Mumbai: Motilal Oswal Private Equity fund is in advanced negotiations to invest as much as $50 million in Hyderabad-based dairy firm Creamline Dairy Products Ltd, two people familiar with the talks said.
“The negotiations are on and the transaction is expected to close soon. The company is looking to raise the capital to expand its geographical presence, strengthen its marketing and distribution channels and to add new value added products,” said one of the two people. They declined to be named.
Motilal Oswal Private Equity declined to comment on the development.
“The deal with Motilal Oswal is still under negotiation and nothing has been finalized yet. Therefore, the questionnaires are not valid for the moment, we will update you later on the progress,” Creamline Dairy said in an emailed response.
This will be Motilal Oswal Private Equity’s second investment in the dairy business. In 2008, the PE fund invested Rs.55 crore in Parag Milk Foods, which sells dairy products under the Go and Pride of Cows brands.
Parag Milk is looking to raise Rs.600 crore through an IPO, providing an exit to Motilal Oswal PE. The investment will be made through Motilal Oswal Private Equity’s India Business Excellence Fund-II which raised $155 million in 2012 and has invested in companies including Magicrete Building Solutions Pvt. Ltd, Intec Capital Ltd, Shubham Housing Development Finance Co. Pvt. Ltd and Glasswall Systems Pvt. Ltd. The fund invests on an average $8 milllion-15 million per transaction. In February, the fund had invested Rs.40 crore in Ahmedabad based Arinna Lifesciences Pvt Ltd.
Creamline, which was established in 1986, is a manufacturer and supplier of milk and milk products in the states of Andhra Pradesh, Tamil Nadu and Karnataka. It also has a limited presence in Nagpur.
The firm sells milk products such as yoghurt, curd, lassi and buttermilk under the Jersey brand. It started manufacturing these products in 2005.
“Two factors are driving investments in the dairy industry. One is on the demand side, where India is the largest consumer of milk products globally. And this demand is moving up the value chain, there is huge demand for value added milk products. On the other hand, if one looks at the supply side there are not many private dairies in the market, hence there is a lot of investor interest to capture the opportunity created by the consumer evolution,” said Amitabh Mall, partner and director at Boston Consulting Group.
In 2005, Creamline entered into strategic partnership with Godrej Agrovet Ltd, the largest animal feed manufacturing company in the country, to strengthen its backward integration with farmers for compounded cattle feed supply.
The firm has 39 own and nine associate milk chilling centres, six packing stations, and one powder plant at Ongole. The firm’s combined milk processing capacity stands at 685,000 litres per day. Creamline Dairy’s revenue rose to Rs.779.2 crore in the year ended 31 March 2014 from Rs.703.3 crore in the previous year. Net profit rose to Rs.18.4 crore from Rs.16 crore in the previous year.
The demand for milk and milk products has seen a significant rise in the country. Data from the National Sample Survey Office shows that between 2001-02 and 2011-12, the per capita monthly expenditure on milk and milk products has more than doubled from Rs.41.9 to Rs.115 in rural India, and from Rs.75.8 to Rs.184 in urban India. According to the National Dairy Development Board, demand for milk is expected to increase at a compounded annual growth rate of 5% from 138 million tonnes (mt) in 2014 to 200 mt in 2022.
Value addition, which offers higher margins, is another factor driving growth. According to a June 2014 report by CARE Ratings, the share of value-added products in milk and milk derivatives segment in India is growing at 25% every year and is expected to grow at the same rate until 2019-20.
This growth has attracted both strategic and financial investment to the sector. Since 2010, private equity (PE) funds have invested $138.85 million across 15 deals in the sector, according to data compiled by VCCEdge, the research arm of VCCircle.com. In 2014, European firm Groupe Lactalis SA acquired a majority stake in Hyderabad-based Tirumala Milk Products Pvt. Ltd from its promoters and Carlyle Group for an undisclosed amount.
