Dodla Dairy Limited (DODLA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Dodla Dairy Limited Q1 FY '27 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements do not guarantee the future performance of the company, and it may involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Dodla Sunil Reddy, Managing Director, for his opening remarks. Thank you, and over to you, sir.

Thank you very much. Good morning to all the participants. On behalf of Dodla Dairy Limited, I extend a very warm welcome to everyone joining us on our call today. On this call, I'm joined by our CEO, Mr. B.V.K. Reddy; our CFO; Murali Mohan Raju; and SGA, our Investor Relations Advisors. I hope everyone has had an opportunity to go through the financial results and investor presentation. which has been uploaded on the stock exchanges and our company website. Q1 financial year '27 was marked by the highest-ever quarterly revenue of INR 1,198 crores, a year-on-year increase of 19%, along with the record milk procurement of around 21.1 lakh liters per day supported by the revival in the milk supply. EBITDA for the quarter stood at INR 65 crores to an underlying EBITDA margin of 5.4%, and PAT stood at INR 41 crores. While milk availability has improved during the quarter, procurement prices did not come down as the focus was on building up the inventory for future requirements. Our strategy is in line with the overall industry trends. These elevated procurement prices were not fully passed on to the consumer, resulting in continued near-term pressure on our profitability. With this in view, we will be able to pass on the increase in price to our consumers in the forthcoming quarters. This said, the year-on-year decline in EBITDA and PAT is largely cyclically driven by the input cost sweep, and we expect gradual recovery from Q2 onwards. Our procurement network also continued to strengthen during the quarter. Procurement in Maharashtra and Karnataka improved, and we continue to add more farmers to our network. Coming to a value-added products portfolio. We recorded our highest ever sales of INR 415 crores, registering by 17.6% year-on-year growth, supported by prolonged summer season compared to the earlier -- compared to the earlier onset of monsoons in Q1 FY '26. We see a strong demand across our summer-oriented products such as curd, buttermilk, flavored milk, ice cream and other value-added products. Notably, the highest ever number is achieved without any support from bulk sales for SMP or butter, reflecting our continuous efforts and dedication of our team towards a VAP prod mix aspiration. On a like-to-like basis, excluding the bulk sales proportion, VAP delivered a solid growth of 40.6% year-on-year. Africa business delivered another strong quarter, recording the highest ever revenues of INR 154 crores representing a solid growth of 45.6% year-on-year. EBITDA also touched a record of INR 24 crores, increasing 74% year-on-year. We continue to maintain our market share of approximately 50% in the Uganda long-life milk category and yogurt. In Kenya, processing capacity continues to ramp up towards full utilization, while our current market share has remained modest at around 2% to 3%. Our Orgafeed continued to complement our core dairy operations during the quarter, with strong financial contribution, this also plays an important strategic role in strengthening our procurement ecosystem and maintaining good relations with farmers, enabling us manage to the industry-wide challenges such as periods of low milk availability. Coming to our OSAM business, the integration continues to progress well following the acquisition, revenues for the quarter stood at INR 91 crores, and we are gradually seeing improvement in our profitability. We continue -- we continue to focus on improving operational efficiencies across sourcing and costs while strengthening our presence in Eastern Africa with driving long-term growth in this business. Now speaking on our expansion initiatives, our Maharashtra greenfield project is progressing as per the plan for commercial operations remain intact. As part of our Eastern India expansion strategy, we continue to able to evaluate the optimal utilization of a Chandel plant, including the possibility of shifting flavored milk production at this plant to effectively serve the Bihar and Jharkhand markets. Following our due diligence on land alloted by BIADA, we are revisiting our strategy for capital allocation either towards the land or towards more capacity at the Chandel facility. We aim to strengthen our presence in a more capital-effective manner. I would like to inform you that the Board of Directors has approved a primary investment of INR 11.65 crores for around 2% stake in Sids Farm Private Limited. Sids Farm is a premium dairy brand with a strong multiregional direct-to-consumer and e-commerce presence. The investment aligns our core dairy business and provides exposure to the fast-growing premium and direct-to-consumer dairy segment. It also offers us an opportunity to associate with and support the growing for differentiated high-quality dairy brand. With this brief, I now hand it over to CEO of our company, Mr. B.V.K Reddy. Thank you very much.

