To cater to the exponential demand, milk and milk products major Mother Dairy has planned a mega capex fund worth around Rs 800 crore for the next couple of years.
In a conversation with Moneycontrol, company Managing Director Manish Bandlish said that a proposal for capacity expansion by setting up new plants has been planned.
“Some of the proposed plants will produce processed food items for our Safal brand (fruits and vegetables arm of Mother Dairy)… others will focus on milk and milk products,” Bandlish said.
“We will soon be presenting our capex proposal to the Board. The capex is expected to be of around Rs 700-800 crore for the next 3-4 years,” he said.
The current demand has over-stripped supply for many categories, such as ice creams, cheese and packaged curd, he said.
“These plants will help close the demand-supply gap,” Bandlish said. “The demand for some categories, such as ice creams, has grown in double digits, due to a prolonged summer this year,” he said.
Even though sales to the HoReCa (Hotels, Restaurant and Catering) segment went down significantly during the last two years, the consumer business performed extremely well, he said.
Till now, the company has reported a growth of over 30-40 percent in many categories, including fresh dairy categories, such as chaach, lassi, curd, among others, from the pre-pandemic year of FY2019-20.
“During the last two years of the pandemic, in-house consumption rose tremendously. Our ability to keep the booths open during this period aided growth,” Bandlish said.
Consequently, the company is expected to close this fiscal with a turnover growth of 20 percent over last fiscal, at Rs 15,000 crore, largely aided by volume and value growth.
In FY2020, the company had clocked a turnover of around Rs 10,500 crore.
According to Bandlish, the inflationary trend might last for the next six months.
“It will take six months to a year for the supply side to normalise in the agriculture industry,” he said.
“We can expect farmers and the rural sector to make the much-needed investments during this period. This will smoothen out supply disruptions,” he said.
Furthermore, he cited that a lot of pricing mechanisms now depend on the ‘flush’ phenomenon.
This denotes the large volume of milk production in the country, especially in the northern belt, from November to March, each year.
“We, like others, are chasing the same commodity (milk) for manufacturing products like beverages and ice creams. The price now depends upon the production during this period,” he said.
Despite inflationary pressures, the company is planning an aggressive diversification strategy.
“We are looking to diversify our portfolio by offering more choices in our frozen snacks segment. We also plan to introduce rusk and pao (bun) products,” he said. “We are also focusing on the packed paneer category.”
He opined that paneer has a large consumption base and the company intends to innovate more in the category to bridge the gap between organised and unorganised markets.
The NCR-based company is also looking at strengthening its presence in Uttar Pradesh, Bihar and Maharashtra.
The company has already started expanding its front-end distribution in these states and will gradually work on its capacities.
On the ecological front, Mother Dairy is developing a newer biodegradable packaging material through its in-house R&D.
“Work is on to develop such a material, but the final product might be a few years away,” he said.
In 2022, the company has hiked milk prices three times. On his part, Bandlish did not rule out further hikes.
He asserted that the company has absorbed the maximum impact of commodity inflation.
“We try to absorb as much as possible. We are at the limit of our ability to absorb the massive rise in commodity (milk) prices,” he said. “We have to look after our farmers as well. They are impacted by the rise in feedstock prices,” Bandlish said.
Bandlish also clarified that Mother Dairy does not intend to set up a D2C (Direct to Consumer) platform. However, it is open to associating itself with various e-commerce or quick-commerce platforms to reach out to a larger set of audience.
“We are one of the largest retailers of Delhi NCR. We have a huge opportunity there,” he concluded.
At present, Mother Dairy has over 2,000 milk booths around the NCR region.The company was commissioned in 1974 and is a wholly owned subsidiary of the National Dairy Development Board (NDDB).
Source : Money control 8th Nov 2022 by Rohit Vaidya