Indian Trends and Dynamics

BOB Capital Markets is a wholly owned subsidiary of Bank of Baroda May 2019 1 Overview | Indian Dairy Industry

1A Products Trends

1B Procurement and Innovative practices

1C Government Schemes

1D Price Analysis

2 Key Players

3 Deal Dynamics | Global and India

4 Select Deals | Case Studies Structural Shift in Dairy Consumption

▪ Shift from carbohydrates rich food to protein based products among ▪ Increasing consumer ▪ Increasing investments vegetarian population awareness about quality and Government support in and nutrition is pushing ▪ The Private Final Consumption infrastructure building to the demand for organised Expenditure (PFCE) towards and dairy players aid growth of organized milk products has grown by 10% players ▪ Rising penetration of CAGR between FY2013 and FY2017 organised retail offering a ▪ Fiscal budget allocation of wider shelf space for dairy 2018-19, INR 1,000 mn for Change in products modernizing the milk Dietary procurement, processing Habits and and marketing operation Product Mix Organized Government Players Subsidies

Demand for Dairy Products Rising Rise in Consumer consumption base/higher by QSR affordability Consumer buying Pattern

▪ With more young ▪ Aggressive growth plans of QSR players will also population (upto 40 yrs) lead to a significant rise in demand for fresh milk, and higher disposable and , from coffee chains and ▪ VADPs are gaining popularity income has given big push demand from fast food outlets like pizza with fast food consumption, to consumption and burger chains which requires cheese usage in ▪ Focus on health and convenience foods for pizzas, ▪ Traditional VADPs like ghee and will remain nutrition leading to shift in demand from food chains/restaurants with pasta, burgers, etc. from aerated to milk evolving habit of eating out ▪ The millennials prefer to buy beverages ready-made dairy products Source: BOBCAPS Research 3 1 Overview | Indian Dairy Industry

1A Products Trends

1B Procurement and Innovative practices

1C Government Schemes

1D Price Analysis

2 Key Players

3 Deal Dynamics | Global and India

4 Select Deals | Case Studies Shift towards VADPs - New Milk Revolution

Commodity Traditional Emerging Emerging Products VADP VADP VADP, 4 ▪ Milk and traditional value added products Products ▪Liquid ▪ & ▪Cheese have high penetration both in rural and milk Lassi ▪ urban markets but are highly unorganized ▪Milk ▪Butter ▪Flavoured Traditional Powder Ghee milk ▪ VADP, 28 ▪ Hence growth in these segments will be ▪Paneer ▪Ice- Commodity driven by the organized players increasing cream Products, 67 their presence

Growth (%) 10-11 12-13 15-20 ▪ The shift towards VADPs will be the greatest lever for growth of conventional Market Share dairy players as VADPs have Penetration Category-wise (%) ▪ Huge premium ▪ Longer shelf life Operating Margin and Growth Outlook ▪ Gross / Operating Margin 2x greater 25% Cheese than milk Ice-cream ▪ Dairy and milk industry is estimated to grow 20% at 12-13% CAGR until 2020-21, driven by Paneer rising milk prices, change in product mix, 15% Ghee rising share of branded products and Powder Butter, increasing consumption of VADPs 10% Yogurt & Khoa ▪ Favorable demographics, high disposable Curd Shirkhand Growth Growth Outlook income, growing urbanization has given a 5% Processed milk big push to VADPs growth

0% 0% 5% 10% 15% 20% 25% 30% 35% Operating Margin

High Med Low 5 Product Trends (1/5)

Full (cream) Milk (%) Skimmed Milk Powder (SMP)

CAGR (%) Skimmed milk, 5% ₹ Bn Double toned milk, 10% 140

120

100

Toned milk, 15% 80 Full cream milk, 60% Standardized 60 115 milk, 10% 97.7 40 89.6 61.5 20

0 2012-13 2017-18 2018-19E 2020-21P

▪ Full-cream milk attracts the highest demand, due to its higher fat content as large proportion of consumers in rural and semi- urban areas still prefer to make basic milk products such as ▪ The market size of SMP directly consumed in India was paneer, curd and lassi at home using Full-cream milk estimated at Rs 90 bn in 2018 ▪ Total milk procured for processing, ~65% is pasteurised and ▪ Retail sector consists of only 15-20% SMP consumption, rest is sold in liquid form, packaged in pouches, tetra packs, glass or consumed by the institutional segment comprising hotels, PET bottles restaurants and airline foods, and catering industries ▪ Pouches account for 85-90% of the packaged milk, tetra packs ▪ Steady growth expected in SMP segment and PET/glass bottles contribute 5-10% and 1-2% ▪ Tetra packs gain popularity in the urban areas; rural population still prefers pouches

6 Product Trends (2/5)

Curd

Market Dynamics (%) Curd Consumption Pattern (%) ₹ Bn CAGR (%)

250 15 35-40 200

150 60-65 100 211 85 154 170 50 102

0 Unorganized Players Organized Players Southern India Rest of India 2012-13 2017-18 2018-19E 2020-21P

▪ Almost 60-65% of the demand for curd comes from states like Andhra Pradesh, Telangana, Karnataka, Tamil Nadu, and Kerala, where curd is heavily used with rice

▪ Curd market remains highly fragmented: ▪ Rural India - Prefers homemade curd ▪ Urban India - Household consumption has shifted to local dairy farmers and regional brands with changing lifestyles

