Parag Milk Foods Limited (539889) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Parag Milk Foods Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Brian D単enha, Head of Investor Relations at Parag Milk Foods Limited. Thank you, and over to you, sir.

Good day. Good evening, everyone, and a warm welcome to the Q1 FY '27 Earnings Call of Parag Milk Foods Limited. We are pleased to have you all join us for this virtual meeting. For the meeting today, we have with us our Executive Director, Ms. Akshali Shah, our Chief Operating Officer, Mr. Rahul Kumar Srivastava, our Chief Strategy Officer, Mr. Ankit Jain; and myself, Head of Investor Relations, Brian D単enha. Today, it gives me great pleasure to introduce you all to Mr. Rakesh Kothari, who has been elevated as the Chief Financial Officer and key Managerial Personnel of Parag Milk Foods Limited effective 6th of August 2026. I would now like Rakesh to introduce himself and speak a few words.

Yes. Thanks, Brian. Good evening, everyone. It's a privilege to join Parag Milk Foods as the Chief Financial Officer. I thank the Board and the management team for their confidence in me, and I'm excited to be a part of the company, which has strong brands and significant growth potential. With over 25 years of experience in banking and corporate finance, including more than 2 decades with Citibank, I look forward to leveraging my experience in financial strategy, fundraising, treasury and business transformation to support Parag's next phase of profitable growth. Our focus will remain on disciplined capital allocation, stronger cash flows, sound governance and creating long-term value for all stakeholders. I look forward to engaging with the investor community and appreciate your continued trust and support. Thank you. Over to you, Brian.

All the very best, Rakesh, and congratulations. Best wishes for continued excellence and impact. After the presentation concludes, we will commence with the Q&A session. [Operator Instructions] Just a couple of points to remember as -- for the purpose of completeness, I do want to read out our safe harbor statement. Certain statements in this meeting with regard to our future growth prospects are forward-looking statements, which involve a number of risks and uncertainties that could cause actual results to differ materially from those in such forward-looking statements. I now hand over to Ms. Akshali Shah for opening remarks. Over to you, Akshali.

