DODLANSEQ2 FY23October 27, 2022

Dodla Dairy Limited

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136turns

12analyst exchanges

4executives

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Management on call

Dodla Sunil Reddy

MANAGING DIRECTOR – DODLA DAIRY LIMITED

B.V.K. Reddy

CHIEF EXECUTIVE OFFICER – DODLA DAIRY LIMITED

Anjaneyulu Ganji

CHIEF FINANCIAL OFFICER

Aniruddha Joshi

ICICI SECURITIES

Key numbers — 40 extracted

22.8%

l, and I hope all of you are doing well. I'm glad to announce that the operating revenues grew by 22.8% in year-on-year to INR 695 crores, supported by a gradual rise in selling prices, coupled with th

INR 695 crore

are doing well. I'm glad to announce that the operating revenues grew by 22.8% in year-on-year to INR 695 crores, supported by a gradual rise in selling prices, coupled with the strong demand for milk and valu

11.2%

emand for milk and value-added products for in the festive season. Our milk procurement grew by 11.2% year-on-year to 14.3 lakh liters per day in Q2 FY '23. On average, our milk sales also increased

14.3 lakh

ue-added products for in the festive season. Our milk procurement grew by 11.2% year-on-year to 14.3 lakh liters per day in Q2 FY '23. On average, our milk sales also increased by 14.7% year-on-year to a

14.7%

ar-on-year to 14.3 lakh liters per day in Q2 FY '23. On average, our milk sales also increased by 14.7% year-on-year to almost close to 11 lakh liters per day. The company successfully navigated a lot

11 lakh

in Q2 FY '23. On average, our milk sales also increased by 14.7% year-on-year to almost close to 11 lakh liters per day. The company successfully navigated a lot of sectorial headwinds, including lumpy

19.3%

material and packaging costs and inflationary trend due to global reasons. VAP sales grew by also 19.3% year-on-year to INR 173 crores during the Q2 of FY '23. This is thanks to a strong recall of Dodl

INR 173 crore

costs and inflationary trend due to global reasons. VAP sales grew by also 19.3% year-on-year to INR 173 crores during the Q2 of FY '23. This is thanks to a strong recall of Dodla brands, which is also becaus

35.3%

g quality focus that we have on our products. The VAP share of the overall daily revenue stood at 35.3% in Q2 of FY '23. The integration of Sri Krishna Milks price is progressing as planned, and we con

1 lakh

vernance framework. Our business model is an end- to-end enterprise, which positively impacts over 1 lakh dairy farmers on one end. And on the other end, we ensure health and nutrition to

88%

stance. As on 30th September ‘22, we have procured milk around 1.2 dairy farmers daily, of which 88% have provided regular direct payment to the bank accounts. Our direct procurement model has fur

rs,

ith them. Our Orgafeed operations, wherein we have provided a high-quality feed to the dairy farmers, help us strengthen this relationship with them and also ensure that both the parties get benefitte

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Guidance — 20 items

B.V. K. Reddy

opening

“We aim to adapt to state of art dairy processing technology with a focus on automation, which help us in reducing operational costs and increase efficiencies.”

Sunil Reddy

“It will be almost, let's say, metros will be a smaller comparatively, it should be around 30% metros.”

Sunil Reddy

“Some of them will be booking -- we booked a whole lot of fuel, whatever all under outward freight outward.”

Sunil Reddy

“So annual Capex plans for us, we broadly you can look at it as procurement, which will be one which will have the INR 15 crores, INR 20 crores of every year that we keep spending.”

Sunil Reddy

“So invariably, it would be around INR 50 crores, INR 60 crores of maintenance Capex and chilling centers, normally, if you look at the years going forward because every year, if you take 1 lakh, 1.5 lakh of volume that is added in sale, we have to add over some kind of number in the back end of procurement also to keep matching the growth of sales.”

Sunil Reddy

“So that will be our constant expenditure in terms of Capex and maintenance Capex will be maybe INR 10 crores at the most for all the 14, 15 plus put together.”

Anjaneyulu Ganji

“Maintenance Capex will be INR 10 crores to INR 15 crores.”

Resha Mehta

“And any guidance that you would like to provide for Capex for the next, let's say, two years, three years, broadly?”

Sunil Reddy

“Other than mergers and if we do any acquisitions or major Capex plan, we will be in the same INR 30 crores to INR 40 crores at the most of expansion, in chilling centers and regular Capex.”

