The IPO of integrated Dairy company Dodla Dairy Limited (DDL) commences for a three day window from Wednesday at a price band of Rs 421-428 for a lot of 35 shares and in multiples thereof.
The investment could be favorable for long-term investors. Here are 5 important things for investors keen to participate in the IPO:
Among South India's largest with products such as retail milk (full cream, standardised, toned and double toned) and value added products like curd, Ultra-High Temperature processed 'UHT' milk, Ghee, Butter, flavoured milk and ice cream. Other revenue streams includes cattle feed sold to farmers via procurement network.
Capacity: Dodla has processing plants across 13 centers of which only one is a leased unit. These centers are located in states of Andhra Pradesh, Telangana, Karnataka and Tamil Nadu with an aggregate installed capacity of 1.70 MLPD, excluding two plants in Nellore and Vedasandur which have an aggregate installed capacity of 15,000 and 10,000 kgs per day respectively.
Dodla stands 3rd highest in milk procurement by private dairy players -- 1.03 million litres of raw milk per day as of March 31, 2021 from approximately 109,670 farmers across 7,003 villages through 6,771 VLCCs. The company boasts of over 283 milk procurement routes, 232 dairy farms and 94 chilling centres as of March 31, 2021 spread across Andhra Pradesh, Telangana, Tamil Nadu, Karnataka and Maharashtra.
Overseas presence: Dodla has managed overseas presence in Africa with the acquisition of the operations of Hillside Dairy and Agriculture Limited through its subsidiary Lakeside Dairy Limited in Africa in 2015. Packaged milk and dairy based VAPs for retail are produced from its processing plant in Uganda and are distributed in through 23 distributors and 11 "Dodla Retail Parlours". In Kenya, distribution is done through 43 distribution agents and 56 distributors.
A Crisil report finds Dodla among the largest private dairy players with a significant presence in the southern region of India and being third highest in terms of milk procurement per day. For FY20 DDL reported PAT at Rs 49.87 crores. Revenue from operations increased at a CAGR of 15.98% over FY18 to FY20 and amounted to Rs 2139.37 crores, while EBITDA increased during the same period at a CAGR of 11.81% to Rs 140.92 crores.
ICICI Securities Limited and Axis Capital Limited are the Book Running Lead Managers ("BRLMs") to the Offer.
Ahead of the IPO, DDL announced allocation of 36.46 lakh shares to anchor investors at the upper price band of Rs 428.
SBI Mutual Fund, DSP Mutual Fund, Aditya Birla Mutual Fund and White Oak Capital Partners, International Finance Corporation (existing investor) also participated in the Anchor Book. Other notable anchor investors were IIFL Special Opportunities Fund and Edelweiss Mutual Fund.
The IPO will generate a total of Rs 520 crores from issue of fresh shares for Rs 50 crores and an OFS (Offer for Sale) of up to 1.09 crore equity shares towards raising Rs 470 crores.
The OFS comprises of up to 92 lakh Equity Shares by TPG Dodla Dairy Holdings ("Investor Selling Shareholder"), up to 4.16 lakh equity Shares by Dodla Sunil Reddy and up to 10 lakh equity Shares by the Dodla Family Trust ("Promoter Selling Shareholders"), and up to 327,331 Equity Shares by Dodla Deepa Reddy ("Promoter Group Selling Shareholder").
The IPO will serve debt payment and funding capital expenditure requirements. DDL has incurred captive expenditure of Rs. 264.48 cr in the lsat three years towards commissioning new processing plant at Rajahmundry, and acquiring of processing plants at Batlagundu and Vedasandur in Tamil Nadu from KC Dairy Products Private Limited. It also spent capital to acquire cattle feed and mixing plant of Orgafeed Private Limited at Kadapa in Andhra Pradesh and establishment of new VLCCs.
The company states that its acquisitions have been integrated and are reflected in the high return on capital employed of 17.01% for fiscal 2020 -- considered best among peers.
Should you invest?
Statistics from grey market suggest that Dodla was trading at a premium of 32 percent -- above Rs 565 per share ahead of the IPO. In fact, Angel Broking, Anand Rathi and Ventura Securities advise subscribing to the IPO. There is a strong perception that the investment was sought to
Analysts from brokerage rating firm Anand Rathi in their IPO note on Dodla Dairy are optimistic on the in the long term prospects of the domestic dairy industry and that it was available at fair valuations considering the opportunities in the dairy industry. "Dodla Dairy Ltd is available at 4.8x P/BV and 47.8x its FY20 earnings at the upper end of the price band."
"Considering the company has a diversified product basket, strong brands and wide distribution network, we believe that the company will
continue to perform well on both the top-line and the bottom-line front. Hence we recommend investors to Subscribe to the issue from a longer
term perspective," adds their report.
Popular dairy firm Hatsun Agro Dairy that retails prominently in South India under the brand name Arun ice-cream and Arokya Milk is considered among strong peers of Dodla. Pune based Parag Milk Foods that listed three years ago at a price of Rs 227 (upper band) is also a popular name. Other peers include Heritage Foods, Milkfood Ltd, and Vadilal Industries.
Disclaimer: The above article is solely for information and should not be a replacement for a personalized opinion from a SEBI certified investment advisor.