Thank you, Brian. Good evening, everyone, and thank you for joining us today. Before I begin, I would like to welcome Mr. Rakesh Kothari, who has recently taken over as the Chief Finance Officer of the company. I'm confident that he will add a significant strength to our finance function as we continue to build a stronger governance and financial framework and will take Parag to a newer height. Let me begin with the quarter. Q1 FY '27 has been a quarter of continued execution for Parag Milk Foods. We delivered our highest ever Q1 revenue of INR 945 crores, representing 11% year-on-year value growth and 3% volume growth. EBITDA stood at INR 70 crores. Absolute EBITDA grew by 6% year-on-year, while the EBITDA margin was 7.4% compared to 7.7% last year. The PBT remained broadly flat, while the PAT declined by 20%, primarily due to the current tax impact in this year. What is important to us is not just the headline revenue growth, but how we have navigated the cost environment while continuing to build the business. The milk prices at INR 42 per liter during the quarter, 13% higher year-on-year and flat sequentially. We responded to this through a combination of calibrated price increases, a better product mix and targeted promotional optimization and acceleration. As a result, the gross profit increased by 11% to INR 258 crores, in line with the overall revenue growth, demonstrating that the cost push has been passed on and as a result, gross margins remain stable. For us, this is an important aspect of the Parag model. We are not looking at pricing in isolation. We are managing price, product mix, promotion and category growth while continuing to protect the health of our overall dairy ecosystem. Our flagship categories, that is Ghee, Cheese, Paneer and Dahi continue to form the backbone of the business. contributing to 61% of our Q1 revenue. The flagship categories volume declined by 2% year-on-year, mainly due to a transient slowdown. But in B2C, within the flagship categories recorded a robust growth, while the B2B declined modestly. The overall value growth, however, stands at 10% year-on-year. Go Cheese has 35% market share, and we are #2 in the cheese category in India. We are doubling our cheese production capacity from 60 metric tons per day to 120 metric tons per day over the next 1.5 years. With this capacity expansion, we will be able to drive a parallel expansion in our whey protein generation. This will enable us to tap the opportunity of both the categories, which is cheese and whey, a step towards becoming a health and nutrition powerhouse. The New Age business that is [ Syuscars ] and Avvatar grew by 59% year-on-year in this quarter and now contributes to around 13% of our overall revenue. versus 9% in the Q1 last year. This progress is in line with the road map that we have laid out for this business. Through these brands, we are building a differentiated presence across premium dairy, health and wellness, sports nutrition and functional nutrition, clearly defining and strengthening our right to win in this space. Avvatar is allowing us to build a much broader sports and nutrition functional and nutrition platform. The portfolio has expanded well and beyond. The whey protein powders to now protein bars to ready-to-drink products created and other functional and nutrition products. The newly launched ready-to-drink Avvatar coffee with 15 grams protein per serving has received a very encouraging response. During the quarter, we have engaged with one of the most viral shows, which is India痴 Got Latent Season 2, hosted by Mr. Samay Raina, gave Avvatar a strong disruptive platform. This show has generated more than 80 million unique reach on YouTube and Netflix together. For us, the importance of this association was not the massive media reach, but giving Avvatar the right eyeballs to the relevant targeted audience. As we look ahead, we remain constructive in the upcoming quarters. Milk availability should benefit from the progress of monsoon and the festive period should provide a supportive demand environment for the value-added categories. We will, however, continue to remain -- maintain our discipline on the collaborative pricing in response to commodity costs and promotional investments. In nutshell, our strategic directions remain very clear. We are strengthening the flagship categories, which is Ghee, Cheese, Paneer and Dahi. We are building New Age through pride of cars and Avvatar. We are expanding our manufacturing capabilities well in advance. We are evolving our route-to-market strategy. We are investing behind innovation and brand building. We have the dairy legacy and the Farmer Connect. We have the dairy legacy Farmer Connect state-of-the-art facility, the power brands and our distribution network. We look forward to continue nourishing traditional delivering nutrition and continue to build a strong space for Parag. With a clear definition right to win and a focused road map, we will -- we remain aligned in our ambition to strengthen our leadership in categories we operate in and create sustainable and long-term value for all our stakeholders. Thank you once again for the continued trust and confidence in Parag Milk Foods. Over to Brian. Thank you.

Thank you very much, Akshali.

[Operator Instructions] Our first question is from the line [ of ]

Commendable performance maintaining operating margins as well as gross margins. I have a couple of questions. The first question is probably more broader not with respect to this particular quarter. So from March '23 onwards, over the past 3 years, we've grown by 10% in sales, right, INR 2,900, INR 3,100, INR 3,400, INR 3,800 crores. Is this a year where Parag is going to break out of the 10% growth band in sales and really grow by 15%? Or are we kind of given the slightly muted sales in Q1, do you think we're still going to be a 10% grower in FY '27...

Relevant question because your query is whether we are poised to do more than 10% growth this year. So I would say that certainly, it will be more than 10% because normally the quarter 1 is quite not that great. And we -- as told that it is the best quarter we had in Q1, having 10% growth. So obviously, the second quarter and third quarter with a lot of festive season and demand, certainly, we are going to grow more than 10%. So certainly, this year, we'll be breaking this 10% growth benchmark.

Just to add to what Rahul is saying, is, of course, the product mix was also very different in FY '23 versus in FY '27, doing much more value-added products in Health and Nutrition, especially our New Age business in FY '23 was less than 3%, 4%. And today, as we speak, around 13%. It's about how do we make the most about every liter of milk that is coming in. Now we're selling whey protein, which is somewhere around INR 3,000 to INR 4,000 in MRC. So the value of that is much superior and the product portfolio has also changed from there. So moving forward from here, of course, we're just expecting a better growth in volume and in value.

Got it. My second question on Avvatar especially. So ma'am, we have grown 58% this quarter year-on-year. I just wanted to kind of get my head around this. our retail prices of Avvatar and rest of our relevant competition have moved up by 100%, right? So the IO concentrate chocolate was INR 2,200, now it's about INR 4,200 or roughly there because of increased whey prices everywhere, and we wanted to increase to be relevant to the competition. So if we have grown by 58%, but the prices have actually doubled in the last 3 to 6 months in terms of retail price that we sell, have you kind of stagnated on volumes? Or I'm just not able to figure out how that kind of math work?

