Add Dodla Dairy Ltd For Target Rs.895 - ICICI Securities
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Correction in milk procurement prices leads to EBITDA margin expansion
Highlights from Dodla’s Q1FY24: (1) Milk procurement prices have corrected and it has led to gross and EBITDA margin expansion YoY. We model margin expansion to continue even in rest of FY24 led by correction in input prices, (2) volume growth was healthy at ~6.7% YoY; we model it to be in mid-high single digits in rest of FY24, and (3) the company has potential to gain market share considering additional profitability. We model it to invest to improve volume growth and raw material sourcing. While we remain structurally positive on Dodla Dairy, we revise rating to ADD from earlier BUY with a DCF-based TP of INR 895 (implied P/E of 22x FY25E; Earlier TP: INR 600) post ~40% increase in stock price in past one month.
Q1FY24 results
Dodla reported revenue growth of 14.8% YoY with EBITDA and PAT growth of 33.9% and 40.3%, respectively YoY. Gross and EBITDA margin expanded 44bps and 104bps respectively YoY due to lower input cost, efficiency gains and operating leverage. Other income was up 64.0% YoY.
Segment-wise performance
Higher revenues of value added products (+12.9% YoY) were key driver of revenue growth. While curd volumes were up just 3.1% YoY, price hikes led to higher VAP revenues. Average milk procurement was up 7.4% YoY, while milk volume sales increased 6.7% YoY. India sales were up 16.1% YoY, while Africa sales remained largely flat (+1.1% YoY).
Lower commodity prices led to margin expansion
We note milk procurement prices have corrected due to (1) stable cattle feed prices, (2) ~40% correction in global SMP prices and (3) higher milk production post covid. We model lower commodity prices to drive 230bps EBITDA margin expansion in FY23-25E.
Downgrade to ADD
We model Dodla to report revenue and PAT CAGR of 14.6% and 36.3% respectively, over FY23-25E and RoCE to be 15.4% in FY25. We revise our DCF-based TP to INR 895 (implied P/E of 22x FY25E EPS). We downgrade the stock to ADD from earlier BUY.
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