Dodla Dairy IPO opens tomorrow: Should you subscribe to the issue?

Dodla Dairy IPO offer comprises a fresh issue of up to Rs 50 crore and an offer for sale of up to 1,09,85,444 equity shares by promoters and investors

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Dodla Dairy's Rs 520-crore initial public offering (IPO) is all set to open for subscription on Wednesday. The issue will close on June 18.

Dodla Dairy IPO offer comprises a fresh issue of up to Rs 50 crore and an offer for sale of up to 1,09,85,444 equity shares by promoters and investors.

The price band for the offer has been fixed at Rs 421-428 per equity share.

The offer for sale consists of 92 lakh equity shares by investor TPG Dodla Dairy Holdings, and 4,16,604 equity shares by Dodla Sunil Reddy, 10,41,509 equity shares by Dodla Family Trust, and 3,27,331 equity shares by Dodla Deepa Reddy.

"Considering FY 21 annualized EPS of 26.08 on a post-issue basis, the company is going to list at PE of 16.41X with a market cap of Rs.25,463 mn while its listed peers namely Hatsun Agro and Parag Milk are trading at a PE of 81.1X and 67.6X. ," said analysts at Marwadi Financial Services.

Analysts have given a 'subscribe' rating to the issue as the company is one of the largest dairy companies in the branded consumer market with a strong distribution network and is available at a reasonable valuation compared to its peers.

The company's strengths include stringent quality control procedures, long-term relationships with dairy farmers, and a diverse range of products under the "Dodla Dairy" and "Dodla" brands.

However, they noted that the operations are dependent on the supply of large amounts of raw milk, and the inability to procure adequate amounts of raw milk from farmers and third-party suppliers, at competitive prices, may hurt business, results of operations, and financial condition.

The funds raised through the IPO will be utilised for repaying debts of Rs 32.26 crore availed from ICICI Bank, the Hongkong and Shanghai Banking Corporation (HSBC), and HDFC Bank, and for capital expenditure requirements of around Rs 7.15 crore.

Dodla Dairy Limited is an integrated dairy company in South India that is engaged in the procurement, processing, distribution, and marketing of milk and other dairy products.

They are among  the private dairy players with a significant presence in the southern region of India and have the third-highest position in terms of milk procurement per day with an average procurement of 1.03 million liters of raw milk per day ("MLPD") and second highest in terms of market presence across all of India.

The Hyderabad-based company has a strong distribution network of 40 sales offices, 3336 distribution agents, 863 milk distributors, and 449 product distributors across 11 states in India.

This would be the third IPO this week, after Sona Comstar and Shyam Metalics.