Indian dairy draw? Lactalis is second multinational in a month to invest in a local dairy firm

By Pearly Neo contact

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Multinational dairy giant Lactalis has purchased local Indian firm Prabhat Dairy’s dairy business for US$239mn (INR 17bn). ©Lactalis
Multinational dairy giant Lactalis has purchased local Indian firm Prabhat Dairy’s dairy business for US$239mn (INR 17bn). ©Lactalis

Related tags: Lactalis, Dairy, India

Multinational dairy giant Lactalis has purchased local Indian firm Prabhat Dairy’s dairy business for US$239mn (INR 17bn), making it the second France-based company in a month to make a significant venture in the Indian dairy market.

According to the firm, the acquisition will come into force starting Q2 2019. The purchase will give Lactalis control over several of Prabhat’s previous assets including two factories, one of which is ‘one of the largest sweetened condensed milk plants in India’​.

“Thanks to this acquisition, [Lactalis] strengthens [our] leading position in the country and becomes the first private milk collector with 2.3 million litres of milk collected per day,”​ said the company.

At present, Lactalis runs 11 of its own factories in India.

A separate statement by Prabhat Dairy to the National Stock Exchange of India revealed that this sale would involve its subsidiary Sunfresh Agro Industries being sold to Lactalis’ local arm Tirumala Milk Products.

“The association with Lactalis – one of world’s largest dairy players - will offer this business a strong platform for accelerated growth momentum in becoming one of the largest private dairy businesses in India,”​ said Prabhat Dairy Joint Managing Director Vivek Nirmal.

Lactalis is the second largest food company in France, behind only Danone.

Interestingly enough, earlier this month Danone had also made a return to the Indian dairy scene​ by investing US$25mn into local yoghurt company Epigamia, a move that analysts speculated would ‘lay the path of its revival’ in the industry.

A Business Wire​ report recognizes India as the world’s largest dairy producer and consumer, which could explain the industry’s draw for foreign companies.

The Indian dairy industry was valued at US$70 bn (INR5 tn) in 2016. That said, only some 66% of milk in the country is sold via organised channels, as opposed to developed countries where some 90% of milk trade is organized, which could represent an opportunity for companies to utilise.

That said, the industry is also subject to large amounts of adulteration, with some 68% of all dairy products reportedly found to be in violation​ of the Food Safety and Standards Authority of India (FSSAI) standards last year.

FSSAI later issued a statement claiming milk contamination in the country to be ‘not serious at all’​.

A dairy company with no dairy

Prabhat’s dairy business sale to Lactalis essentially leaves the company out of the Indian dairy industry, which may have struck a negative chord with its investors.

The company has said that it has plans to advance its cattle feed business and move into associated areas including animal nutrition and animal genetics.

But according to Livemint​, this cannot compensate for the complete removal of its major area of business which generated some 98% of revenue, and the company is currently valued at ‘55% lower than the sale consideration for its core business’​.

It was also mentioned that investors ‘don’t like the fact that the [dairy] business they had invested in has suddenly disappeared’.

Prabhat Dairy had mentioned in its statement that it intended to ‘share a substantial portion of the proceeds from the sale with shareholders after meeting its tax and transaction cost obligations’​, but whether or not this is enough to convince investors remains to be seen.

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