Global Dairy Majors Target M&A In India: RaboBank

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New Deihi:: Some large global dairy majors are likely to target acquisitions and consolidation in the Indian dairy industry, which offers enormous potential. The overall growth of value-added dairy products will lead to many opportunities for expansion and product diversification for domestic as well as multinational dairy companies.

The Indian market offers more acquisition targets than the actual acquirers, says a recent study by investment banker, RaboBank International, on the Indian dairy sector.

The Indian industry will witness a number of new alliances and partnerships to meet the ever-growing requirement of distribution of perishable products, access to new product technology and multiple sourcing facilities in various parts of India, says the study.

The increasing trend of consolidation is already visible in the Indian marketplace. Mother Dairy has already entered into joint ventures with various state co-operatives, Britannia has a joint venture with Fonterra, Dabur India with Bongrain and Hatsun Dairy has acquired Ajith Dairy in south India.

Although the sourcing tie-ups so far in India do not involve equity participation as most companies do not prefer asset-heavy balance sheets, the scenario is likely to change soon as competition for good quality sourcing bases intensifies. This will compel these large dairies to invest in equity stakes to secure long-term supply.

Further, large dairy companies are also becoming larger and gaining the financial capacity to invest in acquisitions/equity alliances, the study adds.

However, a major concern among multinational dairy companies remains reservation concerning the investment required in milk collection and distribution, their reluctance to deal in low value-added products such as powders and dominance of the unorganised sector.

RaboBank has said that the Indian dairy industry, despite being ranked the world’s largest milk producer in 2001, does not feature in the list of global top 20 companies, which includes Nestle (Switzerland), Dean (US), Dairy Farmers of America (US), Fonterra (New Zealand), Arla (Denmark), Danone (France), Parmalat (Italy) and Kraft (US).

The Indian market is becoming more attractive with the growing importance of the organised sector and the growth rates for processed products like pasteurised liquid milk.