Hatsun Agro Product Limited (HAP), one of India’s prominent dairy manufacturers, has made a strategic move by acquiring 100% of the share capital of Milk Mantra for Rs 233 crore (approximately $27.5 million). This acquisition marks a significant step for HAP in strengthening its foothold in the growing Eastern Indian dairy market, particularly in Odisha, where Milk Mantra’s popular brand, ‘Milky Moo,’ has garnered a solid reputation.

The deal will be executed through a series of Share Purchase Agreements (SPAs) and other transaction documents between HAP and Milk Mantra’s existing promoters and shareholders. As part of the transaction, Milk Mantra will transition into a wholly-owned subsidiary of HAP, signalling the dairy giant’s expansion into a key regional market.

Milk Mantra, established in 2009, has raised nearly $35 million over the years from investors such as Aavishkaar Venture Capital, Fidelity Growth Partners, Neev Fund, Eight Roads Ventures, and the US-based DFC. The company offers a diverse range of dairy products, including milk, curd, cottage cheese, buttermilk, and cattle feed, catering to various segments of the market.

Despite its profitability—Milk Mantra reported a profit of Rs 9.78 crore in FY24—the company has struggled to significantly grow its revenue in recent years. Its operating revenue for FY24 stood at Rs 276.42 crore, a figure which appears to be stagnant when compared to the past few fiscal years. This raises questions about the sustainability of its growth, as it is now sold for a valuation below 1x sales, despite being a profitable entity.

The transaction might be classified as a slump sale, given the price of Rs 233 crore for a company with revenue slightly higher than the acquisition cost. However, for Hatsun Agro, the deal makes strategic sense. The acquisition strengthens HAP’s market presence in Eastern India and provides access to Milk Mantra’s established brand, Milky Moo, which has already made significant strides in Odisha.

Hatsun Agro’s acquisition comes at a time when competition is heating up in the D2C dairy sector. Well-established players like Milky Mist, with FY24 revenue of Rs 1,907.21 crore, are continuously expanding, and new-age brands such as Country Delight, Akshayakalpa, and Sid’s Farm are gaining traction in the market. Milky Mist is also reportedly preparing for an Initial Public Offering (IPO), planning to raise Rs 2,000 crore through the listing.

The stagnation at Milk Mantra may be attributed to its reliance on liquid milk products, where margins remain tight. The company’s inability to diversify beyond liquid milk, or adopt innovations such as A2 milk variants, may have limited its ability to expand significantly. This could have contributed to the lower-than-expected valuation in the deal with Hatsun Agro.

For Hatsun, this acquisition represents an opportunity to expand its market share at an acceptable cost, enhancing its regional presence. Interestingly, despite the acquisition’s strategic importance, Hatsun’s stock price saw minimal movement following the announcement, suggesting the market views the deal as a well-valued fit within the company’s broader portfolio.

In summary, the acquisition of Milk Mantra is a calculated step for Hatsun Agro, positioning itself strongly in Eastern India and reinforcing its position in the competitive dairy landscape. However, Milk Mantra’s stagnant growth and reliance on low-margin products raise questions about its future trajectory, making it a cautionary tale of how rapid expansion and strategic diversification can be key in a competitive market.