Thank you, Mr. Sunil Reddy. So now I will walk through you the quarter's performance highlights of our business. Starting with our Dodla Dairy operation. During the quarter, as anticipated, the overall milk supply situation started improving, and we see some increase in our milk procurement volumes, recorded at 21.1 lakh liters per day, which is 13% year-on-year growth. It reaches the strength of our operational team, direct procurement model and longstanding farmer relationships. The average procurement cost Q1 FY '27 stood INR 41.3 per liter as against INR 41 per liter in the previous quarter and INR 37.4 per liter in Q1 of FY '26. However, we continued with our approach of gradually passing on the price to the consumers and avoided taking a lump sum price hike. Our average new sales price for the quarter stood INR 59.4 per liter, which was INR 58.4 per liter in the previous quarter, and INR 57.2 per liter in Q1 FY 26. Therefore, our margin continues to remain under pressure for the quarter. To put the squeeze in context, spread between our milk realization of INR 59.4 and the procurement cost of INR 41.3 narrowed INR 18.1 per liter from INR 19.8 a year ago, which largely explains the EBITDA margin decline from 8.2% to 5.4%. In addition to that, we witnessed some increase our operational cost mainly due to remote cost inflation and shift in product mix from bulk sales to milk and grab sales. We see an increase in cost like transportation, overheads, fuel and packing. The packing material cost increased by 48% during the quarter, rising 5.6% of our revenue as against 4.4% in the period of last year. We plan to pass on some part of this cost inflation to the end consumer in a gradual manner. Our pricing strategy remained in line with the overall industry trend and reflects a balanced approach. Our subsidiary, OSAM Dairy is also progressing well. We see a healthy contribution from the company in terms of our curd and VAP sales volume. It's consistent and gradual improvement in operational efficiencies, OSAM is headed towards our targeted scale and margin profile. Coming to Africa business. We delivered a strong revenue growth of 45.6% on year-on-year largely driven by robust milk sales growth, 52.3% on year-on-year. This is the outcome of our targeted efforts on gaining market share in Kenya whilst particularly pricing our products. Along with revenue growth, our profitability also improving steadily. We are confident in achieving robust and consistent revenue growth along with the steady margin improvement in this business. So coming to feed, Orgafeed recorded revenue growth of 25.9% on year-on-year. Raw material price growth is still faster than the selling price, leading to continued pressure on the profitability. However, as anticipated, we see a sequential recovery in our profitability, our EBITDA margin for Q1 '27 with the marginal sequential improvement stood 10.5%. Coming to product mix. Our milk sales stood 13.6 lakh liters per day, an increase of 14.5% on a year-on-year during the quarter. We delivered highest ever VAP sales number to INR 414.7 crores as against INR 352.8 crores in Q1 FY '26. This was mainly due to a seasonal variation explained by our MD as well as good contribution for OSAM business. Curd and curd sales products reported a healthy growth of 41.4% on year-on-year and stood at 642.6 million metric tons per day in terms of value and curd sales grew by 34.9% on a year-on-year basis. Going ahead, we expect some modernization in the procurement cost from Q2 onwards, leading to starting gradual recovery in the margin profile for upcoming quarters. We are confident to mitigate this near-term pricing pressure and remain focused on effective execution and achieving our long-term objectives while delivering profitability growth. Now I request Mr. Murali Mohan Raju, our CFO, to highlight the financial quarters.

