Dodla Dairy - South India Focused Dairy Player

Sumit_Agarwal · July 31, 2023, 7:51am

Dodla Dairy is a south India focused milk player. Installed capacity of 22 LLPD (Lakh Litres of Milk per day) – 19 LLPD in India and 3 LLPD in Africa (Uganda and Kenya). Procurement volume was 13.8 LLPD in FY23 on an average.

Procurement is done primarily from 5 states (Andhra Pradesh, followed by Tamil Nadu, Karnataka, Telangana, and Maharashtra) while it is sold in 11 states.
Presence in Africa (Uganda and Kenya) which are the major milk producing centres in Africa. Company is focused on these markets as margins here are double that of India. Africa is currently 10% of revenues.
Focus on Value Added Products which was 32% of sales in Q1FY24. 75% of the value added products is contributed by curd and the remaining is divided between ghee, butter, paneer, etc.

Sales Mix

Dodla Dairy got listed in June 2021 at around Rs 425 per share.

Some business economics I could get from their con call and presentations is milk realization in India is Rs 56 per litre and cost is Rs 40. Gross margins of 25-28%. Employee, processing and marketing costs contribute another 15-20% of expenses leading to OPMs of between 7-10%.

The dairy sector went through compressed margins in FY23 which was in turn due to raw material cost increases. This was driven by shortage of milk which in turn was due to cattle disease during that quarters and less cattle due to break of cattle breeding pattern during covid times.

Pros

Company has delivered 20% sales value CAGR over the last 20 years. Around 12-14% of that is due to volume increases and the rest is due to pricing increase.
Extremely strong WC management. Debtor days has been 1 or 2 days for the last 6 years. Inventory days has ranged between 20-40 days which has been squared off by matching payable days.
Has been able to defend market share and premium pricing in Karnataka against co-operatives like Nandini which receives a subsidy of Rs 5-6 / ltr from the state govt. Speaks a lot about their brand positioning and their pricing power.
Strong CF conversion business.

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Favourably placed against peers in industry in terms of size, operating metrics.

One third the size of Hatsun Agro and similar size as Parag Milk Foods and Heritage Foods. Hatsun Agro and Heritage are both focused on markets in the south while Parag Milk is more focused on north and west.

I fail to understand why peers Hatsun Agro would trade at 117 P/E + others like Heritage Foods is at 42 P/E and Parag Foods at 38 times P/E while Dodla is still at 35 times P/E even after the stock has appreciated by 30% in the last 2 weeks after the results.

Company is making use of cash on books by making acquisitions of smaller players in its current markets (KC Dairy – Tamil Nadu market in Apr 2019 for Rs 110 crs and Sri Krishna Milk in Karnataka in March 2022 for Rs 50 crs). Also expanding into Africa (Uganda and Kenya) where margins are double that of in India.
Building farmer relationships and backward integration by getting into the supply of cattle feed to farmers (Orgafeeds). Expected to increase capacity by 6x in this business. Could lead to total revenues of Rs 180 crs from feeds. Current revenues is 45 crs from this business.

Cons / Risk
The only con / risk that I could find is that the stock has run up 30% post the results and is currently at 35x TTM P/E. But valuation of similar sized peers gives me comfort that maybe it is still undervalued.

Some reference videos / analysis I found on Tijori finance

Status
Have taken a tracking position (1% of my portfolio) today

ranvir · August 31, 2023, 4:47pm

Dodla Dairy Q1 FY 24 concall highlights -

Revenues-823 vs 717 cr
Gross Profit-195 vs 166 cr (@ 23.7 vs 23.3 pc)
EBITDA-60 vs 45 cr ( @ 7.3 vs 6.3 pc )
PAT-35 vs 25 cr ( @ 4.2 vs 3.5 pc)

Sale of value added products (VAP) @ 258 cr, up 13 pc YoY. VAP sales now at 32 pc of total

LY, sales from VAP was 27 pc. VAP sales peak in Q1

Industry benefiting from upcoming flush season. Likely to peak in Sep-Oct

Avg milk production in Q1-15.9 lakh Lit/day, up 7.5 pc

Avg milk sales in Q1-11.1 lakh Lit/day, up 6.2 pc

Avg curd sales in Q1-439 Tons/day, up 3.1 pc

Current number of Dodla retail parlours - 596

87 pc of milk directly produced from farmers

Company has - 123 chilling centers, 15 processing plants, 01 Feed plant ( through its subsidiary - Orgafeed )

