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As more people buy dairy products, more investors bet on these stocks

Prabhat Dairy was the best performing stock on Wednesday, up 20%. Umang surged 19% and Kwality rose almost 8%. Parag Milk Foods edged 0.2% higher.

Updated: Sep 22, 2016, 09.16 AM IST
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Value-added products, including curd, lassi, butter milk, flavoured milk, yoghurt and cheese, have seen a significant increase in sales, especially among the urban consumers.
Value-added products, including curd, lassi, butter milk, flavoured milk, yoghurt and cheese, have seen a significant increase in sales, especially among the urban consumers.
MUMBAI: Shares of many dairy companies such as Kwality, Umang Dairies and Prabhat Dairy soared on Wednesday outperforming the broader market as traders bet on pick-up in dairy consumption.

Prabhat Dairy was the best performing stock on Wednesday, up 20%. Umang surged 19% and Kwality rose almost 8%. Parag Milk Foods edged 0.2% higher.

“We have a positive bias on dairy stocks,” said Dipen Shah, senior VP at Kotak Securities. “These companies are graduating from low-margin businesses to value-add products, which are gaining good traction with urban demand increasing.”

Value-added products, including curd, lassi, butter milk, flavoured milk, yoghurt and cheese, have seen a significant increase in sales, especially among the urban consumers.

“Due to the high population these companies are likely to see a rise in demand but dairy is a volume growth play rather than a margin expansion play,” said AK Prabhakar, head of research at IDBI Capital Markets who is bullish on Prabhat Dairy.

What is giving comfort to traders is that some of these stocks have been favoured by marquee investors like Dolly Khanna, Vijay Kedia, Kamal Kabra and Ashish Kacholia.

The Indian dairy industry is estimated at about Rs 4 lakh crore, with organised players holding just 30% market share. According to analysts, this holds the key to growth as with increasing urban demand, there will be preference for branded products.

Some analysts however said, valuations of these stocks might be stretched. “Dairy stocks are overvalued,” said G Chokkalingam, founder, Equinomics Research & Advisory.

According to Bloomberg estimates, Parag Milk is trading at a P/E of 35.77 times FY17 estimated earnings, Prabhat Dairy at 26.45 times and Heritage Foods at 26.16 times.
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