Yes. So [indiscernible] with respect to Avvatar, while we have reported a New Age business growth of 59%, we have a very strong volume growth as well on the new categories. That's why you look at when there is a modest decline of 2% in overall flagship categories, we are able to deliver a 3% volume growth for the company overall. So this is mainly coming, of course, from New Age business. See, while when you have seen from a consumer lens in terms of the change in the prices, there are various formats of whey protein. For example, there is an Isopure, Iso-Rich form of protein, which is more of whey protein isolate. Then there are whey blends, then there is a performance whey, there is fuel way. So there are various categories of protein. When the protein prices switches, consumer also, we have seen a pattern where consumers also shift themselves to whichever format of protein they want to cater to. But all in all, what I'm saying is this is not just backed by a value growth. This is strongly backed by very...

Aligned volume growth as well. And as he mentioned, of course, there are newer categories that we've also added like your ready-to-eat, ready-to-drink, then we also have some protein, which is for big n, which is of much lower cost. Plus the prices have really not gone up by 100% for [indiscernible]. We have taken a very stagnated price increase over the last couple of quarters. So the prices have not been that much of a change.

[Operator Instructions] The next question is from the line of [ Ganesh Gupta ] from Family Office.

My question is on distribution. I have observed that Gatan is widely available, but many of our higher-margin New Age business products like cheese and protein bars and coffee are either unavailable or partially available in the same stores. So could you help us understand what is the primary bottleneck over there?

Actually, if you see our new business like we have protein bar, we have whey protein ready-to-drink. These are the channels specific and out specific products we have -- and we know that where these products has to be placed. So just to give you two examples like because one of the largest throughput of these products are vending machines. So we have already got into this kind of channel where all the airport or hosts or cant -- apart from that, we were never present in the channel like pharmacy. So where there also, these products are quite readily available. So we are present in the relevant outlets, which we know that these products are having very good throughput on those outlets, and we are working on those lines rather than spreading kind of Gorilla distribution there.

Launched this quarter. So of course, it will take us a good couple of months -- a couple of quarters to reach the distribution that we want to achieve. Plus a category like protein works really well on the quick commerce platform. So we are widely available there...

Yes, definitely, you have your strategy of placing the products in your strategic stores, but the market leaders still have their products available in the same stores and lower than reselling and keep us with purchasing those products of the market leader for protein bars.

Distribution is a never-ending battle as we keep saying in FMC. So of course, the point is to revamp distribution as it comes and for not just the length of distribution but also the depth. And we've given a guideline say that by in the next 3 years, we want to be available in more than 1.5 million outlets and we are reaching towards that and working towards that roadmap.

[Operator Instructions] Next question is from the line of [ Priyanka Jain ]

I have a few questions, mainly on the -- in the initial commentary, the management has said about the [indiscernible] about India. So just wanted to know that what is the time line for this deal which we have done with Mr. [ Sam ]? Can you share some data how much like in the total sales from our value-added business, how much we are getting from that? And what is the percent we are getting? And how much we are spending on this deal, we are getting a good ROI on the sales which we are getting. So this is the question.

See, brand promotion is -- brand building is one of an important pillar as we look forward. While we have done participation with KBC as well, but all these are purely special commercial deals. We cannot share the specific nitty gritties what you are asking about with respect to how much is the cost, how much is the time line and how is the ROI. See, overall, as Akshali has said in our opening remarks, that it is not just one of the media reach, but it is more about catching the right eyeballs for the brand so that we can create the brand awareness and especially for the product categories where we have recently introduced like coating wafer bars and ready-to-drink. So I think the tie-up is more towards catching the right eyeballs, create awareness. And of course, as in the previous question, we answered about distribution, how do we increase or expand our distribution so that the product is available at the right time to the consumer. So this is all-in strategy. We will appreciate that specific commercials will not be disclosed.