Company has global presence in - Uganda, Kenya

Company sells in 13 states in India

There were price cuts of 4-5 pc blended for cow + buffalo milk in Q1. However, company refrained from procuring at lowest possible prices so as to not hurt farmers and for better long term sustainability of the business - a great step - IMHO

Due to upcoming flush season, GMs may go up a little more in Q2

Company’s working capital cycle is extremely healthy vs peers. Company maintains strict discipline here, even at the cost of compromising on some additional business

Company is able to hold onto Mkt share in Karnataka despite aggression from Nandini. Dodla pays same to farmer as Nandini (despite govt giving subsidies to farmer to sell to Nandini) but sells at slightly higher price due better product Quality and better internal efficiencies

Avg procurement/realisation prices for milk for Q1 at - Rs 39.6/Rs 55.6

In Africa, Q1 revenues were 60 cr and EBITDA was 14 pc (very high margins here)

Orgafeed capacity expanded, to go live in August

Srikrishna Milks (subsidiary)-did EBITDA of 5 cr @ 8.7 pc margins in Q1

Aim to increase share of VAP by 1-1.5 pc / yr

VAP sales breakup for Q1 -

Curd- 187 cr
Ghee Butter- 9 cr
Ice cream- 13 cr
Paneer+Sweets- 14 cr
Lassi- 6 cr
Buttermilk- 10 cr

Confident of maintaining Q1 levels of EBITDA margins in FY 24. May improve a little due flush season

Aim to grow the revenue by 15 pc in FY 24

Differential between avg selling price/ lit between Nandini vs Dodla is Rs 8-9 in Dodla’s favour !!!

Current Cash balance at - 467 cr at consolidated level

India capacity utilisation at 65-66 pc currently

Disc : holding

ranvir · February 23, 2024, 6:51pm

DODLA DAIRY -

Q3 FY 24 results and concall highlights -

Revenues - 746 vs 675 cr ( up 12 pc )
Gross profits - 224 vs 171 ( margins @ 30 vs 25 pc )
EBITDA - 82 vs 53 cr ( margins @ 11 vs 8 pc )
PAT - 41 vs 35 cr ( margins @ 5.5 vs 5.2 pc )

Avg daily milk production @ 17.5 lakh liter per day ( LLPD ), up 36 pc YoY !!!

Revenues from value added products @ 186 cr, up 22 pc in Q3 - a huge positive and a key matrix to track. For 9M FY 24, sale from VAPs now at 28 pc of company sales

Curd sales grew by 12 pc YoY @ 132 cr
( included in VAP sales )

Company has expanded its cattle feed capacity by 6 times from 80 MTPD to 480 MTPD. Went live in Jan ( done via its subsidiary - Orgafeed )

Also commissioned a new Dairy plant in Kenya in Q2 FY 24 with a capacity of 1 lakh LPD

Intend to set up a Greenfield dairy plant in Maharashtra. Details shall be shared when the plan is finalised. May end up spending 150-200 cr of cash for the same. Company has > 200 cr of cash on books

Intend to double Orgafeed’s revenues to 200 cr by end of FY 25

The procurement prices in Q4 are holding up at similar levels as Q3 ( usually they are higher vs Q3 )

In Q4, the sales volumes are gradually picking up vs Q3

Company is procuring far higher Qty of milk/day vs its daily milk sales. This helps the company to convert excess milk to Skimmed Milk powder, Ghee and Butter. Earlier, company had to resort to being SMP and butter from third parties to sell it in the Mkt. This should further aid the margins

Confident of achieving 15 pc topline growth for FY 25 as clocking additional 100 cr revenues from animal feed and 100 cr from Kenya is a high probability event

Company aims to maintain advertisement spends at 0.5-0.7 pc of sales

Both Butter and SMP have a shelf live of 18 months under storage conditions. Therefore, its not risky to hold additional inventory of these items