7 Product Trends (3/5)

Butter Butter Milk & Lassi

₹ Bn CAGR (%) ₹ Bn CAGR (%) 250 10

200 8

150 6

100 4

50 2

0 0 2012-13 2017-18 2018-19E 2020-21P 2012-13 2017-18 2018-19E 2020-21P

▪ Sales have largely been confined to the unorganized sector ▪ Industrial Users - HORECA to grow at a slower pace due to ▪ Buttermilk & Lassi segment to grow at a steady pace increased substitution by margarine in restaurants, as it is ▪ However, as demand for branded buttermilk comes from a 35-40% cheaper than butter smaller segment within urban areas, very few branded players ▪ Organized players dominate the butter segment with 80% have established their presence till date share, due to huge consumer preference for branded butter ▪ Major brands include Amul, Britannia, Aavim and Nandini. Amul accounts for about 70-75% for the branded butter segment ▪ Butter segment to grow steadily over next 3 years

8 Product Trends (4/5)

Paneer Ghee

₹ Bn CAGR (%) (%) 600 Growth due to mounting demand 500 from the food services industry 100 400 80 300 60 70 65 200 40

100 20 25 30 0 0 2012-13 2017-18 2018-19E 2020-21P 2012-13 2017-18

Organised Unorganised

▪ Paneer market in India is dominated by unorganized players, ▪ Ghee, is largely dominated by the unbranded segment, due to perishable nature share of organized players gradually rising in ghee segment ▪ Punjab, Haryana, Rajasthan, Uttar Pradesh, Himachal ▪ Domestic ghee industry is the second-largest segment after Pradesh, and Bihar together contribute nearly 60-65% of processed milk, with over 15% share of the entire dairy domestic demand industry ▪ Organised players stayed away from paneer due to price ▪ Ghee segment is expected to grow at CAGR 14-15%, as the competition from unorganised entities and inadequate cold- entry of a few private players has changed the market chain infrastructure dynamics with launch of new variants and branding ▪ Paneer segment to grow robustly led by volume growth strategies ▪ Millennials prefer ▪ Packaged food with paneer ▪ Health awareness towards healthier low-fat, low- protein diet

9 Product Trends (5/5)

Cheese Ice-Cream

₹ Bn CAGR (%) CAGR (%) ₹ Bn 70 Growth due to 160 manufacturers increased product variety increasing supply 60 140 to spur ice-cream industry in line with the growth rising demand of 50 the industrial users 120

40 100 80 30 60 20 40 10 20 0 0 2012-13 2017-18 2018-19E 2020-21P 2012-13 2017-18 2018-19E 2020-21P

▪ Household consumption remains low at 5% of total cheese ▪ The ice-cream segment, positioned at the high end of the value- consumption; 95% is by industrial consumers added products (VAPs) matrix in dairy and is fastest-growing ▪ The growth is mainly driven by the urban population as the segments rural population remains largely unaware ▪ The market is largely dominated by organized players (60%), ▪ Cheese segment is dominated by organized players and co- regional players have 40% market share in terms of value operatives in terms of volume. Amul dominates the Indian ▪ Consumption trend - Evolution of desserts and has cheese market with over 40% share, Parag Milk Foods - 30% become an integral part of a full-course meal, irrespective of the market share and Britannia with 10% market share season ▪ Organized players make cheese to gain market share in ▪ Lack of cold storage facilities in rural areas hampers aggressive preferred variants, Parag Milk Foods and Amul introduced expansion by branded players, With low shelf life, frequent power cheese in local flavors - spreads and slices category to be shortages and cuts are a major deterrent for branded players, consumed with Indian breads hampering their aggressive expansion into rural regions

10 1 Overview | Indian Dairy Industry

1A Products Trends

1B Procurement and Innovative practices

1C Government Schemes

1D Price Analysis

2 Key Players

3 Deal Dynamics | Global and India

4 Select Deals | Case Studies Milk Market Dynamics

Value chain - organised segment

Procurement Milk chilling Dairy Sale of dairy Co-operative milk societies from villages centre Processing products and milk marketing federation 10.40% Market Organized Share in installed capacity Unorganized Share 20.80% 79.20% Private & MNC Companies 10.40% Co-operatives 51% 61% 48% 55-60%

Private 49% 39% 52% 40-45%

• India ranks first among the world’s milk producing Domestic Milk Production nations with 21% of the total global output 473 Mn litres/day (100%) • Annual output of 176.35 mn tonnes of milk during FY 2017-18 which is 6.6% higher than FY 2016-17 • Over 48% of the milk produced is retained for captive consumption Surplus milk sold Captive consumption • In the past few years, the processing capacity of 246 Mn litres/day 227 Mn litres/day (52%) (48%) the private sector has far outpaced the processing capacity added by the co-operatives • Currently, milk marketing federations and private make up the bulk of organized segment and presence of multinational conglomerates – most of them entered in the past decade – continues to be Surplus Surplus Unorganized Organized Sector minimal Sector Top 10 states account for (Co-op + Private) • Loss of total marketable surplus: 148 Mn litres/day ~80% of the country’s (49 + 49) Mn liters/day • Inadequate chilling and processing facilities in annual milk production villages • All milk arriving at the chilling unit is not fit for consumption

12 Supply Chain Dynamics

Vertical restraints used by the organized sector Vertical restraints practiced by the unorganized sector

Personal relationship Health & breeding 7 to 15 days Dairy animal Dairy animal rearing Inputs rearing Assistance in marketing for dairy animals

