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IPO is just part of a long-term play in dairy market: Dodla Dairy’s Reddys

Dodla MD Sunil Reddy (left) and BVK Reddy, the CEO with Anuradha SenGupta

Dodla Dairy, which went public almost a year ago, is a Hyderabad-based milk and dairy products company that has focused on the southern market. As it begins the 25th year of its operations, the company spells out its growth plans. Moneycontrol caught up with Dodla MD Sunil Reddy and BVK Reddy, the CEO.

When you look back at the origins, what would you say of the journey so far?

Dodla Sunil Reddy: Dairy is an industry where you deal with a vast section of society, with lakhs of people. Our grandfather, who is no more now, used to tell us: ’Be careful, you’re going all over the world with the family name, don’t mess it up. Imagine if it doesn’t do well: people are going to shout at the family name. It’s not just a name on a packet.’ There were ups and downs along the way. Today, we feel a sense of pride. We started as a small company and built something big, something which is going to go on. Going for an IPO was just a part of that journey.

About the IPO, give us a sense of how much life has changed in the past year…

Sunil Reddy: Life has changed to the extent that we travel to Bombay more often to meet with investors and keep people updated. Even earlier, we were engaging with investors and private equity investors. Now, we’re dealing with another community with a larger number of investors. That’s the basic change. Also, there is a lot more regulatory compliance that we have to now do in terms of filing. As for operations, there’s not been much of a change.

It’s been a very volatile year for the stock markets. Has that affected you?

Sunil Reddy: It doesn’t bother me. Because as a company, my responsibility is to deliver the numbers that we’ve promised — keep the company growing and keep it doing well. The share price is a thing of multiple factors beyond the control of a small-cap company like ours. There’s nothing much we can do but concentrate on our work and on our numbers.

The dairy sector and the processed food industry is dominated by cooperatives, large iconic legacy ones such as Amul… Mother Dairy in the North, Nandi from Karnataka in the South, where different states have different well-known brands… and there are very few private dairy companies. How do you view the competitive landscape?

Sunil Reddy: The dairy sector was restricted to cooperatives earlier. They were taking on a lot of responsibility, there was no milk in the country. Mr Kurien started it. Today, we’re very proud to say we’re self-sufficient, the largest producer of milk and a lot of credit goes to what these guys have done in the past.

Now after that self-sufficiency the government has liberalised and privatised the sector. Private dairies today, I think, control 50% of the volume. There is a report by CRISIL on private dairies’ procurement, pan India, in certain states, the private sector has become more than the cooperative sector.

Earlier, when we had nothing, we were looking only within the country. Now, we’re looking at consumer benefits and going global. The government is saying: why is the dairy industry serving only India? Why can’t India look to be a global provider?

Is that why you have acquired a plant in Uganda? You are in two markets in Africa…

Sunil Reddy: Two markets, Uganda and Kenya. As an Indian company, we have our own strengths. We have value and knowledge, thanks to what the cooperatives have given us. Even our packaging, it is the best, low-cost effective packaging. So, those strengths, where can we use them? I can go to a continent like Africa, where our skill sets will give us value. So, we are thinking a little bigger.

So, what are your plans for the overseas market?

Sunil Reddy: We will go wherever we get value, be it an overseas market or an Indian market. It’s not something we can just jump into. We will take very slow, measured steps unless we’re sure and the margins are large enough. Within India also we have a huge amount of work to be done.

You have made some acquisitions in the last couple of years, are those being subsumed into the Dodla brand or are you keeping those brands alive? What’s your strategy there?

Sunil Reddy: We are keeping those brands alive. But Dodla will be the major brand. We have become a company which has multiple brands. Africa has another brand: we call it Dairy Top there. we still have KC as a brand. We have acquired Sri Krishna, we’re still holding on to the brands. We are seeing where the value for us accrues and we’re continuing to keep all the brands growing.

And how do you evaluate value?

Sunil Reddy: Consumer recognition, and trade recognition is one value you have to look at. Sometimes they might have done something good and that’s why people associate with them. We do not want to go with arrogance and say we are bigger or better. For example, Sri Krishna was one of the first private dairies in the country. They’ve been there since the mid-’90s and they have a strong association with the local population. So, we just can’t go there and say we have come now. We only strengthen whatever is weak, and we try to make it bigger and better.

But did you acquire it for the brand and its value, or the plant and its assets?

BVK Reddy: A very good asset was also there. It gave us a perfect fit into where we were selling from North Karnataka to Southern Karnataka. Each acquisition has its own nuances as to why we take it over. But we are predominantly looking at every acquisition in terms of: if we put in X amount of money, how quickly do we make it back in terms of physical cash generated as a cost of capital. We don’t look at it as multiplication; we look at it more as an accretion, where we actually turn it around and make money out of it.

