Dodla Dairy IPO: Here are key things to know before you subscribe

Incorporated in 1995, Dodla Dairy Ltd is an integrated dairy company in South India that is engaged in the procurement, processing, distribution, and marketing of milk and other dairy products. Its Indian operations are mainly undertaken under the brand name of ‘Dodla’, ‘Dodla Dairy’, and ‘KC+’ whereas it serves overseas market under the brand name of ‘Dodla Dairy’, ‘Dairy Top’, and ‘Dodla+’.

Telangana, Andhra Pradesh, Karnataka, Tamil Nadu, and Maharashtra are the key Indian market segments served by the company while in the overseas market, it mainly serves countries like Uganda and Kenya.

The company has a total of 13 processing plants to process raw material into packaged milk and manufacture dairy-based value-added products. The firm has a strong distribution network of 40 sales offices, 3336 distribution agents, 863 milk distributors, and 449 product distributors across 11 states in India

The company is a consumer-focused dairy company with a diverse range of products under the “Dodla Dairy” and “Dodla” brands. It has an integrated business model with well-defined procurement, processing and distribution capabilities and is focused on engagement and long-term relationship with dairy farmers, Angel Broking said in a note.

Dodla Dairy reported negative consolidated profit CAGR  (over FY2018-20), hence profit growth concerns remain. Inability to procure sufficient good quality raw milk at commercially viable prices may adversely impact the operation as milk is a key raw material for all dairy products.

Over FY18-21E*, DDL’s revenues/ EBITDA / PAT grew at a CAGR of 5.7%/ 33.6% / 38.2% to Rs.1,880.0 cr / Rs.268.8 cr / Rs.150.0 cr, respectively. DDL’s revenue from the sale of milk and dairy based VAPs constituted 72.8% and 27.2% respectively in FY20 and 74.5% and 25.5% respectively in 1HFY21. EBITDA and net margins grew by 721 bps and 441 bps to 14.3% and 8.0% respectively over the same period.

Source: Angel Broking

Dodla Sunil Reddy, Dodla Sesha Reddy and the Dodla Family Trust are promoters of the company, holding an aggregate of 2,49,70,631 equity shares (42.81 percent of the pre-offer paid-up equity).

TPG Dodla Dairy Holdings (TDDHPL) held 25.77 percent stake and International Finance Corporation has 4.55 percent shareholding in the company.

Dodla Sesha Reddy is the Chairman and non-executive Director on the board of the company.

Dodla Sunil Reddy is the Managing Director of the company. He has more than 25 years of experience in the dairy industry.

Madhusudhana Reddy Ambavaram is a Whole-time Director, while Akshay Tanna is a Non-Executive Nominee Director on the board.

Anjaneyulu Ganji is the Chief Financial Officer, while Venkat Krishna Reddy Busireddy is the Chief Executive Officer of the company.

Amarjeet Maurya - AVP - Mid Caps, Angel Broking said that in terms of valuations, the post-issue 9MFY21 annualised PE worked out to 16.4x (at the upper end of the issue price band), which is low compared to Parag Milk Foods (trading at 32.7x).

Further, Dodla Dairy Ltd has shown improvement in the operating margin with an efficient working capital cycle.

"Going forward, we believe that Dodla Dairy would perform better on the back of an increase in value-added product mix. Thus, we recommend a subscribe rating on the issue," Maurya said.