Disc: holding, biased, not SEBI registered

ranvir · May 21, 2024, 6:12pm

Dodla Dairy ( very very bullish commentary ) -

Q4 and FY 24 concall highlights -

Q4 financial outcomes -

Sales - 787 vs 724 cr, up 9 pc
EBITDA - 75 vs 33 cr, up 123 pc ( margins @ 9.6 vs 4.7 pc )
PAT - 47 vs 22 cr ( up 108 pc )

Share of sales from VAP @ 28 vs 27 pc YoY. Sale of Value Added products increased by 19 pc YoY ( @ 221 cr for Q4 out of which curd sales were 182 cr )

Q4 saw an adverse impact of write down of inventories to net realisable value. This had an impact of (-) 24 cr on the gross profit

Cash and Cash Equivalents stood @ 286 cr as on 31 Mar 24. Gross Debt stood at 44 cr

Total capacity @ 24 Lakh Liters per day

97 pc of milk procured directly from farmers

No of standalone Dodla dairy parlours now @ 604 vs 580 in Mar 23

Company commissioned 1 lakh lit per day dairy plant in Kenya in Q4 FY 24

Expanded capacities @ Orgafeed ( cattle feed plant ) from 80 MTPD to 480 MTPD in Q2 FY 24

Management is confident that the write down / provisions made in Q4 will hold the company in good state in the coming Qtrs ( as it is likely to be reversed in FY 25 )

EBITDA margins for FY 25 should be 9 pc and above ( a key positive - imho )

Expecting milk procurement prices to stabilise near current levels

Expect new Kenyan capacity utilisation to be around 35 pc plus for FY 25

Avg milk procurement and realisation prices for Q4 at Rs 37 and Rs 57 respectively. Last FY, these were Rs 37 and Rs 54 respectively

Guiding for a 10-12 pc revenue growth in FY 25 mainly led by - value added products + sales from cattle feed plant + sale from the new Kenya plant

YoY Growth in Ice-Creams in FY 24 was 33 pc !!! ( although on a small base ). Aim to maintain these growth rates in FY 25 also

Animal feed revenues for FY 24 was around 83 cr. Targeting a 200 cr revenue from animal feed in FY 25 !!!

Disc: holding, added recently, not SEBI registered, biased

Sumit_Agarwal · May 25, 2024, 11:15am

Few things that were a negative

hardly any volume growth in milk business
23 cr inventory write down. They might have taken cover behind a good quarter to write off past losses which were not booked earlier.
number of days of inventory went up to 45 days

Disc: invested

Khalidbashir1993 · May 26, 2024, 5:54am

where is this 23 cr coming from could you please explain for study purpose

Sumit_Agarwal · May 26, 2024, 6:10am

Refer the note below the table in their press release. Also discussed in quarterly concall

ranvir · July 24, 2024, 5:30pm

Dodla Dairy -

Q1 results and concall highlights -

Revenues - 911 vs 823 cr, up 10 pc ( revenues are at all time high ). Revenues from international business grew by a massive 38 pc to 83 cr

EBITDA - 105 vs 60 cr, up 60 pc ( margins @ 11.5 vs 7 pc )

PAT - 65 vs 35 cr, up 86 pc

Value Added products contribution to sales @ 35 vs 32 pc - a big jump

Avg milk procurement per day @ 17.6 lakh litres, up 11 pc YoY

Avg milk sales per day @ 11.3 lakh litres, up 2.5 pc YoY

Avg daily sale of curd @ 467 MT, up 6.3 pc

Sale of Value added products in Q1 @ 313 vs 258 cr, up 22 pc

Total Dodla parlours @ 598

Total chilling centers @ 152

Total milk processing capacity per day @ 20 lakh litres @ 14 processing plants

Total milk processing plants in Africa @ 02. Margins in Africa are higher due to limited competition

Sales from Animal feed @ 31 vs 18 cr YoY. EBITDA @ 4 vs 1.6 cr YoY

Company has taken minor price cuts in Q1 ( due falling milk procurement prices ) and may take some more price cuts in future too. However, they intend to maintain their Gross margins at Q1 levels

Gross margin expansion in Q1 led by - higher value added sales, higher export sales, soft procurement prices

Seeing similar procurement prices in Q2 as in Q1 ( basically seeing no inflation in procurement )

Africa sales LY were around 220 cr. Expecting to do around 350 cr this yr !!!

