July 15, 2016

Kwality Ltd. India’s largest private dairy company, has raised Rs 520 cr (US$77.4 million) from Kohlberg Kravis Roberts & Co. (KKR) through a structured finance deal.

The company had focused its business on a business to business (B2B) model, earning more than 70% of its revenue from selling dairy products to companies including Hindustan Unilever and Britannia Industries, however, the company has reached a level of growth significant enough to shift its model to a more profitable business to consumer (B2C) model – a move “which encompasses revamp of all business functions across the value chain,” said Sanjay Dhingra, MD, Kwality Ltd.

As part of its aggressive growth plan, Kwality has engaged with marketing and advertising firms to strengthen its branding and has contracted with Ernst and Young to serve as its IT transformation partner.

The funds from KKR will be used by Kwality to fund capital expenditures, to strengthen its milk procurement infrastructure, and to launch new value-added retail products including cheese, paneer, butter, flavored milks and yogurt in the near future.

“This investment would support a giant leap in this direction enabling faster growth and achieving high profitability,” said Mr. Dhingra in a company statement. “Further I believe KKR’s strong pedigree and rich experience combined with our management capabilities is going to unlock significant value and will benefit all stakeholders.”

The organized dairy sector in India has been growing at a CAGR of 22% for the past five fiscal years according to a report issued by CRISIL Ratings according to Dairy Reporter. However, the report states that the industry is expected to see even more significant growth over the next three years, with the value-added category seeing growth of between 22% and 24% over that time. Of all value-added dairy products, ice cream, cheese and yogurt are expected to post the highest growth rates.

“The value added segment is the major driver of this growth…,” Ashok Sharma, president and chief executive, agri and allied services, Mahindra and Mahindra, which itself entered the retail dairy segment with the launch of its Saboro brand told business Standard.

This growth, driven by demand from an increasingly urban, health conscious, and wealthy population is expected to draw between Rs 9,000 cr and Rs 10,000 cr (US$1.35 billion – US$1.5 billion) over the next five years according to Shiva Mudgil, vice president senior dairy analyst, food and agribusiness research and advisory at Rabobank.

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Lynda Kiernan