Thank you, Mr. BVK Reddy, and a very good morning to all the participants on the call. Talking about consolidated financial performance in Q1 FY '27. Revenue from operations stood at INR 1,198 crores, the highest ever quarterly revenue registering a 19% year-on-year growth. Gross profit for the quarter stood at INR 278 crores with the gross margin of 23.2% as against 25.8% in Q1 FY '26. Employee expenses on Q1 FY '27 stood at INR 56 crores compared to INR 47 crores in corresponding quarter last year. The 18% year-on-year increase was primarily due to OSAM addition during this quarter and higher employee costs pertaining to the minimum wages criteria as per new labor laws. Other expenses for the quarter were INR 159 crores compared to INR 130 crores in the corresponding quarter last year, while other expenses remained broadly in line with revenue as a percentage of sales. The increase in absolute terms was primarily driven by higher transport, overhead and fuel costs due to a shift in product mix from bulk sales to liquid milk and value-added products. EBITDA for the quarter stood at INR 65 crores with an EBITDA margin of 5.4%. Depreciation expense increased to INR 23 crores in Q1 FY '27 from INR 18 crores in the corresponding quarter last year. Other income for the quarter stood at INR 14 crores. Unlike previous few quarters, we don't have any credits in Q1 FY '27 related to any of the favorable income tax orders. Net profit for the quarter stood at INR 41 crores with a net profit margin of 3.4%. On balance sheet, we remain net debt-free with approximately INR 689 crores of cash and investment, which comfortably funds our INR 590 crore CapEx program, along with the OSAM and Africa expansion without any leverage. Lastly, I would like to mention profitability includes purchase price allocation effects, brand amortization and fair value adjustments. Hence, it's the underlying profitability runs ahead of the reported figures mentioned in our investor presentation. With this, we conclude the presentation and open the floor for further discussion.

[Operator Instructions] The first question comes from the line of Praveen Kumar with Equitas Capital Advisors.

I had a couple of questions. The first one was on the margin trajectory. Can you walk us through how do you expect the margins to behave from here onwards over the next 6 to 9 months? And then also over the next 2 to 3 years, can you walk us through what are the triggers? What are the near term and the midterm triggers for improving these margins? Or do you -- given what has happened on the procurement side and on the pricing side, do you think that margins are structurally reset downwards to some extent? That is the first question. The second question was on [indiscernible] farms. Just wanted to understand the thought process behind that, why that 2% is very minor kind of stake, what is the thought process behind that? Third question was -- if I look at the ex...

I'm sorry to interrupt, you're breaking up every now and then. Could you please change your location? And use your phone on the handset mode in case of it's not on handset?

It is on handset. Is it better now?

Yes, yes.

Yes. So the third question was on the procurement growth adjusted for OSAM, that seems to -- on a Y-o-Y basis, that seems to have grown around 5.3%. So I just wanted to understand again that most of it has probably come from that Maharashtra scale up. So does it mean that ex of Maharashtra, the other geographies, there hasn't been much of a procurement growth? Yes. Those are my 3 questions.

Yes. So thanks Praveen. I'll answer the first 2 questions and the third question regarding procurement growth in OSAM and Maharashtra, BVK will answer. Margins, the trajectory if you look at it, we are still confident that we will maintain between the 7% and 8% EBITDA margins even in the current year that we are at because like we were saying earlier, we were assuming that onset of monsoons, the procurement prices will taper down, but now seeming to be that there's not much of an increase in procurement in terms of the price what we normally expect. We will have to slowly pass on the prices to the consumers, which we have already started in the process. That in view, the margins will start coming back to those between the 7% and 8% subject to whatever is the 1 month of time that it consumes to pass on the prices. In the 2- to 3-year scenario that we ask, we are confident of maintaining similar profit margins as we go forward, predominantly because of, a, when we look at it, we're adding on Maharashtra, the improvement expected from OSAM. These are mostly seasonal corrections and not structural in nature. Therefore, we are very confident. And in the 2 years -- 3 years to come, therefore, it is not a recycle of the margins, but more a seasonal correction that has been happening, that is a scenario. Now coming to the capital allocations to Sids Farm on a minor stake. It is basically for us more in terms of learning keeping a closer watch on how the modern and high-value the D2C products behave because for example, we believe that sort of consumption pattern to be my habit from a pad, it will take significantly longer and therefore, the seasons and such other seasons that we have, we normally try to go as we're learning it with other rather than trying to create on our own. And if it is showing good trajectory and possibility, we will also go beforehand as to how it is progressing. So that is the intention of the capital. Regarding procurement growth, BVK sir will explain why in what is happening in Bihar, and it's not only Maharashtra, but also I think we have grown in Karnataka as well. But BVK will explain Bihar and other growth in procurement.

