News Analysis

Dodla Dairy: Listing gain skims the milk further

Hari Viswanath | Updated on June 28, 2021

The company's operating margin trajectory is not clear

BL Research Bureau

In sync with the recent trends in IPO listing, Dodla Dairy listed at a near 30 per cent premium to its IPO price of ₹428. It has built on those gains, and closed the day at ₹609; a 42 per cent premium to IPO price.

Dodla Dairy processes and sells fluid milk and dairy-based value-added products (VAPs) such as curd, buttermilk, lassi, flavoured milk and ghee. Its key markets are the southern states of Andhra, Karnataka, Tamil Nadu and Telangana.

Investors allotted shares can book profits. The stock now trades at around 21 times its annualised FY21 earnings (9 months till December 20, annualised). This is now at a substantial premium to peer Heritage Foods, which trades at around 14 times. While another peer, Parag Milk Foods, trades at over 50 times, it has a much higher focus (about 70 per cent of revenue) on value-added products. The share of Dodla Dairy in value-added products is currently much lower at around 27 per cent.

It is also not clear whether the Company’s FY21 operating margins are sustainable. There was a significant jump of 14.5 per cent in operating margins for the nine months ended December 2020, aided by tailwinds such as low milk procurement prices and high customer realisations due to price increases. If margins revert to mean in the future, that will make current stock price levels even more untenable given expensive valuation.

Published on June 28, 2021

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