The public offer that you made last year, a large part of it was an offer for sale. You also had a fresh issue. And I think a lot of that was used to clear your debt…

BVK Reddy: A small portion of it.

What is the real value that going public offers you?

Sunil Reddy: Today I have an alternate currency. Dodla is a debt-free company, we sit with a bit of cash with us, we don’t need cash for growth. We don’t need money. But I will give it a few more years, suppose we are really building and growing, and now I have another currency. If tomorrow, two larger-size companies have to get together, now I can go offer somebody saying why can’t we give stock instead of cash. That puts less pressure on the company. So it’s a longer-term view.

So, going public is really a building block towards a long play for Dodla…

BVK Reddy: See if you own 63% of the company, and the amount of cash we’re generating, I would have been happier with it (remaining private). Because there is a lot more cash accruing to me personally than it ever would when I’m public. But the public game is a much larger game. Going public is just the beginning. It makes no sense to go public for such a small market cap. So, we are looking at it from the longer term.

What do you make of where the economy is today? Given that we’ve had two years of the pandemic? Are we back at pre-pandemic levels?

Sunil Reddy: Yes, we are back to pre-pandemic or rather growth compared to the pre-pandemic level.

And what do you see of the challenges today, given the runaway inflation, and the global uncertainty because of the Ukraine war? How do you see all of these parameters and macroeconomic factors affecting your ambitions and your plans?

Sunil Reddy: My biggest worry is that if people start to hurt because of inflation, consumption will get hurt. And that should again cause deflation to tame the inflation. I hope at least we will be able to pass it (inflation) on because we are just an intermediary processor who buys from farmers, processes and sells to consumers with a markup.

So, we have to keep agile in moving prices up. Ukraine is going to hurt at the back end: fuel going up; if maize doesn’t come in and moves out of the country, (the price of) cattle feed will go up and is going to hurt us. The same with packaging material, all that is moving up. So who’s going to bear the brunt? I think it is going to be borne across the chain.

So I will push some of the cost onto the consumer, and some to the farmer. But somewhere, we also have to take an equal share and we try to compensate through efficiency. We’re not just trying to increase prices but trying to build in a lot more efficiencies bringing costs down etc.

But do you see headroom for price increases across your product range?

Sunil Reddy: We have to pass it on always. Not only with us but all food products in the country will start to see that change. Efficiency in the backend and efficiency from the manufacturer should help the overall system. Still, consumption will come down, volumes will come down. For example, if you can’t afford to buy curd you will compromise; if you can’t use milk in coffee or tea, you will shift to black coffee. Our responsibility is to keep it more affordable and keep people.

In FY22, you hit 2,000 crore plus in terms of revenue. Give us a sense of the kind of milk procurement volumes we are talking about.

BVK Reddy: This year, we are targeting roughly around 15 lakh litres a day for milk procurement. In the last three years we have added a lot of chilling centres. Earlier, we used to have a shortage of 10-15% and used to buy from third parties. Slowly we have overcome that shortage. Last year itself we became 50,000 litres surplus. This year we are purely using 100% of our own milk and will also be in surplus.

Your product portfolio has expanded, how are you making decisions of what new products to add and what is in the pipeline?

BVK Reddy: Depending on the market requirement, we add new products. For example, in the last couple of years, every year you see very good growth in curd, especially buttermilk. When the wife and husband are both working, mostly in metro cities, most people buy readymade curd. So there is good growth in the curd and buttermilk market.

What are your pan-India plans?

BVK Reddy: Pan-India, earlier, when we used to have surplus butter and ghee, we used to sell in Rajasthan, Gujarat, Madhya Pradesh and Himachal Pradesh also. So, we have sold across India, even in Calcutta. We have mostly sold powder and ghee and butter — long-life products — at a Pan-India level. Not perishable products.

Do you see sustainable growth coming from these markets?

BVK Reddy: Yes, 100%.

What are you expecting in terms of the agricultural economy and the related dairy farming economy? How do you see that playing out this year with respect to the monsoon impact?

BVK Reddy: This year, the monsoon has set in at the right time and we are expecting very good milk production. Last year in the first quarter there was the COVID impact and some disruption was there. But not this year — we are expecting very good growth this year.

What’s your ambition for this company that you have helped build?BVK Reddy: Within five years it will double — it will become double. We took a very long time to establish ourselves, but once you establish it multiplies fast.

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