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00:00We are also joined by Mr. Sunil Reddy, who is the Managing Director at Dodla Dairy, who joins us now.
00:06Welcome to the show, Mr. Reddy.
00:08You know, lots happening in the dairy sector overall.
00:12So, you know, I will go with my first question from a broader based perspective.
00:17What are the kind of trends that you are observing in the dairy industry?
00:20Overall, Q1 did witness a good growth.
00:24And how are you seeing overall FY25 shaping up?
00:29First of all, good morning and thank you so much for getting me onto your show.
00:33The broad trends are milk prices have been pretty stable in the procurement side,
00:36weather patterns being more stable.
00:38And I think that is the reason why we think even margin profile,
00:41like how we have seen the first quarter improvement,
00:43will continue in the same manner till the end of the year.
00:46We are also having a slight uptake in terms of value added product sale,
00:49because we had more milk in the system, so our ghee sales have also increased,
00:55with ice cream and ghee and such sales increasing.
00:58That also helps our profitability to improve.
01:00So I think this year will be a good year for the dairy industry.
01:03All right. So in terms of volume growth,
01:08what do you believe, maybe beyond even FY25,
01:12what's the volume growth going to be like?
01:14And is it going to come from more from newer markets
01:17or are you going to expand more in existing markets itself?
01:20So traditionally, we have been able to manage a growth of around 10% by volume
01:24and 15% by revenue, 5% being either a product mix change
01:27or inflation that comes into play.
01:30Being in the dairy industry does go through a certain bit of cyclical trends
01:35in terms of when there is oversupply,
01:37we might see a little bit of lower offtake in the liquid volume,
01:40which will be compensated by ghee and powder that we sell.
01:43But I think in the years to go forward also,
01:45we will look at the same kind of numbers where we will look at,
01:48although the base is increasing,
01:49we will keep targeting the same growth of 10% by volume and 15% by value.
01:53All right. Mr. Reddy, I want to understand that value added products
01:57growth was roughly at 21% in quarter gone by.
02:01Firstly, I want to understand that what is the product mix right now
02:04in terms of value added products versus your normal products?
02:07And I'm seeing a trend overall in the dairy industries
02:11that value added products are picking up
02:13and companies are actually focusing on value added products.
02:16So what is your strategy with respect to that?
02:18Where will the mix be at from a long term perspective?
02:22So I think right now the biggest value added product that we sell is curd,
02:25which will be followed by ghee,
02:27then followed by ice cream and flavored milk and other such categories,
02:31which we have.
02:32I think it is also the question of consumer preferences changing
02:35and the industry keeping up with the consumer preferences.
02:37Earlier people used to buy milk and make curd at home.
02:40Now people are buying curd from the market.
02:42And I think other trends will come in.
02:44Maybe it will be fermented drinks that come in like lassi,
02:47buttermilk and such products,
02:48or flavored milk itself as a category increasing
02:51with multiple things coming into play.
02:54I think this year we will clock around 32% coming in
02:57from value added products,
02:59which will see a significant offtake coming from ghee.
03:02Earlier years, we used to be very cautious
03:04about trying to push ghee as a branded value added product
03:07because of the raw material fluctuation
03:09in terms of not having products on certain years
03:11in terms of surplus of fat.
03:13I think we are rectifying that
03:14and therefore that will also start to play a major role for us
03:16in terms of our value added profile enhancing.
03:19So then your margins currently are at roughly 11.5%.
03:24So will you see an improvement in your margins
03:26if your contribution from value added products
03:28will increase to 32% Ma?
03:31I think to look at a longer term,
03:32we will keep it at these levels,
03:34which will be the plus or minus 1% or 2%.
03:36Yes, in the short term, these margins will continue.
03:38Like I said, it's a good year for the dairy industry.
03:40But in a cyclical manner of two to three years,
03:42I think we can look at it
03:44to keep it either in the high single digits
03:47or low double digits as a margin that we go forward.
03:50Right, and how is raw material pressure coming through, sir?
03:55Raw material has been sort of stable this year.
03:57That has been the biggest boon in terms of
03:59neither did it go up too much
04:00nor did it drop too significantly.
04:02We'll have to wait and watch
04:03because I think the weather pattern changing
04:05also impacts the production yield of animals
04:09because more monsoon,
04:11too much of monsoon is bad,
04:12too little monsoon is also bad.
04:14But right now, this year, it's holding good.
04:16I think the higher prices that were offered,
04:18which have been able to be passed on to the customers
04:20are also keeping a larger section
04:22of the farming community happy.
04:24And therefore, it looks like this good trend
04:26will continue for a while.
04:29All right.
04:30Mr. Reddy, your revenue contribution from Africa
04:33has been increasing.
