The Hindu Business Line : Mother Dairy in red; posts Rs 33-cr loss in 2006-07

New Delhi, Dec. 18 Mother Dairy Fruit and Vegetable Private Ltd (MDFVP) — the leading liquid milk marketer behind the Gujarat Cooperative Milk Marketing Federation (GCMMF) — is in the red.

The company, a wholly-owned subsidiary of the National Dairy Development Board (NDDB), has posted a net loss of Rs 32.62 crore on total revenues of Rs 2,204.61 crore for the year ended March 31, 2007.

The segment-wise data from MDFVP’s annual report for 2006-07, available with Business Line, shows that the company incurred an operating loss of Rs 23.50 crore (on sales of Rs 1,676.36 crore) in its dairy business and Rs 10.77 crore (on sales of Rs 219.60 crore) in horticulture (‘Safal’ brand). These were partly offset by the edible oil segment (‘Dhara’), which returned an operating profit of Rs 8.26 crore on sales of Rs 277.53 crore.

The NDDB, being a statutory corporation formed by an Act of Parliament, is required to table its audited financial statements in both the houses every year. There is no such obligation though in respect of MDFVP, which is a private company fully-owned by NDDB.

Amalgamation

Prior to MDFVP’s incorporation on March 24, 2000, Mother Dairy at Delhi along with the fruit & vegetable and edible oil businesses were being run as ‘subsidiary units’ directly under the NDDB. Subsequently, not only were these operations corporatised under MDFVP, but the latter itself became a holding company for three other entities: Mother Dairy Foods Processing Ltd (MDFPL), Mother Dairy India Ltd (MDIL) and Mother Dairy Foods Ltd (MDFL), entrusted with the respective functions of manufacturing/processing, marketing and formation of joint ventures with State-level cooperative dairy federations.

The experiment of granddaughter companies, however, proved short-lived, with MDFL being merged with MDFVP in 2003-04. With effect from April 2006, MDFPL and MDIL have also been amalgamated with MDFVP. According to MDFVP’s latest annual report, the two subsidiaries had accumulated losses of Rs 14.42 crore, which has been taken over on amalgamation. Consequently, MDFVP’s accumulated losses stood at Rs 41.15 crore as on March 31, 2007, against a net worth of Rs 108.85 crore.

Reasons

Industry sources attribute MDFVP’s losses mainly to its inability to put in place an effective milk procurement network — despite Delhi being surrounded by the country’s top three producers (Uttar Pradesh, Punjab and Rajasthan), besides Haryana. This, in turn, has forced reliance on purchases of skimmed milk powder (SMP) and white butter and their reconstitution, entailing additional energy costs.

The proportion of reconstituted milk to MDFVP’s total sales is said to be roughly 30 per cent, rising to 50 per cent or more in the summer months (when SMP prices shoot up). This is unlike its main rival, GCMMF, which has an established procurement base and is, therefore, able to supply ‘fresh’ (non-reconstituted) milk round the year. 3

The sources felt that 2007-08 may still turn out to be better for MDFVP on two counts. The first is the ban on SMP exports between February and September, which has helped put a lid on domestic prices to its advantage (even while hurting GCMMF and other exporters). Secondly, there have been three rounds of retail price increases (by Re one a litre each) in Delhi during 2007.

In 2006-07, MDFVP’s liquid milk sales aggregated 8,99,407 kilo-litres (kl), valued at Rs 1,503.73 crore. The company also sold 10,324 kl of ice-cream (Rs 65.86 crore), 15,783 kl of other milk products (Rs 67.34 crore), 138,194 tonnes of fresh fruits and vegetables (Rs 141.24 crore) and 7,554 tonnes of frozen vegetables (Rs 35.02 crore).

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