US fund Proterra Investment in talks to sell Dodla Dairy stake

US-based investment firm Proterra Investment Partners (formerly Black River Asset Management) has started discussions with private equity (PE) firms to sell its 23% stake in Hyderabad-based Dodla Dairy Ltd, two people with knowledge of the matter said. The Rs.1,000 crore company sells milk products across south India and Maharashtra, Madhya Pradesh, Rajasthan, Gujarat and West Bengal.

Proterra is looking for a valuation of Rs.250-300 crore for its stake in Dodla Dairy, said one of the two people cited above. Black River Capital Partners (Food) Fund acquired the 23% stake in Dodla Dairy for Rs.110 crore in 2012. Proterra has hired Edelweiss Financial Services to run the sale process, the person said. If a strategic buyer offers a better valuation, promoters of the company, too, could dilute their controlling stake in Dodla, the second person said.

Mails sent to D. Sunil Reddy, managing director of Dodla Dairy, and spokespersons for Proterra and Edelweiss on Tuesday had not elicited any response as of press time on Wednesday.

Established in 1998, Dodla Dairy procures, processes and sells milk and milk products, including butter, ghee, paneer, curd, flavoured milk, doodh peda, ice cream and skimmed milk powder, according to the company website.

Founded by first-generation entrepreneur Sunil Reddy of the Dodla family of Nellore in Andhra Pradesh, Dodla Dairy now sells more than 900,000 litres of milk and six tonnes of milk products per day.

In 2014-15, Dodla Dairy posted revenue of Rs.1,024 crore, up 20.75% from Rs.848 crore the previous year. Dodla Dairy has also expanded to foreign markets. In 2014, it entered Africa by acquiring a milk processing asset in Uganda, which presently sells around 15,000 litres of milk daily.

“We are exploring entering Sri Lanka, Singapore, and the US in the next two-three years. We will look at the US as a production base and South-East Asia as a consumption market,” said the company’s 2014-15 annual report.

Private equity and strategic investment firms are keen to invest in Indian dairy companies to tap rising demand for milk and milk products in the country. Demand for milk in India is expected to grow at a compound annual growth rate of 5% from 138 million tonnes (MT) in 2014 to 200 MT in 2022, according to the National Dairy Development Board.

Milk Mantra Dairy Pvt. Ltd, an Odisha-based company, is in talks with private equity firm Samara Capital to raise Rs.200 crore to fund its expansion, Mint reported in March. Also in March, Groupe Lactalis SA, the world’s largest dairy player, made its second buyout in India by acquiring the dairy division of Indore-based Anik Industries Ltd for Rs.470 crore. In 2014, Lactalis had acquired PE firm Carlyle Group-backed Tirumala Milk Products Pvt. Ltd for $270 million, the largest inbound acquisition in the Indian dairy segment.

Since 2013, the Indian dairy sector has seen 10 merger and acquisition deals worth $423 million and 16 private equity-venture capital deals worth $54 million, according to VCCedge, which tracks investment activity.

“Dairy continues to be a sought after business both for private equity investors as well as strategic investors. The traditional dairies have been operating with several inefficiencies so there is a lot of opportunity to streamline and scale up operations, resulting in good profits,” said Dhanraj Bhagat, partner at Grant Thornton India Llp.

Several private equity investors in the dairy sector have taken the initial public offering (IPO) route to exit their investments. Last week, IDFC Alternatives and Motilal Oswal Private Equity (MOPE)-backed Parag Milk Foods raised around Rs.750 crore through an IPO that was subscribed 1.82 times. IDFC and MOPE sold shares worth around Rs.307 crore through the IPO. Last year, Rabo Equity Advisors-backed Prabhat Dairy Ltd went public in an IPO that saw the dairy company raise Rs.362 crore.

Source : livemint

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