Parag Milk Foods Ltd Management Discussions

Management Discussion & Analysis

Economic Overview Global Economic Overview

The global economy exhibited remarkable resilience in 2023, despite significant interest rate hikes by central banks to combat inflation. Strong economic activity and adaptability to changing financial conditions aided in increased global economic resilience.

Global inflation was anticipated to decrease gradually, from 6.8% in 2023 to 5.9% in 2024, with a further decline to 4.5% in 2025. The world economy grew significantly as families in major developed countries spent the savings they gathered during the pandemic, despite efforts by central governments to control inflation through higher interest rates. The global economy has been estimated to grow by 3.2% in 2023, with this growth rate expected to persist through 2024 and 2025. However, several factors, including elevated borrowing costs, reduced fiscal support, lingering effects of the COVID-19 pandemic, geopolitical tensions, and sluggish productivity growth, pose risk to the overall global economic outlook.

Advanced economies are anticipated to achieve their inflation targets earlier than emerging market and developing economies. While headline inflation is expected to decrease gradually, various structural challenges persist. These challenges include inadequate infrastructure, limited access to quality education and healthcare, and insufficient investment in technological innovation, affecting the mobility of capital and labour and hindering progress toward higher living standards, particularly in middle- and lower-income countries. In 2024, advanced economies are forecasted to grow by 1.7%, with a modest uptick to 1.8% in 2025, compared to the 1.6% growth recorded in 2023.

Emerging markets and developing economies are projected to expand by 4.2% in both 2024 and 2025, representing a slight decline from the 4.3% growth observed in 2023. The global economic outlook is expected to remain stable; however, concerns persist regarding potential input costs triggered by geopolitical tensions, slowing inflation rates in major economies, and high government debt. The global economy is expected to navigate uncertainties and strive towards sustained growth and prosperity for all by addressing these challenges with strategic and collaborative measures.

Indian Economic Overview

Indias economic growth has been driven by strong domestic demand and robust expansion across various sectors. The country has made significant strides in leveraging technology to enhance knowledge sharing, manufacturing, export competitiveness driving growth and strengthening the nations economic fundamentals. According to the National Statistics Organisation (NSO), Indias economy grew by 8.2% in FY 2023-24, surpassing the 7.0% growth recorded in FY 2022-23.

The RBIs MPC maintained the policy repo rate at 6.5% throughout FY 2023-24, adhering to its stance of withdrawal of accommodation. It reiterated its goal of keeping headline inflation at 4%, while estimating an inflation rate of 5.4% for FY 2023-24.

In FY 2023-24, strong consumption and investment activities fuelled the countrys economic growth rate. Urban consumption played a significant role in driving this growth, while there was also notable growth in rural demand. The increased sales of Fast-Moving Consumer Goods (FMCG), two-wheelers, and tractors indicate a strong rural demand. This boost in rural consumption can be attributed to rising rural wages and a decrease in inflation. Moreover, increased kharif production and a higher Minimum Support Price (MSP) have contributed to higher rural income, reinforcing the upward trend in rural consumption.

Indian consumers have experienced a significant increase in per capita income, with Indias per capita Net National Income (NNI) at constant (2011-12) prices rising by 35.12%. The NNI grew from f 72,805 in FY 2014-15 to f 98,374 in FY 2022-23, indicating improved economic conditions and a growing middle class with greater disposable income. Moreover, heightened government capital expenditure is poised to propel economic growth by stimulating consumer spending Source: PIB and nationwide infrastructure. The surge in government spending is expected to generate a domino effect throughout the economy, leading to increased demand, robust supply chains, and expanded market opportunities. For FY 2024-25, the government aims to elevate capital expenditure to f 11.1 lakh crore, up from f10 lakh crore in FY 2023-24. This substantial increase indicates the governments dedication to boost economic growth and strengthening the nations infrastructure framework.

Industry Overview

Fast-Moving Consumer Goods (FMCG)

Over recent years, the FMCG sector in India has seen impressive growth and undergone substantial transformation. The growth has been driven by a rapidly growing economy, higher levels of consumer spending, and advancements in technology. The FMCG in India is ranked as the countrys fourth largest sector with its growth further driven by increased disposable income and improved living standards. The FMCG sector grew to a market size of USD 167 Billion in FY 2022-23 and is poised for continued growth with a compound annual growth rate (CAGR) of 14.9% to reach USD 220 Billion by FY 2024-25. The FMCG industry is further expected to reach USD 616 Billion by FY 2026-27, according to Statista.

The FMCG sector is segmented into Household and Personal Care, Food & Beverages, and Healthcare, which account for 50%, 31%, and 19% of the market, respectively. Tier 2 and Tier 3 cities are emerging as key markets, surpassing metropolitan areas in retail consumption. In the retail sector, Modern Trade (MT) exhibited strong growth with a notable 16.8% year-over-year (YoY) increase in the fourth quarter of 2023, reflecting resilience and steady demand. Conversely, Traditional Trade (TT) saw a decline, with consumption dropping to 5.3% YoY in Q4 2023 from 7.5% YoY in the previous quarter. Despite these challenges, the strong performance of Modern Trade suggests a promising outlook for the overall market landscape.

