Hyderabad-based Dodla Dairy launches its IPO tomorrow. Priced in the range of INR421 – 428 per share, the offer aims to mobilize up to INR520.18 crore. Investors can place orders for minimum 35 shares and in multiples thereafter. Dodla Dairy IPO has already picked up momentum in the grey market and is currently trading at 35% premium. Through Dodla Dairy IPO review, we try to find out the positives and negatives of the offer.
Dodla Dairy IPO details
| Subscription Dates | 16 – 18 June 2021 |
| Price Band | INR421 – 428 per share |
| Fresh issue | INR50 crore |
| Offer For Sale | 10,985,444 shares (INR462.49 – 470.18 crore) |
| Total IPO size | INR512.49 – 520.18 crore |
| Minimum bid (lot size) | 35 shares |
| Face Value | INR10 per share |
| Retail Allocation | 35% |
| Listing On | NSE, BSE |
Dodla Dairy IPO Review: Vertically Integrated Business
Dodla Dairy primarily sells branded milk such as full cream milk, toned milk, processed milk, double-toned milk, and dairy-based value-added products (VAP) such as curd, flavoured milk, ice-cream, Ghee, butter, etc to consumers. The highlight of Dodla Dairy’s business model is its integrated operations. For that, the company works on three major processes.
Milk Sourcing: The company procures 1.02 MLPD (million liters per day) raw milk per day. For that, the company established a sourcing network of approximately 114,920 farmers from across 6,878 villages from the state of Andhra Pradesh, Telangana, Tamil Nadu, and Karnataka. The network also includes, 254 dairy farms and 90 chilling centres as of 31 December 2020.
Milk Processing: Dodla Dairy has 13 processing plants with an installed capacity of 1.70 MLPD where 12 plants are owned by the company while one is on lease. Also, it has two SMP plants in Nellore and Vedasandur with an installed capacity of 15,000 kgs and 10,000 kgs respectively.
Distribution Network: The company has a large distribution network with 40 sales offices, 3,336 distribution agents, 863 milk distributors, and 449 milk product (VAPs) distributors across 11 states in India.
Geographically Diversified Business
Dodla Dairy has geographically diversified businesses with a presence in overseas markets such as Uganda and Kenya.
The company’s Uganda distribution operations are conducted by African subsidiary Lakeside Dairy Limited through 22 distributors and 18 Retail parlors.
Dodla Dairy’s Kenya distribution operations are conducted by African subsidiary Dodla Dairy Kenya Limited through 57 distributors and 53 Retail parlors.
Large and Value Added Product Portfolio
Dodla Dairy has a large product portfolio. The primary product of the company is fluid milk. Apart from this, the company has a large portfolio of VAPs (Value Added Products) such as Ghee, Paneer, Butter, Curd, Cheese, Ice-cream, Flavoured milk, and UHT (Ultra High Temperature processed milk). Revenue from sale of milk and dairy based VAPs constituted 72.8% and 27.2% respectively, of its total revenues in FY2020
Because of the VAPs, the company has the advantage of margins. In fluid milk (raw processed milk), profit margins are very low. But the margins of VAPs are relatively better in the range of 15% to 40%.
Financial Performance on a Strong Footing
Dodla Dairy’s financials are on a strong footing. The company’s sales have grown at 16% of CAGR from FY2018 to FY2020. Gross Margins increased from 20% to 30% from FY2018 to 31 December 2020.
The company’s annualized EPS for FY2021 stands at INR27.9 which translates into the PE range of 15.09-15.34. And the return on the net worth during the latest 9 months stood at 21.2%.
| FY2018 | FY2019 | FY2020 | 9M FY2021 | |
| Revenue | 1,597.0 | 1,699.4 | 2,145.6 | 1,417.0 |
| Expenses | 1,516.6 | 1,606.2 | 2,063.8 | 1,254.9 |
| Comprehensive income | 581 | 65.0 | 54.8 | 115.9 |
| Margin (%) | 3.6 | 3.8 | 2.6 | 8.2 |
Another positive with the company’s balance sheet is the net debt-free status. Its debt-to-equity ratio stood at 0.11 as of 31 December 2020. Being less than 1, this is highly desirable and helps tremendously in booting profitability.
Should you invest?
So far, things are looking good and the presence of private equity majors TPG and IFC is also confidence inspiring.
Now, a quick word about the management and leadership. Dodla Dairy has experienced promoters and management. Dodla Sunil Reddy is the Managing Director of the company and has over 25 years of experience in the dairy industry.
Valuation-wise, the offer appears attractively priced and the premium in the informal market appears to indicate the same. The dairy industry is an evergreen industry and milk consumption has continued to go up in India. Dodla Dairy has a competitive advantage in the south India region and its deep understanding of local markets is likely to help in maintaining this advantage.
All in all, Dodla Dairy IPO review tells us the story of a regional but competent dairy player which has most of the things going in its favour, including valuation.
