 5.7% EU 20.3% Source: FAO Over past 10 years, while per capita milk consumption remained constant in developed countries, it clocked a robust 3.1% CAGR in India India s per capita consumption logged 3.1% CAGR versus 0.9% global rate Per capita milk consumption growth in developed countries over the past 10 years stood at a mere 0.9% CAGR. However, it logged a robust 3.1% CAGR in India. Further, marginal increase in global milk consumption was also led by population growth and higher per capita incomes in developing countries and emergence of an affluent middle class in many lowand middle-income countries in South-East Asia, LATAM, Central and Eastern Europe. Chart 22: Global per capita consumption grew at 0.9% CAGR (kg) India s per capita consumption grew at a high 3.1% CAGR (kg) Per capita consumption Per capita consumption Source: World dairy situation India is expected to continue to grow the fastest at 4.8% CAGR and overtake EU to emerge the largest global milk producer by 2020 India to emerge largest milk and dairy products producer globally by 2020 Demand is expected to outpace supply in China and India, as well as countries within South- East Asian and African countries. Over FY15-20, India s production is expected to outpace global production at 4.8% CAGR versus 2.1% globally. As a result, by 2020, India is anticipated to overtake EU and become the largest milk and dairy products producer globally. 31 Edelweiss Securities Limited

32 Table14: Top milk producers growth India pacing ahead to emerge largest producer by 2020 (MMT) CAGR Countries E 2016E 2017E 2018E 2019E 2020E 15-20E EU India USA China Pakistan Brazil Others Total Source: IMARC report 32 Edelweiss Securities Limited

33 India dairy industry: An overview The INR4.2tn (146MMT/~401MLPD ) Indian dairy industry is the second largest in the world where production almost matches consumption. The industry clocked 4.2% volume CAGR during FY10-15 with organised segment posting 9.5% volume CAGR. In value terms, the sector logged an impressive 16.9% CAGR during the period led by better realisation and value-added products, which grew 23% annually versus 15% for liquid milk. Going forward, industry volumes are set to post 4.8% CAGR (185MMT/~507MLPD ) and a healthy 14.9% CAGR in value terms to INR9.4tn over FY15-20E. Notably, organised segment is expected to register humungous 13% volume CAGR (FY15-18E) and 20.0% value CAGR, miles ahead of overall industry growth. Indian dairy industry clocked 4.2% volume CAGR and an impressive 16.9% value CAGR over FY10-15 Industry clocked 4.2% volume and 16.9% value CAGR during FY10-15 The INR4.2tn (146MMT/401mn litres per day (MLPD) ) Indian dairy industry is the second largest in the world wherein production almost matches consumption. Chart 23: India s milk production almost matches consumption 150 Industry volumes are set to log 4.8% CAGR and a healthy 14.9% value CAGR over FY15-20 (MMT) FY11 FY12 FY13 FY14 FY15 Production vol Consumption vol Source: NDDB Organised sector volumes have posted a healthy 9.5% CAGR over FY10-15 and estimated to clock a robust 13% CAGR over FY15-18E The sector clocked 4.2% volume and 16.9% value CAGR over FY10-15, primarily led by better realisation and value-added products, which catapulted 23% annually versus 15% for liquid milk. Going ahead, industry volumes are expected to log 4.8% CAGR to 185MMT/507MLPD and value to improve at ~14.9% CAGR to INR9.4tn over FY15-20E. 33 Edelweiss Securities Limited

34 Chart 24: Domestic dairy industry recorded 4.2% volume CAGR... Chart 25:...and 16.9% value CAGR during FY ,000 (mn litre per day) (INR bn) 8,000 6,000 4,000 2, E E Source: Industry, Edelweiss research Chart 26: Organised segment volumes are growing at faster clip (mn litres per day) E 2018P Milk(mn litre per day) Source: Crisil research 34 Edelweiss Securities Limited