Yes. But just to give you a little bit of -- on the number aspect. And a show like India痴 Got Latent works really well on awareness and it will be very difficult to drive what is the sales. But one of the parameters that we really see is, of course, the traffic on our website and what are the searches on Google. And over the last 2 months, it's gone up by almost 200%. So that's a good overall achievement that we....

Next question is from the line of [ Kina Desai ] from Sky Ridge Wealth Management.

Congratulations on a good set of numbers. Just wanted to ask one question on the other category. So this quarter, you have seen a 46% decrease in this category. Can you give some light on this because this quarter also was a strong summer and IBD, drinkable, all these sales should have at least been stable, if not higher. So if you could throw some light here.

See, others is a category whereby -- so I would say you would have noticed that we have renamed the core categories to now flagship categories, which now includes Dahi as well. So that's where a seasonal portion or a significant portion of Dahi has moved to flagship categories. With respect to others, currently, it comprises of beverages, UST milk and miscellaneous other items. You will also appreciate that all the other operating revenues are part of other categories. The other operating revenues primarily also include the income from cattle feed, job processing as well as the state incentives, the PSI incentive, PLI incentives. these are one-off items -- these are items which are not on a volume trend, right, recurring. For example, the GST is -- post the GST changes in September 2025, the PSI income has substantially reduced because the GST rate has changed for G&G products like from 12% to 5%. The state incentive, which is backed by GST, the state GST has considerably reduced. So others is very much on a miscellaneous part. However, within the others category, we have hero products like UHT beverages, which have done reasonably well.

Next question is from the line of Debashish from Abaan [indiscernible]

My question is on the operating margin. I'm giving data points. First is like Akshali said that our contribution from new has moved from 3% to 12%, 13%. And there in the previous con call, we heard that the margin here is double than the core category. So my question is, this is one data point. Second data point is in the previous con call, we also said that we are premium, Rahul, and then also we said institution sales are coming down. So my question is that why we are in the business of brand. So why we are not able to pass on the price increase because of inflation, even with the time line. I'm talking 2 years. why operating margin is not increasing? And we are the only one who are spending so much on media. There's no equivalent anyone in the competition is doing this. operating margin is stagnant for so many quarters around the same range?

So with respect to gross margin, if we were to look at sequentially, which is from 28% to now 27.3%, we are almost 70 basis down approximately. If you would observe that milk prices increase, but we are not in the milk price -- in a business where we do not sell only the milk. So we sell more of a value-added product. If you look at quarter 3, the milk prices was INR 40, while in quarter 4, the milk prices was INR 42. So there is always a lag considering the kind of inventory, the weighted average cost of the inventory which we carry. However, in quarter 1 of current financial year, the full quarter had seen a INR 42 of milk price versus the previous quarter of INR 42. So the increase goes for the full absorption of this quarter as well. Now while your observation is right when the new product portfolio mix -- sorry, New Age portfolio mix has improved, yes, it has improved, but it has correspondingly got offset with the increase in the impact on the milk prices. Having said that, as Akshali rightly mentioned that even going ahead, we are looking at calibrated price increases. So even in quarter 1, we have -- towards the [ tag ] end of the quarter 1, we have taken up prices again further in [indiscernible]. And we have revisited prices recently for even new business as well. So this will be a continuous exercise whereby we try to keep the blended portfolio in a certain way, and we don't absolutely increase or pass on the cost push. On a weighted average portfolio level, if you look at Y-o-Y, if the sales growth is 11%, gross margin growth is 11%, this clearly demonstrates that the entire cost push has been passed on as a blended portfolio. Having said that, the benefit of mix should arrive, what is your aspiration or even what is our aspiration. It is a combined effect. We cannot just look at one product in isolation. Cheese and we go hand-in-hand, same as or SMP or WMP.

Next question is from the line of [indiscernible] from [ Elma ] Investment Partners.

My question is for Rahul. Rahul, if we look at the distribution expansion that we have talked about post your joining and the team that you have hired and we have gone into newer cities in South India where we were not present and going into some of the other markets where we were lacking. And in spite of that, our core categories have declined in volume, which is actually slightly -- which is not the case for some of the other players. So I just want to understand the dichotomy that in spite of increasing this reach, it's not kind of fructifying for our core category volume growth. So what's your thinking? How do we catch up to grow at least 8%, 10% volume every year? And what is it going to take for your team to get it done?

