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Prabhat Dairy to raise $48M in IPO; Rabo India PE, French DFI Proparco to part exit

07 April, 2015

Ahmednagar-based Prabhat Dairy Pvt Ltd has filed its draft red herring prospectus (DRHP) with securities market regulator SEBI to float its initial public offer (IPO). This would make it the first of a string of PE-backed private dairy firms to test the public market.

There are just a handful of known dairy firms in the listed space with Hatsun Agro being the largest and only prominent name.

The galloping share prices in the secondary market have triggered a rush of companies filing documents to go public. Majority of these firms are PE-backed and in several of them, the investor is looking to exit or part-exit in the public issue.

Here’s a snapshot of the IPO

* IPO comprises fresh issue of shares to raise up to Rs 300 crore ($48 million) in addition to an offer for sale of up to 14.7 million by investors and promoters, up to 3.15 million equity shares by Nirmal Family Trust (promoters), up to 6.58 million equity shares by The India Agri Business Fund Ltd (managed by Rabo Equity Advisors or Rabo India PE), up to 23,000 by The Real Trust and up to 4.95 million shares by French DFI Proparco.

* Bankers: Edelweiss, Macquarie Capital and SBI Capital.

Use of proceeds

* Of the total proceeds of the fresh issue, around Rs 196 crore would be used for part pre-payment of loans availed by the company and its wholly owned subsidiary, SAIPL; around Rs 35 crore would be used to meet capital expenditure and the rest for general corporate purposes.

Company and industry

* Incorporated in 1988, Prabhat Dairy is an integrated milk and dairy products company in India catering to institutional as well as retail customers. Its products include toned and raw chilled milk, sterilised condensed milk, milk powder, lassi, butter and ghee. Prabhat Dairy markets a wide range of value added dairy products under Prabhat, Flava and Milk Magic brands. It is a regional player with main operations in Maharashtra like most private peer group firms.

* It also supplies dairy-based food ingredients to multinationals and Indian food and beverage companies.

* The company is promoted by Sarangdhar R Nirmal, currently the chairman and managing director.

* As of February 28, 2015, the company had more than 450 milk collection centres, over 15 milk chilling plants and over 80 bulk milk coolers. The milk collection facilities have automatic 48 milk testing equipment and specialised storage facilities, to test, collect and store raw milk before being transported to its production facilities.

* As of March 15, 2015, the company had an aggregate milk processing capacity of 1.5 million litres per day.

* While sales of institutional products have historically contributed to a majority of its revenues, it has been pushing the retail consumer products business in the past few years. Compared with around 89:11 revenue split in FY12 between institution and retail consumer, for the six months ended September 30, 2014 this ratio was 75:25.

* Its institutional clients include Abbott Healthcare, Mondelez (maker of Cadbury), Britannia, Mother Dairy Fruit & Vegetable and Heritage Foods.

* Other peers of Prabhat Dairy include private regional players Parag Milk Foods (Gowardhan and Go brands), Heritage Foods, Tirumala (now owned by Lactalis) besides large national co-operatives Amul and Mother Dairy.

* India is among the fastest growing dairy markets in the world and has become the largest global producer of milk, since FY13. Domestic milk production grew at 4.3 per cent CAGR, to nearly 134 billion litres in FY14 and, according to CRISIL, was projected to end FY15 with 140 billion litres. The growth in milk production in India outpaced other large milk producing nations such as US and China, which grew at 2-3 per cent CAGR in the past five years. On the flip side, consumption in India is growing at 5 per cent, leaving a gap between demand and supply.

* Currently, about 42 per cent of the total milk produced in India is purchased by consumers directly from milk farmers in a raw form, which makes is a highly fragmented market. The remaining 58 per cent goes for processing and is sold as processed milk and milk products.

* The processed dairy industry in India was estimated to be around Rs 3,65,000-3,70,000 crore in the year ended March 31, 2014, of which milk products accounted for around Rs 1,49,000-1,53,000 crore, according to CRISIL. Paneer and khoa (32 per cent), ghee (30 per cent) and curd products (22 per cent) account for the major portion of the milk products segment.

* The processed milk and milk products segment is expected to record about 12-13 per cent CAGR between during FY14-FY17 driven by changing lifestyle of consumers, growth in the food services industry, increasing urbanisation, rising need for convenience, better health awareness among end users, etc.

* While demand for processed milk grew by 5.3 per cent CAGR in FY10-FY14, realisations rose by about 9-10 per cent CAGR in the same period. As a result, the processed milk segment recorded 14-15 per cent CAGR, reaching Rs 2,16,000-2,17,000 crore in FY14, estimates CRISIL.

* Milk prices are expected to rise by 7-8 per cent CAGR over the next three years, primarily driven by an increase in fodder prices, which in turn, are expected to be driven by a similar rise in minimum support prices of key crops. Overall, the segment is expected to grow by 12-13 per cent CAGR, in terms of value to reach Rs 3,10,000 crore by FY17, according to CRISIL.

Financials

* Its net revenues have almost doubled in the last three years and in the six months ended September 30, 2014 it clocked revenues of Rs 460.5 crore with net profit of Rs 12.5 crore. For the financial year ended March 31, 2014, the company clocked net revenue of Rs 857 crore compared with Rs 641 crore in the previous year. In the same period, its net profit rose from Rs 13.8 crore to Rs 20.2 crore. Milk is a low margin business but dairy as a whole has higher margins due to value added products commanding more profits.

* Its EBITDA rose from Rs 73.17 crore in FY13 to Rs 91.37 crore in FY14. For the first six months of last financial year its EBITDA was Rs 47.6 crore.

* Listed peer Hatsun is currently trading at 18x FY14 EBITDA and 42x its FY14 net profit. Hatsun is three times the size of Prabhat but the latter commands a higher margin. For the six months ended September 30, 2014, Hatsun had just about twice the EBITDA and just 40 per cent higher net profit compared with Prabhat.

Investors

* Dutch financial services group Rabobank’s India-focused private equity firm Rabo Equity Advisors had invested Rs 80 crore in the company and French development finance institution Proparco had invested Rs 60 crore in 2012-13 through preferential allotment.

* Currently, Rabo Equity Advisors owns 22.73 per cent while Proparco holds 14.19 per cent stake. Both the investors have offered to sell under half of their stake in the IPO as part of the offer-for-sale.

* For Rabo, this would mark a new liquidity event after two years. In 2013, it had part-exited from Avantha Group’s processed foods venture Global Green.

(Edited by Joby Puthuparampil Johnson)


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Prabhat Dairy to raise $48M in IPO; Rabo India PE, French DFI Proparco to part exit

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