35 Structural drivers fuelling multi-year growth story Rising per capita consumption: India s per capita consumption is estimated to log 3% CAGR versus 1% CAGR globally led by population growth and higher yield. Vast vegetarian population: Given sub-standard protein consumption with huge vegetarian population, latent growth potential for India s dairy industry is huge. Structural shift to organised segment: On account of rising disposable incomes, consumer preference for branded and value-added milk & milk products, investments by organised players, organised share is expected to jump to 25% of total industry by FY18 and 26% by 2020 from current 19%, outpacing overall industry. Value-added products to grow at faster clip: Value-added products have been gaining importance due to increasing changes in demographic and dietary patterns. While demand for branded milk has grown at 15%, growth in valueadded products has been even stronger at 23%. Government schemes to help improve yields: We believe India s low yield per cow is set to improve aided by government initiatives such as Aadhar cards type identification and budgetary support, which aim to double the country's milk production by improving yield by more than 2x. India s per capita milk consumption at 97 litres per year is lower than other major milk markets, except China Catalyst 1: Rising per capita consumption India s per capita milk consumption, at 97 litres per year, is lower than other major milk markets, except China. The country s per capita milk consumption is growing at ~3x the global average led by production and higher yield. This provides further scope for increasing per capita consumption, led by growth in value-added products. Chart 27: Per capita consumption of dairy across regions However it s growing at ~3x the global average, led by production and higher yield, providing further scope of increasing per capita consumption (litres per year) United States EU27 Russian Federation Brazil India China Source:-OECD, World dairy outlook Further, within India, milk consumption grew at faster rate than other categories over the past decade (refer chart 28 below). 35 Edelweiss Securities Limited

36 Chart 28: Per capita consumption growth (10-year CAGR) Household expenditure on dairy products also clocked a healthy ~10% CAGR over past 10 years (%) (1.0) Sugar Cereals Pulses Edible Oil Milk Fruits and veg Source: NSO Burgeoning demand for dairy products in India is reflecetd in not only per capita consumption, but is also apparent from rising expenditure on dairy products by households at a faster ~10% plus CAGR over the past 10 years. Dairy products account for 19% of household expenditure on food on an average. Chart 29: Increase in household expenditure (10-year CAGR) (%) Cereals Fruits and Veg Sugar Pulses Edible oil Dairy Source: NSO With ~31% of India s population being vegetarian, overall protein consumption in the country is low Catalyst 2: Vast vegetarian population A large vegetarian population is a key driver of the domestic dairy industry with animalbased proteins being one of the lowest in India. With a large vegetarian population at ~31%, overall protein consumption in India is significantly lower than in other countries and at mere <10% of total calories consumed. Further, animal-based protein consumption is lowest in India at <15 grams per day and ~90% of the daily calorie intake from animalbased sources is accounted by dairy. Given the strong correlation between income and current substandard protein consumption in India, we perceive immense growth potential for India s dairy industry. 36 Edelweiss Securities Limited

37 Chart 30: Protein consumption as a proportion of total calories consumed 50.0 Overall, India s protein consumption is significantly lower than other countries at <10% of total calories consumed Indonesia Sri lanka India Thailand Malaysia Japan (%) Vietnam China Russia Brazil USA Europe Source: FAO, Edelweiss research Chart 31: Low consumption of animal-based protein Animal-based protein consumption is lowest in India at <15 grams per day (grams/day) India Thailand China Brazil Japan Russia United Kingdom USA Source: FAO Catalyst 3: Structural shift to organised segment Indian dairy output at 146MMT and valued at ~INR4.2tn accounts for 18% of global milk production by volume and 15% by value. With the organised segment accounting for only 19% of overall INR4.2tn industry, future growth prospects are enormous. While the unorganised segment comprises traditional milkmen, vendors and selfconsumption at home, organised segment consists of cooperatives and private dairies (refer flowchart below). 37 Edelweiss Securities Limited

