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Danone may buy stake in Tirumala Milk

Talks centred around the quantum of stake to be sold; Carlyle’s desire to exit among main reasons for sale
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First Published: Tue, Nov 20 2012. 11 30 PM IST
The 15-year-old Tirumala Milk Products is the second largest private supplier of liquid milk in southern India.
The 15-year-old Tirumala Milk Products is the second largest private supplier of liquid milk in southern India.
Hyderabad/Mumbai: Danone SA, the world’s biggest yogurt maker, is in talks with Hyderabad-based Tirumala Milk Products (P) Ltd to buy a stake in the dairy that operates in Andhra Pradesh, Karnataka and Tamil Nadu.
Negotiations with the French firm are centred around the quantum of stake to be sold, according to Tirumala Milk Products’ managing director Bolla Brahma Naidu. “Whether it will be 51% or 100%, I will not be able to say now,” he said over phone.
A Paris-based spokesperson for Danone declined comment.
Danone and New Zealand’s Fonterra Co-operative Group, the world’s largest dairy exporter, are among potential acquirers of a controlling stake in Tirumala Milk Products, whose promoters and private-equity investor Carlyle Group are looking to sell stake in the firm, The Times of India newspaper reported on Tuesday.
Carlyle does not comment on speculation, a spokesperson said in an email.
The 15-year-old Tirumala Milk Products, the second-largest private supplier of liquid milk in southern India, will seek an enterprise valuation of around Rs.2,500 crore or $450 million, The Times of India report said, quoting unnamed people.
Private-equity firm Carlyle India Advisors Pvt. Ltd invested $22 million in Tirumala Milk Products in 2010. Carlyle India holds between 20% and 25% in the company and is represented by managing director M. Shankar Narayanan, who sits on the firm’s board.
If the deal materializes, it could be announced by 27 November, said Danda Brahmanandam, joint managing director of Tirumala Milk Products. One of the main reasons for the sale is Carlyle’s desire to exit its investment, he said.
It is yet to be decided whether the stake sale will be accompanied by a change in management, Brahmanandam said. Naidu declined to comment on this.
While some promoters are looking to sell, others want to retain some stake, Brahmanandam said, without elaborating.
Founded by four entrepreneurs, Tirumala Milk Products had humble beginnings. It started as an intermediary—providing 10,000 litres of chilled milk everyday collected from farmers in nearby villages—in the supply chain of a small dairy in a village in the Prakasam district of Andhra Pradesh.
The founders—Brahma Naidu, Brahmanandam, B. Nageswara Rao and N. Venkata Rao—were friends who decided to start a dairy in 1995. They also supplied chilled milk to Heritage Foods India Ltd, managed by the family of former Andhra Pradesh chief minister N. Chandrababu Naidu.
In 1998, after hiring a milk-processing plant, they ventured into the lucrative Chennai market. The milk was re-branded Thirumala, in line with the Tamil pronunciation of the word. Tirumala Milk Products entered the Karnataka and Andhra Pradesh markets in 2001.
Today, it is one of the top producers in south India, handling 1.2 million litres of milk a day, and with a considerable market share in Andhra Pradesh (450,000 litres a day), Tamil Nadu (400,000 litres a day) and Karnataka (250,000 litres a day), according to Naidu.
The rest is converted into milk powder. It has about 9% market share in Andhra Pradesh.
Last December, Tirumala Milk Products announced that it would build one of the largest integrated private dairy projects in the country, spread across 3,000 acres in Guntur district of Andhra Pradesh with an investment of Rs.6,000 crore. When completed, the dairy would house 20,000 cattle and would have milk and by-product processing facilities complete with a 2 megawatts (MW) biogas plant for power generation.
Tirumala Milk Products employs 4,900 people directly, and indirectly employs about 20,000 people that include agents, dairy parlour owners and drivers in its chain, Naidu had said in an earlier interaction.
Experts say there is a strong interest among private equity firms as well as strategic investors in the dairy business.
India continued to be the largest milk-producing nation in the world, with nearly 17% of global production in 2010-11, according to the National Dairy Development Board. Nearly all of this gets consumed domestically.
“The dairy business is a consumption-driven business,” said Vishal Tulsyan, director and chief executive, Motilal Oswal Private Equity Advisors Pvt. Ltd, a PE firm that has invested in Parag Milk Foods Pvt. Ltd.
“Investors see huge value in it. There is substantial strategic interest.”
yogendra.k@livemint.com
Bloomberg contributed to this story.
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First Published: Tue, Nov 20 2012. 11 30 PM IST
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