Credit & insurance Cash advance Flexibility in payment towards purchase Credit purchase Quality testing & of milk

Cattle feed sale on Credit Credit Collection Credit credit

Assured price Concessional rates rates Concessional

Processing & marketing Milk Collection & transport

Retailing Retailing

Market structure of milk supply chain is such that power is skewed towards a few milk processors cum marketers and hence are price makers Major Stakeholders

Input Providers Provide Inputs and information to farmers Transporters Bilk and transport milk to processors and markets

Farmers Cattle breeders and milk producers NGOs Provide inputs, information and services to farmers

Co-operatives Help with milk marketing, provision of inputs and services Processors Process to milk and milk products to farmers

Financial Work with different institutions to provide finance and Consumers End users of the products Institutions information to different to different stakeholders in the dairy industry

13 Milk Production Challenges

• Reduced grazing area for animals due to industrial development Shortage of feed/ • Low capability of purchasing feeds and fodder by marginal farmers fodder • Poor quality of forage for dairy cattle

• No effective detection of heat symptoms during oestrus cycle by the cattle owners Breeding system • Calving interval is on the increase resulting in a reduction in efficiency of animal performance • Mineral, hormone and vitamin deficiencies lead to fertility problems and abortions

• Inadequate health services, ratio between cattle population and veterinary institution is wider Health • Irregular vaccination schedule

Climate and • Unsanitary conditions of cattle shed and yards Hygiene • Unhygienic milk production leads to a reduction in storing quality and spoilage of milk

Pricing and • Inadequate chilling infrastructure and cold storage facilities, inventory pile up leads to high Perishability of costs products • Detecting possible adulteration

14 GCMMF - A Sustainable Model

Vertically integrated from production to retail GCMMF • Established in 1973, Gujarat Co-operative Veternary Milk Marketing Federation (GCMMF) is Services India’s largest food product marketing organization Feed, Fodder Training • GCMMF is the biggest dairy cooperative in India based in Anand, Gujarat • Largest exporter of dairy products from Milk Collection Processing, Marketing, India, exports Milk Producers Final Customer • Brand - Points Packaging Distribution

Infrastructure Amul Model • 18 District co-operative milk unions • 18,554 villages co-operative societies • 3.6 Million dairy farmers Village Dairy District Milk • Average daily milk collection: 20.4 mn Cooperative Cooperative GCMMF litres Society Union • FY 2018 turnover: INR 292 bn

Key features ▪ Entire value chain - from procurement, to processing and marketing – is controlled by the farmer’s cooperative ✓ Effective governance and value chain efficiency Coordinated delivery of services ▪ There are no middlemen; the cooperative collects the milk directly at the producers’ ✓ doorsteps ✓ Value added/Vertical Integration Information flow ▪ The model envisages that democratic elections to elect the members of the management ✓ committees who, in turn, elect the chairman ✓ Horizontal integration Policy/Enabling measures ▪ This ensures an active participation of farmers in decision-making, as well as transparency ✓ and democratic management. ✓ Diversification Capacity building ▪ Membership is open to anyone who owns at least one cow and is able to provide at least ✓ 700 litres of milk per year ✓ Competitiveness Inputs ▪ The final price of Amul products are decided by GCMMF, which conducts market surveys on ✓ aspects including the costs of milk, labour, processing, packaging, advertising, ✓ Technology transfer transportation and taxes

15 Innovative Practices in Procurement

Procurement network to directly • Private players are also increasingly opting for direct milk procurement from farmers as opposed to source milk from procurement through agents farmers

Captive or own • Owning farming facilities gives more control to processors farming • Increased productivity, better quality of milk as well as stable milk supply

• Installation of bulk milk chillers (BMC) by NDSP at village milk collection points, generate savings in transportation, operations, handling and processing costs Supply chain • Standardized Automated Milk Collection Units (AMCU) and Data Processor-based Milk Collection strengthening for Units (DPMCU) at collection centers along with associated IT systems resulted in streamlining milk village-based milk collection and testing for quality of the milk supplied procurement • The NDSP also encouraged formation of new village-level cooperatives to bring new producers to supply the milk

Framework • NDDB proposed the use of Framework Agreements (FA) for some standard items repeatedly (for Agreements for example, Bulk Milk Cooling Unit)In NDSP, FA were centrally set-up by NDDB decentralized • Use of FAs resulted in accelerating procurement process and monetary saving up to 15% in many procurement of cases equipment

• NDDB hired the services of a reputable inspection agency for quality checking of items procured under Procurement FA arrangements oversight and • To minimize the scope for any deficiency in quality of items supplied, a Quality Assurance Plan (QAP) quality assurance was developed for each item, and inspections started right from the manufacturing stage of equipment.

