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Heritage Food Ltd. Acquires Dairy Business from Reliance Retail

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Heritage Foods Ltd. announced it has agreed to acquire the dairy business of Reliance Retail Limited for an undisclosed amount through a slump sale.

A binding agreement is in place between the two companies however the transaction will be subject to regulatory approval and other standard protocols.

Reliance Retail offers a range of products including packed milk, flavored milk, butter, ghee, curd, dairy whitener, skimmed milk powder and sweets under the two brand names, Dairy Life and Dairy Pure. The business sources 225,000 liters of milk per day from 2,400 villages across 10 Indian states, and in 2015/16 the business posted revenue of Rs 553 cr (US$83 million).

Founded in 1992, Hyderabad-based Heritage is a diversified company of five verticals including agriculture, retail, bakery, dairy and renewable energy. Its dairy business is one of the leading private dairy businesses in India with a processing capacity of 1.53 million liters of milk per day and a chilling capacity of 1.68 million liters per day according to the company website. With a line of products that includes fresh milk, curd, butter milk, lassi, ice-cream, panner, table butter, milk powder, flavored milk, UHT milk and dairy whitener, the acquisition will likely prove to be highly complementary.

“The managements of Heritage and Reliance Retail believe that there exist strong synergies between the dairy business of the two having high growth potential in markets such as Hyderabad, Mumbai and Delhi-NCR region,” said Heritage in a recent press release.

This is the second acquisition within five months for Heritage, which purchased the assets of Karnataka-based Teja Dairy in May of this year, adding 20,000 liters per day in processing capacity.

Growing Into an Organized Industry

India’s dairy sector is highly fragmented and unorganized. India produces 3.8 million liters of milk per day, or 20 percent of total global output according to the National Dairy Development Board and CRISIL, but of this output, 40 percent is retained by producers for household use, 41 percent is distributed throughout the unorganized segment, and the remaining 19 percent is sourced, processed and sold by the organized industry reports Business Standard. However the transformation and modernization of the sector pose an opportunity for growth. Over the past five fiscal years India’s organized dairy sector has been growing at 22 percent per year according to CRISIL Ratings, but the industry is expected to see even more accelerated growth in the next three years.

“Changing consumer preferences is the key reason for the organized sector to grow at a faster pace,” Anuj Sethi, direct at CRISIL Ratings told Dairy Reporter. “The rising purchasing power and increasing health consciousness of the consumers has shifted their preference towards branded products.”

As consolidation continues, the sector is increasingly attracting the attention of investors, who are anticipated to invest between Rs 9,000 cr and Rs 10,000 cr (US$1.35 billion and US$1.5 billion) into the industry.

“Increasing organised [sic] activity in Indian dairy and direct processor-farmer engagement will entail significant investments in creating capacities for milk procurement, milk handling and product manufacturing,” Shiva Mudgil, vice president, senior dairy analyst, food and agribusiness research at Rabobank told Business-Standard.

These investments are expected to help drive an increase in the volume of milk processed by India’s organized dairy sector of 13 percent per year by fiscal year 2018 – significantly higher than the five percent per year growth expected for the overall industry.

This growth however, is not expected to drive India onto global dairy trading markets. Although modernization is happening and growth is expected, India will remain a marginal exporter according to Dairy Reporter.

“Exports are less because India itself is a huge market and the supply barely meets demand requirements, said Sethi. “With the industry expected to grow at 15 percent CAGR, CRISIL expects the supply to be just about sufficient to meet this requirement.”

 

The post Heritage Food Ltd. Acquires Dairy Business from Reliance Retail appeared first on Global AgInvesting.


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