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Strengthening play in premium value-added dairy

Milky Mist, headquartered in Tamil Nadu (Erode district), began its journey in 1992, and focuses on the Indian dairy space with 100% thrust on value-added segments. The company’s revenue as of FY25 stands at Rs24bn; it operates across 23 product categories supported by 416 SKUs and four key brands—Milky Mist, SmartChef, Capella, and Misty Lite. The company has recently acquired brands Briyas as well as Asal, to focus on tofu as well as RTC and RTE products, respectively. Given its thrust on value-added segments, it is now clocking better margin – of around 13% in FY25. However, given its leveraged position toward addressing steady capex needs (~21% of revenue for the last three years), its net margin at ~2%, net block turns at 1.5x, working capital requirements (at 40 days), and returns profile (RoCE at ~10%) are weaker than that of listed peers. With the proposed IPO, Milky Mist is looking to raise Rs20.35bn, of which fresh fund-raise of Rs17.85bn will help debt repayment of Rs7.5bn and capex needs of Rs5.44bn. Key risks: a) concentrated sourcing, manufacturing facility, and sales in South India, b) product concentration, c) concentrated category and d) leveraged position.

Value-added dairy play, with focus on B2C business expansion

Milky Mist has been active in value-added dairy segments, and is addressing pan-India needs with its dairy product production concentrated in Tamil Nadu, which is also the source of ~98% of its milk requirements. Five southern states contribute to 71% of its revenue, followed by 18% revenue from the West, 5% from the North, and ~4% from exports. In the value-added portfolio (VAP), it has 30% revenue from paneer (~17% market share), followed by 17% from cheese (12% share in the South; 5% share panIndia), and 16% from curd (~7% share in South India). Overall, it has presence in 23 categories, with 416 SKUs under brands Milky Mist (VAD products), SmartChef (RTC), Capella (chocolate), and Misty Lite (fat spread). The company has recently acquired brands Briyas (Tofu) and Asal (fresh RTC and RTE products). In recent years, amid a surge in competition, its trade discount has expanded from ~4% in FY23 to ~10% in FY25. The company has presence in 22 states and 5 union territories (UTs), all serviced from its single integrated facility via 3,062 distributors addressing the demand of ~350k outlets. For enhanced brand engagement and visibility, the company has 108 Milky Mist exclusive parlors across eight states (6 owned, the rest franchised). It generates 43% of its revenue from general trade and quick commerce, 24% of its revenue is from modern trade, 16% from HoReCa, 10% from e-com platforms, and 6% from B2B sales.

Portfolio drive helps margins, though a leveraged position hurts return profile

Amid listed dairy peers, Milky Mist is clocking industry-best gross margin at ~34% (as of FY25), which helps log peer-best EBITDA margin at 13%. However, with its leveraged position, its net margin at ~2% is relatively weak. The company has a high effective tax rate (at 47% for FY25) given the MAT credit, though the mgmt is evaluating a shift to the new tax regime for availing lower corporate tax rate. Its leveraged position (gross debt: Rs13.8bn; LT debt: Rs10.3bn) has a bearing on its RoCE profile, which is sub-par – ~10% for FY25. The company has resorted to borrowing for funding its steady capex needs (last 3Y at ~21% of revenue; positioned to capitalize on expected 12% CAGR in the traditional value-added dairy products market to Rs9trillion by FY30). Additionally, it has higher working capital needs (than peers) in the business, of ~40 days.

Balance sheet health key ahead; 42% of fresh issues to help reduce debt

With a proposed fund-raise of Rs20.35bn, the company targets a fresh fund-raise of Rs17.85bn and an offer for sale of Rs2.5bn. Of the fresh funds raised, it is looking to use funds mainly for a) repayment of debt of Rs7.5bn, b) addressing capex needs of Rs4.15bn, and c) enhancing cooling infrastructure with Rs1.29bn. Promoters Sathishkumar T and Anitha S together control 92.39% ownership; the other promoter group holds 5.7% stake. Key risks for the company include i) concentration of procurement in Tamil Nadu (98% milk sourcing), ii) concentration of sales in South India (71% for FY25), iii) concentrated manufacturing, iv) concentrated category stream (paneer, cheese, and curd together contribute ~63% of revenue as of FY25), v) high leveraged position (debt service coverage ratio at 1.16x; debt-to-equity at 4.2x).

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