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, according to two persons in the know.

The company, whose products include milk, buttermilk, curd and milkshakes under the Milky Moo brand, is backed by Fidelity Growth Partners, which will exit through the new fund-raising round. The promoters will also divest some stake to raise growth capital for the company.

The new investor will acquire a significant minority stake in Milk Mantra, one of the persons cited above said, on condition of anonymity. Milk Mantra has hired advisory firm KPMG India to find potential investors, the second person said, also on condition of anonymity.

The firm’s revenue was about Rs.100 crore in FY15; the deal is expected to be signed at a valuation of Rs.500 crore, the second person added.

With this funding, Milk Mantra which already markets ready-to-drink milk beverage MooShake in markets such as Bengaluru, plans a pan-India presence.

In 2014, Milk Mantra raised series C funding of Rs.80 crore, led by Fidelity Growth Partners India and Aavishkaar India II Co. Ltd. The transaction provided an exit to angel investors and Aavishkaar India Micro Venture Capital Fund.

Srikumar Misra.MD of Milkmantra
             Milkmantra MD

When contacted, Srikumar Misra, the company’s founder, managing director and chief executive officer, refused to speak about the fund-raising plans. Mails sent to Fidelity and Samara Capital spokespersons remain unanswered. A KPMG India spokesperson, too, declined to comment. Vineet Rai, chief executive officer and managing director, Aavishkar Inc., a venture capital firm focused on India’s rural areas and underserved parts, said it has no immediate plans to exit Milk Mantra.

Founded in 2009, Milk Mantra collects milk from a network of more than 20,000 farmers across more than 500 villages. In 2014, it acquired Westernland Dairy in Sambalpur, to get access to western Odisha, Jharkhand and Chhattisgarh markets. The firm currently has two processing plants at Konark and Sambalpur districts in Odisha.

Demand for milk in India is expected to grow at a compounded annual rate of 5% from 138 million tonnes (MT) in 2014 to 200 MT in 2022, according to the National Dairy Development Board, drawing attention of several international firms and private equity investors.

“Strong demand prospects in Indian dairy, driven by formalisation of the basic dairy products and growth of the value-added dairy products, will continue to attract private equity and strategic investors. Companies with strong milk procurement infrastructure and direct farm engagement will be the intended targets for acquisition and partnerships. These companies will also attract premium on the valuations,” said Shiva Mudgil, senior dairy analyst and vice-president, food and agribusiness research and advisory at Rabobank.

Earlier this month, Groupe Lactalis SA, the world’s-largest dairy player, made its second buyout in India by acquiring the dairy division of Indore-based diversified public listed Anik Industries Ltd for Rs.470 crore. Anik Industries’ dairy division markets products such as spray-dried milk, ghee, skimmed powder and whole milk under the Anik and Sourabh brands.

In 2014, the $18-billion Lactalis had acquired a 100% stake in Hyderabad-based Tirumala Milk Products Pvt. Ltd from its founders and private equity firm The Carlyle Group in a deal worth $270 million. IDFC Alternatives’ $28.8 million investment in Parag Milk Foods Pvt. Ltd in 2012; a $25 million investment in Prabhat Dairy Ltd by Rabobank’s India Agribusiness Fund and French development finance institution Proparco in 2013; and Cargill Ventures’ $20.3 million investment in Dodla Dairy Ltd in 2012 are among the larger deals that have been concluded in the sector.