Modern Dairies - Brewing a Dairy Comeback

[Aditya_Chugh]

Mcap: 138Cr, CMP: 54

TTM: Revenue – 355Cr, PAT – 71Cr (Includes exceptional income of 56Cr on account of settlement of debt)

About the business

• Founded in 1992, Modern Dairies Ltd manufactures wide range of milk and milk products including liquid milk, skimmed and whole milk powder, dairy whitener, pure ghee, butter, cheese, casein, WPC, lactose, etc

• Revenue from some of the products is given below (In Lakhs)
  

  

• It has a milk processing capacity of 3.25 lakh litre of milk per day (LLPD). For liquid milk, the company has a tie-up with Mother Dairy for complete off-take of 2 LLPD

• Ghee is sold through the company’s own retail channel and through bulk sales under the brand name of ‘Shweta’ and ‘Modern Dairies’

• The company supplies products like skimmed milk powder and other milk products like whole milk powder, mozzarella cheese, casein to various institutional buyers while its current focus is on sale of fresh dairy products, cheese, ghee, etc

• Some of the key clients are
  

  

Now coming to the point – What are the key developments that make this company to look out for?

Debt Settlement

Over the last couple of years, the company has made efforts to settle with its creditors. The accounts of the company had been categorised as NPAs by Banks

Majorly settled with 2 lenders

• With Edelweiss ARC –
  • Loan restructured in 2022
  • Final payment made in Aug 2023 and received no dues certificate
  • Exceptional recognised subsequently while reporting quarterly numbers for Sep 2023 (Link)
• With Punjab National Bank (PNB) and Canara Bank–
  • Approved OTS in 2022
  • Made final payment to PNB in Nov 2024 and received No Dues Certificate in Nov 2024 (Link)
  • Made final payment in Canara Bank in Jan 2025 and received No Dues Certificate in Jan 2025 (Link) – Also mentions that with this payment, the Company has settled and paid all the debts of its Secured Lenders

Subsequently in Jan 2025 – 100% of Promoter’s shares which were pledged with PNB were released

Equity Infusion by Promoters

Post shareholders approval in Annual General Meeting of 2024, the company has issued 86 lakh convertible warrants to promoter at INR 50 per share i.e 43Cr money will be infused by promoters thereby increasing their stake from 45.71% (as of Dec 2024) eventually to more than 60% post conversion of the all the warrants

In Mar 2025, the promoters have converted a tranche of 23 lakh warrants to equity shares taking their stake upto 50.59%. The rest of the warrants should be converted with 18 months from the date of issue

Coming to the risks involved in the business –

Milk Cess Liability

• As per the last demand notice dated 1.1.2024 issued by Govt. of Haryana for the December quarter stand 544.31Cr (Shown as contingent liability), which includes Milk Cess and interest thereon. As on 31st March 2024, the total Milk Cess provision amount is 20.71Cr, out of which 9.91Cr (5.91Cr + 4Cr) has been already deposited as per Hon’ble Supreme Court’s and Hon’ble Punjab & Haryana High Court’s order. The final decision is pending before the Hon’ble Supreme Court of India
• The disclosure given in the Annual Report is as below
  
  

The company has generated operating cash flows of 47Cr in FY2024 and utilized most of for repayment of debt and interest of roughly 41Cr. Post settlement with lenders now the company has minimal level of debt.

The intent of promoter by settling with the banks and subsequently infusing money in the company makes it fit case for a turnaround story

Disclosure – Invested

[kingzeusvj]

Strengths as per me:

1. Gradually, they have obtained certificates, after being termed sick in 97-98, like 9001, 22000, and HACCP ensuring quality compliance.

2. Approx. 62% is off-take to Mother Dairy, and Karnal’s proximity to Delhi gives edge in logistics.

3. 2+ lac retail outlets

4. Revenue from value added products like cheese, butter & casein to b2b players [there’s always a higher stability in b2b compared to b2c which is ruled by Amul & Mother Dairy].

If I have to summarize then: 60% of low-yield portfolio is symbiotic; and rest 40% is higher margin, which is growing, and is sold through their own brands and through 2+ lac retail outlets.

All in all, a risk-reward at play for this stock. I may go for 1% of my portfolio to start with, and keep it on radar. Thanks @Aditya_Chugh for bringing this to notice.

[avithegre8]

Naive question - isn’t the size of contingent liability too big relative to company’s existing funds? Matter being at SC potentially also implies that the verdict has been against the company in lower courts?

[Soham_Kunkulol]

Why are the reserves in negatives since so many years?

[Gaurav_Kothari]

Mcap: 92cr; CMP: 32.5/share; Revenue: ~350cr; EBIDTA: ~5%

Interesting developments:

1. Around Feb of FY25, company issues 86 lac warrants at Rs 50/warrant to various promoter entities and immediately convert 23 lac warrants in the same FY

2. Promoters convert 28 lac warrants in Feb’26 when CMP is around 32 and warrants issued at 50/warrant are converted

3. Balance 35 lac warrants can be converted by July’26

Entire conversion exercise would bring around 43cr on company’s books.

In FY 25, Heritage Foods settled 2.89 cr. of long standing dues under the same case in “Vivadon Se Samadhan” scheme announced by Government of Haryana. Under this scheme, interest rate reduces from 2% p.m. compound interest (monthly compounding) to a more realistic 12% p.a. simple interest.

Considering One time settlement which was opted by other dairy companies around 2019-2020 at 12% simple interest rate, dues for modern dairy might settle by paying additional ~62cr (for dues till end of FY26). Cash balance + Money infused through warrants + FCF from business would be sufficient to pay the settlement amount.

Attached screenshot talks about settlement of all legacy dues at 12% simple interest.

350cr of revenue; 17.5cr of EBIDTA of a dairy company available at 92cr Mcap