About the company:
The South-based Integrated Dairy firm Dodla Dairy Ltd is opening its Public Offer from 16th of June till 18th of June 2021. The Dairy Company is looking to raise Rs.520 cr via a combination of offer for sale of Rs.470 cr and Fresh Issue of Rs.50 cr which will give it a market cap of around Rs.2,547 cr (higher upper band). The price band is fixed at Rs.421 – Rs.428 per share for a lot size of 35 shares per lot bid.
Objects of the Offer:
Some of the company’s promoters and private equity investor TPG is looking to sell its stake in the company. The objects are
1) Repay or Prepay, in full or part of certain borrowings availed from ICICI Bank, HSBC Bank, and HDFC Bank worth Rs.32.26 crore.
2) To fund incremental capital expenditure requirements of Rs.7.15 crore.
Further, the company expects that the listing of the equity shares will enhance its visibility and brand image among their existing and potential customers.
Company Overview:
Dodla Dairy Ltd. (DDL), incorporated in 1995, is an integrated dairy company with a significant presence in the southern markets. Notably, DDL is the 3rd largest company in terms of raw milk procurement with an average procurement of 1.03mn litres per day (MLPD) as of 31st Mar’21 and the 2nd largest private dairy player in terms of market presence. It sells fresh milk, ghee, butter, curd, paneer, gulab jamun, doodh peda, basundhi and junnu, which are targeted at consumption at home. DDL sells Ultra-High Temperature processed (UHT) milk, flavoured milk, ice-cream and other beverages such as buttermilk primarily for direct home consumption. DDL’s Indian operations are undertaken under “Dodla Dairy”, “Dodla” and “KC+” brands, while overseas operations are undertaken under “Dodla Dairy”, “Dairy Top” and “Dodla+” brands. It procures milk from ~109,670 farmers through 6,771 village level collection centres, 232 dairy farms and third-party suppliers as of 31st Mar’21. Further, its operations also consist of processing the raw milk into packaged milk and manufacturing other dairy-based value-added products (VAPs) at 13 plants with an aggregate installed capacity of 1.7 MLPD.
The company’s aggregate installed capacity increased from 1.29 MLPD in Fiscal 2018 to 1.70 MLPD in Fiscal 2021. Additionally, they have commissioned a UHT milk processing plant in Rajahmundry in April, 2019 to support their operations. Their distribution and marketing operations consist of distribution of their milk and dairy based VAPs through 40 sales offices, 3,285 distribution agents, 861 milk distributors and 544 milk product distributors across 11 states in India. The Dairy company’s processing plants are located in close proximity to their milk procurement operations and their target market which enables them to optimise transportation and raw milk handling costs. Apart from the domestic operations the company also has substantial presence in Africa (Uganda & Kenya) since 2015.
Financials:
Dodla Dairy has delivered lacklustre performance during the past three years but it’s revenue has grown at a CAGR of 16 percent during FY18 to FY20. Net profit recorded a negative CAGR of 6 percent over the same period. Notably, DDL has witnessed a robust rebound in financial performance during 9MFY21, mainly led by healthy improvement in EBITDA margin. Its PAT stood at Rs1.16bn in 9MFY21 vs. average annual profit of Rs0.6bn over the last three years. Further, its Operating Cash flow (OCF) generation continues to remain steady with cumulative OCF of Rs5.8bn during FY18-9MFY21 period. Additionally, the company has generated highest ROE and ROCE of 12 percent and 17 percent as of FY20 as compared to its peers Heritage Foods whose returns stood at 11 percent and 15 percent respectively.
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Particulars
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9MFY21
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FY20
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FY19
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FY18
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|
Revenue from operations
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1414
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2139
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1692
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1591
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Revenue Growth ( percent)
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-
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27 percent
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6 percent
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-
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EBITDA
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207
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141
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134
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113
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EBITDA Margin
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15 percent
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7 percent
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8 percent
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7 percent
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Net Profit
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116
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50
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63
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57
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PAT Margin
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8.2 percent
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2.3 percent
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3.7 percent
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3.6 percent
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ROE
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21 percent
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12 percent
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15 percent
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17 percent
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ROCE
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26 percent
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17 percent
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19 percent
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23 percent
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Net Debt/Equity
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0.1
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0.2
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0.3
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0.3
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P/E(x)
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22
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50.9
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40.4
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44.7
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P/BV
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4.6
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5.9
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6.3
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7.5
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Risks:
• No formal arrangements with farmers. Therefore, they are not obligated to supply their milk to Dodla and may choose to sell their milk to competitors.
• High concentration towards Southern India (For FY20, 99 percent of its revenues came from Southern India)
• Operates in highly competitive Dairy Industry especially the markets for pasteurized milk, UHT milk, flavoured milk, curd and ice cream. These products are experiencing rapid development and increasing competition.
Valuations & View:
Dodla Dairy is valued at P/E of 22x as of 9MFY21 earnings and 48x of FY20 EPS, which is a reasonable valuation compared to its close peer Heritage Food which trades at par with DDL. But one of its major peers Hatsun Agro trades at 81x of FY21 earnings, a significant premium compared to Dodla and Heritage due to relatively stable performance, consistent cash generation and robust return ratios (24 percent RoE).
Overall, the company looks very reasonably priced with good return ratios. The encouraging guidance from the management in terms of maintaining high OPMs, strong operating cash flows and minimal leverage bodes well for the stock and it can see listing gains.
Investors can subscribe to this IPO for listing gains.
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