Financials justify the offer price though poor track record of corporate governance would advise caution!
|
DODLA DAIRY OFFER AT A GLANCE |
|
|
Offer Type |
Book Built |
|
Platform |
Main Frame |
|
Fresh Issue |
Rs 50 Cr (11,68,224 shares) |
|
Offer for Sale |
1,09,85,444 Shares (Rs 470 Cr) |
|
Face Value |
Rs 10 |
|
Price Band |
Rs 421 – 428 |
|
Mkt/Bid Lot |
35 Nos. |
|
Implied M-Cap |
Rs 2,546 Cr |
|
Implied Eq-Cap |
Rs 59.49 Cr |
|
Implied Free Float |
35.83% |
|
Lead Manager |
|
|
Registrar |
KFin Technologies |
|
Listing At |
BSE, NSE |
|
INDICATIVE ISSUE SCHEDULE |
|
|
Opening :16-Jun-2021 |
Closing :18-Jun-2021 |
|
Allotment :23-Jun-2021 |
Refunding :24-Jun-2021 |
|
Demat Credit :25-Jun-2021 |
Trading :28-Jun-2021 |
The Offer
The Hyderabad-based 26 years old Dodla Dairy Ltd (DDL) is making an initial public offer of about Rs 520 cr which consists of a fresh issue of Rs 50 cr from the company and an Offer for Sale of 10,985,444 Shares (Rs 470 cr) from the promoters and private equity. The offer is being made through the book-building route with a price band of Rs 421-428 for Rs 10 paid up share. The quantum of offer will thus work out to about 121.54 lakh shares.
Applicants should bid for a minimum lot of 35 shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE & NSE on June 28, 2021. Investment bankers ICICI Securities and Axis Capital are acting as managers to the offer and KFin Technologies has been roped in as registrar to the issue. The bidding opens on Wednesday, June 16 and closes on Friday, June 18, 2021.
Lineage
DDL has been promoted by the non-executive chairman of Nelcast Ltd, Dodla Sesha Reddy (79), and his son Dodla Sunil Reddy (53). The 1995-registered company commenced production at Nellore (A.P.) in the year 1997. The RISE Fund, which is a social impact fund of TPG Growth, has invested in the company through a special purpose vehicle, TPG Dodla Dairy Holdings Pte Ltd. In February this year International Finance Corporation (IFC) has picked up 26,52,520 shares (4.55%), at a price of Rs 377 a piece aggregating to Rs 100 cr.
Key Management
Core promoters Dodla Sesha Reddy and Dodla Sunil Reddy are the chairman and managing director of the company respectively. Venkat Krishna Reddy Busireddy, who holds a bachelor degree in dairy technology and has been with the company for 23 years is the Chief Executive Officer (CEO).
Stakeholders
Currently, the promoters and their associates hold about 68.5% of the Rs 58.32 cr equity. TGP holds 25.77%, IFC 4.55% and the CEO is holding 1.16%. Post-public issue, promoters and associates will hold 64.17%. TGP will have 9.8%, IFC 4.46% and the CEO 1.14% on the enlarged equity of Rs 59.49 cr.
Business Track
DDL is an integrated dairy company based in south India primarily deriving all of its revenue from the sale of milk and dairy based value added products (VAPs) in the branded consumer market. Among the private dairy players with a significant presence in the southern region of India, DDL is the third largest company in terms of milk procurement, after Hatsun and Heritage. DDL’s operations are primarily across the five states of Andhra Pradesh, Telangana, Karnataka, Tamil Nadu and Maharashtra. The company has some overseas operations in Uganda and Kenya through two subsidiaries which are currently not profitable.
DDL’s revenue from sale of milk and dairy based VAPs constituted 72.81% and 27.18% respectively, in fiscal 2020, and 75.32% and 24.68% respectively for the nine months period ended December 31, 2020. The company’s average procurement of milk is about 1.03 MLPD from approximately 109,670 farmers through 6,771 village level collection centres, 232 dairy farms and third party suppliers. The company reportedly has 94 chilling centres and 13 processing plants with an aggregate installed capacity of 1.70 MLPD.