Sunil Reddy

“As said, current margins will continue to be going forward the same, it may be 0.5% plus or minus that can happen in current term, especially for us, that's what we are looking at.”

Risks & concerns — 7 flagged

Profit after tax was at INR 39 crores in Q2 FY '23 compared to INR 29 crores in Q2 FY '22, registering a growth of 34% year-over-year, owing to the decline in the finance cost, raise in other income, coupled with decline in effective tax rates.

— Anjaneyulu Ganji

This year also, we won't see any pressure because it's not only that because also we are digesting the growth in terms of volume has also been high.

— Sunil Reddy

So we're very cautious in what we do as our ad spend because although we do a large spend, but if availability is not there, it doesn't seem to be very effective for us.

— Sunil Reddy

So there's a procurement increase, we do increase the prices proportionately and keep going, but we are also cautious not to out-price it from comparative to say, market to let people have a shortfall in growth.

— Sunil Reddy

So we're very cautious to do that and keeping and we even growth not to get in there.

— Sunil Reddy

We're just trying to match we are cautious of both in terms of the growth and our profitability.

— Sunil Reddy

So I think the consumer impact of food we will be the last of the food to get impacted they will rather sacrifice hopefully, on the other sources of expensive food is what we look at, sir.

— Sunil Reddy

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Q&A — 12 exchanges

I have seen that in an investor presentation, and it is very good actually. You have improved quarter-on-quarter. So I have a couple of questions. When I see quarter-on-quarter, your Q1 versus Q2, you have improved your gross margin on a standalone basis. Is it something specific you have done or it is based on procurement price reduction or something happened?

Sunil Reddy

it's actually a lot of effort that goes there on specific things that have been done. So selling price has moved up, and considerately, we kept our procurement prices almost on an even yield. So the earlier quarters when our procurement prices had gone up, our selling prices didn't move up because there's always a time lag of what happened. So second quarter, we got the benefit of the full price increases that happened. So that's the reason the gross margin shows an improvement, which is shown in the EBITDA improving. And is there any flush concept coming this year because the last couple of y

So congrats on a good set of numbers and also on your Silver Jubilee year. So firstly, I wanted to understand that in your annual report, you've spoken about having agents and distributors. So what are these two different distribution models between agents and distributors and which model is adopted in which, let's say, urban, rural? And if you could just expand a little bit on this. That's the first question.

Sunil Reddy

Yes. So thank you very much for your good wishes Resha. Basically, the difference is between agent and a distributor, agent is somebody where he is a retailer himself and we directly deliver to him as a company, and he delivers it to the customers. Whereas the distributor is some where we give it to him as or any other FMCG distributor, we de-market a larger area and give it to him and he takes care of the secondary transportation and distributing it to the consumer itself. And we have another model, which is DRPs, which basically our Company-Owned Franchise Operated, retail outlets. These are

Just one from my side. So I just wanted to understand your outlook on margins. So right now, it is around 8.5%, there is a lumpy skin disease which has gone, unseasonal rains this quarter, and as you rightly pointed out, under investments by dairy farmers so there is an expectation of a tepid flush. You have already taken large price hikes and passed it on to consumers. So technically, is this understanding correct that at least for this season where you are not expecting a great flush, EBITDA margins should only trend downward over the next few quarters from the current level?

Sunil Reddy

More than download, sir, I think if we are actively involved in managing it, we can manage to keep it with the same trends that we are now. Maybe a little bit of the one month more of price differential might happen to procurement, again, increases dramatically to see where we can pass on, but tentatively, we can keep these margins at these levels at the moment. And any guidance on a business? Medium term would be the same. As said, current margins will continue to be going forward the same, it may be 0.5% plus or minus that can happen in current term, especially for us, that's what we are loo

So just a follow-up on previous participant's question. So you've already mentioned that flush season will be tepid. And in North, we are already hearing about shortages and lack of availability. So in South in your geographies, are you facing any procurement issues?

Sunil Reddy

Procurement issues, meaning there is demand is higher than production. Therefore, the prices have gone up and are maintaining that. This normally should get corrected by the next monsoons because of higher production, higher prices will normally get the farmers' interest back and productivity should increase and come back because the animal cycles things take at least six months to nine months for animals to carve and production to increase and better feeding systems coming into play. So that is how it will be that. In the South, I think we'll still continue with the same trends of matching ou

Sir, my first question is on the outlook on this business going ahead, what is the exploration growth are you looking for this business?