Animal feed business sales LY were 80 cr. Expecting to do around 160 cr this yr !!!

Confident of maintaining 10-12 pc kind of topline growth with 11-12 pc kind of EBITDA margins for whole of FY 25. That would mean a full yr EBITDA of around 380 cr vs 290 cr YOY !!!

Most of company’s products do sell at a premium price vs competitors. That’s because of better quality and better positioning

Current avg procurement price is Rs 36 / lit and avg selling price is Rs 56 / lit - for India business

No major capex is lined up for current FY

International business margins are almost double that of India business margins

Margins in plain milk business are around 7-8 pc. Margins in VAP ( including curd ) are around 13-14 pc (EBITDA margins - ie)

Company expects the total share of value added products for FY 25 @ 33-34 pc of total sales

Disc: holding from lower levels, not SEBI registered, not a buy/sell recommendation

Sumit_Agarwal · July 24, 2024, 11:33pm

Q1FY25 Concall notes

procurement prices have trended down. Standalone Procurement price is 35.45/litre in Q1 compared to 36.91 in Q4, 38.71 in Q3, 39.07 in Q2. Expected to remain stable this year

Realizations are Rs 59.56/litre in Q1, 57.82 in Q4. Mentioned price realization as something different for Q1 in some other part of the call. (Need to understand)

Orgafeed to increase from 84 to 160 crs. Capacity is 14000 tonnes (12k tonnes new plant and 2k tonnes for old plant. Current utilization is 4k tonnes). Peak revenue possible from orgafeed plant is 500 crs. (my inference)

Africa consol (Singapore subsidiary) to increase from 218 to 360 crs. Africa margins are double of India (around 20%)

VAP mix will be around one third of overall sales this year. Normally liquid milk gives 8% EBITDA margin while value added products give 12-13% margin. In value added products, ghee and butter have less margin (around 5-6%) while butter milk, curd, lassi have 15% margins

Revenue growth for full year will be on same lines as first quarter.

Another 10 cr of MTM loss booked on inventory in Q1 on top of 23 cr booked in Q4. Based on NRV

Flush season starts with monsoon and lasts for Q2 and Q3. Normally Q2 and Q3 gross margins are best

Disc: Invested at lower levels and not SEBI registered

dark_hunter · October 27, 2024, 1:17am

This company seems to hidden gem which is growing consistently and now have successfully expanded in other countries to with optionality of margin expansion in higher probability, as long as they don’t shoot themselves in the foot, this is gonna be one in kind of investment

This company ticks various great characteristics in my opinion

Selling an essential item
Having better pricing than of peers (therefore I consider this has some sort of moat in terms of farmer relationship and backward integration - need understand and find what’s their moat)
Good WC management
Expanding from their internal accruals
Cash rich company
Margin expansion oppertunity through VAP, foraying to higher margin countries, and VAP in those countries too.
It is non cyclical business imo

Neutral characteristics of the business:

The volume growth may not be high in the long run, because such is the nature of the business, it should be in line with population growth after reaching certain size ( terminal value). - However this is mitigated by the expanding in other countries

Cons:

They need to/have to manage their over procurement and keep the inventory losses and provision in check.

Should be Producing VAP as per demand, instead of overshooting the forecast of demand

All in all, this seems to be great investment and accumulate on dips

A special thanks to Mr @Sumit_Agarwal for starting this thread and @ranvir for regular detailed notes updates very useful for me, really appreciate the hard work

A request as well from my side to you, and for all community members,

To have a contra view, kindly state their points why this could be a bad investment and could turn into one

So that we can track that better in a way like an Anti checklist, because I couldn’t think much in terms of fragility

ranvir · October 27, 2024, 3:50pm

Dodla Dairy -

Q2 FY 25 results and concall highlights -

Revenues - 997 vs 767 cr, up 30 pc
Gross Profit - 254 vs 205 cr, up 23 pc ( gross margins @ 25.5 vs 26.5 pc )
EBITDA - 96 vs 70 cr, up 37 pc ( margins @ 9.6 vs 9.1 pc )
PAT - 63 vs 43 cr, up 45 pc ( margins @ 6.4 vs 5.7 pc )

