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Dodla Dairy — Q3 FY25 earnings call

Call held 31 Jan 2025

Management summary

Dodla Dairy reported a strong Q3 FY25 with revenue growing 21% YoY to ₹901 crores, driven by robust performance in Africa and Ografeed. Net profit margin expanded by 152 bps to 7.1%, aided by tax savings from a new Singapore tax residency certificate. The company also announced a significant ₹280 crores capex for a new Maharashtra facility to expand capacity and de-risk procurement.

Highlights

Revenue grew 21% YoY to ₹901 crores in Q3 FY25, despite seasonality.
Africa and Ografeed segments achieved highest ever quarterly revenue, with 9-month revenue surpassing full FY24.
Net profit margin improved 152 bps, reaching 7.1% in Q3 FY25, aided by tax savings.
Secured tax residency certificate in Singapore, resulting in a tax saving of ₹5 crores.
Board approved ₹280 crores capex for a 1 million litre/day greenfield facility in Maharashtra, expected by FY27.

Concerns

VAP sales remained soft in Q3, contributing 32.3% of total revenues, reflecting seasonal nature.
Africa margins impacted by delayed monsoon leading to higher procurement costs, though expected to improve.
India business (excluding bulk fat sales) showed low single-digit growth in the last three quarters due to volume reduction and higher prices.

Key financials

01 Revenue ₹901 Cr +21%YoY
02 EBITDA ₹96 Cr +15.6%YoY
03 EBITDA Margin 10.6%
04 Net Profit ₹64 Cr
05 Net Profit Margin 7.1%
06 Gross Margin 28.2%
07 VAP Sales ₹281 Cr +50.9%YoY
08 Average Milk Sales 11.6 lakh litre +9.1%YoY

What they filed

Q1 FY27: revenue up 6.1%, net profit down 64.5% against the same quarter last year.

₹ Cr · quarterly

Line item	Q2 FY25	Q3 FY25	Q4 FY25	Q1 FY26	Q2 FY26	Q3 FY26	Q4 FY26	Q1 FY27
Revenue	903	803	808	901	855 −5%	822 +2%	845 +5%	956 +6%
Expenses	817	720	741	839	778	765	816	922
EBITDA	87	83	67	62	77 −11%	57 −31%	29 −57%	34 −45%
Margin	10%	10%	8%	7%	9%	7%	3%	4%
Other income	10	30	24	29	11	6	22	12
Interest	0	0	0	0	0	0	0	0
Depreciation	16	16	16	15	15	16	16	16
Profit before tax	80	96	76	75	72 −10%	47 −51%	35 −54%	29 −61%
Tax rate	26%	20%	25%	17%	26%	-21%	-57%	26%
Net profit	59	77	57	62	54 −8%	57 −26%	55 −4%	22 −65%
EPS	9.85	12.70	9.40	10.34	8.91	9.42	9.19	3.61

How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Capital allocation

high confidence

Capex ₹280 Cr Combination of debt and internal accruals, with preference for debt if government offers interest subvention
- Greenfield facility in Maharashtra for 1 million litre/day handling capacity, including powder plant (60 tons/day) and liquid milk/curd/other products ₹280 Cr
The Board has approved a capex of INR280 crores towards a Greenfield facility in Maharashtra. This is expected to come on stream by the end of the financial year '27. We will be funding this capex via a combination of debt and internal accruals. Yes. See, there, we are putting up a powder plant that is 60 tons per day capacity. So that 60 ton capacity powder plant itself will take away almost requirement of milk is 7.5 lakhs. And balance, there we are also planning liquid milk as well as curd and all other products also.
Liquidity Liquidity disclosed Company has ample internal capital and healthy cash flows to support expansion and working capital needs.

Otherwise, we will have ample capital of our own to deploy it. We can still have our own cash for our working capital requirements, plus we will have money for expansion also.

Guidance & targets

Revenue

Overall Revenue Growth Revenue · Next few years · High confidence 0.15

We will try to maintain the CAGR growth that we've been promising at 10% by volume and 15% by revenue.

— Sunil Reddy Dodla
Quick Commerce & Modern Trade Revenue Revenue · FY25 · High confidence 100 crores

Yes. We are expecting roughly about INR100 crores revenue this financial year. Yes, modern trade and e-commerce.

— BVK Reddy

Volume

Overall Volume Growth Volume · Next few years · High confidence 0.10

We will try to maintain the CAGR growth that we've been promising at 10% by volume and 15% by revenue.

— Sunil Reddy Dodla

Margin

Overall Margin Levels Margin · Next few years · High confidence maintain

I think between the 3 we will be able to maintain this healthy state of growth and margins even for a few more years to come.