The FMCG industry experienced a 6% growth, with a volume increase of 6.4% and a price decline of 0.4% during4Q2023.Withinthe FMCG industry, foodcategories grew by 3.8% across its volume and experienced a 1.4% decline in price, indicating a slowdown compared to the previous quarter. However, the overall food category grew by 2.4% in 4Q2023. The habit-forming food categories also remained resilient, maintaining demand despite moderate price growth. Rural areas experienced a growth rate of 5.8%, playing a significant role in significantly contributing to the FMCG sectors expansion in the fourth quarter of 2023.

Going forward, growth in the FMCG industry is anticipated to be led by higher sales volumes in FY 2024-25. India is projected to become the worlds third-largest consumer market by 2030. The growth will be driven by increased consumer spending, increasing middle-class population, price stability, predictions of good monsoon rains, and optimistic forecasts for crop yields.

Dairy Industry Overview

Global Dairy Industry

The dairy industry is a major and dynamic part of global agriculture industry. Dairy farming and processing are essential to economies and support many peoples livelihoods worldwide. There are about 133 million dairy farms globally, providing a living for over 600 million people, including 80 million women, with around 37 million of them leading their farms, as per the IMARC 2024 report. Each year, 9.0% of the worlds milk production is traded internationally, emphasising the industrys importance in global trade. The global dairy market reached a size of USD 945 Billion in 2023.

Going forward, the global dairy market is expected to grow to USD 1,460 Billion by 2032, with a CAGR of 5.0% during the period from 2024 to 2032.

In 2023, global milk and milk products production reached 906 Million Metric Tonnes, with a CAGR of 0.7% from 2018 to 2023. The demand for milk continues to rise worldwide due to several factors. Population growth, rising incomes, urbanisation, and the adoption of western dietary habits in developing countries such as China and India are significant drivers of the increasing global demand for milk and milk products.

Steady growth in global demand for milk and milk products is anticipated over the next five years. However, the milk supply in regions such as China,

India, Southeast Asia, and Africa is not expected to keep pace with this rising demand. As a result, these markets are becoming increasingly important for global dairy companies, which are meeting the demand with dairy ingredients and locally produced consumer goods. In contrast, developed nations, where consumption levels are already high, are expected to experience a more stable demand outlook. Going forward, the production of global milk and milk products is expected to increase significantly, with a projected CAGR of 3.8% during 2024-2032 by reaching 1,240 Million Metric Tonnes.

Indian Dairy Industry

India represents one of the largest and fastest-growing markets for dairy products. In 2023, the total size of the dairy market was worth Rs.9,926 Billion, growing at a CAGR of around 10.7% from 2018 to 2023. The Indian dairy market is expected to maintain a CAGR of 13.9% from 2024 to 2032, reaching a total value of Rs.31,720 Billion by 2032.

The unorganised dairy market in India consists of milk sold by traditional milkmen, vendors, and self-consumption at home. The unorganised segment accounted for most of the market, comprising 59.3% and valued at Rs.5,888 Billion in 2023. The unorganised market, expected to reach Rs.16,030 Billion, is projected to grow at a CAGR of 11.8% during the same period.

However, the organised segment, valued at Rs.4,038 Billion, has been rapidly expanding in the country. Between 2018 and 2023, the organised market grew at a CAGR of 13.5%, compared to 9.0% growth in the unorganised segment during the same period. In contrast, the organised market is forecasted to grow at a higher CAGR of 16.4% from 2024 to 2032, reaching Rs.15,690 Billion. By the end of the forecast period, the organised segment is expected to account for approximately 49.5% of the total dairy market in India.

The increase in economic activities, higher per capita consumption of milk and dairy products, changing dietary habits due to urbanisation, and ongoing government support for the dairy industry are expected to boost milk production and consumption in India. By FY 2031-32, milk production levels are projected to increase to 349 Million Metric Tonnes from 233 Million Metric Tonnes recorded in FY 2022-23.

Growth Drivers

Increasing Urbanisation and Middle Class Population:

The growing middle class and urbanisation trend in India are significant drivers for organised dairy products. According to a Goldman Sachs Research report, the group of affluent consumers is expected to increase from around 60 million in 2023 to 100 million people by the year 2027. Urban consumers are increasingly seeking safe and quality-assured dairy products, driving the growth of organised dairy market.

Growing Quick Commerce: Growing quick commerce focuses on delivering products rapidly, often within an hour, which aligns with the increasing consumer demand for convenience and speed. FMCG companies are expected to boost sales and enhance customer satisfaction by leveraging advanced logistics and digital platforms. The shift towards quick commerce enables FMCG companies to cater to the modern consumers preference for fast access to daily essentials, driving substantial growth and offering a competitive edge in the market.

