Dodla Dairy IPO

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(i) Dodla Dairy is an integrated dairy company based in south India primarily deriving all of its revenue from the sale of milk and dairy-based VAPs in the branded consumer market. It is the third highest in terms of milk procurement per day with an average procurement of 1.02 million liters of raw milk per day (“MLPD”) as of 2020 and second highest in terms of market presence across all of India amongst private dairy players.

(ii)  Dodla Dairy has nearly 13 processing plants across India and has 254 dairy farms. Its operations in India are primarily across the five Indian states of Andhra Pradesh, Telangana, Karnataka, Tamil Nadu, and Maharashtra & overseas operations are based in Uganda and Kenya.

(iii) Its integrated business model in India consists of procurement, processing, distribution, and marketing operations. Its
procurement operations are spread across the states of Andhra Pradesh, Telangana, Tamil Nadu, Karnataka, and Maharashtra.

(iv)  Its distribution operations in Uganda are conducted through its African Subsidiary Lakeside Dairy Limited. and include distribution of  milk and dairy-based VAPs as of 2020, through 22 distributors and 18 “Dodla Retail Parlours”. Its distribution operations in Kenya are conducted through its African Subsidiary Dodla Dairy Kenya Limited and include distribution of our milk and dairy-based VAPs as of 2020, through 57 distribution agents and 53 distributors.

Competitive Strengths
(i)
Integrated business model
(ii)
Long term relationship with dairy farmers
(iii)
Stringent quality control procedures

Business Model of the Company or Supply Chain Analysis

As the company is in the business of Dairy they need to procure milk on daily basis. Let us see how they procure milk.

Sourcing of Milk

They procure raw material required for operations from the states of Andhra Pradesh, Telangana, Tamil Nadu and Karnataka and Maharashtra and consist of procurement of on an average approximately 1.02 Million litre of raw milk per day of raw milk from approximately 1,14,920 farmers across 6,878 villages through 6,624 DDCCs, 272 procurement routes, 254 dairy farms and 90 chilling Centers as of December 31st 2020.

Processing of Milk

Processing operations are spread across 13 processing plants (12 of which are owned and one is leased) located in the states of Andhra Pradesh, Telangana, Karnataka and Tamil Nadu in India with an aggregate installed capacity of 1.70 Million litres of raw milk per day, excluding two SMP plant’s in Nellore and Vedasandur which have an aggregate installed capacity of 15,000 and10,000 kgs per day respectively.

Distribution of Milk

They sell their product under the “Dodla Dairy” brand in India. They distribute milk through 40 sales offices, 3,336 distribution agents, 863 milk distributors and 449 milk product distributors.

Different Margins in the products of Dodly Dairy IPO:

Business Analysis of Dodly Dairy IPO

Objects of the Dodla Dairy IPO:

a) The company is raising funds from Fresh issue (50 Crores). 1. Repayment of borrowings 2. Funding capital expenditure 3. General corporate purposes b) OFS  (470 Crores)

Dodla Dairy IPO Details:

Open Date: Jun 16 2021
Close Date: Jun 18 2021
Total Shares: 12153738
Face Value: ₹ 10 Per Equity Share
Issue Type: Book Building
Issue Size: 520 Cr.
Lot Size: 35 Shares
Issue Price: ₹ 421-428 Per Equity Share
Listing At: NSE,BSE
Listing Date: Jun 28 2021

Promoters And Management:

(i) Dodla Sesha Reddy, is the Chairman and non-executive Director on the Board of the Company. He has been associated with the Company for more than 22 years and has dairy industry experience of more than 22 years and has not held any other positions in the past. He is currently a director on the board of Nelcast Limited and Dodla Enterprises Private Limited. He is responsible for ensuring the active engagement of board members and an effective decision-making process to be followed in the board and committee meetings. (ii) Dodla Sunil Reddy, is the Managing Director of the Company. He holds a bachelor’s degree in engineering from Mangalore University. He has been associated with our Company since incorporation and has more than 25 years of experience in the dairy industry and has not held any other positions in the past. He is responsible for setting up our business strategy with a focus on accountability, competitive performance, and value creation. (iii) Madhusudhana Reddy Ambavaram, is a whole-time Director of the Company. He holds a bachelor’s degree in law from Sri Venkateswara University and a master’s degree in business administration from Dr. B.R. Ambedkar Open University. Additionally, he also has a postgraduate diploma in human resource management from Pondicherry University, a postgraduate diploma in business and administrative management from the Andhra Pradesh Productivity Council, and a diploma in journalism from DNF College of Journalism. He is enrolled as an advocate on the rolls of the bar council of the State of Andhra Pradesh. (iv) Akshay Tanna, is a Non-Executive Nominee Director on the Board of the Company. He holds a bachelor’s degree in economics from the University of Pennsylvania. He has been with TPG Capital India Private Limited since 2011 and is a partner at TPG Growth & Rise Fund in Mumbai. Before this, he has worked in organizations such as Deutsche Bank and Merrill Lynch. He also 157 serves as a director on, inter alia, the boards of Lenskart Solutions Private Limited, Big Tree Entertainment Private Limited, ESS Kay Fincorp Limited, FSN E-Commerce Ventures Private Limited, Landmark Cars Private Limited, Landmark Insurance Brokers Private Limited and Livspace Pte Ltd.

Financials of Dodla Dairy IPO:

Particulars (in Cr.) 9MFY21 Mar-20 Mar-19 Mar-18
Sales 1413 2,139 1,691 1,590
Cost of Material Consumed 995 1,583 1,242 1,274
Gross Margins 30% 26% 27% 20%
Change in Inventories -40 57 14 -42
Employee Benefits Expense 66 91 76 64
Other Expenses 185 266 224 181
Operating Profit 207 140 134 112
OPM % 14.86% 6.59% 7.93% 7.09%
Other Income 3.5 6.28 7.79 6.54
Interest 9 16 11 11
Depreciation 38 49 37 27
Profit before tax 163 81 93 80
Total Tax Exp. 45 32 30 23
Net Profit 118 49 62 56
NPM % 8.35% 2.33% 3.71% 3.57%
No. of shares 5.94 5.94 5.94 5.94
EPS in Rs 19.87 8.25 10.44 9.43

Comparison With Peers:

Peer 3-year Revenue Growth 3-year PAT Growth EBITDA Margin (FY21) ROE  (FY21) D/E P/E 3 Years return
Dodla Dairy 16% -7% 15% 28% 0.01 17x
Hatsun Agro 11% 11.00% 14% 24% 1.27x 84x 32%
Heritage Foods 7% NA 10% 25% 0.06x 13x -23%
Parag Milk 11.67% 4% 7% 2.30% 0.40x 62x -34%

Recommendation on Dodla Dairy IPO:

Review and Recommendation of Dodla Dairy IPO by IZ team is 5/10. 1.  The sector in which company is operating is the evergreen sector. Demand is ever increasing. 2. The company is a brand in the South-India market. They too have overseas operation. 3. Company is debt free and continuously generating free-cash flow in the last 4 years. 4. P/E of 17x, and Industry P/E is 50. 5.  Accepted listing gain of 30%.

Lead Manager of Dodla Dairy IPO:

  1. Axis Capital Limited
  2. ICICI Securities Limited

Registrar of Dodla Dairy IPO:

  1. Kfin Technology Private Limited

Company Address:

8-2-293/82/A/270-Q, Road No. 10-C, Jubilee Hills, Hyderabad, 500 033, Telangana, India

Discussion on Dodla Dairy IPO:

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