38 Fig. 2: Indian dairy market structure in 2014 Indian Dairy Market Organised Dairy Market Unorganised Dairy Market Cooperatives Private Dairies Traditional Milkmen/ Vendors Self Consumption at Home Source: IMARC report Chart 32: India s hugely unorganised dairy market structure About 46% of milk produced in India is retained by traditional milkmen, vendors and producers (farmers) for household consumption. The balance 54% is the marketable surplus. Of this, 70% is accounted by the unorganised segment and balance 30% is procured, processed and sold by organised dairies. Of the 30% processed by organised segment, private players process 55% and cooperatives 45% (refer chart below). Self Consu mptio n 46% Organi zed 30% Coope ratives 45% Marke table milk 54% Unorg anized 70% Privat e player s 55% Source: IMARC report India s dairy industry clocked 4.2% volume CAGR over FY The hugely underpenetrated organised sector s volumes jumped 2x at 9.5% CAGR over the same period. 38 Edelweiss Securities Limited

39 Chart 33: Industry s milk production volume trend (mn litres per day) E Milk(mn litre per day) Chart 34: Organised sector's volume trend 120 We estimate overall industry volumes to post 5.2% CAGR over FY15-18, with organised segment outperforming at a strong 13% CAGR (mn litres per day) E 2018P Milk(mn litre per day) Source: NDDB, IMARC, Crisil Organised sector is estimated to account for 25% of industry sales by 2018, translating into INR1.6tn opportunity of INR6.5tn industry sales Overall organised segment s revenue at ~INR750bn in FY15 accounted for 19% of total industry. Given rising demand for branded products, investments by organised players and changing consumer preferences, volume of milk processed by the organised sector is estimated to grow at a 13% CAGR till FY18, leagues ahead of industry s 5.2% CAGR. As a result, the share of organised segment is estimated to jump to ~25% by FY18, translating into an INR1.6tn opportunity. Organised value sales estimated at robust ~20% CAGR over FY15-20 Overall, dairy industry value sales are expected to ramp up a robust 14.9% CAGR over FY But, the organised segment s sales are expected to outperform with a robust ~20% sales CAGR. This will be led by strong growth of >20% CAGR in value-added segments like cheese, whey and UHT milk. Further, growth will be led by increasing organised segment penetration within big segments like ghee, paneer and curd leading to. 39 Edelweiss Securities Limited

40 Catalyst 4: Rising urbanisation propelling value-added products In value terms, the dairy industry clocked 16.9% CAGR over FY10-15, within which valueadded segment grew at a much faster 23% CAGR versus 15% CAGR of pure liquid milk sales. Chart 35: Industry growth in value terms 5,400 4,500 3,600 (INR bn) 2,700 1, E Source: Crisil Chart 36: Value-added sales versus liquid milk growth trend 3,000 2,400 Indian dairy value-added sales stood higher at 43% of sales in FY15 from 35% in FY10 (INR bn) 1,800 1, value added E Liq milk Source: Crisil The share of value-added products in FY15 was estimated at 43% of total industry, up from 35% in FY10. Increasing purchasing power and rising health consciousness have spurred lifestyle changes in recent years and consumers have been gravitating towards value-added products. In the branded segment, consumption of cheese, curd, butter, ice cream and lassi has increased faster than milk. 40 Edelweiss Securities Limited

41 Unorganised sector accounts for major share of big product categories like curd, ghee and paneer, implying strong scope for penetration by organised segment Table 15: Product mix improvement 2015E (Value) 2010 (Value) Liquid 57% 65% Value-added 43% 35% Value-added products at cusp of robust spurt Source: Crisil With the unorganised segment accounting for substantial share of big categories like ghee, curd and paneer and strong scope within high-margin categories like cheese, whey and UHT milk, there is huge scope for penetration of value-added products. Chart 37: Organised share within categories (%) (%) Strong growth within high margin categories like cheese, whey, UHT milk provide scope for high growth in sales and profit in value-added categories 0.0 Liquid milk UHT milk Flavoured milk Curd Frozen Yoghurt Lassi Buttermilk Cheese Butter Ghee Paneer SMP Cream Whey (powder) Total Source: IMARC report 41 Edelweiss Securities Limited

