March 1, 2017

Anonymous sources have revealed that TPG Growth, the growth-capital fund of U.S.-based private equity firm, TPG has agreed to acquire a 25 percent stake in leading Indian dairy company, Dodla Dairy, from Proterra Investment Partners in a Rs 300 cr (US$45 million) deal.

“All the due diligence works by TPG Growth are complete and the deal will be signed within a couple of weeks,” a source told Deal Street Asia.

In May 2016 Proterra Investment Partners was reported to be initiating talks with private equity firms regarding the sale of its stake in Dodla Dairy. At the time, sources revealed to Live Mint that Proterra was seeking between Rs 250 cr and Rs 300 cr (US$37.5 million – US$45 million) for the stake Black River Capital Partners (Food) Fund acquired in 2012 for Rs 100 cr (US$16.5 million).

Throughout the ensuing months, the list of private equity funds interested in the Dodla stake and engaging in talks with Proterra grew to include Temasek, Kedaara, Multiples, ADV Partners, and the Tata Opportunities Fund, owned by the Tata Group, reports Live Mint.

Founded in 1998 by Sunil Reddy and headquartered in Hyderabad, Dodla Dairy is a Rs 1,000 cr (US$150 million) company producing fresh milk, butter, ghee, paneer, curd, flavored milk, ice cream, and milk powder. The company encompasses nine production plants, 30 chilling centers, 20 bulk milk chillers, 23 associated chilling centers, 16 sales offices, and a wide-ranging distribution network across the country according to the company website. The company sells more than 900,000 liters of milk and 6 tons of milk products per day, generating revenue of Rs 1,182 cr (US$177.7 million) for 2015/16 – representing year on year growth in revenue of 16 percent.

Just as demand for non-dairy and plant-based foods is climbing in certain markets, demand for milk in India is forecast to increase at a compounded annual growth rate of 5% between 2014 and 2020, from 138 million tons to 200 million tons.

As is the story with many segments of India’s agriculture and food industries, the country’s dairy sector is seeing a significant surge in consumption driven by the maturation of the market from commodity and loose products to branded and packaged products on the back of increased incomes and a more organized retail market, according to Rabobank.

This growth and the macro trends driving it have attracted foreign investment and several private equity investors to the sector.

Between 2012 and 2016, India’s dairy sector has seen 14 successful private equity and venture capital deals worth $127 million, according to VCCedge.

“Private regional players aspiring to become semi-national/national will require capital to integrate the business, expand the product portfolio and scale up across different geographies. This is where the role of private equity as well as strategic investors will remain critical for the industry in the future,” said Shiva Mudgil, senior dairy analyst and assistant vice president, food & agribusiness research and advisory at Rabobank.

In 2014, Lactalis, the world’s largest diary company, acquired total control of Hyderabad-based Tirumala Milk Products Pvt Ltd from its founders and The Carlyle Group for $270 million, resulting in Carlyle gaining a nearly 300 percent return on its investment.

Other notable deals in the sector include IDFC Alternatives’ investment of $28.8 million in Parag Milk Food Pvt Ltd in 2012, a joint investment of $25 million in Prabhat Dairy Ltd by Rabobank’s India Agribusiness Fund and France’s Proparco in 2013, and Cargill Venture’s $20.3 million investment in Dodla Dairy Ltd. in 2012.

Dodla Dairy has acted to expand its presence into other emerging markets where milk demand is expected to see significant growth. In 2014, the company established itself in Uganda through the establishment of a processing plant in-country that sees sales of 15,000 liters of milk per day.

“African expansion will help us understand new markets and help expand our presence globally,” Reddy told the Economic Times in 2015 when discussing Dodla’s move into Africa. “The profit margins will be at least double in Uganda compared to India.”

Further, Live Mint reports that the company also has plans in the pipeline to establish a production base in the U.S., and to expand into South East Asia according to its annual report.

-Lynda Kiernan

Lynda Kiernan is Editor with GAI Media and daily contributor to GAI News. If you would like to submit a contribution for consideration please contact Ms. Kiernan at lkiernan@globalaginvesting.com