Sunil Reddy

Rohan, basically, if you look at us historically, we've been growing by 10%, 11% by volume and around 15% of value. I think in the short-term basis, we think we can continue with that kind of a trajectory for the next two years, three years, I think. So that will be our immediate short-term two years to three years goal. And as we go beyond that, as a normal global scenario, dairy companies normally tend to go into becoming the food company in the longer term because we have the network of ability of placement of product and other items, even if you compared Amul in India, so they've gone into

Mr. Reddy, just one quick question. You mentioned about productivity increases and milk procurement prices coming down to 24. So what I'm looking to learn is do you have any levers in the sort run -- just want to check that you mentioned that levers for the coming years would be productivity increases by farmers and milk procurement prices coming down? So a quick check here is do you have any levers to accelerate your volume growth from the existing 10%, 12% to slightly more higher levels in the short duration? And if yes, what are those drivers?

Sunil Reddy

So basically, sir, when you look at it in terms of the sales and procurement, we have actually been well geared up for a larger procurement volume, saying that we were net buyers of milk powder where we wouldn't be there and we would be having our own milk procurement network and increase in our sales. But presently, because of the lower volumes that network is still not fully utilized. We are confident that as we go forward, levers are already in place for the procurement to absorb a larger volume in terms of when we grow forward, which we’re confident will happen in 2024 and in terms of sale

Sir, I'm just new to the company. I just want to explore what are the cash balance that we have as on September?

Sunil Reddy

Tarak, that Anjan, the CFO will give you the exact numbers on that. Go ahead, Anjan. So overall, we have excellence of INR 340 crores in terms of overall cash balance that we have. So that is for the farmer payments that we utilize around INR 40 crores to INR 50 crores of first, so net-net, we will have around INR 300 crores cash balance as on 30th September. Sir, I can see some finance cost during the quarter of INR 3 lakh? Yes, and there is one fixed adjustment. So for long-term leases, you have to convert that under one -- in one that is not actual finance costs. One more thing. Sir, we are

Sir, I just wanted to understand how does the transmission of external factors into procurement prices happen so quickly? I mean what are the forces there? I mean, how many buyers are there in, say, particular village along with you so that these external factors are so quickly transmitted?

Sunil Reddy

Basically, we will have at least three companies to four companies, one cooperative or two or three private sectors in every village that we go and procure four to five at least will be there. So the transmission does not happen more than the outside price. I think it's a supply-demand issue that majorly happens. So in the hurry somebody who's having a shortage, will try to increase their price, hoping that they'll get a little more is one of the way to look at it. The other way that company is also look at it is coming from a farmer's point of view, for example, if the cattle feed prices are

Sir, my first question is regarding, can you help with the update on Sri Krishna Milk? How was the performance of the business during the third quarter revenue in margins?

Management

Yes, Sri Krishna has done well. Anjan will give you the specifics of what the numbers are being So thank you, sir. on the Sri Krishna milk, so for this quarter ended Q2 FY '23, we have made sales of around 36,000 litres per day with a net revenue of INR 17.6 crores for the quarter. and an EBITDA of around 3.8%. In terms of YTD, we have made around EBITDA of INR 81 lakhs from Sri Krishna. So with an NPD of 34,000 litres, we generated INR 30.3 crores in terms of net revenue. Sir, next is also a little bit of a bookkeeping question. I just wanted to understand your territory- wise revenue and pro

Sir, three questions. How do you see the ice cream business panning out? Then secondly, we had also introduced Dodla plus premium milk. So any update on that? Second question, how is cattle feed business doing? Any growth plan that you can indicate 3-year 5-year growth plan that you can indicate for cattle business as well as Capex plans here? And lastly, the third question is how do you see the global SMP prices situation now, do you see any structural downtrend in the global SMP prices?

Sunil Reddy

So three questions regarding ice cream, cattle feed future and global SMP, I guess say, global SMP prices seem to be pulling off. and BVK will give us now thing of what we expect the cattle feed in the short term or, let's say, the two or three year period, what size we think we'll get there. And the capital was also INR 30 crore, 40 crores that we're looking at deploying and ice cream and other milk BVK will just give you that specification. See, the cattle feed this half yearly we have done INR 28 crores top line and roughly about 9.5%, 10% EBITDA. And this year now, we are as per the target

I have two, three questions. One is what is the general market share, average market share in your operating area and the second one is what is your IT spend for the day to day back information evolve from various works? Third question is that, how do you incentivize the farmers for retaining them continuity with them like advances or something like that. This and fourth one is curd business. Please elaborate these 3 process.

