Dodla Dairy IPO: Grey market doesn’t like it much, still giving it a premium

The grey market, or the unofficial market for trading in unlisted shares, is pricing each of these IPOs based on what value they may leave on the table for investors.

Hyderabad-based Dodla Dairy is aiming to raise Rs 520 crore from its IPO. The issue comprises fresh share issue worth Rs 50 crore, and an offer for sale of up to 1,09,85,444 shares. The company has fixed the price band at Rs 421-428.

The stock is trading at a Rs 75-80 premium in the grey market, which signals an 18-20 per cent upside on the IPO price. The issue will be open for subscription from June 16 to 18.

Dealers from the unofficial market have mixed views on the stock, as they are skeptical about the company’s growth and product mix strategy and find the IPO price aggressive. However, they expect decent listing gains.

Abhay Doshi, Founder of UnlistedArena.com, said the business is moving on a flat trajectory and there are no plans of expansion either. “That said, the IPO may give mild listing gains to investors, as it is not priced on the higher side,” he said.

Dodla sells products in the domestic market under the brand name ‘Dodla’ and ‘KC+’. It sells products overseas under the brands, Dodla Dairy, Dairy Top and “Dodla+”. It processes and sells retail milk and produces dairy-based value-added products such as curd, ultra-high temperature processed milk, ghee, butter, flavoured milk and ice cream among others

Sale of milk and dairy accounted for 72.81 per cent of the company’s total revenues for FY20. Value-added products accounted for 27.18 per cent of total revenues for the year and 24.68 per cent in the first nine months of FY21. Milk products brought in the remaining 75.32 per cent.

Due to Covid-led disruptions, the company saw 20 per cent drop in volumes and 12 per cent fall in sales in the four quarters to December 2020.

Umesh Paliwal, co-founder of UnlistedZone, said the company lacks an attractive business model. “Dodla would have to focus on value-added products as the margins milk and dairy are limited. The industry is dominated by unorganised players, adding more challenges to the business.”

A total of 35 per cent of the IPO is reserved for retail investors, 50 per cent for qualified institutional buyers (QIBs), and the remaining 15 per cent for non-institutional investors. Investors can bid for a lot of 35 shares and in multiples thereafter.

Dodla Dairy is the third-largest dairy firm in India in terms of milk procurement per day and second-largest private dairy player in terms of market presence. The company primarily caters to five states, namely Andhra Pradesh, Telangana, Karnataka, Tamil Nadu and Maharashtra. It also has some presence in Uganda and Kenya.