Huge Working Population: The working population in India grew from 758 million in 2010 to 826 million in 2015. By 2030, the working population is anticipated to increase further to 988 million. With a substantial working population, there would be a rise in disposable incomes. This demographic trend would further fuel the demand for convenient dairy products such as ready-to-eat or ready-to-drink options. Moreover, increased urbanisation has led to higher consumption of takeaway and dine-out foods, including dairy-based items.

Dynamic Dietary Patterns: There is a noticeable shift in dietary habits among Indians, with reduced consumption of cereals and an increasing preference for milk and milk products. This change is driven by health consciousness and evolving dietary preferences towards nutritious and protein-rich dairy options.

Significant Vegetarian Population: India has a significant vegetarian population that relies on milk as a primary source of protein. This demographic segment drives consistent demand for milk and milk products in various forms.

Expanding Niche Dairy Products: Traditionally

focused on cow and buffalo milk, the Indian dairy industry is witnessing the growth of niche dairy products. Increased internet penetration and rising consumer awareness have fuelled demand for alternative dairy sources such as camel milk, goat milk etc. These products are gaining popularity for their perceived health benefits and nutritional value, diversifying the dairy market in India.

Government Initiatives

The Government of India has introduced several initiatives to support and strengthen the dairy sector. As of February 2024, the Government of India has announced to provide credit guarantee to the MSME and Dairy Cooperatives up to the 25% of the credit borrowed from the Credit Guarantee Fund of f 750 crore. The major schemes announced by the government are as follows:

a. Animal Husbandry Infrastructure Development Fund (AHIDF):

The Animal Husbandry Infrastructure Development Fund (AHIDF) will be implemented under the Infrastructure Development Fund (IDF) with an outlay of f 296 Billion for the next three years, up to FY 2025-26.

b. National Livestock Mission (NLM): This mission aims to promote sustainable development of livestock sector through various interventions such as breed improvement, feed and fodder development, animal health and veterinary services, and skill development. It seeks to enhance productivity and profitability of livestock farming while ensuring livelihood security for livestock farmers across India.

c. Livestock Health and Disease Control (LH&DC) Scheme: As of February 2024, the scheme includes a 50% capital subsidy provision, offering up to f 50 lakhs to individuals, follow-on public offers, Self Help Groups, Joint Liability Groups etc. for establishing entrepreneurship related to horses, donkeys, mules, and camels. Additionally, state governments would assist in breed conservation efforts for horses, donkeys, and camels.

d. Rashtriya Gokul Mission: The Department of Animal Husbandry and Dairying is implementing the Rashtriya Gokul Mission, focusing on the development and conservation of indigenous bovine breeds, genetic improvement of the bovine population, and enhancement of milk production and productivity. This initiative aims to make milk production more financially rewarding for farmers. The scheme continues under revised and realigned schemes of the Department from FY 2021-22 to FY 2025-26, with an allocation of f 2,400 crore.

e. National Programme for Dairy Development (NPDD): The NPDD scheme aims to enhance the quality of milk and milk products and increase the share of organised milk procurement. As of January 20, 2024, approximately 206 projects have been approved under this scheme.

f. Dairy Entrepreneurship Development Scheme (DEDS): The Dairy Entrepreneurship Development Scheme (DEDS) aims to promote the establishment of modern dairy farms to produce clean milk, encourage heifer calf rearing to conserve good breeding stock, and implement structural changes in the unorganised sector to facilitate initial milk processing at the village level. Additionally, the scheme focuses on upgrading the quality and traditional technology for commercial-scale milk handling. It also seeks to generate self-employment opportunities and provide necessary infrastructure, primarily targeting the unorganised sector.

Exploring Category Market Potential in India

Dairy products such as milk, ghee, curd, paneer, cheese, and khoya are widely utilised in India for making sweets, meals, beverages, and more. Dairy products play a vital role throughout the day in the Indian diet, from morning tea to breakfast, lunch, and dinner, serving as a core component of meals. These products are not only integral to traditional Indian recipes but are increasingly being incorporated into western dishes to cater to Indian tastes. For example, paneer, a popular Indian dairy product, is now used in western foods like pizzas and burgers. This adaptation reflects a growing trend of blending traditional Indian flavours with global cuisines.

Ghee

Ghee is the most consumed dairy product in India after liquid milk and curd. Ghee contains a substantial amount of healthy fats, along with vitamins A, E, and D, and is rich in omega-3 fatty acids, beneficial for enhancing brain and heart health. Ghee is preferred over other fats and oils due to its high content of easily absorbable medium-chain fatty acids, which promote energy production in the liver. Urban consumers, especially those who are health-conscious, are increasingly favouring ghee, particularly cow ghee, for its perceived health benefits.

