01-01-1970 12:00 AM | Source: Ventura Securities Ltd
IPO Note - Dodla Dairy Limited By Ventura Securities
News By Tags | #6781 #442 #17

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Dodla Dairy Limited (DDL) is a South India based integrated dairy company ranked 3rd largest among private players in terms of milk procurement per day (average 1.02MLPD). DDL’s operations in India are primarily across the five Indian states of Andhra Pradesh, Telangana, Karnataka, Tamil Nadu and Maharashtra. Its overseas operations are based in Uganda and Kenya. The Indian operations are undertaken under brands “Dodla Dairy”, “Dodla” and “KC+” while the overseas operations are undertaken under brands “Dodla Dairy”, “Dairy Top” and “Dodla+”.

Over FY18-21E*, DDL’s revenues/ EBITDA / PAT grew at a CAGR of 5.7%/ 33.6% / 38.2% to Rs.1,880.0 cr / Rs.268.8 cr / Rs.150.0 cr, respectively. DDL’s revenue from the sale of milk and dairy based VAPs constituted 72.8% and 27.2% respectively in FY20 and 74.5% and 25.5% respectively in 1HFY21. EBITDA and net margins grew by 721 bps and 441 bps to 14.3% and 8.0% respectively over the same period. Consequently, return ratios RoE and RoIC improved by 988 bps and 2,134 bps to 26.6% and 37.3%, respectively in FY21E.

The sharp gains in EBITDA margins was due to cost cutting measures implemented to tackle the COVID-19 impact . These heightened margins are unlikely to sustain and management too has guided towards normalisation. As a result, we expect overall revenues / EBITDA / PAT to grow at a CAGR of 9% / -4.9% / -4.4% to Rs.2,433.2 cr / Rs.231.2 cr / Rs.131.3 cr, respectively, by FY24. EBITDA and net margins are expected to degrow by 480 bps and 259 bps to 9.5% and 5.4%, respectively over the same period. Consequently, return ratios RoE and RoIC are also expected to fall by 611 bps and 345 bps to 20.5% and 33.9%, respectively by FY24.

Despite the lack of earnings growth over the forecast period (given the high base effect of net earnings for FY21), we expect a re-rating of the valuations given the

* Market leadership

* Strong sectoral growth trends

* Improved efficiencies (by eliminating market intermediaries)

* Thrust on expanding retail footprint

* Debt free status

* Completion of capex cycle

* High return ratios

We value the stock at Rs 580 (25x FY24E) representing potential upside of 35.4% from the IPO higher band price of Rs 428 over the next 24 months.

 

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