Dodla Dairy share price jumps 19% amid acquisition news; brokerage sees a 34% upside in stock

Dodla Dairy Limited shares surged over 19 per cent to Rs 548 per share on the BSE intraday during Monday's trading session. The spurt was on the back of acquisition of dairy products company Sri Krishna Milks Private Limited (SKMPL) for a cash consideration of Rs 50 crore. 

The stock was listed last year in June and touched 52-week high of Rs 672 per share on November 11, 2021. 

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The news of acquisition was revealed by the company in its filing to the exchanges.  

"The company has executed a Business Transfer Agreement with Sri Krishna Milks Private Limited (SKMPL) for acquisition of Business as a 'going concern' and on a slump Purchase basis for consideration of Rs 50 crore," Dodla Dairy said on Saturday, March 19, 2022.  

The object of acquisition is expansion of business of the company, Dodla Dairy said, adding further that the acquisition will be completed around two months from the date of agreement. 

Sri Krishna Milks is mainly into procuring milk, manufacturing, and selling dairy products (milk and milk products). 

Acquisition of Sri Krishna Milks is value accretive in medium term as the company operates in key region of Dodla that is in Southern parts of India, ICICI Securities opines. Dodla has strong understanding of milk and curd. 

Besides, post-acquisition Dodla will be able to consolidate its position in North Karnataka, South Maharashtra and Goa, the brokerage further said. 

While Sri Krishna was loss making, it has gross margin of around 22 per cent over FY18-21 which indicates strong consumer acceptance of the brand. 

However, the acquisition will be earnings decretive in FY23 and also likely in FY24 as the interest income on acquisition value of Rs 500 million will be likely higher than profits generated by Sri Krishna, ICICI Securities further said in its note on Monday. 

“We remain structurally positive on Dodla due to its competitive advantages and strong growth opportunity in South India, with a target price of Rs 615 per share, which implies an upside of almost 34 per cent (19.4x FY24E EPS),” the brokerage mentioned in a note.