• In 2023, ghee sales in India were valued at approximately f 1,010 Billion, reflecting a compound annual growth rate (CAGR) of 10.4% from 2018 to 2023. Looking ahead, sales are projected to reach f 2,809 Billion by 2032, with an anticipated CAGR of 12.1%

• The stable shelf life, due to antioxidants and low moisture content, along with increasing health consciousness and changing dietary habits, is driving the demand for ghee in the country.

Cheese

• Cheese is one of the fastest-growing markets among dairy products in India. The rise in food service outlets like Pizza Hut and Dominos, along with changing food habits, has driven demand for cheese. There were 1,195 Dominos pizza outlets across 276 cities in India and close to 400 - 500 pizza hut outlets across around 100 cities in India.

• In 2023, the Indian cheese market valued at f 89 Billion. The institutional segment dominated the market with 60.3% of the share, while the retail segment accounted for 40.4%. Processed and cheddar cheese led the market with a 47.9% share, followed by mozzarella at 37.2% and other types at 14.9%.

• Maharashtra was the largest market for cheese in India in 2023, with a consumption share of 28.4%, followed by Gujarat with 12.9%, Delhi with 7.6%, Tamil Nadu with 6.8%, Karnataka with 6.1%, Uttar Pradesh with 5.9%, and West Bengal with 4.9%.

• Going forward, the cheese market is expected to grow at a CAGR of 22.8% from 2024 to 2032, reaching a value of f 574 Billion by 2032.

Whey protein

• In 2023, the total whey powder market in India was valued at around f 10 Billion, growing at a CAGR of approximately 11.9% from 2018 to 2023.

• The fitness craze among high and middle-income consumer groups is fuelling demand for nutrition-enhancing products like whey. Whey is gaining popularity among athletes and sports enthusiasts worldwide because it helps improve athletic performance and strength.

• Steady demand from nutritional applications such as nutritional formulas, infant formulas, milk-based nutritional drinks, sports nutrition, and weight management products are expected to be key catalysts for this segment in the coming years.

• Looking ahead, total whey powder sales are expected to grow at a CAGR of 20.8% from 2024 to 2032, reaching a value of f 53 Billion by 2032.

Paneer

• The Paneer market in India was valued at f 555 Billion in 2023, with the organised sector in the paneer market reached a value of f 23 Billion.

• Factors such as changing food habits, the rise of fast-food chains, and the increased consumption of pasta and pizzas, along with the easy availability of raw materials like milk, are boosting the demand for paneer in the region.

• In 2023, Uttar Pradesh represented the largest market for paneer in India with a share of 15.1%, followed by Maharashtra with 13.0%, Rajasthan with 9.2%, Punjab with 8.7%, Madhya Pradesh with 7.9%, Haryana with 6.6%, and Gujarat with 5.7%.

• From 2024 to 2032, total sales of paneer are expected to grow at a CAGR of 14.2%, reaching f 1,838 Billion, with the unorganised sector reaching a value of f 1,701 Billion.

Curd

• The total curd market in India is expected to grow at a CAGR of 18.2% from 2024 to 2032, reaching a value of f 2,896 Billion by 2032 from f 670 Billion in 2023.

• The organised curd market is expected to reach f 491 Billion by 2032.

• In the organised curd market, Maharashtra represented the largest market in India in 2023 with a consumption share of 14.1%. Maharashtra was followed by Tamil Nadu with 11.7%, Delhi with 9.3%, Andhra Pradesh with 9.0%, Karnataka with 7.6%, Gujarat with 6.5%, and Uttar Pradesh with 5.5%.

Liquid milk

• Liquid milk is the largest segment of the Indian dairy sector, valued at f 4,800 Billion in 2023. About 51.4% of this milk is sold through the unorganised sector.

• In 2023, the market value of liquid milk sold through the organised sector was f 2,335 Billion, while the unorganised sector accounted for f 2,465 Billion. However, the organised sector is growing rapidly, with a CAGR of 15.3% from 2018 to 2023, significantly outpacing the unorganised sectors CAGR of 9.0% during the same period.

• The upcoming phase of the National Dairy Plan, supported by the World Bank and with a project cost of around f 1,400 crore, is expected to boost milk productivity in several states of India.

Business Overview

Parag Milk Foods Limited (hereafter referred to as Parag or the Company), established in 1992, stands as Indias one of the largest private dairy FMCG Company. Parags robust infrastructure and strong distribution network positions it well to seize the opportunities arising from the changing macro environment. The Companys manufacturing plants are strategically located in Manchar, Maharashtra, Palamaner, Andhra Pradesh, and Sonipat, Haryana.

Parags specialisation in healthful and nutritious 100% cows milk products, along with its integrated business approach and strong Research & Development (R&D) capabilities, have positioned the Company as a leader in innovation. Parag has continuously strengthened its capabilities, aiming to capture a larger share of consumer spending through its diverse portfolio of products.

