Chennai: Chennai-based consumer care goods company CavinKare Pvt. Ltd plans to enter the dairy business by acquiring around 50-60 small- and medium-sized dairies across the country, starting with the four southern states.
The company, which makes and markets personal care, skin care and food products, bought its first dairy in Kanchipuram, a town that is around 75km from Chennai.
CavinKare will first acquire dairies in the south before moving into the northern states. The Kanchipuram acquisition cost the company Rs30 crore.
The company will spend similar amounts on other dairies, taking its total spending to between Rs1,500 crore and Rs2,000 crore over the next four-five years. CavinKare expects the dairy business to contribute at least one-fifth to a quarter of its expected turnover in the next two years.
“We are floating our ideas in the market for acquiring dairy units. There are many dairy units that are poorly managed and quickly become sick. We are looking at acquiring those. It will take a long time to set up our own (dairy) units,” said C.K. Ranganathan, chairman and managing director of CavinKare.
This acquisitions-led diversification follows a similar entry into the beverages business, with the purchase last year of a Salem-based soft drinks maker, Maa Fruits India Pvt. Ltd for Rs27.6 crore.
CavinKare aims to double its turnover to Rs1,500 crore by 2010, with its dairy business contributing around Rs300-400 crore. It expects to end the current fiscal year with sales of around Rs725 crore and a doubling of profits.
In addition, CavinKare is also planning to set up exclusive retail outlets for its dairy products “at a later stage” and is working on launching variants of milk products.
“We are known for being innovative, and we will be so in this too. There is huge potential in this (dairy business), but we also recognize the fact that the margins are thinner than when compared with products in the personal care or skin care space,” Ranganathan said. He declined to elaborate further on the products to be launched.
The firm is also scouting for acquisition opportunities in its mainline business, though has not zeroed in on any company so far. Ranganathan said that CavinKare is profitable and is “quite comfortable” in terms of using cash generated from its operations and borrowing to fund its proposed acquisitions.
The company may partner with private equity investors, if need be, to fund its acquisitions. “Many private equity investors have shown interest, but we have not taken any decision on that,” he said. “But it depends on the opportunity. Can we chew what we bite is the key question.”
CavinKare would also look at filing for an initial public offering post-2010, after achieving its target turnover of Rs1,500 crore in 2010.