Dodla Dairy IPO review (May apply)

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Review By Dilip Davda on June 12, 2021

•    DDL is an integrated dairy company based in the southern region.
•    It is one of the largest dairy company in the branded consumer market.
•    The company posted super-profits for FY21 9M, which raises concern.
•    The issue appears fully priced on financial parameters.

PREFACE:
After marking the hat trick of IPOs for June 14, 2021, we are yet again witnessing three IPOs opening on June 16, 2021. Thus sudden mad rush though augurs well for investors as they have a wider choice of investment options, this will also lead to a mixed response to current offerings based on its market fancy and the grey market operators game plan as well as funding offer from NBFCs to HNIs. So stay tuned to witness hectic activities emerged and the response from investors across the board in the primary market.

ABOUT COMPANY:
Dodla Dairy Ltd. (DDL) is an integrated dairy company based in south India primarily deriving all of its revenue for Fiscal 2020 and for the nine months period ended December 31, 2020, 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 of India, it is the third highest in terms of milk procurement per day (Source: CRISIL Report) with an average procurement of 1.03 million litres of raw milk per day ('MLPD') as of March 31, 2021, and second highest in terms of market presence across all of India amongst private dairy players with a significant presence in the southern region of India (Source: CRISIL Report).

DDL's operations in India are primarily across the five Indian states of Andhra Pradesh, Telangana, Karnataka, Tamil Nadu and Maharashtra. Its overseas operations are based in Uganda and Kenya. The company's Indian operations are undertaken under our brands 'Dodla Dairy', 'Dodla' and 'KC+'. while overseas operations are undertaken under our brands 'Dodla Dairy', 'Dairy Top' and 'Dodla +'. The company process and sell retail milk (full cream, standardized, toned and double toned) and produce dairy based value-added products ('VAPs') such as curd, Ultra -High Temperature processed ('UHT') milk, ghee, butter, flavoured milk and ice cream amongst others. It also manufactures and sells cattle feed to farmers through its procurement network. The company's revenue from the sale of milk and dairy-based VAPs constituted 72.81% and 27.18% respectively, of our revenue in Fiscal 2020 and 75.32% and 24.68% respectively, for the nine months period ended December 31, 2020.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans for repayment/pre-payment of certain borrowing in full or part (Rs. 32.26 cr.), Capital expenditure (Rs. 7.15 cr.) and general corpus fund needs, DDL is coming out with a maiden book built IPO having fresh equity issue worth Rs. 50 cr. (approx. 1168230 shares) and an offer for sale of 10985444 equity shares of Rs. 10 each to mobilize Rs. 520.18 cr. It has fixed the price band of Rs. 421 - Rs. 428 and minimum application is to be made for 35 shares and in multiples thereon, thereafter. The issue opens for subscription on June 16, 2021, and will close on June 18, 2021. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 20.43% of the post issue paid-up capital of the company. The company has allocated 50% for QIBs, 15% for HNIs and 35% for retail investors.

Book Running Lead Managers to this issue are ICICI Securities Ltd. and Axis Capital Ltd., while KFin Technologies Pvt. Ltd. is the registrar to the issue.

Having issued initial equity at par, the company has raised further equity in the price range of Rs. 377 and Rs. 1419.68 per share in November 2012 and February 2021. It has also issued bonus shares in the ratio of 16 shares for every 1 share held in July 2018. The average cost of acquisition of shares by the promoters and selling stakeholders is Rs. NIL, Rs. 0.37, Rs. 0.38, Rs. 5.24 and Rs. 213.39 per share.

Post issue, DDL's current paid-up equity capital of Rs. 58.32 cr. will stand enhanced to Rs. 59.50 cr. Based on the upper cap of the issue price, the company is looking for a market cap of Rs. 2546.29 cr.

 
FINANCIAL PERFORMANCE:
On the financial performance front, DDL has posted a turnover/net profit of Rs. 1597.01 cr. / Rs. 56.85 cr. (FY18), Rs. 1699.46 cr. / Rs. 62.76 cr. (FY19) and Rs. 2145.65 cr. / Rs. 49.87 cr. (FY20). For the first nine months ended on December 31, 2020, of FY21, it has earned a net profit of Rs. 116.38 cr. on a turnover of Rs. 1417.04 cr. The sudden boost in the bottom line in pre-IPO year raises concern.

For the last three fiscals, the company has posted an average Eps of Rs. 9.94 and an average RoNW of 13.69%. The issue is priced at a P/BV of 4.33 based on its NAV of Rs. 98.74 as of December 31, 2020, and at a P/BV of 3.64 based on its post-issue NAV of Rs. 117.61 (based on upper price band).

If we annualize FY21 super earnings and attribute it on fully diluted post issue equity, then the asking price is at a P/E of 16.41. Based on FY20 earnings, the P/E comes to 51.07. Thus issue appears fully priced.

DIVIDEND POLICY:
While the company has not paid any dividend for FY18 and FY 19, it has paid a dividend of 52% for FY20. It has not declared any dividend so far for FY21. It will follow the prudent dividend policy based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per offer documents, DDL has shown Hatsun Agro, Heritage Foods and Parag Milk as its listed peers. They are currently trading at a P/E of around 81.15, 13.6 and 36.72 (as of June 11, 2021). However, they are not fully comparable on an apple to apple basis.

BRLM's TRACK RECORD:
The two BRLMs associated with the offer have handled 31 public offers in the past three years out of which 13 offers closed below the offer price on the listing date.

Dodla Dairy IPO FAQs