In as we speak’s Finshots, we break down the Milky Mist IPO, which opens for subscription as we speak and closes on August thirteenth.
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The Story
If you consider Milky Mist, what involves thoughts?
Most likely paneer, curd, Greek yogurt and all types of different dairy merchandise. Every thing besides recent packets of milk that you just’d sometimes get from giants like Amul or Nandini.
However a dairy firm that doesn’t promote the very milk that goes into making these merchandise sounds slightly unusual, proper?
Properly, there’s a narrative behind it.
In 1985, earlier than Milky Mist formally kicked off, the company’s founder, Chairman and Managing Director T Sathish Kumar’s family was already within the milk buying and selling enterprise. Kumar, who got here from an agricultural background, joined the enterprise however quickly realised that milk provide was extremely unorganised.
So he determined to strive one thing totally different: making paneer, which was seeing rising demand on the time.
Greater than three a long time later, Milky Mist has caught to that fundamental philosophy, simply with a splash of diversification. It sells value-added dairy merchandise comparable to cheese, paneer, butter, curd, ghee, yogurt and ice cream, together with frozen, ready-to-eat and ready-to-cook merchandise.
And there’s a very good motive for this. Recent milk is a low-margin commodity, with margins sometimes round 5-8%. Worth-added merchandise, alternatively, can provide margins upwards of 8% and even attain 40% for merchandise like ice cream.
Then there’s the logistics downside. Recent milk has a brief shelf life and desires a chilly chain, making it costly to move over lengthy distances. That’s why corporations like Amul work with native farmers and regional cooperative unions throughout India, whereas regional gamers like Nandini largely keep inside their dwelling markets.
However since Milky Mist’s value-added merchandise final for much longer, they are often made at one location and shipped throughout the nation. For context, the corporate sources milk from greater than 74,600 farmers throughout Tamil Nadu, Andhra Pradesh and Karnataka, all inside a 400-kilometre radius of its single massive manufacturing plant in Perundurai, close to Coimbatore. From there, it sends its merchandise throughout 22 states and 5 Union Territories.
There’s one other benefit too. Milk provide fluctuates between a “flush season”, when manufacturing is plentiful, and a lean season, when it falls. Recent-milk companies must cope with this mismatch as a result of milk can’t be saved for lengthy. Milky Mist, nevertheless, can flip surplus milk in the course of the flush season into merchandise with longer shelf lives, successfully storing that extra milk as stock.
So maybe it’s higher to consider Milky Mist as a packaged meals firm constructed round dairy.
And this technique appears to have labored. The corporate generated ₹3,138 crore in income in FY26, with almost 60% coming from paneer, cheese and curd. The remaining got here from merchandise like ice cream, ghee, butter and yogurt. Income has grown at over 30% CAGR in recent times, whereas working margins have stayed round 12-14%.
However now, Milky Mist needs to take the following step. It needs to lift cash from the general public via an IPO, which is predicted to lift ₹1,553 crore. About 92% of this can come from a recent problem. A lot of the cash will go in the direction of repaying its excellent debt and increasing or modernising its Perundurai plant. The remaining might be used to deploy freezers and coolers and for common company functions.
And that brings us to the actual query. Is that this a very good enterprise on the worth buyers are being requested to pay?
Let’s begin with the candy aspect. For starters, Milky Mist has managed to construct a significant place in classes which might be typically extra worthwhile than plain milk. It calls itself the fastest-growing packaged meals firm amongst friends with revenues of ₹1,500 crore or extra. It is usually the most important non-public packaged paneer model within the organised market, with roughly 19% market share by worth.
It has a powerful presence in South India too, with round 12% of the organised cheese market by worth within the area, making it the third-largest non-public participant nationally.
One other benefit is the way it sources its uncooked materials. Milky Mist buys milk immediately from farmers, with out middlemen. That helps it construct stronger relationships with its suppliers whereas additionally making certain that farmers obtain their funds inside 7-10 days.
