Home / Companies / News /  Everyone wants a taste of India’s white gold

Mumbai: Japan’s Meiji Co. Ltd is the latest to join the rush for a piece of India’s white gold, or dairy business.

Meiji, according to two people familiar with the development, is scouting for dairy assets in the country. Meiji’s main business includes manufacturing and sale of confectionery, milk and dairy products.

The company has reviewed some assets in India but hasn’t finalized a deal, said one of the two people. The company wants large assets, this person added.

Both people familiar with the development are bankers who asked not to be identified.

A company spokesperson was non-committal. “Though Meiji considers mergers and acquisitions will be one of the effective strategies to boost our business, we cannot explain the details," said Junji Ohashi, official spokesperson for Meiji Holdings Co. Ltd, in an emailed response to a questionnaire. Meiji is currently present in India through two of its biscuit brands Hello Panda and Yan Yan.

Meiji joins a growing rank of strategic and financial investors looking for opportunities in India’s rapidly expanding dairy industry. Since 2010, private equity (PE) funds have invested $138.85 million across 15 deals in the sector, according to data compiled by VCCEdge, the financial research unit of VCCircle.com. Some of the notable PE deals include IDFC Alternative’s $28.8 million investment in Parag Milk Foods Pvt. Ltd in 2012 and The Carlyle Group’s $22.3 million investment in Tirumala Milk Products Pvt. Ltd in 2010.

According to the National Dairy Development Board, demand for milk is expected to increase at a compound annual growth rate or CAGR of 5% from 138 million tonnes in 2014 to 200 million tonnes in 2022. Additionally, data from National Sample Survey Organization shows that between 2001-02 and 2011-12, the per capita monthly expenditure on milk and milk products has more than doubled from 41.9 to 115 in rural India and from 75.8 to 184 in urban India.

Analysts say one major attraction is the move towards value added dairy products, which offer higher margins than liquid milk. According to a June 2014 report by CARE Ratings, the share of value added products in the milk and milk derivatives segment in India is growing at around 25% every year and is expected to grow at the same rate until 2019-20.

“Almost 75-80% of the Indian dairy market is still unorganized and even in the organized sector, large part of the market is occupied by liquid milk. However, there is a clear shift from unorganized to organized industry and also a shift from liquid milk to products," said Sanjesh Thakur, partner, retail and consumer products practice at audit and consulting firm EY.

Companies in the business are looking to expand, for which they are raising money.

Vaishnodevi Dairy Products Pvt. Ltd, a Pune based dairy company, plans to raise 125-150 crore from PE firms over the next six months to fund the development of new products, expansion of infrastructure, and debt repayment. “We have an existing capacity of 7 lakh litres and we plan to increase it by another 5 lakh litres in financial year 2015-16," said Nandkishore Attal, chief executive of Vaishnodevi Dairy Products.

Parag Milk Foods Pvt. Ltd is looking to raise up to 600 crore through an IPO and says the expansion into the value added products is driving growth and the need for capital.

“Curd which used to be home-made product couple of years back has been seeing the fastest growth. Branded dahi (curd) has huge demand in market. Along with this, UHT- tetra pack milk (flash-boiled milk that is pure and stays longer), cheese and paneer (cottage cheese) are fastest growing categories," said Devendra Shah, chairman, Parag Milk Foods.

According to Attal of Vaishnodevi Dairy, margins in the milk business range between 3-4%, while margins for value added products is around 10-12%.

Large Indian companies too are keen on tapping this growing industry. Last year, ITC Ltd announced during its annual general meeting that it would enter the dairy space.

“ITC will enter the dairy segment some time this year with the launch of some value added products. ITC’s first state-of-the-art dairy plant in Munger in Bihar will be commissioned in a couple of months," said an ITC spokesperson, adding that the initiative will be scaled up across many states, including Bihar, Uttar Pradesh, Punjab, Maharashtra, Andhra Pradesh and Telangana.

According to a 25 February report by PTI, Mahindra Agribusiness is keen to enter the over 3 trillion Indian dairy sector through a 150-750 crore acquisition of a brand that has good supply chain and branding in place. Mahindra Agribusiness declined comment.

“Product categories such as ghee, butter, ice cream, yogurt, milk drinks etc. have earnings before interest tax depreciation and amortization (Ebidta) margins in the range of 8-15%. This is the category which is attracting private equity and strategic investors into the dairy industry. People would like to invest only in companies where there is a strong brand and product play," said Thakur of EY.


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