Yes. In some -- see, if you see last year, procurement last year, see, we don't have right data because they used to use a lot of powder and butter. Now we know that we are avoiding that powder and butter. And now first quarter now, more or less, we matched our system procurement. So there is a slight growth, not much growth because we have done a lot of corrections more than the procurement. We are going for farmer payment model. That's why things are going very slow. But in Maharashtra, we have done a procurement growth. So last year to this year, Maharashtra, we have done a growth of. Overall growth, we have done 13% with organic growth of 10% in Maharashtra also. And in Africa, we have done roughly about 28% procurement growth, in only procurement growth. That's all from my side.

So actually, my question on procurement was that if I take out OSAM, adjusted for OSAM, the remaining unit procurement grew 5.3%, right? And when you are saying that Maharashtra grew around 10% and Africa grew 20-plus percent.

No, no. Maharashtra is part of TD overall, overall, we have grown by 13.5%.

No, no, I understand that.

Almost it is flat. But Africa and India together, we have grown more than 13%.

No, no, I understand that.

India, we have grown only 3%.

Stand-alone only 3%, Praveen.

No, no, I understand that. I'm saying that ex OSAM. I mean, last year, Q1 FY '26, not have OSAM, right? Then your procurement was around 18.7, correct, around? Right? And this year, if I take...

I can give break up, Praveen. So out of 18.7 months, the current year, we have done 21.13. The breakup is for Dodla Dairy India, 16.75 now increased to 17.23, that is 3% of growth. Then oversees from 1.96 to 2.52, that's 28.5% of growth. For HR Foods, last year, we don't have it. Now we have 1.39. So the overall growth comes to 13%.

I understand that. I'm saying if from the 21.1, if I take out OSAM 1.39. Around 19.7 correct?

Exactly.

Right. So that 19.7, I'm comparing it to the last year, 18.7, right? I'm saying that is a growth of 5.3%, which has mostly Maharashtra and Africa looks like, right? So...

Mostly from Africa followed by Maharashtra.

Yes. So hence, my question is, does it mean that the other geographies like Karnataka, Andhra and others, have they degrown during this time in terms of procurement?

It's not degrown, it's maintained the same because it's again the summer months of the growth.

Okay. And do you expect this kind of a trend to continue where you don't expect much of a growth from the existing geographies and largely Africa, Maharashtra and Bihar is what will drive?

So basically, what happens is also what we play with pricing because sometimes with the pricing of the particular state in comparison with other states are lower or higher, we try to manage as a blend of all the sales procurement. For example, Andhra is becoming more competitive and the prices are going higher. There, we are not expanding capacity or improving and waiting to see if it can be -- the pricing is going too high. And certain areas where the pricing is more confined to us because of our transport and being closer to the plant where we operate, we enhance there. So it's a blend of what we do also that plays into the role.

[Operator Instructions] The next question comes from the line of Anirudh Joshi with ICICI Securities.

Yes. And sir, 2 questions. So can you largely assume that the worst in terms of margins is likely behind. And in a way from here on, either there should be stability or there should be recovery depending on the milk procurement prices. Also, have we largely passed on the entire increase in procurement prices as well as fuel prices increase via selling price hikes or still we need to take some round of further price hikes? And then second question on the balance sheet. We have seen there is a drastic increase in goodwill and intangibles of almost INR 250-odd crores. So I guess it's related to OSAM acquisition, but any plans for writing it off? And if the -- if it is written off, is there any tax benefit available on that?

