Dodla Dairy - Model Recovery In Margins In H2 FY24; Milk Procurement Prices Near Peak Levels: ICICI Securities

ICICI Securities Report

We believe milk procurement prices are closer to the peak levels and may correct post commencement of flush season in H2 CY23. We model the Ebitda margins of Dodla Dairy Ltd. to decline 50-100 basis points YoY in H1 CY23.

However, we model strong recovery in margins in H2 FY24 led by price hikes and likely correction in milk procurement prices.

With stock price correction of 25% over past 12 months, we believe the current valuations (12 times FY25E) offer attractive risk reward to long term shareholders.

We remain positive on Dodla due to its competitive advantages and strong growth opportunity in its core region of South India. The volatility in margins is a cyclical factor. While it impacts the near term earnings, we believe there is negligible impact on discounted cash flow valuations.

We would also like to point that the return on capital employed is higher than cost of capital even when margins are at cyclically lowest level. It indicates economic added generation even at bottom of the cycle.

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