Management

Yes. So I'll curd and IT spend Anjan will be giving you, sir. Basically, our normally market, we take an average, we will be now 7% of the market share in the areas where we are operating. That is our numbers which we have computed that is what our numbers indicate to us, sir. Are there an incremental from year to year? Or what is your further plans for the future is 7% to 10% like that.? Basically, the increment does happen, sir, because there is a national statistics says that there's a 3%, 4% growth by volume in terms of general consumption, so that itself is we have to, 7% is indicates a c

So thank you, everyone, for joining the call of Dodla Dairy for the second quarter. We really appreciate you spending time with us. If there's any other queries, we have our email id on the investor presentation, please do reach out to us, and we'll get back to you. Thank you so much for getting here give you a sparing time with us.

Management

Speaking time

Sunil Reddy

Moderator

Anjaneyulu Ganji

Resha Mehta

Management

Ramesh

Abhishek Maheshwari

B. V. K. Reddy

Pranjal Garg

Aniruddha Joshi

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Opening remarks

Aniruddha Joshi

Yes. Thanks, Lizann. On behalf of ICICI Securities, we welcome you all to Q2 FY '23 Results Conference Call of Dodla Dairy Limited. We have with us Senior Management represented by; Mr. Sunil Reddy, Managing Director; Mr. B.V. K. Reddy, CEO and Mr. Anjaneyulu Ganji, CFO. Now I hand over the call to the management for their initial comments on the quarterly and half yearly performance. And then we will open the floor for a question-and-answer-session. Thanks, and over to you, sir.

Sunil Reddy

Thanks, Aniruddha. This is Sunil here. Thank you very much, and once again, Aniruddha for getting us on the call. Hello, everyone. I welcome you all to our Q2 and half yearly FY '23 Earnings Conference Call, and I hope all of you are doing well. I'm glad to announce that the operating revenues grew by 22.8% in year-on-year to INR 695 crores, supported by a gradual rise in selling prices, coupled with the strong demand for milk and value-added products for in the festive season. Our milk procurement grew by 11.2% year-on-year to 14.3 lakh liters per day in Q2 FY '23. On average, our milk sales also increased by 14.7% year-on-year to almost close to 11 lakh liters per day. The company successfully navigated a lot of sectorial headwinds, including lumpy skin disease, our break among cattle, which all of you must be aware of, which impacted milk procurement, rise in material and packaging costs and inflationary trend due to global reasons. VAP sales grew by also 19.3% year-on-year to INR 1

B.V. K. Reddy

Thank you, Sunil, sir. Very good afternoon to all the participants. We have very healthy quarter, showing growth in revenue and other parameters. We are moving towards enhancing our footprints, strengthening our pan-India stance. As on 30th September ‘22, we have procured milk around 1.2 dairy farmers daily, of which 88% have provided regular direct payment to the bank accounts. Our direct procurement model has further strengthened wherein we are buying almost all the milk directly from the farmers more than 8,000 villages as compared, resulting in cost savings and establish a deep-rooted relationship with them. Our Orgafeed operations, wherein we have provided a high-quality feed to the dairy farmers, help us strengthen this relationship with them and also ensure that both the parties get benefitted. Orgafeed revenue stood at INR 28 crores in H1 '23 with EBITDA approximately INR 3 crores during the same period. In terms of our presence, we continue to have third highest market presenc

Anjaneyulu Ganji

Thank you, Sir. Good morning, everyone. I would like to briefly touch upon the key performance parameters for the second quarter of the financial year 2023. We have also submitted a detailed presentation of our financial performance on the stock exchanges. And also we have uploaded the same on our website. Now taking a glance and the financial highlights for the quarter ended September 30th 2022. The operating revenues stood at INR 695 crores for Q2 financial of 2023, compared to INR 566 crores of Q2 FY '22, with a strong growth of 22.8% year-over-year. The company's domestic business touched by 20.1% year-over-year to INR 644 crores, whereas the international business registered a strong growth of 70% year-over-year to INR 52 crores for the quarter. EBITDA was at INR 59 crores in Q2 of FY '23 compared to INR 61 crores in Q2 of FY '22. Profit after tax was at INR 39 crores in Q2 FY '23 compared to INR 29 crores in Q2 FY '22, registering a growth of 34% year-over-year, owing to the decl

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