04:35Currently, it is at roughly 9%.
04:37And you've also said that revenue from Africa
04:40will double to 360 crore in FY25.
04:43So, I want to understand
04:45that how is the Africa business shaping up?
04:47If it is at 9% right now,
04:50from a longer-term perspective, where will it go?
04:52And then overall blended margins,
04:54where will they stand?
04:56Africa is actually a high-margin,
04:58lower-volume kind of a business, ma'am.
05:00As we look at our growth,
05:01as we see as Dodla growing,
05:02if we're continuing to maintain the same growth pattern,
05:05Africa will remain maybe from the 9%
05:07can move to 10% or 11%
05:09as an increase in overall the share of the top line.
05:12And it will also continue
05:13with the similar bottom line kind of a share.
05:15We will not be pushing Africa aggressively.
05:17We have to be careful of how much we go into Africa
05:20because we have to be very careful
05:21about country risk, currency risk,
05:23and other such factors,
05:24not only the availability,
05:25not only the local businesses.
05:27Keeping that into consideration,
05:28we will keep Africa into the same level.
05:31So, we are very confident
05:32that even at a 360 crore Africa,
05:34Indian business will grow to such an extent
05:36because we also have a cattle feed.
05:38But put together,
05:39it will still remain 10% to 11% of revenue.
05:41Got it.
05:42And in terms of margins,
05:43sir, you suggested Africa is better.
05:45How much better?
05:46Just if you can give us an indication.
05:48India is working currently at 10%, 11%.
05:50Africa will be at 18%, 19%.
05:52Africa is stable,
05:5318%, 19% kind of a margin
05:55that we operate there.
05:57Okay, got your point.
05:58And, sir, again,
06:00I'll stick with the margins question.
06:03You're doing better on the Africa front.
06:05You're going more into value-added product.
06:07What's keeping a cap on margins, therefore?
06:10Just if we can understand that.
06:12So, as a dairy industry, sir,
06:13we have to be careful
06:14that just because for margin,
06:16we should not sacrifice
06:17either the farmer nor the customer.
06:19We have to be very cautious
06:20about what we do.
06:21If you overprice the product,
06:22we might start losing the consumer base
06:24because people will find dairy
06:25to be too expensive
06:26and might try to bring down
06:28on the dairy consumption.
06:29So, we are very cautious
06:30in terms of if you look at it,
06:32we are doing well in the areas
06:33where the GDPs are higher,
06:35where we're able to do
06:36a mass premiumization
06:37and sell the product.
06:38There's even a significant part
06:39of the country
06:40where the GDP is not that high
06:41where milk prices do make a difference
06:43or product price make a difference.
06:45In the same manner,
06:46we cannot also kill the farmer
06:48if there's too much of supply
06:49in the system.
06:50If we kill the farmer
06:51too much for the short term,
06:52we will lose him in the long run.
06:54So, I think in that manner,
06:55we have to keep it equal.
06:56We rather go by return on capital
06:58and the cash flows that we generate.
07:00And on that grounds
07:01is what we look at
07:02keeping our pricing going.
07:03Right.
07:04And with respect to your
07:05cattle feed business,
07:06your capacity is at roughly
07:0813,000 tons per month,
07:10but utilization is at
07:115,000 tons roughly.
07:13And you've also said
07:14that you're expecting
07:15turnover to double
07:16from this segment as well.
07:18So, how are you expecting
07:20that to happen, first thing?
07:22And overall,
07:24how much of a contribution
07:26does cattle feed
07:27give to your business?
07:29Cattle feed right now
07:31is very small.
07:32It's around 7% to 8%
07:34of the business,
07:35which is there.
07:36We actually had only
07:37a 2,000 ton per month
07:39capacity earlier,
07:40which we had acquired.
07:41We recently, as recent as March,
07:43added 10,000 tons more.
07:45So, that's made it around
07:46the 12,000 tons as full capacity.
07:48So, we're looking at it now
07:50at 12,000 when we're reaching
07:51our 4,000, 5,000 itself
07:52in the first year of operation.
07:54We're pretty much confident
07:55that we will be able
07:56to utilize the whole capacity.
07:57This is predominantly used
07:59to give it to our own farmer base.
08:00We have not even touched
08:0120 or 30% of our farmer base
08:03where we are giving
08:04our own cattle feed.
08:05So, that is the reason
08:06why we are very confident
08:07of saying if we enhance it
08:08even to 60% of our farmer base,
08:10we will be able to
08:11achieve full capacity.
08:13How quickly do you get there?
08:16We are hoping within
08:17a year or two.
08:18Okay.
08:19And thereafter, more capex?
08:21Is that what will be lined up
08:23for this segment?
