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Dodla Dairy Limited (DDL) was incorporated on May 15 1995 at Hyderabad. The company sell fresh milk, ghee, butter, curd, paneer, gulab jamun, doodh peda, basundhi and junnu, which are targeted at consumption at home. They sell UHT milk, flavoured milk, ice cream and beverages such as buttermilk under their brand, primarily for direct consumption.

Positives: (a) Consumer focused dairy company with a diverse range of products under the “Dodla Dairy” and “Dodla” brands (b) Integrated business model with well-defined procurement, processing and distribution capabilities (c) Focused engagement and long term relationship with dairy farmers (d) Experienced Board and senior management team.

Investment concerns: (a) DDL reported negative consolidated profit CAGR (over FY2018-20), hence profit growth concerns remain; (b) Inability to procure sufficient good quality raw milk at commercially viable prices may adversely impact the operation as milk is a key raw material for all dairy products.

Outlook & Valuation: In terms of valuations, thepost-issue 9MFY21 annualised PE works out to 16.4x (at the upper end of theissue price band), which is low compared to Parag Milk Foods (trading at 32.7x). Further, DDL has shown improvement in operating margin with efficient working capital cycle. Going forward, we believe that DDL would perform better on the back of increase in value added product mix. Thus, we recommend a subscribe rating on the issue.

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