Modern Dairies-Ushering White Revolution II
BSE 519287; CMP Rs 45
The World Bank affiliate IFC-Washington is picking up a near 20 per cent
Equity stake in the company at Rs 60 per share, a 33 per cent premium to the
current market price and the promoters raising their stake at Rs 84 per share.
At 1.5 mn litres of Milk per day, Modern Dairies is the biggest Milk processor
in Northern India, probably bigger than even Nestle's Dairy in Moga.
Here is the IFC-Washington's project appraisal:
Overview
Modern Dairies Limited (Modern Dairies or the company), a dairy company based
in the state of Haryana (Northern India), is undertaking a 4-year investment
program to expand its milk sourcing activity and to increase processing capacity
for further processed dairy products such as Casein.
As part of the project, the company has already successfully commissioned
plant to produce 9000 MT of Casein per annum with other by-products like WPC,
Lactose and Pure Ghee. Additionally, the company has already successfully
increased its milk processing capacity at its plant near Karnal, Haryana from
0.5 million to 1.5 million liters of milk per day (lpd).
The company now plans to conduct the second phase of its investment program,
comprising of:
- Expanding its milk supply network of farmers in the vicinity of the processing
plant,
- Finalizing the implementation of its production line of nutritional products,
- Modernizing its current operations to manufacture new products and achieve
higher productivity,
- Installing a 3.5 MW rice husk based power plant for captive electricity
supply, and
- Financing working capital needs.
Project Sponsor & Ownership
The company is owned by the Goyal family, whose core business before starting
the dairy business in 1992 was Steel. In 1973, Mr Amarjit Goyal started Modern
Steels Limited, a publicly traded steel manufacturer and trader based in the
Northern state of Punjab and with annual revenues of about US$62 million in
FY2007. Modern Dairies was launched in 1992 by the son of Mr Amarjit Goyal, Mr
Krishan Goyal, after the government liberalized the dairy industry in 1991.
Mr. Krishan Goyal has been actively involved with the Confederation of Indian
Industry (CII), a well respected association of private companies. He was
Chairman of the CII, Chandigarh Council between 2003-06 and has been an advocate
for progressive policy making for the dairy industry. Mr. Krishan Goyal also
served as a member of the first Governing Board of Punjab Engineering College
(Deemed University), Chandigarh, from 2004 to 2008.
Modern Dairies is a publicly traded company, with 46% of the shares belonging to
the general public, and the Goyal family retaining control with 54% of
shareholding.
Project Cost
Total project cost amounts approximately $54 million. The project began in
FY2006 and will end in FY2009.
IFC is looking to invest in a debt and equity package of up to $15 million, for
IFC’s own account.
Location
The factory is located at kilometer 136 on the National Highway No 1, outside
the municipal limits of Karnal, in the state of Haryana. The company is
headquartered in Chandigarh, the capital city of the states of Haryana and
Punjab.
Development Impact
The project will support the continuing improvement of the Indian dairy sector
to achieve greater efficiencies and milk quality.
In addition to positive economic impact, the project will bring the following
development impact:
- Expand its milk processing capacity and install manufacturing equipment of
dairy products;
- Collect milk from over 60,000 rural households, in 1,800 village level centers
(from the current 350),
- Benefit farmers by promoting productivity, product quality, and increase in
milk supply,
- Benefit other suppliers (such as transportation companies), and clients thanks
to increased local supply and expanded product range,
- Contribute development of private sector in the dairy industry, typically more
efficient than cooperatives,
- Develop cogeneration capacity of 3.5MW.
IFC’s Contribution
- Providing necessary risk capital in the Indian dairy sector that has
received little attention form equity investors until now;
- Providing a Stamp of Approval to a medium sized company looking at expanding
into overseas markets.
- Assisting the company in enhancing its environmental, safety and social
practices;
- Assisting the company in improving transparency and Corporate Governance
through change of auditors to well-known firm and a formal arm’s length
agreement with Modern Dairies Farms;
- Improving farmers’ production practices and installing chillers to improve the
quality of milk supply;
- Supporting renewable energy through increase in cogeneration capacity.
Environment and Social Issues
This is a Category B project. IFC's early review of this investment identified
the following environmental, social, health and safety issues: environmental,
health and safety management systems; labor working conditions, including
occupational health and safety; emergency preparedness and response; chemical
storage and handling; and pollution prevention and control, especially
wastewater treatment and reuse/discharge.
While all Performance Standards are applicable to this investment, IFC’s
environmental and social due diligence indicates that the investment will have
impacts which must be managed in a manner consistent with the following
Performance Standards:
- PS1 - Social and Environmental Assessment and Management System
- PS2 - Labor and Working Conditions
- PS3 - Pollution Prevention and Abatement
- PS4 – Community Health, Safety and Security
There are no issues related to land acquisition and involuntary resettlement,
and no impact on indigenous people or cultural property under the project, nor
is it expected to have any impacts on natural habitats, forests, or protected or
sensitive areas.
One major pillar of the company’s operations is collection of milk from the
farmers / families at the village level. The company has developed an extensive
network of extension services in the surrounding areas. One key feature of this
supply chain development effort is the establishment of a network of village
level collection centers, bulk coolers and chilling centers.
The extension services currently focus on increasing the communities’
awareness/knowledge about the dairy related aspects, but the company has plans
to expand this to other areas for the welfare of these communities.
As a part of its corporate social responsibility (CSR), the company has
promised to plan and implement some awareness programs related to community
health (e.g. HIV AIDS), general hygiene etc. leveraging this network of milk
collection centers at village levels.
For all such aspects of community engagement, the company has agreed to develop
to IFC’s satisfaction any further procedures needed to comply with IFC
Performance Standards, including disclosure of relevant facts to community
members regarding the company operations, and provision for handling and
resolving queries or grievances received from community members.
Nothing in this article is, or should be construed as, investment advice.
Rohit
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