Dodla Dairy IPO opens June 16: Grey market premium jumps ahead of public issue; should you subscribe?

Dodla Dairy, an built-in dairy firm primarily based in south India, earns its income by way of the sale of milk and dairy-based worth added merchandise (VAPs) within the branded shopper market. Picture: dodladairy web site

Dodla Dairy’s Rs 520-crore IPO will open for subscription on Wednesday, 16 June, within the worth band of Rs 421-428 per share. The difficulty will shut on June 18. The difficulty includes contemporary situation of fairness shares price Rs 50 crore and a suggestion on the market (OFS) of as much as 1.09 crore fairness shares of face worth Rs 10 every. Within the gray market on Tuesday, Dodla Dairy shares have been quoting a premium of Rs 130-135 a share over the IPO worth. The shares have been seen buying and selling at Rs 563, up 31.54 per cent within the main market. The analysis groups at Angel Broking and Ventura Securities of their respective notes have really useful “Subscribe” to the supply whereas these at HDFC Securities and JST Investments haven’t given any ranking to the IPO.

Dodla Dairy, an built-in dairy firm primarily based in south India, earns its income by way of the sale of milk and dairy-based worth added merchandise (VAPs) within the branded shopper market. The corporate sells contemporary milk, ghee, butter, curd, paneer, amongst different dairy merchandise, that are focused at consumption at dwelling.

Angel Broking
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The brokerage agency stated that by way of valuations, the post-issue 9MFY21 annualised PE works out to 16.4x (on the higher finish of theissue worth band), which is low in comparison with Parag Milk Foods (buying and selling at 32.7x). Additional, Dodla Dairy has proven enchancment in working margin with an environment friendly working capital cycle. Angel Broking believes that Dodla Dairy would carry out higher on the again of a rise in value-added product combine.

Ventura Securities
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Ventura Securities has valued the inventory at Rs 580 (25x FY24E) representing potential upside of 35.4 per cent from the IPO greater band worth of Rs 428 over the following 24 months. Regardless of the shortage of earnings development over the forecast interval (given the excessive base impact of internet earnings for FY21), Ventura Securities expects a re-rating of the valuations given the market management, sturdy sectoral development tendencies, improved efficiencies (by eliminating market intermediaries), thrust on increasing retail footprint, debt free standing, completion of capex cycle and excessive return ratios.

HDFC Securities
Ranking: Not rated

The brokerage agency stated that Dodla Dairy’s farmer pleasant insurance policies and steady engagement with them with welfare packages have strengthened its relationships with farmers which in flip have strengthened its uncooked milk procurement course of. It affords quite a lot of initiatives for the farmers from whom it procures uncooked milk. The corporate undertakes analysis to cut back the breeding cycle of cows and on associated actions together with semen choice for extra productive cows. Investigation into genetic range and relationship between HF breed cows and various India cattle breed to result in enchancment of dairy herd genetics that have an effect on well being, longevity and reproductive traits in cattle used for uncooked milk manufacturing. Whereas firm’s operations are depending on the availability of enormous quantities of uncooked milk, and lack of ability to obtain ample quantities of uncooked milk from farmers and third occasion suppliers, at aggressive costs, might have an hostile impact on the enterprise, outcomes of operations and monetary situation.

JST Investments
Ranking: Not rated

At higher worth band of Rs 428, it’s priced at 15.4x P/E, 4.33x P/BV, 1.8x P/S (9mFY21 gross sales) and 1.35x P/S (FY21A Gross sales). The valuations are good when in comparison with Heritage who has 13.2x P/E, 0.80x P/S, 3.31x P/BV and Hatsun who has 81.1x P/E, 3.59x P/S, 19.6x P/BV. On the identical time administration has guided for extra Worth added merchandise, extra OPM and extra NPM development. Because of good valuations, the IPO may even see good subscriptions and good itemizing. The corporate administration themselves have stated they’re a reasonably new firm. In the long run, we have now no view as we’d wish to monitor this extra as FY21 appears to be an aberration with different milk gamers additionally clocking in EBITDA development.

(The inventory suggestions on this story are by the respective analysis analysts and brokerage companies. Monetary Categorical On-line doesn’t bear any duty for his or her funding recommendation. Capital markets investments are topic to guidelines and laws. Please seek the advice of your funding advisor earlier than investing.)