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Dodla Dairy IPO  Fundamental Analysis

Business Profile of Dodla Dairy

  • Consumer-focused dairy company with a diverse range of products under the“Dodla Dairy” and “Dodla” brands- leading brands in the dairy products industry in south India with strong consumer recognition, particularly in the States of Andhra  Pradesh, Karnataka, Tamil Nadu, and Telangana. The dairy product portfolio comprises milk and dairy-based VAPs in the branded consumer market. Products range from fresh milk to ghee, butter, curd, paneer, gulab jamun, doodh peda, basundhi and junnu, which is targeted at consumption at home. VAPs include flavored milk, ice - cream, and beverages such as buttermilk. Dodla Dairy also manufactures and sells cattle feed to farmers through their procurement network.
  • Integrated business model with well-defined procurement, processing, and distribution capabilities- The integrated business model enables to provide end-to-end capabilities from procurement to distribution and marketing in a cost-efficient manner. Dodla Dairy has the well-defined quality and food safety procedures at various stages from procurement to distribution of the products.

Dodla Dairy Financial Review

  1. Dodla Dairy posted PAT of Rs 116.39 crore for nine months ending 31st Dec 20 on its total revenues of Rs 1417.04 crore for the corresponding period.
  2. The revenues for FY20 rose by 26% to Rs 2145.65 crore as against Rs 1699.46 crore in FY19. This increase was driven by rising in the sale of processed milk with the commencement of operations from new processing plants, new distributors, and upward revision in prices. But PAT reduced by 20% for FY20 to Rs 49.87crore from Rs. 62.76 crore due to an increase in operating costs
  3. EBITDA and the net margins have been decent but show a volatile trend and can be seen from the table below. Return on net worth was 11.50% for FY20.
  4. The financial performance of the issuer has remained volatile over the last three years and there is a sudden surge in the profitability during the 9MFY21.
Table 1 - Financials and Ratios (Amount in INR Crore)
Particulars 9 months FY21 FY20 FY19 FY18
Total Revenue 1417.04 2145.65 1699.46 1597.01
Revenue from operations 1413.51 2139.37 1691.67 1590.48
PAT 116.39 49.87 62.76 56.85
EBITDA 210.03 147.2 141.94 119.26
Total Assets 863.79 800.31 751.92 751.92
EBITDA Margin 14.82% 6.86% 8.35% 7.47%
Net Margin 8.21% 2.32% 3.69% 3.56%

Peer Comparison and Valuations

    With annualised EPS of 27.88, P/E is 15.35 calculated at upper price band of Rs 428 per share. Based on FY20 earnings, P/E is 47.77. The sector average P/E is 66.07 (with reference to the listed peers) which suggest that the IPO appears near to fully priced. (Since 9M FY21 revenues have increased considerably and whether this increasing trend would continue is futuristic, hence FY20 earnings are considered.)

    At NAV of Rs 98.74 as on 31st Dec 2020, P/BV is 4.33x.

Conclusion

    Dodla Dairy offers diversified products under its brands and also has overseas operations in Uganda and Kenya. It is the third largest in terms of milk procurement per day in its area of operations.

    The Issuer faces challenges in the form of concentration risk and competition from both the organized and unorganized players in the sector. The financial performance appears to be volatile; achieving consistency may be a challenge. Hence the investors may consider buying from the market.

Reviewer recommends Avoid to the issue.

Review By CA Priyanka Choudhary on 10th Jun 2021

Review Author

About CA Priyanka Choudhary

CA Priyanka Choudhary, a freelance chartered accountant

Priyanka Choudhary Jain is a Chartered Accountant and an experienced credit analyst. She has worked with CRISIL as Senior Credit Analyst on ratings assignments including business and financial analysis in Corporates as well as the Public Finance Sector.

Email: [email protected]

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.



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