Dodla Dairy IPO opens for subscription today; should you invest?

Brokerages have recommended subscribing to the Dodla Dairy IPO on the back of the company’s strong financial performance, robust business growth, growth potential, reasonable valuations and long term prospects of the domestic dairy industry.

Here’s what brokerages have to say:

Dodla Dairy has shown improvement in the operating margin with an efficient working capital cycle, said the brokerage. "Going forward, we believe that Dodla Dairy would perform better on the back of an increase in value-added product mix," it said. Thus, it has a 'subscribe' rating on the issue.

With rising health awareness after the pandemic, changing demographics and rising preferences for packed & branded milk products, the demand of milk & milk products is likely to continue to be strong, it said. Additionally, the improved demand from hotels, restaurants and cafes post pandemic would further aid growth of the dairy sector, added the brokerage.

"DDL being one of the largest players in South India with integrated operations and wide product portfolio is expected to benefit from the same (increased demand). Thus considering the above observations, we assign a “Subscribe” rating for the issue," said Choice Broking.

"Considering the company has a diversified product basket, strong brands and a 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," said Anand Rathi.

The company’s finances are growing at a steady pace. Going forward, it has plans to introduce more value-added products, expand into new markets and look for organic/inorganic growth, invest in modern technology to improve milk procurement as well as operating efficiency, noted the brokerage. "We have a positive view on the company from the long term perspective," it said.

"Despite the lack of earnings growth over the forecast period (given the high base effect of net earnings for FY21), we expect a re-rating of the valuations given the market leadership, strong sectoral growth trends, improved efficiencies (by eliminating market intermediaries), thrust on expanding retail footprint, debt-free status, completion of capex cycle, and high return ratios," said the brokerage.

It values the stock at Rs 580 (25x FY24E) representing potential upside of 35.4 percent from the IPO higher band price of Rs 428 over the next 24 months.

"Going forward, the sustainability of recent improvement in operating performance will be the key for DDL’s valuation rerating in the medium term. Considering strong OCF yield and consumer-centric business, which usually commands higher multiple, we recommend Subscribe to the IPO from the long-term perspective."