After a brief pause, we can see a flurry of activities in the Indian primary market as companies prepare to launch their IPO. Two days back, a couple of companies came out with their IPO. Now on 16th June, two more companies are going public. Here we look at one of these: Dodla Dairy Limited.

About the company

Dodla Dairy Limited is a south India based integrated dairy company that was incorporated in 1995. The company is into producing & selling retail milk and produces various dairy-based value-added products like ghee, butter, flavoured milk, curd and others. Their 72.81% of the total revenue comes from the former activity whereas the remaining 27.18% comes from the latter activity. India is the global leader in milk production, making almost 30% of the total milk production in 2020. It is followed by the US and China in milk production. 

Their operations are present both in India and abroad. In the domestic country, they are across five states: Andhra Pradesh, Telangana, Karnataka, Tamil Nadu and Maharashtra. Outside India, they sell their products in Uganda and Kenya. In India, they operate via different brands like Dodla Dairy, Dodla and KC+. On the international level, their operations are undertaken under brands Dodla Dairy, Dairy Top and Dodla+. As the company has been operating for years, they have established a robust distribution network with all the supply chain participants. 

The raw milk collected from various farmers or dairy farms is passed on to their chilling centres and thereafter to the processing plants. According to the company’s DRHP, Dodla Dairy has 40 sales offices, 3,336 distribution agents, 863 milk distributors and 449 milk product distributors across 11 states in India. These chilling centres are placed close to the raw material collection points so that the quality of the milk does not deteriorate due to time. 

About the IPO

The public issue will open on June 16, 2021, and close on June 18, 2021. The total issue size of the IPO is Rs 520.10 crore. This comprises a fresh issue of equity shares aggregating up to Rs 50 crore. It also includes an offer for sale (OFS) aggregating up to Rs 470.18 crore. The price band of the IPO is Rs 421 – Rs 428 per equity share. 

You have to apply for a minimum of 35 shares which is the size of one lot. The maximum you can invest is 455 shares which sum up to the 13 lots. However, if the issue is oversubscribed, the maximum one investor can get is just one lot. Thus, the maximum amount one can invest in the IPO is Rs 1,94,740. 

Dodla Dairy Limited plans to use the net proceeds from the IPO to repay their debt fully or partially. A portion of the sum generated will also be used to finance capital expenditure requirements which helps the company to expand itself.

The allotment date and tentative listing date for the IPO are 23rd June 2021 and 28th June 2021 respectively. Currently, the promoters of the company have 68.52% of the total holdings. After the IPO, this will decrease to just 64.17%. This means that they still hold a substantial portion of their company which indicates high confidence held by the company’s promoters. ICICI Securities, Axis Capital are the book running lead managers whereas KFin Technologies is the registrar of the issue.

Financial Overview

The total sales of the company have seen a constant rise in the last three years. From FY18 to FY20, the CAGR of revenue is approximately 9.5%. Till September 2020, that is the H1 FY21, they amassed revenues worth Rs 818.32 crore. If they want to better the sales number of previous years, they will need significant improvement in the second half of FY21. 

The profits suffered in 2020 which is understandable as every sector has been hit hard by the pandemic. However, the net profits have rebounded well in the first half of this year as shown in the table below. It has to be seen if they continue to keep the same momentum going in their net income in Q3 and Q4 as these numbers are yet to be reported.

As of 31 December 2020, the company had a total debt of Rs 96.37 crore on their shoulders. This includes long term borrowings, working capital facilities and NCDs. Their EPS has remained on the lower side according to their financial data. In 2018 and 2019, it was recorded to be Rs 10.21 and Rs 11.27 respectively. Due to Covid-19 negative consequences on their business, it fell to Rs 8.96. Thus, it has been in-and-around the Rs 10 mark in the last three years.

Risk Factors

  • Their business is all about dairy products and almost all these products have the same raw material in the form of raw milk. Any hindrance in getting adequate raw material can have adverse effects on their operations.
  • The volume and quality of the raw milk depend on the nourishment and care provided to cows and buffalos. Negligence in this domain on a large scale will affect their raw material procurement.
  • The Covid-19 pandemic has had a huge negative influence on their business. They saw a significant decrease in sales of products like processed milk, ice cream, curd and buttermilk in the metro cities.
  • As a dairy company, they are always exposed to risks like contamination/ spoilage of raw materials, product tampering and consumer product liability claims. Due to them, there is always a legal sword hanging over them.
  • As most of their processing plants and procurement operations are situated in the Southern part of the nation, regional adversity can derail their operations.
  • For any food-product related company, it is pivotal to have a sound and safe storage house. Improper storage or poor handling of milk can damage these food items easily.

Conclusion

As India is still a country with a high young population, there is a huge dependency on dairy products for dietary protein requirements. Especially for the vegetarian population, dairy products are a huge source of protein. These Dairy products account for roughly 22% of overall household spending on food and non-alcoholic beverages, according to the National Account Statistics 2017 report.

The demand for these products is unlikely to go down. In fact, with the rising population, this looks destined to go up which will benefit the company. The Dodla Dairy believes in farmer-friendly policies which helps in bolstering their relationship with their suppliers. If they can enhance their brand visibility and expand the reach of products, the company will shine even brighter.

Do your own analysis about the company and let us know in the comments section if you find any other interesting information. Dodla Dairy Limited filed its draft papers on February 15, 2021. You can find it here. Will you be applying for this IPO? Tell us in the comments section below!