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KKR commits to invest Rs 520 crore in dairy company Kwality Ltd

Economic Times:  July, 2016

Kolkata/New Delhi: US private equity firm KKR has committed to invest Rs 520 crore in Kwality Ltd, a Delhi-based private dairy company, through structured debt instruments in a transaction that is expected to rev up dairy business in the country.

"The company will use part of the proceeds to meet capital expenditure for further strengthening milk procurement infrastructure and increase processing capacity by 9.5 lakh litres per day," Kwality chairman Sanjay Dhingra said. The company would also repay some of its high-cost debt to improve cash flows and augment brand building activities.

Dominated by cooperatives such as Amul and Mother Dairy, the dairy industry in the country has recently attracted global majors like French dairy giant Lactalis that has acquired Tirumala, South India's second-largest dairy, and Anik Industries.

Liberalisation of foreign investment rules is expected to attract more players. Indian companies like Kwality are preparing for a more competitive environment and changing their business strategy.

Its capacity expansion will be done for highmargin value added product such as cheese, paneer, table butters, tetra-packs, flavoured milk and yoghurt among others, Dhingra said. He did not disclose the details of the transaction but said the fact that KKR has decided to make the investment bolsters his confidence that the PE firm believed in Kwality's growth story.

A person familiar with the development said the KKR investment is for a six-year period and has a protected minimum interest rate.

"In addition, it will also get bonus at certain hurdle rate depending upon the growth in the company's market capitalisation over this period," the person said. "The company is in a critical stage of growth where they are shifting its business model from B2B to B2C," the person said. Kwality has six milk processing units in Uttar Pradesh, Haryana and Rajasthan, and caters to retail customers under its own brand 'Dairy Best' besides supplying dairy products to institutional customers including multinationals.

As part of a change in its business strategy, Kwality is revamping all business functions across the value chain including procurement, changing product mix to cater to evolving needs of customers and ensure high quality, brand building, building an extensive distribution network to boost retail presence, set up robust IT infrastructure for process integration, and improve managerial competencies.

A person close to the company said Kwality, which reported a turnover of a little over Rs 5,000 crore last fiscal, is looking to double its revenues in the next four years with value-added products accounting for 25%-30% of the total revenues. "Kwality has plans to invest close to Rs 500 crore to expand production capacities to increase the share of retail sales to 70% from current 30% of its turnover over a period of time," the person said.