NDSP – National Dairy Support Project ; NDDB – National Dairy Development Board 16 1 Overview | Indian Dairy Industry

1A Products Trends

1B Procurement and Innovative practices

1C Government Schemes

1D Price Analysis

2 Key Players

3 Deal Dynamics | Global and India

4 Select Deals | Case Studies Key Government Policy Initiatives

Integrated cold • Provides integrated cold chain, preservation and value addition infrastructure facilities without any chain and value break, from the farm gate to the consumer in order to reduce losses of horticulture and non-horticulture addition agricultural produce infrastructure • Maximum grant-in aid allowed is INR 100 mn per project

• The NPBB&DD focused on extension of field Artificial Insemnation (AI) Network through “MAITRI (Multi- National Program Purpose AI Technician in Rural India) and to encourage conservation and development of recognized for Bovine indigenous breeds of the country Breeding and Dairy • The NPDD focuses on creating/strengthening of infrastructure for Production of quality milk, Development Procurement, Processing and Marketing of Milk & Milk Products by the State Implementing Agency (SIA) (NPBB&DD) i.e. State Cooperative Dairy Federations/ District Cooperative Milk Producers’ Union

• Provides effective and seamless backward and forward integration in the food processing industry. Under the scheme, financial assistance is provided for setting up primary processing centers/collection Creation of centers at farm gate and modern retail outlets at the front end along with backward connectivity through backward and insulated or refrigerated transport forward linkages • A maximum of INR 50 mn or 35% per project (provided only for technical civil work and eligible plant and machinery) of the eligible project cost for general areas/states and at 50% for North-East states, Himalayan states, ITDP areas and islands

National Livestock • NLM is an initiative of the Ministry of Agriculture and Farmers Welfare. The mission, which commenced Mission (NLM) in FY15, has been designed with the objective of sustainable development of the livestock sector 2014-15 through livestock development, feed and fodder development and skill development amongst others

Technology • The government allows subsidy up to 40% of the total cost in general areas and up to 50% in challenging upgradation areas for technology upgradation (subject to a maximum of INR 10 mn)

18 1 Overview | Indian Dairy Industry

1A Products Trends

1B Procurement and Innovative practices

1C Government Schemes

1D Price Analysis

2 Key Players

3 Deal Dynamics | Global and India

4 Select Deals | Case Studies Prices | Curd, Paneer, Ghee, Butter, Cheese & Ice-cream

Price in ₹ Price in ₹ Curd Player Brand Name Ghee Brand Name (400 gm) (500 gm) GCMMF Amul Masti Dahi 40 Amul 280 Nestle a+ nourish 41 Britannia 300 National Brands Nestle Acti plus 45 Livlite (Kwality) NA Nestle Nestle Slim 35 Patanjali 260 Nestle NesVita 25 (200 g) Heritage 275 National Brands Gowardhan dahi 45 Milky Mist 276 Parag Milk Foods Go Fresh dahi (flavoured) 25 (125 g) Nandini 205 Local Brands Brittania Britanannia Daily fresh 160 GRB 262 Danone low fat dahi 36 18 herbs 201 Danone Danone misti doi 300 (85 g) Aashirwad 286 Heritage Heritage 55 Price in ₹ Local Brands Milky Mist Milky Mist 55 Butter Brand Name Murginns Murginns dahi 39 (500 gm) GCMMF Amul 195 Price in ₹ Paneer Player Brand Name Brittania Britannia 200 (200 gm) Parag milk foods Gowardhan 180 Amul paneer 80 Milky Mist Misky Mist 185 GCMMF National Brands Amul malai paneer 62 Price in ₹ Parag Milk Foods Gowardhan paneer 80 Ice-cream Brand Name (litre) Heritage Heritage paneer 75 GCMMF Amul 220 Local Brands Milky Mist Milky Mist paneer 80 Vadilal Dairy Vadilal 145 Murginns Murginns paneer 80 Mother Dairy Mother Dairy 280 Price in ₹ Hatsun Agro Arun - Cheese Player Brand Name (200 gm) Devyani Food Industries Creambell 200 105 Hindustan Unilever Kwality Wall’s 200 GCMMF Amul Havmor Ice-cream Havmor 275 National Brands Parag Milk Foods Go Cheese 125 Unilever Cornetto 40* Britannia Britannia 118 Choudhary Cheese Bar Flander Dairy Local Brands La Cremella ABC Farms Prevailing prices in Mumbai are considered for comparison *Price per unit 20 Prices | Milk

Milk Segment Price (₹/litre)

2016 2017 2018

Amul Taaza Gold Milk 60 60 60

Amul UHTGold 62 64 66

Amul Slim and Trim Skimmed Milk 70 72 72

Mother Dairy toned UHT Milk 60 62 62

Danone UHT toned Milk 80 80 80

Danone UHT Milk 80 80 80

Nestle UHT A+ nourish milk 69 71 75

Nestle UHT A+ slim milk 80 80 80

Go double toned 65 65 66

Nandani Good Life Milk 58 57 51

Nandani Good Life Slim Skimmed Milk 49 53 52

D’lecta double toned 67 71 67

D’lecta premium toned 65 69 69

Prevailing prices in Mumbai are considered for comparison

21 Tax Implications - GST

Old rate on Overall New rate on Sector final product Impact final Product (Excise, VAT)

Dairy & Milk Products ► 0%, 5-15% 0%,12% ► VAT 5% 5% Butter ► VAT 12.5-15% 12% Cheese ► VAT 12.5% 12% Ghee ▼ VAT 5-12.5% 12% Milk and cream ► NIL NIL Milk food for babies ► NIL NIL Milk powder, UHT milk VAT 5% 5% Skimmed milk, yoghurt ► Ice-cream ► VAT 18% 18%

Note ▲ Positive Impact ► Neutral Impact ▼ Negative Impact

22 1 Overview | Indian Dairy Industry

1A Products Trends

1B Procurement and Innovative practices

1C Government Schemes

1D Price Analysis

2 Key Players

3 Deal Dynamics | Global and India

4 Select Deals | Case Studies Key Players | Listed (1/2)

All figures in INR bn

Name of Mark EV Sales EBITD PAT EBITDA PAT Debt Cash EV/ EV/ P/E ROE RoCE Asset Inv Rec Pay Company INR bn A Margin Margin Sales EBITDA Turn- Days Days Days over (%) (%) (x)

