Analysts bullish on Parag Milk Foods IPO
Most analysts are bullish on Parag Milk Foods IPO, open from May 4-6 and recommend subscribing the issue. With a price band of Rs 220-227 per share, the IPO aims to raise Rs 760 crore. The Maharashtra-based dairy company owns brands like Go, Gowardhan, Pride of Cows and Topp UP. The company is offering 2.06 crore shares of which 0.31 crore shares are being sold by promoters, 1.43 crore shares are being sold by investor shareholders, and the balance by other shareholders. This would be the third initial public offer in less than one week to hit the market after Thyrocare Technologies and Ujjivan Financial Services.
Angel Broking recommends investors to subscribe the issue for a longer term perspective. It believes that the company will continue to perform well on both the top-line and the bottom-line front considering the company has a diversified product basket, strong brands and wide distribution network. "At the upper end of the issue price band, the company is seeking a P/E multiple of 37.6x its 9MFY2016 annualised earnings, lower than its close peer Prabhat Dairy’s valuation, which is trading at a higher multiple of 49.8x its 9MFY2016 annualised earnings. Further, retail investors will be given a discount of Rs 12/share," it says in a report. The brokerage firm is optimistic that Parag Milks will benefit from an increase in the overall consumption of cheese in India as household penetration of cheese in the country is very low compared to other developed countries.
KR Choksey also suggests subscribing the issue as it feels each of its brands is positioned to get premium pricing. With a subscribe recommendation, Philips Capital believes that its valuation is justified given the growth visibility, brand equity, innovations history, strong supply chain and capable management team. Though it feels that stock is slightly expensive to some peers but the higher valuation is justified by lower share of institutional sales, stronger brands, distribution reach, and strong execution history. "Lower RoE/RoCE for dairy players versus FMCG companies is compensated by 35 percent discount to FMCG sector multiple and higher growth and premiumisation prospects compared to penetrated FMCG categories," it says in a report.