May 16, 2013

International Finance Corporation invests US$17 million in Parag Milk Foods

International Finance Corporation (IFC) is investing up to INR927 million (US$17 million) in Parag Milk Foods for expanding the latter's milk processing projects at Manchar in Maharashtra and Palamaner in Andhra Pradesh.

The total project cost is estimated at US$32.7 million, of which US$13.9 million (42% of total cost) has already been funded through an equity investment by IDFC last September.

Parag Milk is one of India's largest private dairy companies which has a milk processing capacity of up to two million litres per day (LPD) at Manchar and 800,000 LPD at Palamaner. The firm produces liquid milk and value added products like UHT milk, cheese, butter, ghee (clarified butter), paneer (cottage cheese), yoghurt, curd, lassi, flavoured milk, dairy whitener and milk powder, which are sold under the brands 'GO', 'Gowardhan' and 'Top Up'.

Parag is planning to strengthen its operations through plant automation and expanding its procurement and distribution networks. Currently, the promoters of the company-Devendra Shah and his two brothers, Pritam Shah (managing director) and Parag Shah (director)-hold 58% stake in the company, while IDFC and Motilal Oswal own 21% and 12%, respectively.

The dairy firm would be getting the funding third time since starting. Last September, IDFC Private Equity Fund III invested US$29 million in Parag Milk Foods through compulsorily convertible debentures and Motilal Oswal Private Equity made a partial exit on its four-year-old investment in Parag. The PE firm had invested INR550 million (US$10 million) in Parag back in 2008 through its India Business Excellence Fund and sold off 40% of its holding.

For IFC, the private sector investment arm of the World Bank Group, this would be the first investment in the consumer space this year. In the same space, IFC invested US$6.44 million in Haryana-based Modern Dairies in 2008.