1,051.4 1,016.4 112.2 27.7 16.1 20.8% 11.9% NM 16,101 9.2x 37.3x NM 45.3% 31.9% 1 NA 3 NA

696.0 689.9 98.3 15.0 9.7 15.3% 10.2% NM 1,825 6.0x 39.2x NM 32.9% 40.9% 2 39 9 52

132.0 137.3 67.1 8.4 4.8 12.5% 7.4% NM 12,285 1.8x 17.0x 32.3x 7.5% 18.2% 1 141 34 70

106.8 116.6 42.9 3.7 0.9 8.7% 2.1% 9762 328 2.7x 30.9x NM 25.4% 20.9% 2 39 2 19

24.1 25.1 23.7 1.4 0.6 5.8% 2.6% 2192 602 1.5x 24.9x 38.5x 9.2% 25.0% 2 26 2 12

20.3 22.3 19.5 1.9 0.9 9.9% 4.5% 2141 496 1.2x 12.0x 23.3x 13.0% 17.0% 1 115 40 81

4.0 4.6 5.5 0.5 0.2 8.5% 2.9% 1317 46 1.4x 15.8x 25.7x 9.3% 10.7% 1 137 18 106

1.2 1.5 2.5 0.1 0.1 5.3% 2.1% 411 4 0.8x 15.6x 22.6x 10.5% 11.6% 2 85 12 NA

Mean 3.1x 24.1x 28.5x

Median 1.8x 21.0x 25.7x

Source: Bloomberg as on 30th April, 2019 NA = Not Available; NM : Not Meaningful 24 Key Players | Listed (2/2)

Products *

Processing Capacity 1.2 2.9 2.2 NA (mn litre/day)

Direct Procurement (%) 65 100 100 75

B2B (%) 70 30* - 7*

B2C (%) 30 70* 100 93*

Fresh milk +SMP (%) 15 33 64 63

VADPs (%) 67 66 34 31

Cheese, Ghee, Milk, SMP, Cheese, Ghee, Milk, SMP, Ice Cream, Milk, Curd, Paneer, Curd, Ice- Milk, Curd, Buttermilk, Categories Paneer, Curd, Dairy Ghee, Butter, SMP, DW, Cream, Dairy Beverages, Ice-Cream Beverages Paneer Shirkhand

Prabhat, Flava, Milk Gowardhan, Go, Topp Up, Arun, Arokya, Hatsun, Brands Heritage Magic, Volup Pride of Cows Ibaco, Oyalo

Telangana, AP, TN, Karnataka, Goa & Geographical presence Maharashtra Maharashtra, AP Karnataka, TN, parts of AP Maharashtra, & Delhi

*Note: We assume Groupe Lactalis will continue to utilize the existing dairy business facilities and network of Prabhat Dairy 25 Key Players | Unlisted

█ Geographical Presence

Sales Geographical Sales Geographical Key Players Products Key Players Products INR Mn Presence INR Mn Presence

Milk, Flavoured Milk, Curd, Cream, Buttermilk, Milk, Paneer, Ghee, Lassi, Dhood Peda, Butter, Curd, Flavoured 11,359 Badam Burfi, Milk Cake, 5,101 Milk and Ice Cream Mysore Pak, Kalakand, Mistidoi, Ghee, Paneer, Butter and Yoghurt

Milk Powders, Milk Milk Powder, Butter, Ghee Drinks, Bread Spreads 4,356 and Dairy Whitener Curd, Lassi, Butter Milk, 11,076 Ghee, Paneer, Namkeen, and Sweets Paneer, Cream, Lassi, Cheese, Butter, Yogurt, 3,959 Ghee, Shrikhand, Khova, Milk, Curd, Butter Milk, And Fruit Yogurt Lassi, , Ghee, Butter, Paneer, 10,185 Doodhpeda, Basundhi and Ice Milk, Lassi, Chaach, Pure Ghee, Flavoured Milk, 3,643 Paneer and Curd Milk, Ghee, Dairy Mix, Curd, Lassi, Buttermilk, Mishti Dahi, Tea, Coffee, 8,738 Milk Shake, Sweets, Ice Ghee, Ice Creams, Instant Food Mixes, Spice Cream, Pudding Paneer 3,133 and Milk Powder Masalas and Sweets

Milk, Butter, Ghee, Paneer, Shrikhand, Amrakhand, Curd, Lassi, Yogurt, Curd, Buttermilk, 5,623 Buttermilk, Flavoured Milk 3,072 Lassi and Paneer and Milk Powder

Actual data may vary 26 Key Players | Product-wise

Products Companies

Britannia, Kwality, Prabhat Dairy, Amul, Mother Dairy, Danone, Nestle, Nandani, D'lecta, Vijaya, Milk Arokya, Heritage, Nilgiri, Thirumala, Verka, Anik, Umang, Aavin, Nova

Parag Milk Foods, Britannia, Kwality, Reliance, Amul, Nestle, Danone, Heritage, Milky Mist, Curd Murginns, Nandini, Prabhat Dairy, Thirumala, Verka, Nova

