French food giant Danone will exit its dairy business in India and focus instead on boosting its nutrition segment in the country.
Danone said its decision was based on the fact that its dairy and related units were making minimal contributions to the company's annual revenue.
"Danone has decided to rationalize its product portfolio in India to allow for accelerated investments and a sharper focus on growing its nutrition portfolio, which is more than 90% of the business," the company said in a statement.
Its fresh dairy portfolio in India includes items such as dahi, mishti dahi and flavoured yoghurts, while its ultra-high-temperature (UHT) processing portfolio comprises milk, buttermilk, lassi, cold coffee and smoothies.
Danone's manufacturing facility near Delhi, which was dedicated to dairy products, has stopped production. However, its factory located in Punjab, where it makes nutrition products, is still operational.
The company will now solely focus on its nutrition portfolio, where it offers products under different brand names such as Protinex, Farex and Dexolac. Danone said it aimed to double its nutrition business in India by 2020.
The French giant had acquired this business from pharmaceutical major Wockhardt Ltd in 2012, before consolidating it with its dairy business in 2015.
Danone had forayed into India's dairy market in 2010, a year after ending a joint venture with biscuits major Britannia Industries. The tie-up was one of India's longest running business partnerships.
India's dairy market
India is the world’s largest producer of milk but the country’s dairy market is highly fragmented and is dominated by local milkmen and regional brands.
Kwality Ltd and Mother Dairy Fruit & Vegetable Pvt Ltd dominate the north while Hatsun and Tirumala are leaders in the south. Then there are larger co-operative players such as Gujarat Cooperative Milk Marketing Federation (GCMMF), which sells its products under the Amul brand.
Danone also experimented with inorganic means to expand its business in India.
It was in talks to buy Indore-headquartered Anik Industries' dairy business. However, Danone lost out on that acquisition to fellow French dairy major Groupe Lactalis SA, which incidentally is actively scouting for more acquisition opportunities in India.
The potential of the market has also attracted big cheques from investors.
Last year, Odisha-based dairy startup Milk Mantra Dairy raised its Series D round of funding, reportedly worth $10 million, led by Neev Fund, which is backed by the country's largest lender State Bank of India.
In 2016, Kwality Ltd, India's largest private dairy firm by revenues, had raised Rs 520 crore ($77.4 million at the time) from alternative investment giant Kohlberg Kravis Roberts & Co Ltd (KKR) in a structured finance transaction to boost its consumer facing business.