Shares of Dodla Dairy Limited jumped over 19 per cent to hit an intraday high of Rs 548 on BSE after the company announced that it has acquired Karnataka-based Sri Krishna Milks Private Limited for Rs 50 crore to expand its business.
In a regulatory filing, Dodla Dairy informed that the company has executed an agreement with Sri Krishna Milks Pvt Ltd for the acquisition of business as a “going concern” and on a slump purchase basis for consideration of Rs 50 crore.
The deal is expected to be concluded in around two months from the date of the acquisition. The consideration would be in the form of cash.
The stock closed 15 per cent higher at Rs 528.65 against the previous close of Rs 459.60. With a market capitalisation of more than Rs 3,100 crore, the shares stand higher than 5 day, 20 day and 50 day moving averages but lower than 100 day and 200 day moving averages.
ICICI Securities believes that the acquisition of Sri Krishna Milks will be value accretive in medium term as Sri Krishna operates in key region of Dodla i.e. South India and same products where Dodla has strong understanding i.e. milk and curd.
It noted that while Sri Krishna was loss making, it has gross margin of 22 per cent over FY18-21 which indicates strong consumer acceptance of the brand and, post-acquisition, Dodla will be able to consolidate its position in North Karnataka, South Maharashtra and Goa.
However, the brokerage house believes that the acquisition will be earnings decretive in FY23 and also likely in FY24 as the interest income on acquisition value of Rs 50 crore will be likely higher than profits generated by Sri Krishna.
“We remain structurally positive on Dodla due to its competitive advantages and strong growth opportunity in South India, with a DCF-based target price of Rs 615 (19.4x FY24E EPS),” it added.
