WestBridge Capital, an investment fund with a focus on India that supports both private and public market companies, is reportedly in the final stages of closing a deal to acquire a minority stake in Milky Mist, a dairy products brand based in Tamil Nadu, according to three people familiar with the matter.
On the condition of anonymity, the same sources have revealed that the investment is expected to be approximately INR 800 crore, with a valuation of around INR 7,000 crore for Milky Mist Dairy Food.
“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.
Earlier, Milky Mist had held discussions with private equity and venture capital firms to raise funds, but those discussions did not result in any fruitful outcome.
Milky Mist has not previously raised any institutional capital.
Growth-stage bet for WestBridge:
“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.
An emailed query to Sandeep Singhal, the Managing Director at WestBridge Capital, has gone unanswered.
If the acquisition of Milky Mist goes through, it would represent a growth-oriented move for WestBridge Capital, which has previously backed companies like Dr. Lal Pathlabs, Five Star Finance, and Vini Cosmetics, the manufacturer of Fogg deodorant.
With around $8 billion in assets under management, the investment fund has recently increased its stake in Indigo Airlines by an additional 1.5%, taking its ownership in the Indian aviation market leader to over 3.3%. WestBridge has also been actively investing in private tech ventures in recent years, and its portfolio includes startups such as mobility firm Rapido, edtech companies PhysicsWallah, Lead School, Vedantu, and SaaS firm LeadSquared.
Milky Mist’s business:
Milky Mist, which is located near Erode in Tamil Nadu, was established by T Sathish Kumar over three decades ago and has since become a significant institutional player that serves hotels, restaurants, and caterers. The company offers a range of products, including cottage cheese, yogurt, butter, and cheese, and procures approximately 600,000 litres of milk every day from 60,000 dairy farmers.
In the last couple of years, dairy companies have been forced to increase their milk procurement prices to support farmers due to the escalation of cattle feed prices and transportation costs. This has coincided with an increase in labour and packaging costs, resulting in cost structures becoming more challenging for players in the industry, which has become a matter of concern across the sector.
According to the company, Milky Mist recorded sales of approximately INR 1,450 crore for the year ending March 31, 2023, which represents a surge of over 42% compared to the previous year. Its filings with the Registrar of Companies (RoC) indicate that the company reported sales of INR 1,012 crore and a net profit of INR 32 crore in FY22. While the company has not yet filed its FY23 results with the RoC.
Milky Mist is currently undertaking a capital expenditure of INR 634 crore to acquire ultra-heat treatment capabilities, which are required for the production of chocolates and ice cream.
According to industry experts, Milky Mist has maintained an operating profitability of roughly 15% over the previous three fiscal years, which is anticipated to keep its debt protection risk profile comfortable in the medium term.
“Further, it is expected to generate healthy cash accruals of more than INR 120 crore per annum over the medium term as against INR 67 crore and INR 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 INR 1,092 crore.
Rathnam said, “The debt is not very high given we have a strong bottom line with profit at over 15% of our sales.”
India’s dairy sector is valued at around INR 10 lakh crore and is growing at an annual rate of approximately 10-12%. Although India is the largest milk producer and consumer worldwide, the industry is highly fragmented, with only 15% of the market share belonging to organized players, mostly co-operatives. The largest player, Gujarat Cooperative Milk Marketing Federation, which sells products under the Amul brand, has a market share of less than 7%.
“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.
Major corporations like Unilever, Britannia, and ITC have primarily focused on segments such as flavoured milk, cheese, or ice cream, making them minor players in the broader dairy market.
Britannia had been unsuccessful in expanding its dairy portfolio independently for several years. Last year, the company entered into a joint venture agreement with French firm Bel SA to manufacture and distribute cheese products.
