Parag to invest Rs400-500 crore to add capacity and enter new markets
The company has been exploring the possibility of going public but hasn't firmed up on the idea yet
Hyderabad: Parag Milk Food Pvt. Ltd will invest ₹ 400-500 crore over the next three years to become a pan-India player. To achieve this, it will add capacity to its existing plants and also expand to newer markets in north and northeast India.
The money can be raised from private equity firms or through an initial public offering (IPO), said Devendra Shah, chairman of Parag Milk Foods, on Tuesday. He said the company will open its third plant in the northeast by 2018. The exact location of the plant, with a capacity to process 0.8-1 million litres per day (mlpd), is being worked out, Shah said.
The makers of Gowardhan, Go and Pride milk brands will increase capacity at its two existing plants by 50% to 3 mlpd. Capacity at its Palamneru plant in Andhra Pradesh’s Chittoor district will be doubled to 1.5 mlpd over the next 18 months. The Manchar plant near Pune will add 0.3 mlpd to 1.2 mlpd. It has invested ₹ 200 crore in Palamneru plant that manufactures its entire range of products.
Shah said the company currently has two private equity investors. “Next may be another level of PE or may be an IPO," said Shah. Mahesh Israni, chief marketing officer of the company, said the company was also open to debt financing.
Parag Milk Foods raised ₹ 55 crore from Motilal Oswal Private Equity in 2009 followed by ₹ 150 crore in 2012 from IDFC Alternatives Ltd. Motilal Oswal partially exited Parag Milk Foods during IDFC Alternatives’ investment. The company also raised $15 million ( ₹ 90 crore) in a loan from International Finance Corp., the World Bank’s private investing arm, in 2013.
The company has been exploring the possibility of going public but hasn’t firmed up on the idea yet, Shah said. “Today we are not decided (whether) to go for immediate IPO," said Shah. “But someday, we will have to come to the market."
North India is a fairly mature market but the North East is promising, said Sanjesh Thakur, partner, retail and consumer products practice at the consulting firm EY. “Northeast is a fairly attractive market, specifically the whitener and value-added products is a big market in the northeast and is growing at 15-16% year-on-year," Thakur said.
Value added products such as cheese, paneer, curd, buttermilk, flavoured milk, yogurt, sweets—which have higher margins than liquid milk—contribute 80% to Parag Milk Foods’ revenues. For 2014-15, the company made ₹ 1,450 crore. Shah said it was eyeing ₹ 2,100 crore turnover in 2015-16.
Exports account for 20% of company’s revenue. But the demand is slowing in overseas markets. Domestic consumption, on the other hand, is growing steadily, drawing interest from domestic and foreign players.
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