— Sunil Reddy Dodla
Ghee EBITDA Margins Margin · Long-term · Medium confidence 0.08 to 0.10

It should be around 8% to 10% number because, ghee once you get more of a brand, we were there at a while and then we had a shortage of product, therefore, we had to withdraw from markets like Gujarat and certain areas. But once you build yourself a brand, any good quality ghee versus any ghee, you will find a wide range of pricing.

— Sunil Reddy Dodla

Capex

Maharashtra Greenfield Facility Commissioning Capex · End of FY27 · High confidence on stream

This is expected to come on stream by the end of the financial year '27.

— Sunil Reddy Dodla

Capacity

Maharashtra Greenfield Facility Capacity Capacity · By end of FY27 · High confidence 10 lakh litre per day

It will be approximately 10 lakh litre per day handling capacity plant.

— Sunil Reddy Dodla

What to watch in Q4 FY25

Africa Segment Margin Improvement

Next couple of months (Q4 FY25)

Current Impacted by delayed monsoon and higher procurement costs in Q3 FY25

Target Improvement in margins

Why it matters

Africa is a growth driver, and margin recovery is key to overall profitability.

However, our margins were impacted due to delayed monsoon leading to higher procurement cost. We expect this to improve in over a couple of months.

Risks & concerns

Seasonality impacting VAP sales
medium

Q3 is a moderate quarter for dairy, VAP sales were soft (32.3% of revenue), but expected to improve in summer. Company aims to expand geographies to curb seasonality.

Management acknowledged
Higher procurement costs in Africa due to delayed monsoon
medium

Africa margins were impacted in Q3 FY25 due to delayed monsoon leading to higher procurement costs, but management expects improvement in a couple of months.

Management acknowledged
Low single-digit growth in India business (excluding bulk fat)
medium

Lower growth attributed to packet/volume reduction and higher prices impacting consumption, but management expects return to 8-10% volume growth from Jan with summer months.

Analyst acknowledged

Q&A highlights

7 direct

India Business Growth (excluding bulk fat) Direct

So basically, lower growth was on earlier, like we said, the number of packets and volume reduction that had happened was the reason why the lower growth numbers were there in terms of liquid milk. And it was generally also, I think as the higher price went in a bit of a consumption had dropped. But we are seeing good offtake starting off from Jan and the summer months coming in. So we are confident that these growth numbers will come back to the regular 8% to 10% of volume growth.

Addresses the concern about low single-digit growth in the core India business and provides a forward-looking view on recovery.

Asked by Aditya

Maharashtra Capex Funding Strategy Direct

So the capex that we are looking at, we can actually do the entire thing to our internal accruals that we have. But we will be looking at debt because we have certain advantages of if the government is willing to give us an interest subvention. And if we're able to get some benefits from the government side is the reason why we'll be taking the debt and using not our internal accruals and making it as an overall more efficient return on the capital that we are deploying.

Clarifies the funding approach for the significant new capex, indicating a preference for debt if government incentives are available, optimizing capital efficiency.

Asked by Nandita

Africa Margins Impact and Outlook Direct

The reason was as a percentage of our showing lesser from an 8.68% to 8.48% is fundamentally because Africa, where we started Kenya, which gave us a 40,000 litres of market, which is a new market. We've got volume, but we still didn't get the margin because it was also a tougher summer. So procurement prices didn't go down as expected, which have been corrected now. So that is why you will see the percentage drop from 8.68% to 8.48%. But as an absolute number, it grew from INR 64.8 crores to INR 76.4 crores.

Explains the slight dip in overall EBITDA margin percentage despite absolute growth, attributing it to initial lower margins in the new Kenya market and higher procurement costs, with an expectation of improvement.

Asked by Vinamra Hirawat

Tax Savings from Singapore TRC Direct

Reason being we obtained tax residency certificate in Singapore, which enables the exemption of dividend income in Singapore, resulting in a tax saving of INR 5 crores.

Highlights a specific operational efficiency gain that directly contributed to the improvement in net profit margin.

Asked by Nandita

Quick Commerce Contribution to Sales Direct

So I think it's only a shorter time before we go there. But as a percentage, I think for all of us, for us to put together, it is still a small percentage of overall. It's still 0.5% of our revenues. I think in the days to come, it will grow, but we'll also have to keep both the channels growing.

Provides a current baseline for quick commerce sales and a directional outlook for its growth, indicating a cautious but strategic approach to this evolving channel.

