Dinshaw Dairy Foods Ltd., one of India’s oldest icecream companies, is on the block and the promoters of the 82-year-old Nagpur-based firm are in talks with private equity funds Actis and Apax Partners and other strategic investors, four people with direct knowledge of the negotiations said.
The promoters of the company, which is a part of the Bapuna Group, are said to be seeking a valuation of Rs 2,000 crore and appointed investment bank Moelis & Company as advisor.
“Actis and Apax Partners are carrying out due diligence and there are a couple of other consumer companies that, too, have evinced interest,” said an investment banker with knowledge of the development. “At present, a majority sale is being considered, but the owners are ready to exit at a lucrative valuation.”
Another banker said succession issues and management differences among the promoters could be why the dairy company is up for sale. The reason for the sale could not be confirmed. Aspi Bapuna, chairman of the Bapuna Group, said an exercise is under way to ascertain brand value of Dinshaw’s.
“We have not yet taken any decision,” he said, adding that the brand’s value exceeds Rs 2,300 crore.
Sam and Jimmy Rana, the sons of the founder-brothers Dinshaw and Erachshaw Rana, respectively, merged the company with Nagpur-based distillery group Bapuna in 2002. The group owns a 50% stake in the company.
Apax and Actis spokespersons did not immediately respond to emailed queries seeking comment.
According to industry estimates, value-added products such as icecream and cheese ensure higher margins for dairy companies. Value-added products, growing at more than 25% annually, provide margins of 12-18% compared with 4-5% for liquid milk.
“In recent years, India’s dairy market has generated significant amount of interest among private equity as well as strategic investors. We have also witnessed a significant number of international dairy players looking to invest in the country,” said Nishesh Dalal, partner, deal advisory, at KPMG in India.
According to Dalal, dairy is predominantly a regional business with the exception of a few national and multinational private companies that have created a nationwide network.
Local state cooperatives have traditionally led the liquid milk segment, although private players have entered this segment and diversified into value-added products such as yoghurt, cheese and ice cream, which has propelled the growth potential of the sector, he said.
Last year, France’s Le Groupe Lactalis SA purchased Hyderabad-based Tirumala Milk Products Pvt. from private equity fund Carlyle and the promoters for $270 million. IDFC Alternatives invested $28.8 million in Parag Milk, RaboBank and Proparco invested $25 million in Prabhat Dairy and Cargill Ventures put in $20.3 million in Dodla Dairy Ltd.
According to the National Dairy Development Board’s estimates in 2013, the Indian dairy industry is set for high growth in the next eight years, with demand likely to reach 200 million tonnes by 2022.
Presently, only 20% of milk production comes from the organised sector comprising cooperatives and private dairies.