WestBridge close to investing Rs 800 crore in Milky Mist at nearly Rs 7,000 crore valuation

The investment is likely to be about Rs 800 crore and will value Milky Mist Dairy Food at about Rs 7,000 crore, these people said on the condition of anonymity.

“The negotiations which were on since last year are now through, and WestBridge is closing in on all the last bits of formalities. It has exclusivity on the deal, and in another few weeks, the financing will be made official,” said one of the people.

Milky Mist has previously held discussions with private equity and venture capital firms to raise funds. However, those talks did not fructify.

The company has never raised institutional capital before.

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“We are exploring fundraising and are in talks with multiple companies but have not yet finalised any particular suitor,” said K Rathnam, chief executive officer at Milky Mist. A query emailed to Sandeep Singhal, managing director at WestBridge Capital, remained unanswered at the time of going to press Sunday.

If the transaction goes through, it will be a growth-stage bet for WestBridge, a backer of companies like Dr Lal Pathlabs, Five Star Finance and Fogg deodorant maker Vini Cosmetics. The fund, which manages around $8 billion in assets, recently bought an additional 1.5% in Indigo Airlines, taking its stake in the Indian aviation market leader to more than 3.3%. The firm also returned to private tech investing over the past few years, becoming one of the most active there. WestBridge’s investments in startups include mobility firm Rapido; edtech companies PhysicsWallah, Lead School, Vedantu; and SaaS firm LeadSquared.

Milky Mist’s business

Based near Erode, Tamil Nadu, Milky Mist was founded by T Sathish Kumar more than three decades ago and is now a large institutional player servicing hotels, restaurants and caterers. The company sells cottage cheese, yogurt, butter and cheese among other products, and procures about 600,000 litres of milk daily from 60,000 dairy farmers.

Over the past two years, rising cattle feed prices and transportation costs have forced dairy companies to increase milk procurement prices to support farmers. This has come amid rising labour and packaging costs, which have further dented the cost structures of players, making it an industry-wide concern.

Milky Mist posted sales of around Rs 1,450 crore for the year ending March 31, 2023, a rise of over 42% over the previous year, the company said. In FY22, the company reported sales of Rs 1,012 crore with a net profit of Rs 32 crore, according to its filings with the Registrar of Companies (RoC). It has yet to file FY23 results with the RoC.

The company is in the process of undertaking a capital expenditure of Rs 634 crore for ultra-heat treatment needed to produce chocolates and ice cream.

Industry experts said Milky Mist has been reporting an operating profitability of about 15% over the last three financial years, which is why its debt protection risk profile is expected to remain comfortable over the medium term. “Further, it is expected to generate healthy cash accruals of more than Rs 120 crore per annum over the medium term as against Rs 67 crore and Rs 85 crore repayment obligation in fiscal 2023 and 2024, respectively,” said a recent report by ratings firm Crisil. According to the report, the company currently has a bank loan facility of Rs 1,092 crore.

“The debt is not very high given we have a strong bottom line with profit at over 15% of our sales,” Rathnam told ET.

The size of the country’s dairy sector is estimated at Rs 10 lakh crore, growing at nearly 10-12% annually. While India is both the largest producer and consumer of milk globally, the industry is highly fragmented with only a 15% market share coming to organised players, which are mainly co-operatives. The largest player, Gujarat Cooperative Milk Marketing Federation, which sells under the Amul brand, has a less than 7% market share.

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“It is not easy to expand nationally for dairy companies because the cost of distribution becomes very high beyond your core market … this eventually impacts profits. However, if a company is keen on entering other states, they need to invest large funds in setting up the back-end infrastructure and capacity,” said RS Sodhi, president at the Indian Dairy Association and former managing director of Amul.

Large companies such as Unilever, Britannia and ITC have mainly been operating in segments like flavoured milk, cheese or ice creams. These are still fringe players in the overall dairy market.

After failing to widen its dairy portfolio for several years on its own, Britannia entered into a joint venture agreement with French company Bel SA last year to make and sell cheese products.