Asked by Vinamra Hirawat

Milk Price Inflation and Price Hikes Direct

Yes, madam. See, in the milk prices, we are expecting INR 1 to INR 2 price hike already INR 1 already some areas, it has already gone up. And further we are expecting INR 1 more also will go up in the month of March and April. For that already selling price also corrections have already started. So one round we have already seen this from tomorrow, day after we are doing in Telangana and Andhra. In some parts of Karnataka also we have already included. So simultaneously selling price also we are taking up.

Details the expected input cost inflation due to the lean season and management's proactive strategy to pass on these costs through selling price corrections.

Asked by Resha Mehta

Health of Cooperatives and Farmer Sourcing Direct

I will answer this. See, especially if you take Telangana, so Telangana is very poor, so they are not able to see -- make a payment to the farmers and they are due almost a couple of months. So it is very shabby, especially in Telangana. And Telangana and Andhra, see they are net buyers, throughout the year, see, they don't have surplus milk.

Provides insight into the competitive landscape for milk procurement, highlighting the challenges faced by cooperatives and how Dodla Dairy's prompt payment model attracts farmers.

Asked by Aejas Lakhani

3 min read 8 chapters

Detailed narrative

Strong Q3 FY25 Performance Driven by Africa and Ografeed

Dodla Dairy reported a robust Q3 FY25, with revenue growing 21% year-on-year to ₹901 crores. This growth was significantly propelled by the Africa and Ografeed segments, which achieved their highest ever quarterly revenues and whose 9-month revenues have already surpassed their full FY24 figures. Despite Q3 typically being a moderate quarter for the dairy business due to seasonality, the company maintained healthy margin levels.

Profitability Boosted by Tax Efficiency and Margin Stability

The company's net profit for Q3 FY25 stood at ₹64 crores, with the net profit margin improving by 152 basis points to 7.1%. This was partly due to a tax saving of ₹5 crores, achieved after obtaining a tax residency certificate in Singapore, which exempts dividend income. Overall EBITDA for the quarter was ₹96 crores, maintaining a 10.6% margin, which management attributes to ongoing efficiency improvements in milk procurement and processing.

Strategic Capex for Greenfield Expansion in Maharashtra

Dodla Dairy's board approved a substantial capital expenditure of ₹280 crores for a new greenfield facility in Maharashtra. This plant, with an approximate handling capacity of 10 lakh litres per day, is expected to be operational by the end of FY27. The facility will include a powder plant (60 tons/day) and also process liquid milk, curd, and other value-added products. Funding for this expansion will be a combination of debt and internal accruals, with a preference for debt if government interest subvention is available.

Addressing Soft VAP Sales and India Business Growth

Value-added product (VAP) sales remained soft in Q3 FY25, contributing 32.3% to total revenues, reflecting the seasonal nature of the industry. However, management anticipates an improvement in VAP sales during the upcoming summer season and plans to expand into new geographies to mitigate seasonality. The India business, excluding bulk fat sales, experienced low single-digit growth in the last three quarters, attributed to volume reduction and higher prices, but is expected to return to 8-10% volume growth from January 2025.

Dynamic Milk Procurement and Pricing Strategy

Milk procurement prices are on the rise as the industry enters the lean season. Management expects further price hikes of ₹1-2 per litre, with ₹1 already implemented in some areas and another ₹1 anticipated in March/April. In response, the company has already initiated selling price corrections in regions like Telangana, Andhra, and parts of Karnataka. Dodla Dairy's direct-to-farmer model helps maintain milk quality and ensures consistent supply.

Africa Performance and Margin Outlook

The Africa segment demonstrated faster revenue growth in Q3 FY25, driven by increased utilization of new capacity in Kenya. However, margins in Africa were temporarily impacted by delayed monsoons leading to higher procurement costs. Management expects these margins to improve within a couple of months and aims to maintain consistent margin levels despite seasonal fluctuations. The Kenya plant is currently operating at 40% capacity utilization, indicating significant headroom for future growth.

Quick Commerce and Modern Trade Channel Development

Dodla Dairy is actively exploring and expanding its presence in quick commerce and modern trade channels. Currently, quick commerce contributes a small 0.5% to total revenues, but management expects this to grow by another 0.5-2% in the short term. For the full financial year FY25, the company anticipates generating approximately ₹100 crores in revenue from modern trade and e-commerce combined, significantly higher than the previous year.

Strategic Advantages in Competitive Landscape

The company highlighted its strategic advantage in milk procurement, particularly against struggling cooperatives in states like Telangana, Andhra, and Karnataka, which often face delays in farmer payments. Dodla Dairy's prompt payment and service model helps attract and retain farmers, ensuring a stable and quality milk supply. The new Maharashtra facility is also strategically located to de-risk procurement from other states and support existing plants in Hyderabad and Karnataka.

This is an AI-generated summary of a publicly available earnings call transcript.

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