Parag sets itself apart from other dairy players by operating as an integrated entity covering dairy farming, processing, and branding. The comprehensive approach enables the Company to maintain strict control over processes and uphold exceptional product quality, promoting strong brand recall and customer loyalty. Additionally, Parags sound infrastructure serves as a significant entry barrier for competitors, securing its unique position in the industry.

A primary competitive advantage for Parag lies in its business strategy, which addresses 80% of consumers daily dietary needs. The Companys wide range of products plays an integral role in various meals, including breakfast, lunch, and dinner, forming an essential part of everyday consumption.

Parags has an extensive distribution network, including 4.6 lakh retail touchpoints, 6,200+ distributors, 682 super stockists, and 29 depots spread across India. In addition, the Company has strong partnerships with over 500,000 farmers globally, sourcing 100% cow milk from key milk belts. Parag has demonstrated its dedication to quality by operating the largest automated dairy farm, housing over 5,000 Holstein Friesian cows.

Parag offers well-known Pan-India mass affluent brands with a diverse portfolio tailored to various economic classes. Gowardhan Fresh Milk, Gowardhan Dahi, Gowardhan Buttermilk, and Milko Cheese are among the popular products catering to the mass market. The Company delivers its flagship brand, Gowardhan Ghee, alongside the distinctive "Swarna" ghee and a wide range of GO cheeses to the mass-affluent segment. Moreover, Parag serves the upper tiers of the economy through its new-age ventures, Pride of Cows and Avvatar.

Parags success is driven by its strategic emphasis on value-added dairy products. These products, including ghee, cheese, and beverages, make up approximately 70-80% of Parags portfolio. Over the years, Parag has seen substantial growth in the share of value-added dairy products, rising from 50% a decade ago to around 70% currently. This focus on value-added products serves as the primary growth driver for the Company.

Product Performance

In FY2023-24, Parags product value mix included a variety of offerings tailored to diverse consumer preferences:

• Milk: Milk accounted for 9.1% of Parags product mix, offering various types like toned, full-cream, and low-fat, providing essential nutrients and nourishment.

• Value-Added Milk Products: The value-added milk products category constituted a significant portion, accounting for 68.3% of the product mix. These products undergo additional processing or incorporate specific ingredients to enhance their nutritional value or taste.

• New Age Products: Making up 4.7% of the product mix, Parag introduced a range of new-age products aligned with evolving consumer trends and preferences. This includes brands like Pride of Cows, a premium dairy brand, and Avvatar, a whey protein business.

• Skimmed Milk Powder (SMP): Skimmed Milk Powder represented 17.9% of Parags product mix. Derived by removing the fat content from milk, SMP offers an extended shelf life and finds applications in various food products such as bakery items, confectionery, and dairy-based desserts.

Overall, Parags product mix in FY 2023-24, showcased a comprehensive range of dairy product offerings, emphasising value-added milk products and reflecting an understanding of emerging market trends.

Brand Performance

• Gowardhan Ghee: Gowardhan is a brand tailored to Indian households across urban and rural regions. Its product range comprises daily dairy essentials familiar to consumers, including Ghee, Milk, Paneer, Dahi, Curd, Butter, Dairy Whitener, and Gulab Jamun Mix. During FY24, the Company has entered the traditional sweets category under the brand Gowardhan. This forward integration features a range of seven delectable sweets, including Kaju Katli, Malai Pedha, Kesar Pedha, Kaju Pista Roll, Mawa Gujiya, Mysore Pak, and Malai Modak. The Gowardhan brand experienced a 25% growth in FY 2023-24.

• Go Cheese: The Go brand is designed for modernised and westernised families leading busy, active lives. Its target audience includes young working couples and urban-centric families with well-travelled backgrounds, often with active children.

• Pride of Cows: Pride of Cows, a brand within Parags portfolio, provides a unique farm-to-home milk experience that truly sets it apart from other products. It is marketed as a premium dairy brand with a single origin, sourced from Indias most advanced dairy farm.

• Avvatar: Avvatar is Parags sports nutrition brand, distinguished as the first Company in India to introduce fresh vegetarian whey protein. Since its launch in CY 2017, the Avvatar brand has received enthusiastic feedback from consumers and gained widespread acceptance in the Indian market.

Subsidiary Performance

• Bhagyalaxmi Dairy Farm:

The Company has implemented backward integration through its own Bhagyalaxmi Dairy Farm, which has been recognised as Indias most advanced farm comprising of 35+ acres and equipped with top-notch international technology. This farm accommodates over 5000 cows and serves as the foundation for the premium offerings sold under the brand Pride of Cows. These high-quality products cater to SEC A+ consumers and include whole milk, fat-free milk, ghee, paneer, and curd. The Company has pioneered the farm to home concept, experiencing remarkable growth as a result.

• Expansion of Bhagyalaxmi Dairy Farm:

Parag has embarked on ambitious expansion plans to enhance its presence in backend operations and address the rising demand for fresh, premium dairy products. The Company has expected the project to reach a peak production of approximately 1.4 lakh litres of milk daily, with commencement already underway and completion slated for 2027. Through this expansion, Parag aims to augment milk production and cater to the ever-growing market demand.

