Amul will never get listed or bring it's IPO
The dairy business is not an easy space to be in. Even the best dairy industry player like Amul took decades to reach where it is today. It is a business where challenges are present all year around.
But if you scale the business, these challenges tend to come down. And then comes an inflection point where every incremental effort delivers ever greater results. But, ironically, the biggest challenge is to scale the business. So, it is a kind of chicken-and-egg situation.
Not many may be aware, but dairy is a sector where even the best of the foreign players who came to India over the years had to sort of go back. It is local players – who know the nuance of procurement the Indian way – who have been able to scale up and probably reach a stage which is close to the inflection point. Time to look at these stocks?
Unfortunately, the chances of Amul, the best-known company in the sector, becoming a listed company is next to none. So, how does one take exposure to the Indian dairy sector?
As mentioned above, looking at the listed companies of the sector, one struggles to find any that have scale, size, and a brand – the three things critical for a company to generate profit for itself and create wealth for investors. Also, in terms of net margins, all of them are in single-digits. In a business where margins are thin, it is size and scale that matter.
Dairy is a business where success lies in buying the raw material at the highest possible prices, and selling the end product at prices lower than the competition. The key here is value addition. Add value to an extent where consumers are ready to pay the price for quality and convenience.
Now, dairy is a highly fragmented sector and even today much of the business is in the unorganized space. So, a company has to deal with the challenge of first breaking a habit – that is, buying from locally available sources – and then creating a habit with its own brand.
The good news is that, once a brand is established, incremental profits are very high. And, in fact, the working capital of the company is literally provided by the distributors’ network.
The dairy players in our list today have been in this business for a long time. They have seen and dealt with situations like droughts and floods which have not only impacted the price of milk – their essential raw material – but also the overall procured volumes. As they say, there is no substitute for experience. And this truly applies to the dairy industry.
Remember: These stocks are for investors who have the patience for the long term. Real change will come as some of these players – largely regional in nature – go national. That means that, a company that has been selling its products, say, in South India, will have to establish its presence in the North. That might take time and has its own risk. But over the years, some of them will be able to make it.
Our list comprises companies with a target upside potential of up to percent from the dairy sector. The stocks collated with data from the latest Stock Reports Plus report dated December 15, 2024. The list also contains a count of analysts evaluating each stock.
About Companies
Heritage Foods Limited is a fast-moving consumer goods (FMCG) company. The Company operates through three segments, such as Dairy vertical, Renewable energy vertical and Feed vertical. The Dairy vertical segment is engaged in manufacturing and marketing a complete range of dairy products including fresh milk, curd, buttermilk, lassi, ice cream, paneer, table butter, milk powder, flavored milk, ultra-heat treatment (UHT) milk, Indian sweets and dairy whitener. The Renewable energy vertical segment produces power for captive consumption through its solar and wind power plants. The Feed vertical segment manufactures a variety of cattle and fish feeds. The Company's product portfolio of ice-creams includes tubs, bars, kulfi, cones, cups, juicy bars and family packs. Its fat products include cow ghee, buffalo ghee, hi aroma ghee, cooking butter, table butter and fresh cream. The Company has approximately 859 Heritage parlors and 65 Heritage distribution centers in 11 states across India.
Parag Milk Foods Limited is a private sector dairy company. The Company offers a range of products, which include cheese, ghee, whey proteins, paneer, curd, yoghurt, milk products, liquid milk, milk-based beverages and milk powders. The Company's brands include Gowardhan, under which traditional dairy products, such as ghee, are marketed; Go, under which western lifestyle dairy products, such as cheese are marketed; Pride of Cows, under which premium milk is sold and Topp Up, under which flavoured milk is marketed. Bhagyalaxmi Dairy Farms Private Limited is the Company's subsidiary. The Company has three manufacturing and operating divisions, such as Plant 1, which is located at Manchar Plant: Awasari Phata, Post Manchar, Tal. Ambegoan Dist. Pune; Plant 2, which is located at Palamaner Plant; 149/1, Samudra Palli (Village), Pengaragunta (P.O.), Palamaner (Mdl), Chittoor (Dist.), A.P and Plant 3, which is located at Rai, Sonipat, Haryana.
Dodla Dairy Limited is a company engaged in the business of processing of milk and preparation of milk products and its allied products. The Company offers a range of milk products, such as milk, butter milk, curd, ice cream, butter, ghee, paneer, flavoured milk, sweets and doodh peda. It offers different types of milk in pouches, such as Full Cream Milk, Toned Milk, Standardised Milk, Double Toned Milk and UHT Milk. Its ghee is extracted from cow and buffalo milk and is sold in jars, pouches, sachet, and tin. Its sterilized flavored milk is available in seven flavors, such as badam, strawberry, pista, vanilla, elaichi, chocolate and pineapple. It also manufactures milk-based sweets, such as gulab jamun, basundhi and junnu. It has approximately 94 milk chilling centers. Its products are sold under the Dodla Dairy brand name in India. The Company has approximately 13 milk processing plants across the states of Andhra Pradesh, Telangana, Karnataka and Tamil Nadu.
Hatsun Agro Product Limited is a company engaged in the business of processing and marketing milk, milk products and ice cream. The Company's segments include Milk & Milk products and Others. Its Others segment primarily consists of cattle feed and ready-to-eat products. It offers products under various brands, such as Arun Icecreams, Arokya, Hatsun, HAP daily, Ibaco, Santosa and Oyalo. Arun Icecreams offers ice creams, such as bars, cups, iBar, iBar Mini, iCones, specialities and tubs. Arokya offers standardized milk, full cream milk, toned milk, double toned milk, curd and paneer. Hatsun offers cooking and table butter, ghee, curd, yoghurt, milk beverage, dairy whitener, skimmed milk powder and others. HAP daily houses brands such as Arokya, Hatsun and Arun Ice creams. It also offers HAP Ice Cream Cakes in various flavors, such as black forest, butterscotch blast, cherry and brownie, and others. It has approximately 3000 HAP daily stores across South India.
Source for About Companies: SR Plus.
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