Amul, Gowardhan, Prabhat Dairy, Heritage, Murgins, Milky Mist, Chitale, Prabhat Dairy, Nilgiri, Paneer Thirumala, Verka, Nova

Buttermilk/ Britannia, Amul, Nestle, Prabhat Dairy, Heritage, Danone, Milky Mist, Nandini, Thirumala, Verka, Lassi D'lecta, Kwality, Nova

Livlite(Kwality), Heritage, Britannia, Gowardhan, Prabhat Dairy, Amul, Patanjali, Milky Mist, Ghee Nandini, GRB, 18 Herbs, Aashirvad, CavinKare, Chitale, Thirumala, Aashirvaad Svasti, Verka, Anik, Nova

Butter Britannia, Gowardhan (Parag Milk Foods), Amul, Milky Mist, Aavin, Nova and Nandini (Bulk Supplier)

27 1 Overview | Indian Dairy Industry

1A Products Trends

1B Procurement and Innovative practices

1C Government Schemes

1D Price Analysis

2 Key Players

3 Deal Dynamics | Global and India

4 Select Deals | Case Studies Key Transactions | Global (1/3)

Merger and Acquisition Transactions

Deal Value Date Investee Investor (USD mn)

Mar-19 Westland Co-Operative Dairy Co Ltd (New Zealand) PepsiCo Inc (United States) 402.6 Feb-19 Watson Inc (United States) Hangzhou Wahaha Group (China) 89.0 Feb-19 Blend & Pack Pty Ltd (Australia) Inner Mongolia Yili Industrial Grp (China) 33.9 Jan-19 Assets/Darnum Factory Parmalat SpA (Italy) 84.6 Dec-18 Inner Mongolia Shengmu High-Tech Dairy (China) BSA SA (France) 44.0 Nov-18 Chom Thana Co Ltd/The (Thailand) Groupe Lactalis SADIR (France) 80.6 Nov-18 Kraft Heinz Canadian cheese business Inner Mongolia Yili Industrial Grp (China) 1,232.7 Oct-18 F&A Dairy Products (United States) Glanbia PLC (Ireland) 85.0 Oct-18 Slim-Fast Foods (Britain) Saputo Inc (Canada) 350.0 Oct-18 Chilled dairy business & Petaling Jaya factory Henan Kedi Dairy (China) 37.4 Sep-18 Infant formula business Land O' Lakes (United States) 864.0 Jun-18 Beijing Sunshine Culture Communication (China) Dean Foods (United States) 155.0 May-18 Henan Kedi Frozen Food (China) Shanghai Changjiang Huiying Investment Mgmt (China) 251.6 Feb-18 Multi Brilliant Enterprises (British Virgin) Refresco Group BV (Netherlands) 51.3 Dec-17 Qingdao Danxiang Investment Management (China) Glanbia PLC (Ireland) 33.2 Nov-17 Betin Inc (United States) Saputo (Canada) 265.0 Aug-17 Vigor Alimentos SA (Brazil) Fonterra Co-operative Group (New Zealand) 1,924.8 Mar-17 Les Pres Rient Bio SASU (France) Inner Mongolia Yili Industrial Group (China) 875.0 Nov-16 China Shengmu (China) BSA SA (France) 1,307.0 Oct-16 Dean Foods Co (United States) Ausnutria Dairy Corp (Hong Kong) 1,677.3 Jul-16 Refresco US Inc (United States) China Mengniu Dairy (Hong Kong) 129.0 May-16 Commercial Rights and Alfalfa Technology intellect BSA SA (France) 210.0 May-16 Manufacturing & retail ice cream business Wattle Health Australia (Australia) 155.0 Mar-16 Dairy business/Dewas & Etah Maiquer Group (China) 69.8

Source: Bloomberg as on 23/04/2019 NA = Not Available 29 Key Transactions | Global (2/3)

Private Equity Transactions Deal Value Date Investee Investor (USD mn) Jan-19 United Farmers Holding (Saudi Arabia) Saudi Agricultural & Livestock Investment Co (Saudi Arabia) 28.0 Dec-18 Yashili New Zealand Dairy (France) Danone SA (France) 106.1 Dec-18 Beingmate Baby & Child Food (China) Deyang State-Owned Asset Management (China) 41.3 Oct-18 Kite hill (United States) 301 Inc (United States) 40.0 Oct-18 Shanghai Shoule E-Commerce (China) Maiquer Group (China) 29.4 Aug-18 Synlait Milk (New Zealand) (New Zealand) 109.3 Apr-18 Ausnutria Dairy Corp (China) CITIC Agricultural Industry Fund Management (China) 164.2 Apr-18 Ausnutria Dairy (China) CITIC Agricultural Industry Fund Management (China) 85.8 Nov-17 Vietnam Dairy Products JSC (Singapore) Jardine Cycle & Carriage (Singapore) 616.6 Oct-17 V V Food & Beverage (China) Ningbo Bohonghefeng Investment LP (China) 88.3 May-17 Dodla Dairy (United States) TPG Capital LP/US (United States) 50.0 Mar-17 Synlait Milk (New Zealand) a2 Milk (New Zealand) 33.8 Jan-17 China Modern Dairy Holdings (Hong Kong) China Mengniu Dairy (Hong Kong) 241.5 Dec-16 Parmalat SpA (France) BSA SA (France) 108.2 Oct-16 China Shengmu Organic Milk (China) Inner Mongolia Yili Industrial Group (China) 680.4 Apr-16 Shanghai Milkground Food Tech (China) Jilin Dongxiu Investment (China) 138.0 Jan-16 China Shengmu Organic Milk (China) Nong You (China) 430.4 Jan-16 Albalact SA (France) BSA SA (France) 98.1 Jan-16 Inner Mongolia Youran Animal Husbandry (HK) Yogurt Holding I HK (Hong Kong) 214.7