08:24Yes, because I think
08:25the same volume,
08:26when we look at 10% of volume,
08:27if I have to keep increasing,
08:28if we are at the current base
08:29of 1.6 million liters per day
08:31and if you have to keep adding that,
08:33that will entitle
08:34so many of the same farmers
08:35that number of farmers
08:36will increase
08:37even if the depth
08:38of cattle feed increases.
08:39That is how it will be.
08:40And therefore,
08:41just the fact that
08:42this is faster growing
08:44than your 15% top line
08:46and therefore,
08:47will it command
08:48a better mix going forward?
08:50It's not in a better mix
08:51because I guess
08:52we take the three lines
08:53if I take it as India Dairy,
08:55Cattle Feed India and Africa.
08:57One or the other
08:58might not be
08:59all three might not be
09:00firing at the same speed.
09:01So, we try to be more
09:02on the conservative side
09:03and say the blended average
09:04of these will continue
09:05to be in the same state of growth.
09:07All right.
09:08Mr. Reddy,
09:09I also want to understand
09:10in terms of your distribution strategy
09:12because you're concentrating
09:13on B to C
09:14to make sure
09:15that your products
09:17remain premium.
09:18But I also want to understand
09:20that what are your strategies
09:21with respect to
09:22expanding geographically?
09:24Geographically,
09:25we do look at acquisitions
09:27or our own greenfields
09:28that we go forward
09:29for expansion.
09:30We normally try to make it
09:31contiguous from where
09:32we are operating.
09:33We have already announced
09:34that we're actively looking
09:35at Maharashtra
09:36to start a plant there
09:37which will be used
09:38mostly initial days
09:39as balancing of our input
09:40output that we require
09:41and later enter
09:42not necessarily
09:43the Mumbai areas
09:44but more of the
09:45south southern parts
09:46of Maharashtra
09:47kind of a market
09:48for us to enter.
09:49And if we get opportunities,
09:50we will also look at
09:51entering into other states.
09:52That is going to be
09:53from a point of view
09:54of the expansion of the width.
09:55Coming from the depth,
09:56we are doing more things
09:57in terms of trying
09:58to be available
09:59in more of the modern trade,
10:00keeping our ice cream
10:01penetration larger,
10:02trying to have
10:03our own retail outlets
10:04which are trying
10:05to blend all products
10:06under one roof
10:07and a lot more
10:08of such activities
10:09to increase our depth
10:10of penetration
10:11in areas where
10:12we're already existing.
10:13And Mr. Reddy,
10:14just with regard
10:15to competition,
10:16you know,
10:17we've spoken
10:18to a couple of
10:19dairy players now.
10:20Everyone's going into
10:21value-added products.
10:22Anything that you are facing
10:23in terms of both competition,
10:24anything you're doing
10:25differently
10:26in comparison
10:27to what your competition
10:28is doing?
10:29So I think
10:30the majority,
10:31broadly speaking,
10:32will all be in the same boat
10:33in terms of a little bit
10:34because it's a consumer
10:35that matters more.
10:36But I think
10:37we are growing
10:38as companies
10:39from where we were
10:40to what the companies
10:41have come from.
10:42The size of the players
10:43are all becoming larger.
10:44I think it's going
10:45to be more issues
10:46coming from managing
10:47larger size of operation,
10:48management, people,
10:49systems that will come
10:50into the play.
10:51And with that,
10:52I think a lot more
10:53of consolidation
10:54competition will be there.
10:55It's going to be there
10:56in every field
10:57that we've been facing it
10:58from the past
10:59at least 10-15 years
11:00that we've been,
11:01all of us have been
11:02in the same field.
11:03We're all growing
11:04in the same areas.
11:05I think growth is also
11:06coming with consolidation
11:07happening in the markets.
11:08All right.
11:09Mr. Reddy,
11:10one last question.
11:11You said that
11:12you might look
11:13for some acquisition
11:14when it comes
11:15to geographical expansion.
11:16Any fundraising
11:17on cards?
11:18No, not required.
11:19We are debt-free.
11:20We are net debt-free.
11:21We have enough
11:22of cash in the books
11:23with us.
11:24So we keep that cash
11:25normally for such
11:26opportunities that come.
11:27But we have to be careful
11:28that we don't overpay
11:29for these opportunities
11:30and that's where
11:31we're cautious about.
11:32And is there
11:33a ticket size
11:34that you're looking for?
11:35Ticket sizes are normally
11:36in the range of
11:37100 to 200 crores
11:38is what we do.
11:39We maintain
11:40a cash balance
11:41of net cash
11:42with us
11:43of around
11:44300 to 350 crores.
11:45So that is well
11:46in our range
11:47of what cash we have
11:48to what we acquire.
11:53For more information, visit www.fema.gov