Started in 1995, Dodla Dairy Limited is a Hyderabad based integrated dairy company deriving all of its consolidated revenues for Fiscal 2018 from the sale of milk and dairy based VAPs in the branded consumer market. Amongst private dairy players with a significant presence in the southern region, they are the third highest in terms of milk procurement (as per CRISIL Report) with an average procurement of 1.00 million litres of raw milk per day as of May 31, 2018 ('MLPD') and second highest in terms of market presence amongst private dairies. Company's operations in India are primarily across the four South Indian states of Andhra Pradesh, Telangana, Karnataka and Tamil Nadu. The international operations are based in Uganda and Kenya. Company's Indian and international operations are undertaken under the brands 'Dodla Dairy' and 'Dairy Top' respectively. They process and retail milk (full cream, standardised, toned and double toned) and produce dairy based value added products ('VAPs') such as curd, ultra-high temperature processing ('UHT') milk, ghee, butter, flavoured milk and ice cream amongst others. The revenues from sale of milk and dairy based VAPs constituted 68.41% and 31.59% of the consolidated revenues in Fiscal 2018 respectively. Company's integrated business model in India consists of procurement, processing, distribution and marketing operations. The procurement operations are spread across the states of Andhra Pradesh, Telangana, Tamil Nadu and Karnataka and consist of an average procurement of 1.00 million MLPD as of May 31, 2018 from approximately 2,20,789 farmers through 3,212 procurement agents including third party suppliers across 7,598 villages and through its own Dodla Dairy Collection Centres ('DDCCs') as of May 31, 2018. Company's processing operations consist of processing of the raw milk collected into packaged milk and manufacturing of other dairy based VAPs by 11 processing plants with an aggregate installed capacity of 1.29 MLPD. Company's distribution and marketing operations consist of distribution of the milk and dairy based VAPs through 14 sales offices, 3,329 distribution agents, 379 milk distributors and 466 milk product distributors across nine states in India. Additionally, as of May 31, 2018, its milk and dairy based VAPs are also available through 217 'Dodla Retail Parlors' which commenced operations in 2016 and are spread across the states of Andhra Pradesh, Telangana, Tamil Nadu and Karnataka. Dodla commenced its African operations in Fiscal 2015 with the acquisition of the operations of Hillside Dairy and Agriculture Ltd. through its Subsidiary Lakeside Dairy Ltd. For its international operations, they procure raw milk from cooperative societies and follow a similar integrated business model as its India operations. Packaged milk and dairy based VAPs for retail are produced from its processing plant in Uganda and are distributed in Uganda and Kenya. The distribution operations in Uganda are conducted through its African Subsidiary Lakeside Dairy Ltd. and include distribution of the milk and dairy based VAPs as of May 31, 2018 through 21 distributors and four distribution agents. The distribution operations in Kenya are conducted through its African Subsidiary Dodla Dairy Kenya Limited and include distribution of the milk and dairy based VAPs as of May 31, 2018 through 107 distribution agents and 34 distributors. Dodla has 11 milk processing plants across the states of Andhra Pradesh, Telangana, Karnataka and Tamil Nadu with a combined installed milk processing capacity of 1.29 MLPD. They are in the process of setting up a processing plant of capacity 0.2 MLPD near Rajahmundry, Andhra Pradesh. They also have a SMP plant in Nellore with a capacity of 15,000 kgs and a UHT milk manufacturing facility at Indragi, Karnataka. As of May 31, 2018, Dodla had a workforce of 4,262 personnel which included 2,203 whole time employees and 2,059 contract employees. As per financial performance, ICFL has posted total income/net profits of Rs. 396.91 cr. / Rs. 112.13 cr. (FY14), Rs. 528.06 cr. / Rs. 149.04 cr. (FY15), Rs. 644.05 cr. / Rs. 191.64 cr. (FY16) and Rs. 719.92 cr. / Rs. 210.80 cr. (FY17). For upto Q3 of FY18, it has reported net profit of Rs. 164.08 cr. on total revenue of Rs. 585.95 cr. So company has posted consistent growth over last couple of years. ICFL has posted an average EPS of Rs. 25.53 and average RoNW of 11.62% for last three fiscals. Issue is priced at a P/BV of 2.17 as per NAV of 263.96 on 31.12.17. If we attribute latest earnings on fully diluted equity post issue, then asking price is at a P/E of around 24. As per RHP, industry average P/E ratio is 28.66 and listed peers comparison shown in above table. So issue looks fully priced. On BRLM's front, five merchant bankers associated with this issue and have handled 58 public issues in the past three years. When we take recent 10 IPOs of each BRLM then out of those 6 issues opened below their offer price and 4 opened at par on listing dates. As per financials, company's growth is consistent and very good, RoNW is 11.62% for last three fiscals and issue is priced at P/E of around 24 as per latest earnings. Company is an NBFC with principal lines of business, namely corporate lending, SME lending, vehicle financing and housing financing. Last two business segments (Vehicle Finance & Housing Finance) are started in recent past and it may give further boost to company's growth, but increasing bond yields and FD rates may put pressure on margins. So we give "SUBSCRIBE FOR LONG TERM" rating to this IPO.
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