Source: Bloomberg as on 23/04/2019 NA = Not Available 30 Key Transactions | Global (3/3)

ECM Transactions

Offer Price Last Price Offer Size Revenue Date Investee Country (Local (Local (USD mn) (USD mn) Currency) Currency)

Sep-18 Bega Cheese Australia 142 7 5 1,115 May-18 Henan Kedi Dairy China 119 NA 4 182 May-18 Wattle Health Australia Australia 29 1 1 1 Feb-18 Honsha Japan 1,308 7,032 7,490 3,624 Nov-17 Longtable Group Australia 32 NA NA 7 Sep-17 Almarai Saudi Arabia 299 70 60 3,657 Aug-17 Maeil Holdings South Korea 127 20,106 13,050 1,355 Jul-17 Fauji Foods Pakistan 32 10 21 66 Jun-17 Bega Cheese Australia 93 5 5 1,115 May-17 Glanbia Ireland 174 18 17 2,819 Dec-16 Lanzhou Zhuangyuan Pasture China 51 7 14 99 Dec-16 Yuanshengtai Dairy Farm China 50 1 NA 166 Dec-16 Obour Land For Food Industries Egypt 44 10 8 135 Nov-16 Saputo Inc Canada 224 46 45 9,000 Nov-16 Maiquer Group China 145 - 12 85 Nov-16 Ultrajaya Milk Industry Indonesia 32 4,500 1,220 385 Oct-16 Inner Mongolia Yili Industrial China 1,329 15 30 11,956 Aug-16 Guangdong Yantang Dairy China 74 NA 18 195 Aug-16 Ultrajaya Milk Industry Indonesia 60 4,000 1,220 385 Jun-16 Warrnambool Cheese & Butter Fa Australia 105 7 NA 473 Jan-16 Henan Kedi Dairy China 59 13 4 182

Source: Bloomberg as on 23/04/2019 NA = Not Available 31 Key Transactions | India (1/2)

Merger and Acquisition Transactions

Deal Value Date Investee Investor % Sought (INR mn) Jan-19 Sunfresh Agro Industries Tirumala Milk Products 17,000 100 Aug-18 Vijaykant Dairy and Food Products , Adityaa Milk Hindustan Unilever NA 100 Apr-18 Danone Foods and Beverages India, Mfg Facility Parag Milk Foods 300 100 Nov-18 Havmor Ice Cream Lotte Confectionery 9,780 100 Nov-17 Vaman Milk Foods Heritage Foods NA 100 Sep-17 Metro Dairy Keventer Agro NA 47 Oct-16 Reliance Retail , Dairy Business Heritage Foods NA 100 Oct-16 Revera Milk and Foods Anik Industries 1,400 NA May-16 Teja Dairy, Assets Heritage Foods 6 100 Mar-16 Anik Industries , Dairy Business Lactalis Group 4,500 100 Dec-15 Creamline Dairy Products Godrej Agrovet 1,500 25 Oct-15 AAK Kamani AAK AB 2,600 51 Mar-15 Anik Dairy Lactalis Group NA NA Sep-14 The Nilgiri Dairy Farm Future Consumer 3,000 98

Source: Deal databases NA = Not Available 32 Key Transactions | India (2/2)

Private Equity Transactions Deal Value EV/ Revenue EV/ EBITDA Investee Investor % Sought (INR mn) x Feb-19 Dodla Dairy International Finance Corp. 496 NA NA NA Dec-18 Danone Manifesto Ventures Inc, DSG Drums Food International 1,820 NA NA NA Consumer Partner & Individuals May-17 Keventer Agro Mandala Capital 1,700 15.0 1.5 18.0 May-17 Dodla Dairy The Rise 3,210 27.0 0.8 13.0 Jan-17 Milk Mantra Dairy Aavishkaar, Eight Road Ventures - - - - Dec-16 Gho Agro ASK Pravi 500 NA NA NA May-16 Parag Milk Foods Abu Dhabi Investment Council 429 2.1 1.5 16.1 Oct-16 HR Food Processing Aavishkaar India, Lok Capital 450 - - - Apr-16 Sri Krishna Capvent India Advisors 650 NA NA NA Mar-16 Shreedhar Milk Foods Omrudra International Trading 233 4.4 0.5 13.3 Sep-15 Prabhat Dairy TVS Shriram 850 7.6 1.4 29.1 Apr-14 Hatsun Agro Product Westbridge 361 1.2 1.3 17.8 Nov-12 Neo Milk Products Ambit Pragma 474 100.0 1.1 27.6 Nov-12 Dodla Dairy Proterra Investments 1,100 23.7 0.7 12.7 Sep-12 Prabhat Dairy Proparco SA 1,400 36.8 1.1 24.3 Sep-12 Parag Milk Foods IDFC Private Equity 1,600 32.7 0.8 8.7 Apr-10 Tirumala Milk Products Carlyle Asia 1,000 20.6 1.0 14.0 Mar-10 The Nilgiri Dairy Farm Actis Advisers 231 9.5 1.4 NM Average 1.1 17.7 Median 1.1 16.1

