Prabhat Dairy sells its dairy business to Lactalis for Rs1,700cr; stock up 15%

Prabhat Dairy plans to focus on its cattle field and animal genetics business after selling its dairy business.

Prabhat Dairy has signed a definitive binding agreement with Tirumala Milk Products Pvt. Ltd., wholly owned subsidiary of French Dairy group ‘Lactalis’, to sell its dairy business for Rs1,700cr. The deal is expected to be completed by Q1FY20E, subject to various approvals. Deal is valued at 1.09x FY18 sales.

The transaction involves sale of the dairy business undertaking of Prabhat Dairy by way of slump sale on a going concern basis, along with the sale of 100% shareholding in its step down subsidiary, Sunfresh Agro Industries Pvt. Ltd. (SAIPL). The aforementioned segments contributed 98.24% of the total consolidated revenue for FY18 at Rs1,529.2cr. Company has an aggregate milk processing capacity of 1.5 million litres per day.

Prabhat Dairy plans to focus on its cattle field and animal genetics business after selling its dairy business. Earlier this month, it had signed a joint development agreement with DLG, the Denmark based world leader in high quality vitamin-mineral feeds. Under this agreement, two products have been developed in Denmark and shipped to India for a pilot (pilot phase is expected to be around for 4-6 months). Prabhat Dairy currently supplies cattle feed under the brand name ‘Annapurna’.

Raviraj Vahadane, Chief Financial Officer of Prabhat Dairy stated that “The acquisition of the dairy business undertaking of Prabhat by Lactalis represents a meaningful opportunity for the employees of Prabhat to be associated with one of the global leaders in the dairy products business.” Also the company has indicated that it intends to share a substantial portion of the proceeds from the sale with shareholders after meeting its tax and transaction cost obligations.

Lactalis has already bought Tirumala Milk, second largest dairy company in South India, for Rs1,750cr in January 2014 and Indore based Anik Industries for Rs470cr in March, 2016.
We await further clarification from the management on the sale proceeds. 

Prabhat Dairy Ltd is currently trading at Rs106.6 up by 14.6% from its previous closing of Rs93.05 on the BSE.

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