BusinessLine SATURDAY. FEBRUARY 17· 2018

'Dairy ill India iS11't about 20-30%EBITDA' . , '

While prlvate dairies calculate investments based on 20-30%EBITDA, co-operatives are satisfied even with 6%: Amul MD RS Sodhi

RUTAMVORA

Ahmedabad, February 16

Despite milk production growing at 6-7 per cent, Amul's procurement grew by around 22 per cent in the ongoing flush season. In an , interaction with BusinessLine, Amul Managing Director. RS Sodhi SilYS the largest dairy co-operative had to rush to the fescue of the milk producers by procuring more during the flush season as private dairies played a spoilsport by cutting down on prices as supplies increased. Amul is on an expansion spree and Spdhi spelt-ollt what it takes to be as a numero uno player in the. country's dairy sector when most foreign giants failed to make a mark. Edited excerpts:

What does it take to be at the top and maintain numero-uno position in India's dairy sector despite, several failed attempts by global giants? There is a lot of scope for new entrants, be it a , mul­tinational or an Indian player. The organised branded products market is

"roughly one-third and is growing at double digit.

MNCs entering the Indian market face a limitation that they can't launch a product, pan-India with massive ,volumes, because they face competition from local co,operatives. It hurts them at both ends - pro. curement and selling.

Efficiency and scale is the key to success ill. dairy in­dustry. MNCs have struggled for years, to taste the success in Indian mar­ket but failed because scale won't come merely from yoghurt or cheese.

Efficiency ,comes from network and ground pres­ence:

For procurement,' they have to pay moreta como, pete with the co-operatives.

And in sales, they have to

match the affordability that the diary co-operatiVes offer.

Does it not hamper the earnings and profitability even for the co-operatives?

, Milk and milk products is a big business, but has thin margins primarily because of the co-operatives' pres­ence. If the MNCs try to match the two ends - pro­curement arid selling - on lines of co-operatives,)hey failmi~erably.Unlike , ' cor- >

porateor priva~edairy in· Our)ong-t~rmplan is ,to 'vestors, who calculate in" " increase our processing ca­vestments based on 20'30 'pacities t0400 ,LLPD in two per ccnt EBITDA (earnings ' years from the existing320 before taxation, de- LLPD. This will require an in-

.' amortiza- vestment of about,{6pO tlOn), . ~()'Ol:>eI'atives ' are sat-

6 pet .cent i--J~:r,~;:

Amul, OQthell.ds of supplf '~hafn ' . -

farmers · and· cO,nsumers , '- are happy With better

prices and affordahility.

How has been the procurement this winter season, when the flush in milk production is experienced? Our · procurement has

, touched 260 lakhlitres per day, which is 22 per cent higher year-on-year. But the notewotthy aspect is that the productioll. has just grown by 6-7 per cent. This means, a lot of milk from private dairies got diverted to co-operatives. This is primarily because co-oper­atives give better prices. But, milk being a highlyper­ishable item, we need to go for larger proceSSing capacities.

HOW do you plan to address the need for more processing capacities? As milk supplies rise, we are expanding our capacitie$ by 40-50 lakh litres per day (LLPD) on immediate basis.

. This will come up at Gandh: , inagar, Sabarkantha, Mum­baiand Junagadh, beSides Pune and Kolkata.

crore.

What are your expansion plans to enter the new territories? We enter , aterritdrywith procurement operations, then gradually mov~on to

, setting upprocessirigfacil~ ' ities and .. marketing . olir products.

Currently, we are procur­ingand processing milk at , Rajasthan, Madhya Pradesh, Manarashtra, Haryana,Pun­jab and .Uttar Pradesh, be­sides West Bengal ' and Chhattisgarh.

Now we are planning to enter Bihar and Assam with

,'. our , procurement and pro­cessing capadties. In Delhi, we are already procuring 31 LLPD. '

How does thes'e expansions and addition of new products benefit the milk producers? Out ' of the total ' Amul brand'sturn6vetof~38,000 crore (including incomes of the member unions), nearly 60-65 per cent is sold . as li­quid milk (including milk, butter milk, etc).

After. liquid milk, our second biggest portfolio is baby food ana dairy Whiten­ers., The remaining 35-40 per cent .is used for value­added products, which get

us almost equal realisation as in liqUid milk.

rhe income from these products get equally dis­tributed to . the farmers. In our case, liquid milk and value-added products are complementary to each­other. Without liquidmHk, we can't sell other products.

Our average milk fat is 4 , per cent, and if We get more milksuppJies of 6 per cent ' fat, then the milk with the extra 2 per cent fat will go to value'added products,

And realisation will be ! more-or-Iess the. same, irre­

' spective of wh~re we put the milk, be it cheese, but­ter,ghee or ice cream. Secondly,be~ause oivel}'

high scale, our costs get di­videdand we end up spend­ing very les$ .on branding

,vis-a-vis othersgairy . play­ers. This is the reason why weare affordable. '

How are you ,dealing with gr~y market ¢xpprtsof Amul products? Exports are hot our focus area ,but still we get about 3 per cent of Our total reven­ues from exports to about 50 countries.

We are cu.rrently export­ing value-added products, which is growing' at about .20-30 per cent. .. There are ' concerns of illegal · exports of AInul branded prod:ucts.

Such " exporters , circum­vent the need of a certificate from government for each batch of products being ex­ported .. Theyrriisdec1are the , goods and also ' hurt ,the!n: ,; terest of the ' importing countries by loss of import duty earnings. ' ,

This is a matter of con­cern because Amul's brand image and credibility gets hampered in , case of ~x; piied products exported by this way. · We are Vigilant about it and keep a track of every dairy product which goes out. ' '

We work in close co-or­dination .. With the Com­metce Ministry and, agen­Cies like Apeda ' by giving details of importer, ' export­ers and amount of , goods. Much has come under con­trol now.