So yes, just to answer your very specific question on the distribution and the core category growth. So just like to clarify that when you talk about core category, it is consists of both B2C and B2B -- so our main distribution expansion is basically created for more growth in B2C, which is already there. There, we are not degrowing. Let's be correct on that. We are not degrowing on the B2C part of the total business. Though B2B, we have to maintain our profitability and all these things. So sometimes we forego some volumes from the few customers, which are negotiating very hard and we don't go to that kind of pricing to maintain our profitability. So that is the only thing. So overall, there might be a degrowth of minus 2%, but we don't have any degrowth in B2C category, which is basically arising from our better distribution in the existing market as well as new [ markets ].

Next question is from [indiscernible] from Total Capital Investments.

I'm kind of digging a bit deeper on the question. So I think last 2 quarters have seen kind of softening of the volume growth in the core [indiscernible] is kind of the B2B that doubled [indiscernible] when we look at business as a whole, both B2B and B2C are reality and one [ business ].

What Rahul just mentioned with respect to B2C growth, he is absolutely correct because the volume growth in B2C per se has grown significantly because there are one-off -- we are not here to name certain customer-specific profile or certain channel where we have taken certain stringent action. So that's where if you look at we have categorized this more as a transient slowdown in certain specific channel so that we remain stuck to our, you can say, pricing so that we don't get down to what is the requirement by the other channel or other specific chain -- this is broadly the thing. I'll not be able to share specifically the specific number. But on the guidance, I can definitely share that the B2C category in core categories has grown towards high single digit or close to double digits.

Next question is from the line of [ Ropali ].

So actually, I just wanted to have a clear So just wanted to know the price increase has recently happened, as we said, 35% kind of increase in our new business, especially out [indiscernible] hit our PBT levels because we are kind of backward integrated in our whey production and the price increase in the whey protein market, is it structural or is it temporary?

Globally, the whey protein demand has increased exponentially as you know the reasons because of this PAT reduction is there and after that, a lot of protein is recommended to. So across U.S. and Europe, the demand has inc. also. So it's -- I would say it's not a temporary, it will be a kind of a futuristic kind of demand supply gap in our whey protein segment.

Next question is from the line of [ Anubhav Go ] from [ Cosma Ventures ].

Yes. I just want to congratulate the team on good efforts on brand building for the pride of [indiscernible]. Sir, my question is, if I caught it right, you mentioned on the B2C side, we saw high single-digit growth. So is that the growth rate we should expect for the flagship part of the portfolio? Because my understanding was these are categories growing double digit in volume for organized players. Like I think Paneer has been growing 15%, 20%. So is it also a reflection that a large part of the portfolio is G and then cheese and Paneer and Heavy are very, very small? Ghee and then Cheese, Paneer, [ Rai ]...

I'm not giving you a breakup in terms of what is the composition within the flagship categories. But all in B2C categories, all the portfolio is growing and growing very fast. As you rightly mentioned, specifically on Paneer that, yes, it is growing in double digits. So we are seeing that as an overall flagship categories, we have grown specifically in B2C category at a very high single digit. The aspiration is to, of course, grow double digit. We are working on it, and that's where you see we are taking conscious effort. But it is not that B2B will -- we will not entertain. See, we are here for being present across the spectrum. So we will be there in B2B as well as B2C. The idea of updating specific numbers on B2C category was that the primary focus is, of course, the consumer who is directly picking your brand. So with that perspective, I think when it is growing towards very high single digit or maybe towards the double-digit growth, that is a reasonable growth, which we had witnessed even last year. On an overall basis, full year, we had an 8% volume growth on core categories when we had reported last year. And if you look at YTD December, it was almost as high as 12% volume growth. There are certain channels, there are certain specific chains which are more of -- more on pricing, which is make or break on a deal. So we will like to hold ourselves instead of just pushing for volumes or just getting the revenue, we would not like to go for dilution in margin. So that will be our focus. Profitability remains our key focus.

Next question is from the line of [ Ariyah Shah ] from [ Guardian Services ].