Carlyle picks up stake in Tirumala Dairy

Private equity giant Carlyle, through its Asia Growth Capital, is investing Rs 110 crore into Andhra Pradesh-based Tirumala Milk Products, said at least two sources familiar with the transaction. Carlyle will take a minority stake in the Rs 600-crore company started by four rural entrepreneurs nearly 10 years back.

Tirumala Milk Products, the flagship of Tirumala Dairy, is among the top three private dairy operations in south India growing at a CAGR of nearly 30%. The Rs 1,000-crore Hatsun tops the list while Tirumala and Heritage Dairy, in which former Andhra Pradesh Chief Minister Chandrababu Naidu's family is a promoter, vie for the second slot.

Veda Corporate Advisors Pvt Ltd was sole advisor to the transaction. Carlyle and Tirumala Milk Products could not be reached for immediate comments. The deal is another instance of global private equity firms returning strongly to clinch deals in India even as the world's second fastest growing economy expanded 8.6% in the last quarter. The just concluded transaction also marks the first deal for Carlyle after two year hiatus in the country.

Tirumala, with plants located on the border of Andhra Pradesh with Tamil Nadu, caters to liquid milk market in these two states apart from parts of Karnataka. From a pureplay liquid milk brand, Tirumala has expanded into milk derivatives venturing into the ice-cream market as well. "The four original promoters come from interior Andhra with expertise in the dairy sector. Hence sourcing the right quantity of milk at the right price is one of their proven strengths," said an industry observer who has tracked Tirumala Dairy for a while.

Sourcing is a critical element as liquid milk operations are essentially commoditized plays with lower margins. It is estimated that profit margins of most domestic dairy operations fall between 3-5% usually. One avenue to improve the margin is entering into value-added products such as sweets, icecreams and other milk derivatives such as butter and cheese, which is what firms like Tirumala are attempting to do.

Dairy cooperatives under the aegis of National Dairy Development Board (NDDB) account for bulk of the processed liquid milk supply in the country. Notwithstanding India's ranking as the world's largest milk market, some leading domestic food companies such as Britannia found the going tough in running liquid milk operations prompting them to pull back. Britannia stays focused on milk derivatives and value added products currently. French foods giant Groupe Danone, which is making a solo entry into country after snapping ties with the Nusli Wadia Group, also has immense faith in India's huge market for milk-based products, but will stay clear of the commoditized segments like liquid milk.

One source said, Tirumala could deploy the funds to bolster its production-related infrastructure, distribution reach and brand building to scale up presence across the southern markets, and also to tap adjacent states like Maharashtra at a later date. Carlyle's participation will also help in transforming privately held enterprise into a proper corporate structure, sources added. In context, it must be mentioned that Tirumala scorched its way to the Rs 600-crore turnover in just one decade without any outside investor participation.

Headquartered in remote Narasaraopet in Guntur district of Andhra Pradesh, Tirumala Milk Products Private Limited is perhaps one of the fastest growing dairy enterprises which clocked a turnover of Rs 470 crore in 2008-09 against Rs 373 crore in the previous fiscal. Its products covers the entire basket of dairy items including sachet milk, sweets, flavoured milk, yoghurt cups, milk powder, butter, ghee and butter oil. It is present in the southern markets of AP, Karnataka and Tamil Nadu. The firm handles 7 Lakh liters of milk per day in its packing stations and dairy plant, apparently the single largest plant in Andhra Pradesh. According to information on its website, the firm is in the process of implementing an expansion programme that would include new product launches. The firm is focused on growing its brands and value added businesses as part of its growth strategy. In November 2007, Tirumala Dairy Pvt Ltd and Tirumala Milk Products Pvt Ltd, which were earlier separate entities, were merged as a single entity, Tirumala Milk Products (P) Ltd, to achieve greater efficiencies.