Here’s why Dodla Dairy has no plans to expand beyond southern India for at least the next two years even with its IPO
- Dodla Dairy
plansto open up ₹520 crore its initial public offering (IPO) for subscription on June 16.
- The new funds won't be going towards expansion but towards cementing Dodla's brand in the five states where is already exists.
- The company is open to acquisitions, small and big, depending on the value that they provide.
Dodla Dairy plans to go public this month with an initial public offering (IPO) of ₹520 crore. However, it has no plans to expand beyond the five southern states it already operates in, for at least the next two years.
“We don’t want to be present in splotches, we want to be properly present in all places.”
When the Hyderabad-based company first started out in Nellore, the first market it explored was Chennai. Once it was able to establish itself in Chennai, it went to Chittoor. Not only was Chittoor adjoining Chennai, but the company was also able to cater to Bangalore as its market from there.
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Rather than expand into new territory and take on risk, the dairy company wants to strengthen its foothold in areas where it is already building its customer base. This includes Maharashtra, Tamil Nadu, Karnataka, Andhra Pradesh and Telangana.
“We want to fill these gaps, increase our product mix portfolio, move up our value adds, and be more present in distribution stores — that is our immediate future focus,” explained Reddy. And, according to him, this journey will take Dodla another two to three years and increase the company’s value by 15%.
Why is expansion not an option?
Milk is a perishable product, which means distance is a key variable. ‘I cannot buy milk out of Tamil Nadu and sell it to north India. It is not worth it, economically, for me. Nor can I do it the other way around,” said Reddy.
The process that Dodla follows right now is to set up a plant, procure workers, and penetrate the nearest market and local markets. “Once that is saturated we add another 200 kilometres or another 500 kilometres of territory,” explained Reddy.
Right now, the company has a processing capacity of 1.7 million litres per day (MLPD). And utilisation is around 1.2 million MLPD — around 70%. So, the focus is more on procurement and marketing rather than building up capacity.
That being said, the company claims it's always on the lookout for acquisitions. “Larger acquisition or smaller, we don’t mind. That is the strength we have because we’ve grown as a greenfield company from the beginning. We can acquire even a 50,000 MLPD dairy or a 500,000 MLPD dairy if it’s adding the right value,” said Reddy.
The IPO consists of a fresh issuance of shares worth ₹50 crore and offer for sale (OFS) of ₹470 crore when subscription opens on June 16, within a price band of ₹421 to ₹428 per share. The dairy company plans to use ₹32.26 crore to repay loans and ₹7.15 crore for its working capital requirements.
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