Then there’s distribution. The corporate sells via retail shops, supermarkets, HoReCa (Lodges, Eating places and Cafes), its personal platform, e-commerce, fast commerce and unique Milky Mist parlours. And simply so that you get a clearer image, about 86% of its income comes from offline channels and the remainder from on-line channels.
To date, so good. However there’s one other aspect to the enterprise, and it’s not fairly as candy.
For starters, Milky Mist is closely concentrated in South India. About 95% of its uncooked milk comes from Tamil Nadu, whereas almost 70% of its income comes from South India. That focus may be dangerous as a result of any disruption to demand or provide in these areas might hit its revenues and earnings.
Then there’s one other focus threat: manufacturing. As we’ve talked about earlier, the corporate depends on one massive manufacturing plant in Perundurai. If a pure catastrophe, industrial accident or another disruption forces the ability to close down, manufacturing might take a severe hit. Despite the fact that nothing like this has occurred in recent times, it is nonetheless a threat the corporate can’t utterly management.
The larger concern, although, is the steadiness sheet. Milky Mist carries a number of debt, with a excessive debt-to-equity ratio of three.6 instances. It plans to make use of almost ₹500 crore of the IPO proceeds to repay a few of it. That, together with the recent fairness created via the IPO, might scale back its debt-to-equity ratio by about 83%.
However don’t mistake that for the corporate wiping out most of its debt. As a result of even after the deliberate compensation, Milky Mist might nonetheless have round ₹1,175 crore of debt on its books. And which means a sizeable chunk of its money flows will proceed to go in the direction of servicing its borrowings.
There’s additionally one significantly uncommon threat. The unique Milky Mist trademark is pledged as collateral to lenders. If the corporate defaults or breaches sure mortgage phrases, lenders might implement this safety and probably promote the trademark, that means Milky Mist might lose the best to make use of it.
Now, the corporate at present makes use of a distinct trademark that isn’t pledged. So it isn’t as if all the enterprise would all of the sudden disappear. However for a model constructed round a well-known title, shedding the unique trademark might nonetheless be a severe blow to its fame and enterprise.
And at last, there’s the query of valuation. Milky Mist compares itself with dairy and FMCG names comparable to Nestle India, Britannia Industries, Bikaji Meals, Dodla Dairy, Parag Milk Meals and Hatsun Agro.
Now, the three largest friends right here — Tata Shopper Merchandise, Nestle India and Britannia Industries, every with revenues of upwards of ₹19,000 crore commerce at P/E (Worth-to-earnings) ratios of roughly 50-70. The business common is round 52.
Milky Mist, in the meantime, is looking for a valuation of ₹10,778 crore on the higher IPO worth band of ₹140. That works out to roughly 85 instances its FY26 earnings.
And that’s the place issues get slightly uncomfortable. Milky Mist is far smaller than these massive FMCG corporations, whereas friends working at a extra comparable scale, comparable to Dodla Dairy and Parag Milk Meals, commerce at P/Es of round 21-24.
Should you evaluate the valuation on an EV-to-EBITDA foundation (enterprise worth in contrast with working revenue), it appears slightly higher at round 25 instances. That’s not too removed from Dodla Dairy’s 20 instances, although nonetheless considerably larger than Parag Milk Meals’ 9 instances.
So yeah, Milky Mist is a worthwhile, distinctive and promising enterprise. It has grown rapidly, constructed sturdy positions in value-added dairy merchandise and managed to create an FMCG-style enterprise out of what’s historically a low-margin commodity.
However the actual query is whether or not it’s adequate to justify the premium buyers are being requested to pay for it.
And proper now, that reply isn’t fully clear. The corporate might properly proceed to develop and show that its FMCG-style positioning deserves a premium. However maybe that’s one thing buyers will solely be capable of decide a number of years after it goes public.
Till then…
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