Dodla Dairy makes strong debut, lists at 28% premium over issue price

The stock listed at Rs 550, a 28 per cent premium over the issue price of Rs 428 per share on the NSE

Dodla Dairy made a strong debut on the bourses on Monday, with the stock getting listed at Rs 550, a 28 per cent premium over its initial public offer (IPO) issue price of Rs 428 per share on the National Stock Exchange (NSE). The stock opened at Rs 528 on the BSE, up 23 per cent. It extended gains to Rs 588.95, a premium of 38 per cent over its issue price.

At 10:01 am, shares of Dodla Dairy were trading at a premium of 35 per cent over the issue price at Rs 575 on the BSE and NSE. A combined 5.1 million shares had changed hands on the counter on the NSE and BSE at the time of writing this report.

Dodla Dairy is a South India based integrated dairy company that is ranked the third largest among private players in terms of milk procurement per day (average 1.02MLPD).

The public issue of Dodla Dairy was subscribed 45.62 times as the offer received bids for 388 million equity shares against the IPO size of 8.51 million equity shares. The qualified institutional buyers (QIB) put in bids for 84.88 times of their reserved portion and the quota of non-institutional investors garnered 73.26 times bids. The part set aside for retail investors was subscribed 11.34 times. The company said the net funds raised from the fresh issue will be utilised for repaying of borrowings.

Most analysts had a 'Subscribe' rating on the issue as they expect a rerating of valuations given Dodla Dairy's market leadership, high return ratios, thrust on expanding footprint and improved efficiencies.

The company during 9MFY21 (April to December) witnessed a robust rebound in financial performance, led by healthy improvement in Ebitda (earnings before interest, taxes, depreciation, and amortisation) margin. The profit after tax (PAT) stood at Rs 116 crore in 9MFY21 as against an average annual profit of Rs 0.6 billion over the last three years. Further, operating cash flow (OCF) generation continues to remain steady with a cumulative OCF of Rs 580 crore during FY18-9MFY21.

“The sharp gains in EBITDA margins was due to cost-cutting measures implemented to tackle the COVID-19 impact. These heightened margins are unlikely to sustain and management, too, has guided towards normalisation,” analysts at Ventura Securities said in an IPO note.

Despite the lack of earnings growth over the forecast period (given the high base effect of net earnings for FY21), we expect a re-rating of the valuations given the market leadership, strong sectoral growth trends, improved efficiencies (by eliminating market intermediaries), thrust on expanding retail footprint, debt-free status, completion of capex cycle and high return ratios, the brokerage firm said.