Industrial Milk announces deleveraging plans for 2015-2016

Farmer Industrial Milk Company (IMC PW) reduced its total debt by 15% YTD and 22% yoy to USD 108.7 mln as of end-1H15, according to its July 21 press release. Debt reduction will remain of the company’s key priorities in the coming years, according to its release, as it plans to decrease total debt to USD 100 mln as of end-2015 and to about USD 80 mln as of end-2016. As of end-2014, the company’s total debt amounted to USD 127.4 mln (-9% yoy) and its debt-to-EBITDA ratio was 2.2x.

Alexander Paraschiy: The deleveraging plan suggests Industrial Milk is going to use most of its operating cash flow for debt repayment in the next 18 months, which means no expansion is planned. In the current environment, with the tough financing market, such an approach looks optimal, in our view. Mathematically, if the company reduces its debt by USD 39 mln and the market keeps the company’s EV unchanged during the next 18 months (at about USD 150 mln), IMC’s market capitalization should improve 1.7 times over this period (up from the current level of USD 43 mln).