The third-largest private dairy has announced a fresh issue of up to Rs 50 crore and an offer for sale of up to 10,985,444 shares, which will be sold in Rs 421-428 price band. The IPO would provide a partial exit to private equity players TPG and IFC.
The company is demanding a post-issue annualised FY21 PE of 16.4 times, which is lower than Parag Milk Foods’ 32.7 times. The asking valuations are at par with Heritage Food while at a good discount to Hatsun Agro that trades at 81 times FY21 earnings.
Analysts largely have a positive view on the IPO, even as they believe the high margins reported by the dairy company in FY21 may not sustain.
Vikas Jain of Reliance Securities finds Dodla’s valuations reasonable and noted that it is relatively stable performance, consistent cash generation and robust return ratios that enabled peer Hatsun Agro command premium valuations.
“Going forward, sustainability of the recent improvement in operating performance will be the key for Dodla’s valuation rerating in the medium-term. Considering strong OCF yield and consumer-centric business, which usually commands higher multiple, we recommend ‘subscribe’ to the IPO from the long-term perspective,” Jain said.
Over FY18-20, Dodla’s revenues rose 16 per cent annually and Ebitda by 12 per cent annually. PAT fell 6 per cent annually during the same period. Value products that accounted for 27.18 per cent of total revenues in FY20 commanded 24.68 per cent of the revenue pie in the first nine months.
That said, Editda margin for the nine-month period soared to 14.6 per cent from 6.6 per cent in FY20. Analysts said maintaining such high margins is difficult as it was achieved on cost-cutting measures. The management too has guided towards normalisation of margins.
Ventura Capital sees Ebitda to fall 4.9 per cent annually and PAT by 4.4 per cent by FY24.
“RoE is expected to fall 611 bps to 20.5 per cent and RoIC by 345 bps to 33.9 per cent by FY24. Despite the lack of earnings growth over the forecast period, we expect a re-rating of the valuations given the market leadership, strong sectoral growth trends, improved efficiencies, debt free status and high return ratios,” Ventura Securities said.
Dodla Dairy is the third-largest dairy in India in terms of daily milk procurement with an average procurement of 1.03 million litres of raw milk per day as of March 31. It is the second-largest private dairy player in terms of market presence. The company primarily caters to five states, namely Andhra Pradesh, Telangana, Karnataka, Tamil Nadu, and Maharashtra. It also operates countries namely Uganda and Kenya.
Amarjeet Maurya, AVP for Mid Caps at Angel Broking, said Dodla has shown improvement in the operating margin and working capital cycle.
“We believe that it would perform better going ahead on the back of an increase in value-added product mix,” Maurya said while recommending a ‘subscribe’ to the issue.
