Home >Markets >Ipo >Dodla Dairy’s Rs520 crore IPO opens today; what brokers are saying

NEW DELHI: The initial public offer (IPO) of Dodla Dairy Ltd opened on Wednesday and the issue was subscribed around 41% within two hours of opening for subscription. The southern India-based integrated dairy company aims to raise up to Rs520 crore through the issue.

As per data available with BSE and the National Stock Exchange, the quota allocated for retail individual investors (RIIs) was subscribed 0.80 times till 11.55am, and that for non-institutional investors (NIIs) was subscribed 0.01 times. The portion reserved for qualified institutional buyers (QIBs) was yet to see any subscription.

Dodla Dairy plans to repay and/pre-pay in full or part borrowings availed by the company and fund capital expenditure requirements through proceeds of the issue.

Here’s a look at the company and what brokers are saying about the issue:

The company

Dodla Dairy was incorporated on 15 May, 1995 in Hyderabad and sells fresh milk, ghee, butter, curd, paneer, gulab jamun, doodh peda, basundhi and junnu. It is the third largest company in terms of raw milk procurement with an average procurement of 1.03 million liters per day (MLPD) as of 31 March 2021 and the second-largest private dairy player in terms of market presence.

The company’s India’s operations are primarily spread across Andhra Pradesh, Telangana, Karnataka, Tamil Nadu, and Maharashtra. Their overseas operations are based in Uganda and Kenya.

According to brokerages, Dodla Dairy’s financial performance has not been impressive over financial years 2018-20, mainly due to volatile operating margins and higher depreciation.

While the revenue and Ebitda recorded 16% and 12% compounded annual growth rate (CAGR), respectively over FY18-FY20, net profit recorded a negative CAGR of 6% over the same period.

DDL witnessed a rebound in financial performance during the first nine months of FY21 (9MFY21), led by a healthy improvement in Ebitda margin. Net profit for the period was at Rs116 crore against an average annual profit of 60 crore over the last three years.

Analysts’ view

Most brokerage have recommended subscribing to the issue.

Reliance Securities Ltd, which has a subscribe rating on the issue from a long-term perspective, said the IPO is valued at 16.5 times of FY21 earnings, which looks to reasonable.

“While its close peer Heritage Food trades at par with Dodla Dairy Ltd (DDL), Hatsun Agro trades at 81 times of FY21 earnings, a significant premium compared to DDL. Relatively stable performance compared to peers, consistent cash generation and robust return ratio (24% RoE) enabled Hatsun Agro to command such premium valuation. Going forward, sustainability of recent improvement in operating performance will be the key for DDL’s valuation rerating in the medium-term," said Reliance Securities.

According to Arihant Capital Markets Ltd, the company's margins were on the declining mode between FY18 to FY20, however, it posted high margins for 9MFY21.

“We feel that the 9MFY21 margins were abnormal and will normalize going forward which in turn will also lower the RoE of 23.7% in FY21. We believe the key determinants of revenue growth as well as profitability for DDL in the coming 3-5 years will be: strengthening direct milk procurement; right product mix; rising acceptance of value-added milk; and distribution expansion," it added. The financial services company said that investors may subscribe to the issue for listing gains.

However, some have raised concerns over the issue.

ICICI Securities Ltd said the company does not have any formal arrangements with farmers. “Interruption of, or a shortage in the supply of raw milk may result in inability to operate production facilities at optimal capacities, which can lead to a decline in production and sales," it said. The brokerage doesn’t have subscribe or avoid rating on the issue.

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