ECM Transactions Deal Value Date Company Name Deal Type % Sought (INR mn) DRHP Filed Aug-18 Dodla Dairy Initial Public Offering 0.0 0.0 Completed Feb-18 Hatsun Agro Products Rights Issue 5,280 5.88 Sep -15 Parag Milk Foods Initial Public Offering 7,368 40.74 Mar-15 Prabhat Dairy Initial Public Offering 3,650 0.0

Source: Deal databases 33 NA = Not Available 1 Overview | Indian Dairy Industry

1A Products Trends

1B Procurement and Innovative practices

1C Government Schemes

1D Price Analysis

2 Key Players

3 Deal Dynamics | Global and India

4 Select Deals | Case Studies Case Study: Prabhat Dairy (Milk Products Business) acquired by Groupe Lactalis(Tirumala Milk Products)

Groupe Lactalis ArystaPrabhat Lifescience Dairy • Groupe Lactalis was founded in 1933 and is •• ArystaPrabhat LifescienceDairy was isfounded a globalin agricultural1998 and companyis based in headquartered in Laval, France specializingNavi Mumbai, in Indiathe development, marketing and Lactalis, Europe’s biggest dairy group with a distribution of innovative crop protection and life • • Prabhat Dairy operates as an integrated milk and science brands presence in over 120 countries dairy products company with aggregate milk • 3 large organizations integrated to create Arysta The company offers , liquid milk, yogurt and processing capacity of 1.5 million liters per day • with presence in over 60 countries chilled dairy products, butter and cream, dairy •• 13The manufacturingcompany offers facilitiesmilk and withmlik moreproducts than 200such as ingredients and powder, etc. activeclarified ingredientsbutter, cheese,and 6,850+milk registrationspowder, lassi, ice • It has production sites in the Americas, Europe, • Arystacreams, LifeSciencepaneer, shrikhand has a well, curd,-integratedbutter, yogurt,biologicaletc . Africa, Asia, and Oceania and chemical portfolio • The company owns two factories, including one of • Product offering includes BioSolutions, fungicides, In India, Lactalis operates through Tirumala Milk the largest sweetened condensed milk plants in • herbicides, insecticides and seed treatments products (acquired in 2014) and Indore based Anik India, and employs 1,239 people Industries (acquired in 2016)

Deal Contours Transaction Overview1 Strategic Rationale • Total Deal Value = INR 1,700 cr • Lactalis, via it’s wholly owned • With the acquisition of Prabhat Dairy (USD 239 mn) subsidiary Tirumala Milk Products will Lactalis will have dominance in Western buy Prabhat Dairy's unit Sun fresh India 1. Stake Sale in Subsidiary Sunfresh Agro Industries • It would strengthen its market position Agro Industries • The transaction involves sale of the making it the biggest private milk ➢ Deal Value = INR 1,227 cr dairy business of Prabhat Dairy collector in the country ➢ Sales (FY18) = INR 945 cr (contributes 98.24% of revenue) by • The acquisition will also help Lactalis ➢ EV/Sales = 1.3x way of slump sale on a going concern reduce dependence on home markets 2. Slump Sale – Dairy Business of basis, along with the sale of 100% within Europe Prabhat Dairy shareholding in Sun fresh Agro • Post transaction, promoters of Prabhat ➢ Deal Value = INR 473 cr Industries (a step down subsidiary of Dairy intend to develop the cattle feed ➢ Sales (FY18) = INR 584 cr Prabhat Industries) business as well as expand into Animal ➢ EV/Sales = 0.8x Nutrition and Genetics

1The acquisition is subject to customary conditions precedent, including approval from the Competition Commission of India, and other conditions precedent

Source: BOBCAPS Research, Deal Databases, News articles 35 Parag Milk Foods Successful public market story carved by long term investors

IPO (Post Money) Investment of US$ 20.5 mn by IDFC Equity Valuation PE for ~33% stake ~US$ 273 mn

EV: US$ 128 mn EV/Rev: 0.8x EV/EBITDA: 8.7x Investment of US$ 13.5 mn by Motilal Oswal for ~14% stake

EV: US$ 112 mn EV/Rev: 1.5x EV/EBITDA: 15.6x

May-08 Sep-12 Sep-15

PE Contribution ✓ Access to international network & global best practices ✓ Management support and guidance in operations ✓ Strategic inputs to achieve ambitious growth plans including organic & inorganic initiatives ✓ Financing support

Source: BOBCAPS Research, Deal Databases 36 Dodla Dairy Surging ahead with acquisition oriented regional play

Filed IPO for Investment of US$ 50 mn by the TPG Shares worth up to capital for 27% stake ~INR 500 Cr

EV: US$ 189 mn EV/Rev: 0.8x EV/EBITDA: 13x Investment of US$ ~20 mn by Proterra for ~23% stake1

EV: US$ 85 mn EV/Rev: 0.7x Valuation increased EV/EBITDA: 12.7x two-fold in under 5 years

Nov-12 May-17 Aug-18

PE Contribution ✓ Access to international network & global best practices ✓ Management support and guidance in operations ✓ Strategic inputs to achieve ambitious growth plans including organic & inorganic initiatives ✓ Financing support Source: BOBCAPS Research, Deal Database 1- Originally Cargill Ventures a subsidiary of Black River AMC bought stake in Dodla Dairy, Subsequently Black River AMC was renamed Proterra Investments 37 Contact Details & Disclaimer

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