42 Table 16: Market trend for milk and dairy products - Humungous growth prospects for value-added products 2014 Share of 2020 Sales of the 2020 Share of the Total Market Organized Market Category Organized organized organized organized CAGR CAGR Sales sector sales sector 2020 Sales Sector Sector (INR mn) (%) (INR mn) (INR mn) (%) (%) (%) Liquid milk 2,621, , ,068,000 1,593, % 21% Frozen Yoghurt 2,268 2, ,075 12, % 32% Cheese 11,721 11, ,388 59, % 31% UHT milk 26,045 26, , , % 26% Flavoured milk 12,636 12, ,828 47, % 25% Paneer 293,300 6, ,576 22, % 24% Whey (powder) 3,009 3, ,712 9, % 22% Curd 216,496 12, ,690 35, % 20% Lassi 12,470 12, ,298 39, % 21% Buttermilk 13,822 13, ,092 43, % 21% Butter 167,638 21, ,238 61, % 19% Ghee 618, , ,367, , % 17% SMP 49,568 49, , , % 15% Cream 12,730 12, ,704 29, % 15% Total 4,061, , ,421,364 2,458, % 20% Source: IMARC report Chart 38: India s dairy industry split (2014) Paneer 7% SMP 1% Butter 4% Ghee 15% Liquid milk sales accounted for ~24% of EU dairy industry versus ~65% in India in Further, value-added segments like cheese have strong 36% contribution in EU dairy sales versus <1% in India Buttermilk 1% Curd 6% UHT milk 1% Liquid milk 65% Source: Parag DRHP EU milk industry split In EU, fresh milk constitutes mere 24% of overall dairy sales, whereas in India liquid milk constituted 65% of industry value sales in 2014 per CRISIL estimates. Further, value-added products like cheese contribute a huge 36% to EU s dairy industry compared to less than 1% of Indian dairy industry sales. This explains the unprecedented growth potential for valueadded products in India. 42 Edelweiss Securities Limited

43 Chart 39: EU s dairy industry split (2014) Other fresh products 6% Drinking milk 11% Milk powder 3% Other manfac products 2% Cheese 36% Cream (Direct consumption) 13% Butter 29% Source: European Commission - Directorate-General for Agriculture and Rural Development Indian dairy industry: Product-wise scope and dynamics Liquid milk Liquid milk, which constitutes largest segment of Indian dairy industry (INR2,621bn), accounts for 65% of industry sales. Dairy cooperatives like Amul, the Karnataka Milk Federation and Mahanand Dairy are key players in the organised liquid milk market. The Indian processed milk market is fragmented and highly competitive. It is dominated by national brands with 60% market share. Further, regional players also have a significant 40% market share. Private players like Parag, Prabhat, Heritage and Hatsun are formidable players in their respective regions. Further, Nestle and Britannia are predominant in UHT milk segment, which are packaged in tetra packs. These sell at 20-60% premium compared to milk sold in pouches and cater primarily to health conscious consumers and young professionals. Chart 40: Processed milk market dominated by national and regional dairies Regional Brands 40% Govardhan, Prabhat, Heritage Amul, Mother Dairy, National Brands 60% Source: Industry 43 Edelweiss Securities Limited

