Motilal Oswal PE invests $16.4 mn in ice-cream retailer Dairy Classic

Motilal Oswal Private Equity Investment Advisors has invested Rs 110 crore ($16.4 million) in Bengaluru-based Dairy Classic Ice Creams Pvt. Ltd, in what is the investment firm’s second bet in the dairy products category.

This is the first round of private equity investment for the company, the ice-cream maker said in a statement.

The PE firm invested through its India Business Excellence Fund – II and India Business Excellence Fund – IIA and picked up a minority stake in the company.

Dairy Classic, which was launched in 2002, markets its ice creams and frozen desserts under the brand name Dairy Day. The company, which has a sole manufacturing facility near Bengaluru, claims to be supplying its items to 15,000 retailers in the southern region. It posted net sales of Rs 150 crore in financial year 2015-16.

“The company is well positioned to benefit from increasing acceptance of ice cream as dessert, heightened brand awareness, higher spending capabilities and improving refrigeration infrastructure,” said Vishal Tulsyan, managing director and CEO at Motilal Oswal PE.

The company will mainly use the capital to expand capacity in Tamil Nadu and Karnataka. A part of the money will also go toward boosting the distribution network and brand building.

Earlier, the PE firm had invested in Parag Milk in 2008. It recently exited the company when the dairy company went public.

The private equity arm of Motilal Oswal Financial Services Ltd is looking to raise $250-300 million for its third fund to invest in small to mid-sized companies.

The second fund had invested in companies such as Arinna Lifesciences, GR Infraprojects Ltd, Glass Wall Systems India, India Energy Exchange and Intec Capital. The first fund had backed firms such as Au Financiers, Kurlon, Power Mech Projects and Shubham Housing Development Finance Company.

Dairy Classic competes with a host of branded homegrown and international players such as Amul, Kwality Walls, Mother Dairy, Vadilal, Cream Bell and Baskin-Robbins. While Häagen-Dazs, Baskin-Robbins, London Dairy, New Zealand Naturals and Hokey Pokey cater to the high-end market, the likes of Amul, Vadilal, Cream Bell and Mother Dairy sell products at wide-ranging price points.

According to consultancy firm Technopak Advisors, the ice-cream category has been growing at 10-15% annually. The segment has high growth potential considering India’s annual per capita consumption of ice cream, around 300 millilitres, is a tenth of China’s.

Despite this huge demand, the ice-cream space in the country has not seen many deals in the recent past. In July, Drums Food International Pvt. Ltd, which sells Hokey Pokey ice cream, raised Rs 44.5 crore ($6.6 million) in a Series A round of funding led by Belgian investment firm Verlinvest.

Consulting firm EY, earlier known as Ernst & Young, was the financial adviser to Dairy Classic for this transaction.

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