• The Subsidiarys brand Pride of Cows originated with a premium milk proposition and has subsequently broadened its product range to include Pride of Cows Milk, Pride of Cows - Fat free milk, Pride of Cows- Ghee, and Pride of Cows - Paneer.

Parag intends to expand its dairy vertical to cater to the escalating need for unadulterated premium dairy products. The Companys greenfield expansion initiative includes 500 acres of land situated 40 kilometres from Nashik at Bota. This endeavour entails the establishment of a cutting-edge dairy farm capable of accommodating around 15,000 cows, representing nearly fivefold the current capacity.

• Bhagyalaxmi Bioscience Division: The

Bhagyalaxmi Bioscience Division conducts research on various formulations for quality cattle feed aimed at enhancing milk yields and sustainability. In this division, waste matter is converted into useful marketable material, such as manure. Additionally, the facility operates its own biogas plant with a power generation capacity of 600 m3, utilised for captive consumption.

International Operations

• Exports contributes around 1% to overall revenue.

• The Company has planned to establish a wholly owned subsidiary (WOS) in Dubai, UAE. This strategic initiative aims to expand its global reach and create a seamless supply chain to serve the international market effectively.

New categories & launches during the year

• The Company has expanded its Avvatar portfolio with the introduction of Avvatar Mango Rush, adding a mango flavor option during the year. Additionally, Parag has launched several new products, including Masala Tadka chass, plain lassi, and mango lassi in pouches under the fresh category, available at affordable price points.

• The Company has forward integrated into traditional sweet segment under the brand Gowardhan. Currently it has seven delectable sweets range namely Kaju Katli, Malai Pedha, Kesar Pedha, Kaju Roll, Mawa Gujiya, Mysore Pak, and Malai Modak. With an estimated branded market size of Rs.7000-8000 crore, the Indian sweets market presents vast opportunities for growth and innovation.

Key financial highlights

In FY 2023-24, Parag has delivered exceptional performance across all business verticals, achieving the highest-ever revenue driven by volume, value, and product mix. The outstanding performance was attributed to extensive distribution reach and outlet coverage, complemented by impactful marketing and branding campaigns as well as premium pricing in flagship products.

• The Companys Consolidated Revenue surged by 8.5% YoY to Rs.31,387 million, driven by robust growth across all its brands. Gowardhan, Go Cheese, Pride of Cows and Avvatar.

• The share of new age business accounted for 4.7%, while liquid milk represented 9.1%, and value-added Products contributed to 68.3% of total revenue. Additionally, skimmed milk powder saw a YoY increase of 17.9%.

• In FY 2023-24, domestic milk prices have stabilised and softened compared to FY 2022-23, owing to proactive measures implemented by the government to curb inflation.

• For Parag, softening raw material prices and an improved product mix resulted in a consistent improvement in Gross Profit Margins, that reached Rs.7,487 million The Company experienced a 420-basis points expansion in overall Gross margins compared to the previous year.

• Despite industry and macroeconomic challenges, Parag demonstrated resilience, with an increase in planned purchase procurement. On an average, the Company managed approximately 17 lakh litres of milk daily, highlighting its strong network and meaningful relationships within the farmer community.

• EBITDA amounted to Rs.2,223 million, with margins at 7.1%, compared to Rs.1635 million and an EBITDA Margin of 5.70% recorded in FY 2022-23.

• Profit After Tax stood at Rs.906 million, as compared to Rs.533 million witnessed in FY 2022-23.

• The Board of Directors has recommended a dividend of Rs.0.5 per equity share (face value of Rs.10 each) for the year ended March 31, 2024, amounting to approximately Rs.6 crore.

Distribution Reach

The overall business growth was comprehensive, with all distribution channels contributing to a strong performance. In FY 2023-24, the General Trade, Modern Retail, and Hotel/Restaurant/Cafe (HoRECA) verticals witnessed growth of 19% YoY, 23% YoY, and 7% YoY, respectively.

Brand Building Initiatives

The Company continued to strengthen its brand equity reach by adopting unique content-led impact marketing and branding activities. Parags strategic integration with Kaun Banega Crorepati (KBC) has proven highly effective in enhancing strong consumer connections and extending its distribution network. The Company has renewed its collaboration with KBC, anticipating even broader reach, particularly in tier 2 and tier 3 towns and cities. As part of its ongoing strategic initiatives, Parag remains committed to expanding its distribution network and enhancing outlet coverage. The Company teamed up with

Starplus for IPL integration, featuring the Go Cheese brand prominently during every four runs scored during the match. The Company also engaged in brand promotion through mall activations, influencer activities on social media, participating in the Radio Mirchi Navratri event, and various consumer offers. The Companys participation in The Fit Expo 2023 showcased its Avvatar brand, contributing to increased brand visibility and consumer engagement. Through these initiatives, the Company aimed to drive on-ground sales growth and strengthen its presence across different channels.