So the first question, BVK will answer regarding our margin profile, we had asked for. And I think the balance sheet BVK -- sorry, Murali will answer it. Yes, sir.

But Aniruddha, and now see Africa, we have done whatever procurement hike was there be compensated with the sales increase also. That is number one. And Orga also, what we have done slightly already 70%, 80% raw material sales price correction, we've already done it. Only in Dodla ADL also, we waited till July first week, we can normally now from July onwards of procurement goes up normally, prices will come down. So this year, it has not happened. That's why now we have already done corrections mostly from 15th onwards, and most of the corrections are done. We are very confident that we'll get back to the same or later, like 7% to 8% margin margin profile. With regard to the tangible, so basically, like OSAM, we have INR 100 crores of goodwill is there, apart from that around INR 150 crores of branding is there. So based on that, we have allocation impairment of whatever it is there. But it's a standard way of amortization. There is not any surprise results of reduction in the fair value.

So therefore, we will not be providing anything for write-offs in the impairment of assets. And as BVK was saying, we expect that the worst is behind us in terms of the procurement prices coming to our stability. I don't think they'll further increase dramatically marginal corrections might happen, but we will have to take it in the correction to the consumers.

Okay. Sure, sir. Sure, sir. This is very helpful. Just last question from my side. We have seen many players, especially in South India, are focusing very aggressive on the ice cream segment and are setting up large plants also. So considering the investments and the growth in ice cream segment, there is a possibility that there is a solid growth in the industry. So what will be Dodla Dairy stance on in a way, participating in the growth possibility for ice cream as an industry? And if yes, what will be the CapEx or the investment plans on that? Yes, that's it from my side.

Right now, we don't have any plans of a major ice cream expansion as a capital expansion. We have also seen reasonably good traction in our ice cream volumes, which thankfully due to summer has done very well for us. I think we still have some leftover capacities because we can also produce ice cream previously during the season to start for selling during -- at peak summer season. So we are waiting to see how it pans out for us in the current year and maybe such the decisions will be made not currently, but hopefully in the future. So our growth has been from INR 16 crores to INR 22 crores in the first quarter itself. So we think once we see this year panning out and that we'll make plans. Currently, we do not have any for major expansion.

The next question comes from the line of [indiscernible] Shah with DSP Asset Managers.

My first question is regarding the quantum of the price hikes. BVK sir mentioned we have done corrections from July 15 onwards, if you could just mention the quantum over the INR 2 price hike that we took last quarter, how much -- how much incremental price hike we've taken now?

So I think from the Q1 to Q1, if you compare the price increases, we have done an average price increase in Dodla for almost 2% increases in the consolidated, Dodla being around 1.4%, and Africa being around 4%. I think certainly, we look at another around 2%, 2.5% correction in the prices in the ongoing quarter that we look at. So effectively at the current year, we should look at 5%.

The total represent is in stand-alone Dodla or Africa and Dodla put together?

The total represents all put together, Dodla alone was around 1.4% currently, but we think we will take another 2%, 2.5% there.

That's the realization price we're talking, not the blended.

Yes, yes, yes. Okay. And secondly...

And it will be higher because ghee and other products, we have taken a substantially larger price increase. This is only milk.

Got it. Clear. And secondly, on the volumes, how do you expect the volume growth to be for the year? First quarter, of course, we have done quite well. But how do you expect it to be for the full year considering the price hikes that we are taking in?

Maintain our normal steady things of the 8% to 10% in India as volume growth and the price hikes will add to the value growth. So that's what we look at it.

Okay. So there is no change on the 8% to 10% volume growth number despite the price hikes?

Yes.

The next question comes from the line of Yash Goenka with Awriga Capital Advisors LLP.

Am I audible?

Yes.

Sir, my question is on pricing. What are the price hikes taken by competitors in the region we are operating? And have you seen competitors taking price hike in Tamil Nadu?

