Mumbai: Tata Opportunities Fund, a private equity (PE) fund owned by the Tata group, is in talks to buy a significant minority stake in Hyderabad-based Dodla Dairy Ltd, two people with knowledge of the matter said.
The fund is in talks to acquire an about 23% stake held by US-based investment firm Proterra Investment Partners (formerly Black River Asset Management) in a deal worth Rs300 crore, the people said, requesting anonymity.
Black River Capital Partners (Food) Fund had acquired the stake in Dodla Dairy for Rs110 crore in 2012.
Mint reported in May last year that Proterra had started discussions with PE firms to sell its stake in Dodla Dairy and appointed Edelweiss Financial Services to run the sale process.
D. Sunil Reddy, managing director of Dodla Dairy, declined to comment. Emails sent to spokespersons for Proterra and Tata Opportunities Fund did not elicit any response until press time.
Dodla Dairy was founded in 1998 by first-generation entrepreneur Sunil Reddy of the Dodla family of Nellore in Andhra Pradesh.
The dairy sells more than 900,000 litres of milk and six tonnes of milk products per day. It procures, processes and sells milk. Its milk products include butter, ghee, paneer, curd, flavoured milk, doodh peda, ice cream and skimmed milk powder, according to the company website.
In 2015-16, Dodla Dairy posted a revenue of Rs1,182 crore, up 16% from Rs1,018 crore the previous year.
Dodla Dairy has a strong presence in Africa, which it entered in 2014 by acquiring a milk processing asset in Uganda that at present sells around 15,000 litres of milk daily. The company plans to enter the US, where a production base is to be set up, and also expand into South-East Asia as a consumption market, according to company’s annual report.
PE and strategic investment firms are keen to invest in Indian dairy firms to tap the rising demand for milk and milk products. Demand for milk is expected to grow at a compound annual growth rate of 5% to 200 million tonnes (mt) in 2022 from 138 mt in 2014, according to the National Dairy Development Board.
“There is a significant potential to grow the dairy business considering the continuing formalization of the market from loose to packed and the strong growth prospects in value-added dairy segment,” said Shiva Mudgil, senior dairy analyst and vice-president, food and agribusiness research and advisory at Rabobank.
There is a scope to improve the value of the firm by investing in supply-chain integration, expansion, consolidation and consumer brand creation which will keep up investors’ interest in this sector, Mudgil added.
Last month, Milk Mantra Dairy Pvt. Ltd, an east India-focused dairy firm, had raised undisclosed series-D funding led by Neev Fund, along with co-investment from existing investors Eight Roads Ventures and Aavishkaar. Neev Fund is backed by the country’s largest lender, State Bank of India (SBI).
A couple of initial public offerings (IPOs) floated by PE backed dairy firms have provided exits with good returns, making the sector attractive for more PE deals.
Last year, IDFC Alternatives and Motilal Oswal Private Equity (MOPE)-backed Parag Milk Foods raised around Rs750 crore through an IPO that was subscribed 1.82 times. IDFC and MOPE sold shares worth Rs307 crore through the IPO.
In 2015, Rabo Equity Advisors-backed Prabhat Dairy Ltd went public in an IPO that saw the dairy company raise Rs362 crore.
In the past couple of years, India has seen several inbound transactions in the dairy space, especially two transactions by French firm Lactalis. Last year Lactalis, the world’s largest dairy group, acquired the dairy business of Indore-based Anik Industries for Rs470 crore. In January 2014, Lactalis bought Carlyle Group-backed Tirumala Milk Products Pvt. Ltd for $270 million, the largest inbound acquisition in the Indian dairy segment.
The sector-agnostic Tata Opportunities Fund has investments in Roots Corp. Ltd (Ginger Hotels), automotive parts maker Varroc Engineering Pvt. Ltd, mid-market property developer Shriram Properties Pvt. Ltd, TVS Logistics Services Ltd, a third party logistics company, and Tata Projects, a pure-play engineering construction company (EPC services) of the Tata group. The fund had completed the final close of its latest fund in 2013 with commitments of $600 million.