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An Integrated Diary Player in Southern India…

Dodla Diary Ltd (DDL), incorporated on May 15, 1995 at Hyderabad, Andhra Pradesh, is an integrated dairy company based in south India, engaged in the procurement, processing, distribution and marketing of milk and other dairy products. DDL primarily derives all of its revenue from the sale of milk (~75% of 9MFY21 revenue) and dairy based VAPs (value added products) in the branded consumer market. DDL has a significant presence in the southern region of India, with operations primarily across the five Indian states of Andhra Pradesh, Telangana, Karnataka, Tamil Nadu and Maharashtra. The overseas operations are based in Uganda and Kenya.

* The dairy & milk products industry are expected to grow at 10-11% CAGR over FY21 to FY25 as the economic growth & demand is expected to gradually pick up.

* Enjoys significant market presence (2nd highest) in the southern region of India amongst other private diary players in all over India.

* In terms of milk procurement per day DDL is the third highest (in South India) with an average procurement of 1.03 million litres of raw milk per day (MLPD) as of March 31, 2021. (Source: CRISIL).

* DDL has 13 processing plants with an aggregate installed capacity of 1.70 MLPD.

* The company’s total average raw milk procurement increased by 11% from 1.02 MLPD in FY18 to 1.13 MLPD in FY20.

* DDL intends to increase its revenue from diary based VAPs (which yields higher margin) to optimize its product portfolio going ahead.

* DDL’s revenue grew by ~16% CAGR while EBITDA grew at a CAGR of 12% over FY18-20.

* Despite cumulative capital expenditure of Rs. 264.5cr over the past 3 years, RoE and RoCE for FY20 were healthy at 11.5% and 17.0% respectively.

* Further, DDL has a lean balance sheet with D/E ratio of 0.2x as on 9MFY21.

* At the upper price band of Rs.428, DDL is available at P/E of 16.4x (annualized basis on FY21E EPS of Rs.26.1) which appears fully priced. We assign a “Subscribe” rating for the issue on a long-term basis considering the significant market presence, brand visibility, plans to launch new milk products in the near term and lean balance sheet.

Purpose of IPO

The Offer comprises of the Fresh Issue and the Offer for Sale. The proceeds from the offer for sale will go to the selling shareholders, while the amount received from the sale of fresh issue will be utilized for repayment of certain borrowings availed by company, funding working capital requirements and general corporate purposes.

Key Risks

* Seasonal business.

* Rising competition from other established players.

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