Strong Focus on the Key Strategic initiatives - The Company continues to strive to keep its focus on the key strategic initiatives embarked by it

Consolidated Financial Ratios

Particulars	Numerator	Denominator	FY 2023-24	FY 2022-23	% of variation from previous Year
Current Ratio (in times)	Current assets	Current liabilities	1.86	1.92	(3%)
Debt - Equity Ratio (in times)	Total Debt	Total shareholders equity	0.72	0.77	(7%)
Debt Service coverage ratio (in times)	Earnings for Debts Service	Current debt	2.51	2.10	20%
Return on equity (in %)	PAT	Total average equity	10.7%	8.0%	34%
Inventory Turnover Ratio (in times)	Sales	Average inventory	5.28	5.50	(4%)
Trade receivables turnover ratio (in times)	Revenue from operations	Average trade receivables	15.22	19.71	(23%)
Trade payables turnover ratio (in times)	Net Credit Purchase	Average trade payables	13.18	12.78	3%
Net capital turnover ratio (in times)	Revenue from operations	Working capital	5.19	5.35	(3%)
Net profit ratio (in %)	Net profit	Revenue	3%	2%	58%
Return on capital employed (in %)	PBIT	Capital employed	13.7%	11.0%	25%
Return on investment (in %)	Earning before interest, tax and exceptional items	Average total assets	9.1%	7.7%	19%

Opportunities and Risks

Risks	Mitigation measures
Raw Material Price Risk: The Companys business faces risks associated with fluctuations in raw material prices, driven by global and regional market forces, including availability, demand, and inventory levels. Variations in these factors can lead to increased operating costs.	To mitigate these risks, the Company has engaged in long-term supply agreements, diversified supplier base to manage price volatility. Additionally, ongoing market analysis and strategic sourcing helps the Company to minimize the impact of raw material price changes on its financial performance. Further, to ensure the most efficient and cost-effective procurement of raw materials, we have established a strong network of suppliers and draw on our industry experience to navigate potential risks in the market.
Economic Risk: Our business is exposed to various macroeconomic risks, including fluctuations in inflation, government regulations, exchange rates, interest rates, and political instability. Additionally, changing consumer demand presents a significant risk factor. These elements can impact our operations in several ways, such as affecting our cost structure, profitability, and market demand for our products or services.	To address these risks, we actively monitor economic indicators and regulatory changes and adapt our strategies accordingly. We engage in Contract Manufacturing for a wide range of our dairy products, which makes us less susceptible to economic downturns. Demand for dairy items tends to remain relatively stable, regardless of any changes in the economy. Our diversified Contract Manufacturing model enables us to keep our facilities operational and running smoothly.
Contract Risk: We face the risk of potential losses if we are unable to meet the requirements and expectations set by our clients. These requirements may include product specifications, delivery timelines, quality standards and compliance with contractual obligations. Failure to meet these expectations can result in financial penalties, loss of business, reputational damage and strained client relationships.	To mitigate this risk, we implement rigorous quality control processes, maintain clear communication channels with our clients and ensure that our project management and operational teams are well- equipped to handle client requirements. Regular reviews and audits help us to proactively address any issues that could impact our ability to meet client expectations. Additionally, we work to establish strong relationships with our clients to better understand their needs and address any potential challenges promptly.
Quality and Safety Risk:	To mitigate this risk, we adhere to a comprehensive set of safety and protection protocols and regularly review and update them to align with current regulations and industry best practices.
The noncompliance with safety and protection protocols poses a significant risk to our reputation and market standing. Breaches of established safety standards can lead to adverse consequences such as legal penalties, increased scrutiny from regulatory bodies and damage to our brands reputation and goodwill.	Key measures include:
	Regular Training: Providing ongoing training for employees to ensure they understand and adhere to safety standards and protocols.
	Compliance Audits: Conducting regular internal and external audits to identify and address any potential non-compliance issues.
	Incident Reporting: Implementing robust systems for reporting and investigating any safety incidents or breaches to prevent recurrence.
	Continuous Improvement: Continuously evaluating and improving our safety practices based on feedback, audit results and industry developments.
	By maintaining strict adherence to safety and protection protocols and fostering a culture of compliance, we aim to safeguard our reputation and sustain trust and confidence among our clients and stakeholders.
Occupational Health & Safety Risk: The risk of physical harm to employees involved in manufacturing and frontline distribution activities, including accidents or injuries due to machinery, equipment or unsafe working conditions.	We have a dedicated Human Rights policy, strong SOPs (Standard Operating Procedures) to ensure the highest adherence to health and safety and a governance mechanism to ensure any incidents are duly investigated and resolved for the future. We ensure a periodic review of safety procedures, implementing and enforcing stringent safety protocols and procedures and we provide comprehensive training for all employees on safe operation of machinery and emergency response. We also conduct routine safety inspections and maintenance of equipment to ensure a safe working environment.
Sustainability Risk: Corporate citizenship has gained significant importance as both individual and institutional investors increasingly seek out companies with strong socially responsible orientations. This focus on Environmental, Social and Governance (ESG) practices reflects a growing recognition that sustainable and ethical business practices contribute to a long-term value creation and risk management.	By integrating ESG considerations into our corporate strategy and operations, we align with the expectations of modern investors and stakeholders. This commitment not only supports sustainable growth but also enhances our market position and long-term resilience. We are dedicated to continuously improving our ESG practices to meet evolving standards and demonstrate our commitment to responsible corporate citizenship. Further, dossier on ESG framework is covered in BRSR Report and ESG section included in this Annual Report.
Redundancy Risk: With changing times the market trends rapidly evolve which necessitate the Company to keep in pace with changing consumer needs and accordingly innovate flavours and new products/ categories.	We employ market research, trend analysis and consumer feedback mechanisms to gain insights into evolving tastes and preferences. We invest in research and development to explore new ingredients, formulations and product concepts. We streamline our product development cycles and maintain a responsive supply chain to adapt swiftly to market changes and introduce new offerings efficiently.
Compliance, Regulatory & Reputation Risks: Any unforeseen changes in the legal and regulatory environment may lead to non-compliance with local and global laws and regulations. This may result in erosion of brand equity and may result in claims or enforcement.	Compliance Monitoring: We maintain a robust compliance framework to monitor changes in laws and regulations at both local and global levels. This includes subscribing to legal updates, engaging with legal experts and participating in industry associations. Risk Assessment and Management: Regularly conducting risk assessments to identify potential areas of non-compliance and implementing measures to address these risks.
	Training and Awareness: Providing ongoing training for employees and management on legal and regulatory requirements relevant to their roles and responsibilities.
	Legal Expertise: Engaging with legal professionals to ensure that our policies, practices and operations align with current laws and regulations.
	By proactively managing these risks through diligent compliance practices and continuous monitoring, we aim to protect our brand equity, avoid legal challenges and ensure the long-term sustainability of our business.
Competition Risk: The Company operates in a highly competitive dairy industry, characterized by significant domestic and international players. Given the promising growth prospects in this sector, the level of competition can be immense, presenting both challenges and opportunities for our business.	Our products have good price value equation and has a long-term trust of our customers, enabling us to defend our market. Our sales team is close to the ground, quickly picking new developments in the market. We believe we are an agile organization to provide an appropriate response to competitive manoeuvres. The market is also large enough that multiple players can have a profitable growth in this segment.
People Risk: The highly competitive nature of the industry creates a challenge for us in attracting and retaining skilled personnel. As a result, we are vulnerable to potential difficulties in filling various vacancies within the organisation.	We have a recruitment process which is methodological and helps us retain and attract the right talent. Our human resource team works persistently in finding the right people for the right job at the right time. We provide robust training programs, career advancement opportunities and mentorship to foster professional growth and enhance employee satisfaction. We cultivate a positive work culture with a focus on employee engagement, recognition and work-life balance to improve retention and attract top talent.

