Prabhat Dairy looks to raise Rs500-600 cr

Mumbai: Maharashtra-based Prabhat Dairy Pvt. Ltd is looking to raise ₹ 500-600 crore by selling shares to the public, two people familiar with the issue said.

The firm has already hired a domestic investment bank for the initial public offering (IPO) and is looking to hire more bankers, the first of the two people mentioned above said.

The firm, which sells Milk Magic condensed milk, Flava flavoured milk and All Rounder skimmed milk powder, is backed by India Agribusiness Fund (IAF), which is sponsored by Rabobank Group. “Prabhat is looking to raise anywhere between ₹ 500-600 crore through the IPO, and existing private equity investors are looking at exiting partly,” said the second person, adding the firm has not yet decided when to file IPO papers with the market regulator.

A Prabhat Dairy spokesperson said the firm is exploring options to meet business needs. “Investment bankers are exploring alternative fund-raising options so as to put forth the same to the board of directors. Only the board of directors can take any decision,” the spokesperson said in an email response, adding the firm sees growth opportunities in making value-added products.

The firm initially raised ₹ 140 crore from IAF and French development finance institution Proparco in August 2013. Of this, IAF had brought in ₹ 80 crore.

Rabo Equity Advisors and Proparco did not respond to a questionnaire sent via email.

Started in 1998 by Sarangdhar Nirmal, the firm makes ghee, flavoured milk, sweetened condensed milk and skimmed milk powder, apart from packaged milk. Its manufacturing facility is at Srirampur in Maharashtra.

The firm reported a net profit of  ₹ 52.7 crore in fiscal 2014, compared with a profit of ₹ 29.2 crore in the previous year, according to documents available with the Registrar of Companies.

The increasing per capita expenditure on milk and milk products and the rising demand for value-added milk products, such as cheese, ice-cream and flavoured milk, have led to steady growth in the Indian dairy industry.

Several dairy firms are looking at IPOs, said Angshuman Bhattacharya, senior director at Alvarez and Marsal India Pvt. Ltd, an advisory firm. “Firms which are going towards IPO are the ones which are reaching revenues of ₹ 700-800 crore and higher. Once companies reach such a scale, that is when they look at IPO because the brand is well established with the consumers and even retail and institutional investors know about a company after they have reached a certain size and scale,” Bhattacharya said.

Data from the National Sample Survey Office show 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. Additionally, according to the National Dairy Development Board, demand for milk is expected to increase at a compounded annual growth rate of 5% from 138 million tonnes (mt) in 2014 to 200 mt in 2022.

Value addition, which offers higher margins, is another factor driving growth. According to a June 2014 report by CARE Ratings, the share of value-added products in milk and milk derivatives segment in India is growing at 25% every year and is expected to grow at the same rate until 2019-20.

Prabhat is not the only dairy firm looking at raising capital to fund expansion. On 18 December, Mint reported IDFC Alternatives Ltd-backed Pune-based Parag Milk Foods Pvt. Ltd, is looking to raise up to ₹ 600 crore through an IPO. IDFC Alternatives had invested ₹ 155 crore in the firm in September 2012, the largest dairy deal till then.