Dodla Dairy's Q2 FY26: Navigating Growth with Strategic Shifts and Acquisitions

Dodla Dairy Limited, a prominent player in India's dairy sector, has announced its consolidated financial results for the second quarter of Fiscal Year 2026 (Q2 FY26), demonstrating resilience and strategic agility amidst a dynamic market. The company reported a consolidated revenue of INR 1,019 crores, marking a 2.1% year-on-year growth compared to INR 998 crores in Q2 FY25. This quarter notably marks the second consecutive period where Dodla Dairy has surpassed the INR 1,000 crore revenue milestone. Despite facing certain headwinds, the company achieved a gross profit margin of 27.7%, a significant improvement from 25.5% in the prior year's corresponding quarter. However, EBITDA margins stood at 9.1% and PAT margins at 6.4%, reflecting a slight moderation from previous periods.

The quarter's performance was significantly influenced by a strategic shift in product mix and the integration of the newly acquired OSAM Dairy business. Historically, bulk sales of Skimmed Milk Powder (SMP) and butter contributed substantially, amounting to INR 167 crores in Q2 FY25. In Q2 FY26, these bulk sales were deliberately reduced to INR 28 crores, a strategic move to balance demand and supply of liquid milk throughout the year and manage seasonal fluctuations. The company's growth was primarily driven by robust volume increases in liquid milk sales and a higher contribution from high-margin value-added products (VAP) such as curd, ghee, lassi, flavored milk, and ice cream. This shift, while leading to modest overall revenue growth, resulted in a strong improvement in gross profit. The OSAM Dairy business, acquired by the end of July, contributed INR 52.6 crores in sales for two months (August and September), further bolstering the top line.

Management highlighted that the core business, excluding OSAM Dairy and bulk sales, delivered a healthy 13% year-on-year revenue growth. The average consolidated milk procurement stood at 19.5 lakh liters per day, an increase of 13.4% YoY, partly due to OSAM volumes. The average consolidated procurement cost increased to INR 37.29 per liter from INR 34.64 per liter in Q2 FY25, primarily due to lean season and erratic rainfalls. Liquid milk sales volume grew by 12.6% YoY to 13.1 lakh liters per day, with an average consolidated sales price of INR 57.07 per liter. Curd sales volume also increased by 11.2% YoY, reaching 360 metric tons per day.

The integration of OSAM Dairy, while strategically important for expanding Dodla's footprint in East India, currently operates at lower EBITDA margins (around 2.6%). Management is actively working to enhance operational efficiency and scale volumes from 1.2 lakh liters per day to 2 lakh liters per day by FY27, aiming to bring OSAM's margins in line with Dodla's consolidated levels within 2-3 years. This includes procurement optimization, increased VAP contribution, and operational improvements. The successful implementation of SAP at OSAM from November 1 underscores the company's commitment to seamless integration and operational excellence.

Dodla Dairy's strategic priorities include expanding production capacity, deepening its direct procurement model, strengthening brand presence and expanding reach, and focusing on value-added products. The company is investing in brand building initiatives, including sponsorships and targeted advertising, to increase brand salience. The Maharashtra expansion project, with a capex of INR 77 crores, is expected to gradually increase milk procurement from the state. As of March 31, 2025, Dodla Dairy maintains a net debt-free status and a healthy Return on Capital Employed (ROCE) of 24.4%, providing a strong financial foundation for future growth initiatives.

Dodla Dairy's Q2 FY26 performance reflects a company strategically repositioning its product portfolio towards higher-margin VAP, effectively integrating new acquisitions, and expanding its geographical footprint. Despite challenges from rising procurement costs and initial lower margins from OSAM, the management's focus on operational efficiencies, brand building, and disciplined capital allocation positions the company for sustained growth and enhanced stakeholder value in the long term.