VAP sales @ 377 vs 195 cr, up 93 pc ( massive improvement )

Higher VAP sales are due to higher sales of Bulk Butter and SMP in Q2. Both Bulk Butter and SMP are low margin products. Bulk Butter + SMP sales at aprox 160 cr for Q2

Avg milk procurement @ 17.2 vs 17.0 Lakh Lit / Day
Avg milk sales @ 11.6 vs 10.9 Lakh Lit / Day
Curd sales @ 323 vs 309 Tones / Day

Company’s infrastructure -

Domestic -

14 processing plants
Processing capacity @ 20 lakh lit/Day
616 Dodla retail parlours
1750 + Milk and Milk product distributors

International ( operating in Kenya + Uganda ) -

2 processing plants
Processing capacity @ 4 lakh lit/Day
30 Dodla retail parlours
300 + Milk and Milk product distributors

International business now contributes to 10 pc of sales. Margins in Intl business are higher, dairy farming is easier due abundance of grazing lands

Orgafeed - Their animal feed business. Has 02 manufacturing facilities in AP. Selling directly to farmers through company’s procurement network against the value of milk supplied to them by the farmers

In Q2, Orgafeed reported 32 vs 20 cr of sales, EBITDA of 4.4 vs 1.4 cr

Have acquired 35 acres land in Maharashtra. Aim is to increase procurement from Maharashtra and set up an integrated plant on the acquired land

Normally liquid milk gives 7-8% EBITDA margin while value added products give 12-13% margin. In value added products, ghee and butter have less margin (around 5-6%) while butter milk, curd, lassi have 15% margins

Avg procurement price @ Rs 34.9 / Lit vs 39.1 / Lit in Q2 LY

Avg selling price @ Rs 68.2 / Lit vs 57.6 / Lit in Q2 LY ( avg of all products sold ). Increased selling price / lit is attributed to greater sales of Butter and SMP in Q2

In Africa, the procurement prices were higher in Q2 on a YoY basis - because of delayed rains. However, with the onset of rains, procurement prices have started to fall in Q3

Company may resort to some cuts in selling price and drive better volume growth - aim to to achieve better absolute profitability vs better margins

Milk procurement prices continue to remain stable

Increased cash build up on balance sheet to be used for acquisitions, expansion in Maharashtra, increase in dividend payouts

Most of the capex in Maharashtra will happen in FY 26

Drop in Gross Margins in Q2 is because of higher sales of SMP + Bulk Butter, higher procurement prices in Africa

Company intends to maintain VAP sales @ 38-39 pc of total sales. Also, see the steady margins to remain in the 8.5 -10.5 pc band

At present, the company procures 2 lakh lit of milk from Maharashtra per day. They intend to commence production from their Maharashtra facility wef Q1 FY 27 ( post completion of Greenfield capex )

Company aims to keep expanding its volume and sales value by 10 and 15 pc respectively for next 1-2 yrs

Company currently is carrying an inventory of aprox 240 cr of Bulk Butter + SMP put together ( this was aprox 380 cr on 31 Mar )

Company will continue with its strategy of building its inventory in the flush seasons ( like in Q3 ) and liquidating it ahead of festive seasons ( like in Q2 ). Basically there will be inventory build up in H2 every year and liquidation of the same in H1

Total project cost for the Greenfield capex in Maharashtra should be around 200-250 cr

Company is seeing descent uptick in the sales of Paneer, Curd and Ghee. There was a slowdown in IceCream sales in Q2 because of delayed rains in South India

If one removes the Bulk Butter + SMP sales from VAP sales, VAP sales stood at around 210 cr vs 190 cr in Q2 LY

Disc: holding from lower levels, biased, not SEBI registered, not a buy/sell recommendation

amit151190 · November 18, 2024, 3:36pm

Tried making some projections for FY’2025 liquidity and FY2026 earnings.
If, we adjust the excess cash company can have ROE above 20% , which can give assurance about a growth between 14% to 15% and a reasonable dividend (company would still be left with cash). Management knows the business well and company can generate the consistent returns.

Also made a detailed video on it , pinned in my X account ( link in profile.)