Financial Track
DDL’s operating revenue has steadily increased, from Rs 1,440 cr in fiscal 2017 to Rs 2139 cr in fiscal 2020. EBIDTA increased during the same period from Rs 95 cr to Rs 147 cr. Revenue and EBIDTA for the nine months period ended December 31, 2020 were Rs 1,413 cr and Rs 210 cr respectively. Despite cumulative capital expenditure of around Rs 265 cr over the last three years, towards commissioning a new processing plant at Rajahmundry, acquisition of the processing plants at Batlagundu and Vedasandur from KC Dairy Products, acquisition of the cattle feed and mixing plant by its subsidiary and establishment of new VLCCs, DDL’s return on equity and return on capital employed are quite impressive.
|
Dodla Dairy Consolidated Financials (in Cr) |
|||||
|
Period Ended |
Dec-20 |
Mar-20 |
Mar-19 |
Mar-18 |
Mar-17 |
|
Months |
9 |
12 |
12 |
12 |
12 |
|
Revenue |
1413.51 |
2139.37 |
1691.67 |
1590.48 |
1440.04 |
|
Operating Profit |
206.51 |
140.93 |
134.15 |
112.72 |
87.57 |
|
OPM% |
14.6 |
6.6 |
7.9 |
7.1 |
6.1 |
|
Other Income |
3.52 |
6.28 |
7.79 |
6.54 |
7.33 |
|
EBIDTA |
210.03 |
147.2 |
141.94 |
119.26 |
94.89 |
|
EBIDTA % |
14.8 |
6.9 |
8.4 |
7.5 |
6.6 |
|
Interest |
9.68 |
16.14 |
11.57 |
10.89 |
7.80 |
|
Depreciation |
38.22 |
49.19 |
37.09 |
27.93 |
19.04 |
|
Net Profit |
116.39 |
49.87 |
62.76 |
56.85 |
46.53 |
|
Equity (Implied) |
59.49 |
55.67 |
55.67 |
3.28 |
3.28 |
|
Reserves (Implied) |
640.20 |
377.82 |
350.70 |
336.26 |
280.81 |
|
Borrowing |
58.54 |
126.73 |
141.6 |
116.56 |
128.34 |
Valuation
At the cap price of Rs 428, DDL is asking for a valuation (market cap) of Rs 2,546 cr which compares well with peer-leader Hatsun. Nevertheless, what should disturb the investing public is the negative cost of holding of the promoters and private equity fund. Post-offer for sale, whereas the average cost holding works out to negative 65 rupees for the promoters, TPG’s cost will be negative 125 rupees! In other words, more than 74% of the shares carry negative cost. What’s more, only in February this year IFC was offered shares at Rs 377 each. Hence, after the lapse of the lock-in period, the stock may face some selling pressure.
|
Financials |
||||
|
(Amount in Cr) |
Dodla Dairy |
Hatsun Agro |
Heritage Foods |
Parag Milk |
|
Market Cap |
2546 |
19434 |
1926 |
1164 |
|
Revenue |
1885 |
5570 |
2473 |
1877 |
|
Other Income |
5 |
6 |
8 |
9 |
|
EBIDTA |
280 |
784 |
267 |
151 |
|
Interest |
13 |
110 |
19 |
45 |
|
Net Profit |
155 |
244 |
148 |
40 |
|
Equity Cap |
59.49 |
21.56 |
23.2 |
83.94 |
|
Reserves |
640.2 |
999.95 |
572.63 |
827.22 |
|
Stock Features |
||||
|
Current Price (Rs) |
428 |
901 |
415 |
138 |
|
Face Value (Rs) |
10 |
1 |
5 |
10 |
|
Book Value |
117.61 |
47.38 |
128.42 |
108.55 |
|
Promoter Stake % |
64.2 |
74.1 |
39.9 |
46.2 |
|
Debt/Equity |
0.1 |
1.1 |
0.1 |
0.4 |
|
Profitability |
||||
|
OPM % |
14.61 |
13.98 |
10.48 |
7.56 |
|
Net Margin % |
8.21 |
4.37 |
5.98 |
2.15 |
|
Cash EPS |
34.65 |
25.68 |
42.28 |
11.07 |
|
Earnings Per Share |
26.08 |
11.3 |
32.32 |
4.82 |
|
Return |
||||
|
RONW % |
28.2 |
23.9 |
24.9 |
4.3 |
|
ROCE % |
37.7 |
22.4 |
35.0 |
7.4 |
|
Discounting |
||||
|
Price/Earnings |
16.41 |
79.75 |
12.84 |
28.76 |
|
Price/Cash EPS |
12.35 |
35.1 |
9.82 |
12.52 |
|
Price/Book Value |
3.64 |
19.03 |
3.23 |
1.28 |
|
Price/EBIDTA |
9.09 |
24.77 |
7.21 |
7.72 |
|
Distribution |
||||
|
Dividend % |
52 |
800 |
100 |
5 |
|
Yield % |
1.2 |
0.9 |
1.2 |
0.4 |
|
Pay-out % |
18.7 |
70.7 |
15.7 |
10.5 |
Concern
In the past DDL did not have adequate controls for managing its historical secretarial records and compliances as a result of which there have been inaccuracies and non-compliances with respect to certain provisions of the Companies Act and applicable FEMA regulations in relation to regulatory filings which exposes the quality of the management.