Local companies see a churn in dairy business

MUMBAI: Dairy firms are witnessing increased interest from investors as a changing consumption pattern in the Indian household is showing a clear preference towards protein-rich foods like milk products, pulses and non-vegetarian foods like egg, fish and meat. Close on the heels of the Tirumala Milk Products deal with a French dairy major expected to take a majority stake, Creamline Dairy Products — another Hyderabad-based dairy firm — is scouting to raise up to Rs 250 crore from strategic partners who can help it set up new facilities with better technologies and also boost its portfolio of value-added products.

Creamline, which sells its products under the ‘ Jersey’ brand name with Andhra Pradesh and Maharashtra as its main markets, is looking at foreign as well as domestic companies for partnership. At present, Godrej Agrovet holds 26% stake in the company and its promoters are willing to give a substantial stake to the incoming partner, two people involved in the deal said.

In the last fiscal, Creamline had clocked a revenue of about Rs 800 crore but, being in the basic dairy product business, had a margin of about 6-8 % compared to the 15-20 % range large and established pan-India players enjoy, industry reports showed. "The company is looking to enhance its portfolio of value-added products that enjoy much higher margins than what one gets in products like milk, curd, ghee and buttermilk," one of the people involved in the deal said. "It’s now looking to bring in a partner who can help it grow the product variety."

In India, the dairy business is worth about Rs 3.5 lakh crore and growing at a rate of about 15% annually. Increasingly, the rate of growth of demand for dairy products is outmatching the rate of growth of production, which in turn is reflecting in the rise in its prices. In October 2010, Subir Gokarn, a former RBI deputy governor, had for the first time pointed out how household affluence was leading to greater preference for protein-rich foods. He showed since there was a wide discrepancy between its rates of growth of production and demand for these products, the annual rate of inflation for some of the protein-rich foods was as high as 35%.