In an effort to pick up "substantial minority stake" in Pune-based Parag Milk Foods Private Limited, IDFC Private Equity Fund III, managed and advised by the Private Equity (PE) group of IDFC Alternatives Limited has invested Rs 155 crore through compulsory convertible debentures.
The erstwhile IDFC Private Equity is eyeing a 25% internal rate of return (IRR) from the investment which is its second in rural infrastructure and first in the dairy sector.
"Having invested in compulsory convertible debentures for Rs 155 crore, we hope to acquire substantial minority stake in next 3-4 years depending on Parag Milk Foods' performance. Parag Milk has created strong pan-India brands and has strengths across procurement, processing and distribution which are unique among private sector dairy companies," said Girish Nadkarni, partner at IDFC Alternatives.
Parag is one of the leading private dairy companies in India and markets its products under the 'Gowardhan', 'GO' and 'Pride of Cows' brands. The company, with products made from 100% cow milk, has a strong market leading position in cheese and ghee with many leading pizza chains as its customers. Parag recently launched its UHT milk product under the 'GO' brand.
The proceeds from this deal will be used to build capacities in various product lines, strengthen its procurement infrastructure and provide a part exit to existing investors, Motilal Oswal Private Equity who invested in the company in 2008.
The company processes close to 1.1 million litres of milk per day across its two plants in Manchar near Pune and Palamner in Andhra Pradesh. Parag has the largest cheese plant in Asia with a capacity of 40 tonnes per day. Parag has achieved a turnover of around Rs 880 crore for FY12, a 40% jump from the previous year.
Meanwhile, Nadkarni said that IDFC Alternatives in near future would be looking at investing in other verticals of rural infrastructure like warehousing, micro irrigation and agro distribution. "We would be interested to invest in anything in rural infrastructure which will improve productivity," he added.