Price hike like in Tamil Nadu cooperative Amul has taken a price hike in the ghee, and Nandini has taken price hikes in ghee and the national cooperative had taken a price hike earlier in milk. We anticipate also they will also be forced to take price hikes, it's not currently in a matter of time. So we are -- in spite of that, we are continuing with our requirement of the price hikes that we'll have to take. Cavin's, we do not know when, but I'm sure they will have to take because the differential is becoming less. And we are seeing pressure coming on the ground in terms of their payments to be made to their back-end farmers and is getting delayed.

Okay. And sir, what is your price gap today with these cooperatives?

Almost averaging because depending on product or whatever, I think between Tamil Nadu will be the highest, but almost more than INR 10 price gap. And in Karnataka, it might be INR 6, INR 7 price gap. So those are the only 2 areas where we have a significantly large price gap to the cooperatives.

Okay. And the second question would be what kind of price hikes have you taken in the region where market share is stronger compared to the ones where your market share is weaker?

Basically, in terms of absolute number, it will be around INR 2 price increase that we have taken as a correction across.

The next question comes from the line of Abhishek Mathur at with Systematix Group.

Sir, you have mentioned in the presentation that you expect the 2Q milk procurement costs to normalize in the second quarter. What is leading you to sort of expect this? Is it only the improvement in the milk supply in Maharashtra? Or are there other drivers due to which you are seeing a normalization milk procurement cost? Also, if you can help with what was the average procurement cost that you saw in the June month? And what is the procurement cost that you saw in the July month? That's my first question.

So basically, what we will be in the normalization is whatever the price hikes that are taken, we'll maintain the same. We won't see a decline in the procurement prices, what the normalization means. I think the specific number in terms of what the price of milk were almost the same comes of June and July, I think if you want a specific figure of price that we are...

Basically, average is around INR 41, now also it is around INR 41.

Last 2 months in the month of May, June, July, overall procurement cost is can't say. So it is on the same level. Only we have done a sales correction average INR 2 per liter milk and VAP we have done INR 3 to INR 4 correction.

Got it, sir. That's helpful. Secondly, just a bookkeeping question. If you help with the numbers for the consol overall realization for 1Q and the VAP consol realization and the stand-alone and Africa realizations all for 1Q, please?

One minute. Murali will give you those numbers of 1Q for realization that we have.

So our overall realization as of milk curve, per liter?

No sir, overall consol, including milk, VAP and everything?

Yes, overall consol is INR 62.78 last year, current rate is INR 61.78 because the bulk was there in the last year. So if you exclude the bulk, last year is INR 59.82, current year it is INR 61.8.

And for VAP sir, VAP consol?

VAP consol. It is basically excluding the VAP, it is INR 64.11 is there last year, INR 61.32, VAP product for this current quarter -- last quarter, it is only INR 4.98.

Right. And finally...

Fat products.

Yes. Only butter and milk.

And lastly, sir for standalone and for Africa, what are the realizations?

I will give you a stand-alone. You see Africa, even Kenyan and Uganda, average realization is INR 65.

So last quarter...

Yes, last quarter to this quarter, no, I'll give the comparison. So last year, if you see Uganda, we were at 59.36. And this quarter, 65.31. And similarly, even in Kenya also, we were at 58 now 65.

Got it, sir. And finally, for stand-alone?

Standalone, overall excluding the bulk products it is 59.99 to 61.36 as on India standalone and overall including fat products it is 59.02, 60.88. And including the bulk, it is 62.25 of last April, 60.88 of current year.

The next question comes from from the line of Darshit Vora with Asit Mehta Institutional Equities.

Yes. And congrats on the strong growth in revenues. My first question actually is that if you look VAP sales ex of VAP and curd, the growth has been somewhat lower when compared to historical growth rate that we've seen. So any particular reason for that?

Basically, for the other VAPs considered to be as much smaller, right? The major contribution thus come from curd. So even if you can see curd slightly increasing, it will be better. But I think I'll just check the numbers, but like ice cream and paneer, we have done much better in terms of growth like INR 14 crores last quarter to INR 22 crores this quarter. I think remaining expenses specific number in VAP minus curd is what we've explained.