44 Ghee Ghee, the second most consumed product of Indian dairy industry (INR618bn), contributes 15% to industry sales, within which organised sector contributes ~18%. Players from cooperatives are strong in this segment. Further, private players are also incrementally gaining a foothold and capitalising on segments like cow s ghee owing to its health benefits. While companies like Amul and Parag cater primarily to the retail segment, players like Bholey Baba Dairy, SMC Foods and VRS Foods cater to the bulk segment. Chart 41: Ghee - Market share of key players in organized segment Amul 15% Bholey Baba 42% VRS Food 8% Karnataka Milk Fed 11% Sterling Agro 7% Rajasthan Coop Madhusudhan 8% 9% Source: IMARC report Pure cow ghee currently accounts for less than 10% of India s total ghee market. The segment is currently growing faster than the overall ghee market and entails higher margin. Parag was a pioneer and is a formidable player in this segment. Other major players include Amul, KMF Cooperative and Dynamix Dairies. Case studies/key players Patanjali is helping expand cow ghee market, leading to organised players like Prabhat growing their ghee sales at 72% CAGR during FY13-16 Patanjali: A strong player in cow-based ghee Patanjali s growth is being driven by its largest selling product cow s ghee (expected to be INR12-13bn in sales in FY16 versus INR5bn in FY15). The company has adopted unique information-based advertising strategy wherein it highlights the positives of cow s ghee, which automatically boosts sale. 44 Edelweiss Securities Limited

45 Case study: Prabhat Dairy strong trajectory in ghee In the ghee segment, private players like Prabhat and Parag are gaining strong traction. Patanjali is helping grow the cow ghee market. Further, with Patanjali not indulging in disruptive pricing, other players are expected to continue to benefit. Chart 42: Prabhat Dairy Ghee sales growth 3,000 2,400 (INR mn) 1,800 1, FY13 FY14 FY15 FY16 Source: Prabhat dairy Paneer The Indian paneer market is huge at INR293bn with organized players contributing mere 2% to industry sales. The segment has humungous potential being majorly dominated by unorganised segment at 98%. Going ahead, demand from the institutional segment is expected to drive strong growth led by rising demand from restaurant and cafeteria businesses. Case study Fresh paneer by Prabhat Capitalising on the huge unorganised market, players like Prabhat have developed innovative products catering to the needs of the market. Prabhat and Parag have introduced fresh paneer in retail stores (not frozen) which has a shelf life of 28 days. Prabhat has put up a capacity of 5MT/day to capitalise on paneer demand. Curd The Indian curd market worth INR217bn offers huge potential as the organised segment accounts for mere 6% of overall market. Within the organised segment, cooperatives like Karnataka Milk Federation, Tirumala and Amul dominate. Further, it is attracting attention of private players due to strong margin led by convenience of packaged curd. 45 Edelweiss Securities Limited

46 Chart 43: Curd - Market share of key players Karnataka Milk Fed 20% Others 36% Amul 15% Tirumala 18% Mother Dairy 11% Source: IMARC report High-margin cheese is the fastest growing segment having logged 27% CAGR during FY07-14 and is set to post strong 31% CAGR over FY15-20E Cheese: Strongest growth and margin Cheese entails humungous potential, having clocked 27% CAGR over and further expected to post a robust 31% CAGR over FY15-20E to INR59.4bn in The spurt will be led by strong growth in India s fast food market driven by pizzas, burgers, sandwiches, etc. Further, strong consumption trends in tier II/III cities are increasingly driving demand in the HORECA segment. Retail and institutional demand constitute 50% each. Chart 44: Cheese - Market share of key players Others 10% Dynamix 7% Britannia 9% Amul 42% Parag 32% Source: IMARC report 46 Edelweiss Securities Limited

47 Case studies/key players Jubilant Foodworks consumed ~INR2bn worth of cheese as on FY15, reflecting the vast potential of cheese consumption from QSRs alone Jubilant Foodworks: A strong QSR player Over the past 3 years Jubilant Foodwork s (JFL) cheese consumption posted 23% CAGR, in line with its store expansion. As a result, JFL alone consumed ~INR2bn worth of cheese in FY15. Considering, the strong outlook of the QSR segment in India, the growth potential for cheese segment in dairy industry remains bright. Table 17: JFL s cheese consumption has grown at 23%CAGR in last 3 years CAGR Jubilant FoodWorks FY12 FY13 FY14 FY15 FY12-15 Cheese consumption (INR bn) % YoY No of outlets % YoY Increase in outlets Source: Jubilant Foodworks 47 Edelweiss Securities Limited