India's largest private dairy firm by revenues Kwality Ltd has raised Rs 520 crore ($77.4 million) from alternative investment giant Kohlberg Kravis Roberts & Co Ltd (KKR) in a structured finance transaction to boost its consumer facing business, it said on Wednesday.
“We are in a critical stage of growth where we are shifting our business model from B2B (business to business) to B2C (business to consumer) which encompasses revamp of all business functions across the value chain,” said Sanjay Dhingra, MD, Kwality Ltd.
The company, which is mostly a business to business (B2B) supply firm, is aggressively working to enter business to consumer (B2C) and retail segments. “We are in a critical stage of growth where we are shifting our business model from B2B to B2C, which encompasses revamp of all business functions across the value chain,” said Sanjay Dhingra, MD, Kwality Ltd.
The public listed firm will use the funds to strengthen milk procurement infrastructure for high-margin value-added product categories, including cheese, paneer, tetra-packs, flavoured milk and yoghurt, among others.
The Delhi-based company, as per a press statement, will also use a part of the money towards partial repayment of debt and brand building activities.
Besides roping in Bollywood actor Akshay Kumar as its brand ambassador, the dairy firm has earlier engaged reputed advertising and marketing firms for its brand building initiatives—McCann for creative, ZenithOptimedia for media planning, and Digital Quotient for handling its social media.
ICICI Securities PD Ltd acted as the financial advisor to Kwality for the transaction.
Kwality produces a range of products, including ghee, flavoured milk, yogurts, butter, cheese and curd. In 1994, the former owners of Kwality sold the ice-cream brand to Hindustan Unilever.
The company that was set up to supply milk to Kwality Ice Creams India Ltd was acquired by the Dhingra family in 2002. Unlike peers, it is mostly a B2B supply firm. It gets more than 70% of its revenues by selling its products to companies such as Hindustan Unilever Ltd, ITC Ltd and Britannia Industries Ltd.
It has six milk processing units in Uttar Pradesh, Haryana and Rajasthan, and retails products under its Dairy Best brand. Kwality also supplies to Mother Dairy, Cadbury’s and ice cream makers Vadilal Enterprises Ltd and Cream Bell.
India is the world’s largest producer of milk but the country’s dairy market is highly fragmented and is dominated by local milkmen, regional brands and milk cooperative Amul. The sector has attracted several investors in the recent years, and has also seen consolidation moves.
In 2014, social venture investor Aavishkaar was among the investors who put money in Odisha-based startup Milk Mantra Dairy Pvt. Ltd.
French giant Groupe Lactalis SA recently bought the milk products business of Mumbai-listed Anik Industries Ltd for Rs 470 crore ($70 million) in its second acquisition in India in as many years. The deal helped Lactalis go neck and neck with India's top private dairy firm Hatsun Agro Product Ltd in terms of revenue.
KKR invests in India out of its global or Asian funds. In February this year, KKR invested Rs 950 crore ($138 million) to acquire a 9.95 per cent stake in Max Financial Services Ltd. The PE firm made the investment through its KKR Asian Fund II.
In July last year, KKR agreed to put in $150 million (Rs 962 crore then) in Mumbai-listed polyester maker JBF Industries Ltd and its overseas arm, in its first investment in India from the second special situations fund.
Like this report? Sign up for our daily newsletter to get our top reports.