Mumbai: TPG Growth, the growth-capital fund of US private equity firm TPG, is set to buy a significant minority stake in Hyderabad-based Dodla Dairy Ltd, said two people with knowledge of the matter.
The fund will acquire a stake of about 25% held by US-based investment firm Proterra Investment Partners (formerly Black River Asset Management) in a deal worth Rs300 crore, the people said, requesting anonymity.
Several private equity (PE) funds, including Tata Opportunities Fund, had shown interest in Dodla Dairy and discussions had taken place, Mint reported last week. Proterra Investment Partners was in talks with global and domestic PE funds Temasek, Kedaara, Multiples and ADV Partners to sell its stake in Dodla Dairy, The Economic Times reported in November.
“All the due diligence works by TPG Growth are complete and the deal will be signed within a couple of weeks,” said one of the two people cited above.
Black River Capital Partners (Food) Fund had acquired the stake in Dodla Dairy for Rs110 crore in 2012. Mint reported in May last year that Proterra had started discussions with private equity firms to sell its stake in Dodla Dairy and appointed Edelweiss Financial Services to run the sale process.
Emails sent to D. Sunil Reddy, the managing director of Dodla Dairy, had not elicited a response at the time of going to press. Rakesh Sony, director, Proterra Investment Advisors India Pvt. Ltd, and spokespersons at TPG and Edelweiss declined to comment.
Dodla Dairy was founded in 1998 by first-generation entrepreneur Sunil Reddy of Nellore in Andhra Pradesh. The dairy sells more than 900,000 litres of milk and 6 tonnes of milk products a day. In 2015-16, Dodla Dairy posted a revenue of Rs1,182 crore, an increase of 16% from Rs1,018 crore the previous year.
Demand for milk is expected to grow at a compound annual growth rate of 5% to 200 million tonnes in 2022 from 138 million tonnes in 2014, according to the National Dairy Development Board.
In order to tap the growing market, private equity and strategic investors have been actively investing in the Indian dairy sector in the last couple of years.
Odisha-based Milk Mantra Dairy Pvt. Ltd raised an undisclosed amount in a series D funding round led by Neev Fund, along with co-investment from existing investors Eight Roads Ventures and Aavishkaar, last month. Neev Fund is backed by the country’s largest lender, State Bank of India (SBI).
Bengaluru-based Dairy Classic Ice Creams Pvt. Ltd raised about Rs110 crore from Motilal Oswal Private Equity Investment Advisors last year.
In its second buyout in India, Lactalis—the world’s largest dairy group—acquired the dairy business of Indore-based Anik Industries for Rs470 crore last year. In January 2014, Lactalis bought Carlyle Group-backed Tirumala Milk Products Pvt. Ltd for $270 million, the largest inbound acquisition in the Indian dairy segment.
Besides the exit through strategic sale, PE funds see initial public offerings (IPOs) as another attractive exit route in the sector. Last year, Parag Milk Foods, backed by IDFC Alternatives and Motilal Oswal Private Equity, raised around Rs750 crore through an IPO where the two PE firms sold shares worth Rs307 crore.
In 2015, Rabo Equity Advisors-backed Prabhat Dairy Ltd went public in an IPO that saw the company raise Rs362 crore.
TPG Growth, an active investor in the Indian consumer space, owns a controlling stake in Bengaluru-based Rhea Healthcare Pvt. Ltd, which operates a network of mother and child care centres in India under the Motherhood brand, surgical equipment maker Sutures India Pvt. Ltd and India-focused cancer treatment chain Cancer Treatment Services International.
Other investments by TPG Growth in India include Lenskart, an online eyewear retailer.