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Dodla Dairy IPO and KIMS IPO: All You Need to Know

Editor, TRANSFIN.
Jun 19, 2021 8:37 AM 5 min read
Editorial

The IPO fiesta continues!

Following the public debuts of Shyam Metalics and Sona Comstar (which we covered on Monday), two more listings are on the table - those of Dodla Dairy and KIMS.

Let’s dive right in!

Dodla Dairy IPO

This Hyderabad-based dairy company hit the market on Wednesday with its ₹520cr ($70.9m) IPO.

 

About the Company

Dodla Dairy is an integrated dairy company incorporated in 1995 based in South India. It procures, processes and sells milk (~75% of total revenue) and other dairy value added products (VAPs) such as curd, ghee, butter, flavoured milk etc. (~25% of total revenue).

Currently, its procurement is centered in five states and its products are available for purchase in 11. It also has an overseas presence in Kenya and Uganda.

Let's talk scale. In terms of milk procurement, amongst private dairy players with a significant presence in the southern region of India, it is the third largest in terms of milk procurement per day, with an average procurement of 1.03 million litres of raw milk per day.

 

Fast Stats

  • The IPO opened yesterday and closes on June 18th. The listing date is June 28th
  • It includes a fresh issue worth ₹50cr ($6.8m) and an offer for sale of ₹470cr ($64m)
  • IPO price: ₹421-428 ($5.68-$5.77) per equity share
  • Promoter holding change post-issue: From 68.52% to 64.17%
  • Proceeds are expected to be used to cut debt, meet capex requirements and fund expenditures towards general corporate purposes
  • As of market close today, the IPO was subscribed 2.92 times: 5.48x in the retail category, 0.24x in the QIB category, and 0.53x in the NII category
  • Link to RHP

 

Money Matters

Dodla's revenues and EBITDA have risen over FY18-20 at a CAGR of 16% and 11.8% respectively. The latter has shown a slight uptick in 9MFY21, when it jumped by 14.6%. During this period, the company's revenues stemmed mainly from the sale of milk (75%). The rest was derived from the sale of dairy products like ghee, butter, paneer, buttermilk and ice creams. Dodla ranks third and second respectively in terms of its EBITDA margin (6.9%) and PAT margin (2.3%) amongst its peers.

With increased diversification in mind, Dodla is actively looking to boost its VAPs business so as to strike a balance with its processed milk vertical (and increase margins).

EPS for 9MFY21 was 20.91 while the price-to-earnings ratio stands at 15.4x at the upper end of the IPO price band. The company has low leverage amounting to 0.2x equity. 

 

Reading the IPO Room

The Indian dairy industry is projected to grow at a CAGR of 10-11% until FY25. Value products such as flavoured milk, whey, ice cream, yoghurt and cheese are expected to outpace other segments and grow at 14-16%.

Coming to Dodla, FY21 has seen it rake in high volumes in profit despite lower sales volumes. However, its brand visibility is limited and largely confined to parts of South India. That said, its strong distributor network and integrated business model may help it grow and expand in other cities in the near-term. Its increased focus on its non-milk segment is a decided plus. Valuation looks fair as compared to other listed peers Hatsun Agro (80.7x earnings) and Heritage Foods (12.9x).

 

KIMS IPO

The second IPO - worth ₹2,144cr ($292.33m) - is also from a Hyderabad-based entity: hospital chain Krishna Institute of Medical Sciences (KIMS).

 

About the Company

KIMS is the largest corporate healthcare group in Andhra Pradesh and Telangana with nine multi-speciality hospitals with an aggregated bed capacity of 3,064 beds, including over 2,500 operational beds as of December 31, 2020, which is 2.2 times more beds than the second largest provider in AP and Telangana, according to the CRISIL report. It is one of the few healthcare companies to have posted a profit in FY21, showcasing best-in-class EBITDA margins.

 

Fast Stats

  • The IPO opened yesterday and closes on June 18th. The listing date is June 28th
  • It includes a fresh issue worth ₹200cr ($27.27m) and an offer for sale of ₹1,943.74cr ($265m)
  • The listing would provide a partial exit to PE firm General Atlantic Singapore, whose shareholding would more than halve to 20% post-issue, as well as some from the promoter group
  • IPO price: ₹815-825 ($10.99 - $11.13) per equity share
  • Promoter holding change post-issue: From 46.81% to 38.84% 
  • 75% of the proceeds would be used for debt repayments
  • As of market close today, the IPO was subscribed 0.42x times: 1.77x in the retail category, 0.14x in the QIB category, and 0.08x in the NII category
  • Link to RHP

 

Money Matters

The hospital chain’s revenues, EBITDA and PAT rose at a CAGR of 20.4%, 114% and 105% over FY18-21.

As of December 2020, KIMS's debt-to-adjusted EBITDA ratio was 0.95x. This is now expected to reduce considerably post IPO to 0.41x pro forma. Furthermore, it is one of only three hospitals in India that are rated AA by CRISIL.

Adjusted EPS for FY21 was 25.68 and the company is going to list at a PE of 32.13x at the upper end of the IPO price band.

 

Reading the IPO Room

That the Indian healthcare sector is underdeveloped is not unknown. The country ranks 170 out of 188 countries in terms of expenditure as a part of GDP on health. COVID-19 has thrown open the dire conditions of Indian healthcare for all the world to see, revealing an infrastructure steeped in both underinvestment and inequality.

That said, the domestic healthcare industry has shown promising potential and growth. It is expected to grow at a 17-18% CAGR until FY24, aided by Government stimulus, rising incomes, medical tourism and the large pool of medical talent.

Coming to KIMS, its numbers are quite attractive - an almost net debt-free balance sheet going forward, strong market presence in Andhra and Telangana, and high staff retention. The fact that 68% of hospital treatments in the country in terms of value are attributed to private players (expected to grow to 72% by FY24) doesn’t hurt the company’s prospects.

However, as the chain looks to expand in competition-heavy markets like Chennai and Bengaluru, its financials may take a hit and not be as rosy as they have been of late going forward. Furthermore, the company's high dependence on its flagship Secunderabad hospital (which accounts for 33% of revenues) is a concentration risk.

FIN.
 

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