In times when valuations reach their premium levels, market participants restrict themselves from initiating addition of stocks in their portfolio. The benchmark indices are trading at phenomenal highs and adding stocks under these circumstances seems scary. However, promoters from unlisted companies have distinct view over the performance of market in near term. We will always remember June, 2021 for a wave of IPOs. Starring from Shyam Metalics, Blackstone-based Sona Comstar and KIMS Hospitals, the promoters of Dodla Dairy have decided to launch heir IPO for subscription on June 16, 2021.
The issue size of 520.18 crores is a mix of fresh issue of Rs. 50 crores and offer for sale of Rs. 470.18 crore by TPG Dodla Dairy Holdings, Dodla Sunil Reddy, Dodla Family Trust and Dodla Deepa Reddy. According to Draft Red Herring Prospectus, the issue comprises of Rs. 50 crores to be raised from issuance of fresh equity will be utilized for repayment of company debt amounting at 32.26 crores. An amount of Rs. 7.15 crores will be channelized for capital expenditure while the rest will be utilized for general corporate purpose.
Dodla Dairy IPO Details:
- Issuer Company: Dodla Dairy.
- Industry: FMCG
- IPO Size: 520.18 cr.
- Price Band: 421-428
- Issue Open Date: 16 June, 21
- Issue Close Date: 18 June, 21
- Listing Date: 28 June, 21
- Minimum Lot Size: 35 shares
- Face Value: 10 Rs. Per share
- Retail Allocation: 35%
- Listing Exchange: NSE, BSE
About the Company
Dodla Dairy Limited is a public limited company having its registered and corporate office at Hyderabad City of Telangana State in India. The company was incorporated in the year 1995 and production commenced in 1997. Currently, the procurement is centered in 5 states and our products are available for purchase in 11 states. They have 94 milk chilling centers. The distribution and marketing operations consist of distribution of the products through 40 sales offices, 3336 distribution agents, 863 milk distributors and 449 milk product distributors across nine states in India. Additionally, As of December 31st, 2020, the products of the company are also available through 371 “Dodla Retail Parlors” which commenced operations in 2016 and are spread across the states of Andhra Pradesh, Telangana, Tamil Nadu and Karnataka. The product portfolio of the company consists of Milk, Butter Milk, Ghee, Curd, Paneer, Flavoured Milk, Doodh Peda, Ice Cream and Milk Based Sweats. These products are conveniently packed to suit various needs of its consumers.
Industry Growth Drivers
The second wave of Covid-19 seems passed away as the situation is under the control of medical authorities and restrictions on movement of activities have been relaxed. Now, industries will continue with their expansion phases and thing will run smoothly. Apart from rural growth, consumption from urban areas will start gaining strength. A country of second largest population is big enough to consume all the FMCG produce. The dairy and milk products industry is expected to grow at a CAGR of 10-11% in upcoming five years. Looking at the composition of Indian population, Indian population has a median age of 28 years which requires a lot of protein consumption. As per the spending pattern, Indian households spend 6.5% of their total income on the dairy products. It is expected to grow further as people are getting more cautious towards their health and protein consumption will be continuously required to remain healthy. The rising culture of urbanization banks upon purchases from organized players due to high reliability on quality as any purchase from unorganized players create fear of contamination. Therefore, the industry growth in dairy products is expected grew consistently in volume and prices.
The growth of an IPO is projected on the valuations of listed peers available on the exchanges. In terms of operations, the company has one listed peer; Hatsun Agro. The white products FMCG producer has delivered multi-bagger returns for its investors. On the valuations side, the company is trading at 82.7 P/E multiple having a Book value of 47.4. ROE stands at 25.6% and company has a debt of Rs. 1,306 crores.
On the financial front, the revenue of the company is growing at a CAGR of 16%. The long term borrowing of the company stood at Rs. 82 crores, which will be partially paid from the net proceeds of fresh issue. Company has been able to generate healthy cash flows last year without increasing their leverage. Post-listing, the company is expected to increase their returns on equity and capital employed. Operating margins of the company stand at 6.86% which is the only reason to worry. Considering the upper price band and FY20 Earning Per Share (EPS), the company is demanding a P/E multiple of 47.7x, lower than the listed peers.