Fastest-Growing Emerging Companies Rank: 3
Group: INDEPENDENT COMPANIES
Segment: REVENUES Rs 3,000-6,000 CRORE
The dairy segment in the country is unique. In spite of being a Rs 5,00,00-crore industry, it is dominated by unorganised players, so much so that the largest company (Amul) accounts for just four to five per cent of the market. As a result, it offers ample scope to organised players to grow.
Delhi-based Kwality Ltd has made good use of these opportunities. The company, though it accounts for just one per cent market share, has managed to grow its revenue eight-fold since March 2009, clocking a compounded annual growth rate of 51 per cent.
"We have been growing at a scorching pace over the last few years. This is a huge market and if you adhere to some basic principles you can sell whatever you produce. This is what we have done. We have a sound milk procurement strategy and a strict view on quality of products. This has helped us achieve high growth," says Chairman and Managing Director Sanjay Dhingra.
"Retail has been growing at 25-30 per cent a year. In 2014/15, the revenue from the retail business was Rs 1,600 crore, up from Rs 1,200 crore in the previous year," says Dhingra. The retail business today accounts for 25-30 per cent revenue.
In 2011, the company set up a wholly-owned subsidiary, Kwality Dairy Products-FZE, in a free trade zone of the United Arab Emirates after it got a licence for dealing in milk-based products. Exports got a boost with the removal of ban on export of skimmed milk powder, whole milk powder and dairy whitener in 2012. Today, the company exports dairy products to around 30 countries across Asia and Africa. In 2014/15, it earned Rs 530 crore from exports, 190 per cent more than in the previous year.
The toughest part of the business is procurement of milk from farmers. Since 2012, when it launched its milk brand, it has built a strong procurement network of 2.85 lakh farmers in 4,000 villages and three states. It has also opened 20 chilling centres. The company had one milk-processing unit in Palwal, Haryana, till 2010. Since then, it has added five more. It handles 33 lakh litres milk every day.
Kwality Ltd, formerly Kwality Dairy Ltd, was set up in 1992 by the then promoters as a backward integration unit of the ice cream business. In 1995, the owners sold the ice-cream brand to HUL. After this, they lost interest in the dairy business, too.
Sanjay Dhingra and his family, who were then distributors of edible oil and were outsourcing ghee for a brand called Indana, were looking to set up their own unit near Delhi. Kwality Dairy's Palwal plant fitted their scheme of things. In 2002, they decided to take over the company. In 2003, they entered into a tie-up with Amul for providing pouched milk. "That's how we got a first-hand experience of the milk business. The relationship with Amul ended only in 2013," says Dhingra.
Kwality's primary strength is its institutional business, which accounts for 75 per cent revenue. It supplies bulk milk products (milk powder, ghee, curd, etc.) to well-known FMCG companies such as Britannia, Hindustan Unilever, ITC, Cadbury's and Mother Dairy.
"The institutional business gives it an edge over others with a largely retail client base. It does not have to negotiate with dealers every now and then. Milk, being a perishable good, has be consumed within a short period or there's nothing you can do about the loss," says Prakash Diwan, Director, Altamount Capital Management.
He says that unlike many other dairy companies, which have tried various models such as opening milk booths and are bleeding because of the cost incurred in such expansion, Kwality has been circumspect about such expenditures.
Kwality sees retail segment as a key driver of growth. It currently accounts for 25 per cent revenue.
"The market for value-added products such as flavoured milk and packaged cheese is expanding. They may not significantly add to our revenue in the near term but command higher margins," says Dhingra.
The company is also planning to increase direct procurement of milk from farmers. At present, a bulk (85 per cent) of the procurement is through aggregators. "Quality can be an issue with aggregators. However, as we expand our retail business, we must also increase direct procurement from farmers," says Dhingra.
Kwality, which mostly operates in north India, plans to spread its reach across the country. "We plan to launch products that have a shelf life of between three and six months so that we can go pan India," he says.
CHALLENGES AND OPPORTUNITIES
The dairy industry is dominated by unorganised players. It largely works on the cooperative model with limited participation from private players.
Despite this, the industry has been growing at a quick pace. According to research firm International Market Analysis Research & Consulting Group, the dairy market size is likely to expand at 14 per cent a year between 2015 and 2020.
"There is immense scope for an organised player to grow in the industry if one can upgrade processing units with latest technology and build a good procurement network," says Dhingra.