TPG, Danone in talks to buy Tirumala Milk; buyers eyeing 80% stake for Rs 1,800 crore

Tirumala Milk, funded by private equity firm Carlyle, is owned by four farmers from Hyderabad.

Global private equity giant TPG group and French dairy giant Danone are in advance talks with promoters and investors of Hyderabad-based Tirumala Milk Products to purchase South India's second-largest dairy company valued at more than Rs 2,000 crore, two people with direct knowledge of the development said. Tirumala Milk, funded by private equity firm Carlyle, is owned by four farmers from Hyderabad. Carlyle, which had bought 20% stake for Rs 110 crore in June 2011, is also looking to sell its stake.

"There was a considerable interest from strategic and financial investors. TPG and Danone, with their higher bids, are now leading the race," an investment banker with knowledge of the development said. The company has so far engaged with PE giants like Advent, Barings Asia and Blackstone.

"The buyers are looking at 75-80% stake for Rs 1,800 crore. Carlyle will get at least three times returns on its investment," another person with knowledge of the deal said. "The company will soon enter into exclusive talks with Danone." This is the second time the company will engage with the French dairy major after it had suspended talks last year over valuation mis-match.

An emailed questionnaire send to Puneet Bhatia, head of TPG India did not elicit response. M Shankar Narayanan, managing director of Carlyle also did not respond to an emailed query. Media relations department of Danone did not respond to emailed query either. The dairy firm with Rs 1,500 crore of revenues last fiscal and a network spread across Andhra Pradesh, Tamil Nadu and Karnataka, has mandated investment bank Barclays to find strategic and/or financial investors.

Founded by four farmers from Narsaraopet in Guntur, Andhra Pradesh, in 1998, the company now has a daily processing capacity of 1.2 million litres. Tirumala's MD Danda Brahmanandam, said, "Talks are going on pertaining to valuations. With some investors quoting below our expectations, the deal didn't go through. It may take another month or two for some clarity. " Bolla Bramha Naidu, director and one of the founders of the firm, said the sale of stake could not be taken forward in the absence of consensus over valuations. "We are now waiting for better offer in terms of valuations."

Danda Brahmanandam, Bolla Bramha Naidu, B Nageswara Rao and N Venkata Rao, the four promoters of Tirumala Milk, currently own 80% stake in the company. Carlyle Indiamanaging director M Shankar Narayanan is on the board of dairy firm representing the PE firm.

Another director and founder B Nageswara Rao said though Carlyle was also looking at selling their 20% stake by mandating investment bankers, there was no significant progress for want of better valuations.

"We have provided all the details on the company's performance including financial data to the prospective buyers to enable them to take a call on valuations," said Brahmanand.

Bramha Naidu said the promoters are yet to arrive at consensus on whether to sell minority stake of up to 49% and retain control over the company or sell majority stake in favour of investors.India's organised dairy sector is currently valued at around $10 billion and is set to grow at a compounded annual growth rate of 13-15% till 2019-20, according to a report by Rabobank.

According to an Assocham report, the Indian dairy industry is now the world's largest market accounting for 20% share in milk production. The domestic market with 123 million tonne of milk production in 2011 is projected to reach 190 million tonne by 2015.

Source : By Sneha Shah & CR Sukumar, ET Bureau