IPO Analysis: Dodla Dairy

IPO rating- Invest for listing gains 

About the issue 

Dodla Dairy Limited, a company based in South India, is coming out with its initial public offering (IPO) of equity shares of the face value of Rs 10 each. The public issue comprises a fresh issue of equity shares worth Rs 50 crore and offer-for-sale (OFS) of up to Rs 470.18 crore. The price band of the issue has been fixed at Rs 421 to Rs 428 per equity share. The IPO open date is June 16, 2021, while it will close on June 18, 2021. The issue will be listed on June 28, 2021. The IPO market lot size is 35 shares. A retail-individual investor can apply for up to 13 lots (455 shares or Rs 1,94,740). The quota for retail investors in Dodla Dairy's IPO has been fixed at 35 per cent of the net offer. The QIB quota is fixed at 50 per cent while the NII quota at 15 per cent. The objective of the offer is to repay or prepay the company's borrowings fully or partially as well as to finance capital expenditure requirements and also, to meet general corporate purposes. 

About the company 

Dodla Dairy Limited is a dairy company in South India that is engaged in the procurement, processing, distribution & marketing of milk and other dairy products. The company processes and sells milk including standardised, toned & double toned milk as well as produces dairy products like curd, butter, ghee, ice cream, flavoured milk, etc. It has a total of 13 processing plants to process raw material into packaged milk and manufacture products. Dodla Dairy has a strong distribution network of 40 sales offices, 3,336 distribution agents, 863 milk distributors, and 449 product distributors across 11 states in India. The company is the third-largest in India in terms of milk procurement and the second-largest private dairy player in terms of market presence. The company primarily caters to five states, namely Andhra Pradesh, Telangana, Karnataka, Tamil Nadu, and Maharashtra. It also has some presence in Uganda and Kenya. 

Competitive strengths 

Large product portfolio. 

Leading dairy player in the Southern regions of India. 

Strong distribution network. 

An integrated business model with stringent quality control procedure. 

Experienced board and senior management team. 

Financial growth and operational efficiencies 

Financials 

The company’s revenue from operations increased at a CAGR of 15.98 per cent over the fiscal years, 2018 to 2020 while EBITDA increased at a CAGR of 11.81 per cent during the same period. The revenue from operations, EBITDA, and profit after tax for the six-month period ended September 30, 2020, were Rs 9,16.3 crore, Rs 1,36.2 crore, and Rs 74.7 crore, respectively. 

Recommendation  

Dodla Dairy plans to use the funds raised via the fresh issue to repay or pre-pay debt availed by the company. A part of the funds will also be utilised towards incremental capital expenditure requirements. The company intends to pursue both organic and inorganic growth for its increased market presence. Besides, being a major player in South India and Maharashtra, the company also has a presence in the markets of Uganda & Kenya. The company is also focusing on research and development in dairy farming and allied activities. The qualitative factors include a consumer-focussed dairy company with a diverse range of products under Dodla Dairy & Dodla brands, an integrated business model with a well-defined procurement, processing & distribution capabilities along with focussed engagement and long-term relationship with dairy farmers. Looking at the above positives, we believe that the company will keep growing its business at a healthy rate, and hence, you can invest for a listing gain.