Internal Control Systems and their Adequacy

The Company has robust internal control systems to ensure operational effectiveness, reliable financial reporting, asset safeguarding, fraud prevention and compliance with laws and regulations. These controls are tailored to the Companys size, operations and complexity. We have laid down adequate procedures and policies to guide the operations of our business. Unit and functional heads are responsible for adhering to the Companys policies and procedures. These controls are periodically tested by the Management, Statutory Auditors and Internal Auditors. M/s. Deloitte Touche Tohmatsu India LLP conducts an independent internal audit, providing assurance and identifying opportunities for business improvements. This audit aims to evaluate and enhance the effectiveness of processes, controls and governance. It helps us to accomplish our objectives by bringing a systematic and disciplined approach to evaluating and improving the effectiveness of processes, controls and governance.

The Audit Committee and Risk Management Committee review internal controls and risk management frameworks based on quarterly reports from Internal Auditors. They recommend upgrades and corrections to the internal control systems, with the Board receiving quarterly reports for review. The Company maintains a well-designed code of conduct, reviewed regularly. Prompt actions are taken in case of violations to ensure employee well-being and adherence to ethical standards.

The internal audit function operates with a risk-based annual audit plan approved by the Audit Committee. This plan uses a 10-factor risk approach to focus audits on key risk areas. Regular assessments are conducted to evaluate the effectiveness of Internal Financial Controls systems and ensure strong governance and risk management processes. Overall, these practices help ensure that the Companys operations are efficient, compliant and resilient against risks.

Cautionary Statement

Statements in the Annual Report describing the Companys objective, expectations or forecasts may be forward looking within the meaning of applicable laws and regulations. These statements are based on current projections about operations, industry conditions, financial condition, and liquidity. Those statements are not guarantees and are subject to risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual results could differ materially from these forward-looking statements.