Lok Capital leads Rs 45 cr investment in Jharkhand's dairy brand Osam

Lok is now a large minority holder in the firm; Rajesh Babu of Lok to join HR Food board; Aavishkaar India II is co-investor

Impact investment fund, Lok Capital, has led an investment of Rs 45 crore ($6.7 million) in Ranchi-based HR Food Processing firm, which manufactures and markets dairy products under the brand 'Osam'.

The Series B round of funding was led by Lok Capital-advised Growth Catalyst Partners (GCP), the third fund from the India-focused VC firm, with co-investment from existing investor, Aavishkaar India II Company. The funds will be used to expand HR Foods' production capacity and extend its distribution outreach into neighbouring districts in Jharkhand and Bihar.

With this investment, Lok gets a substantial minority holding in the company and Rajesh Babu, Director, Lok Advisory Capital will also join the HR Food board.

Founded by first-generation entrepreneurs Abhinav Shah, Rakesh Sharma, Abhishek Rajan and Harsh Thakkar in 2012, HR Food currently holds 10 per cent of the organised milk market in the region.

Following the commercial launch in 2015, Osam has a procurement network reaching more than 10,000 dairy farmers, processing around 40,000 litres a day and selling products through a network of 3,000-plus retailers across Jharkhand. Leveraging this fund raising exercise, HR Food has already bought over another dairy plant in Jharkhand and is looking at other acquisitions to capture a significant share of eastern India's dairy market.

"The eastern diary market does not have the required penetration and we think there is huge potential. In the last 18 months, we have become one of the leading players. With this round of fund raising, Osam is poised to deepen its outreach into key target markets in eastern India, with an expanded production capacity enabling our growth, and emerge as the leading dairy brand in the region," said Abhinav Shah, co-founder and CEO of HR Food

India is the largest consumer of dairy products and the consumption of milk alone is about 400 million litres a day. The dairy market is expected to grow at 16 per cent CAGR and reach $155 billion by FY 2020. However, per capita consumption of dairy in eastern India is almost 50 per cent lower than the national average, indicating huge potential for companies like HR Food to create strong consumer brands and build large dairy businesses.

Agri-dairy is an important investment theme for Lok's third fund, as it offers good growth potential and the right blend of socio-economic impact and brand creation. "Milk is the largest commodity in India with growing consumer demand. What we liked in HR Foods was the work they are doing with farmers. Given the large opportunity present in the dairy industry and the significant scope for high-quality private sector players to operate in the space, Lok is keen on backing integrated business models that make dairy and agriculture more sustainable for farmers. Osam is transforming the dairy sector in Jharkhand and Bihar through high quality customer offerings and improving farmer livelihoods by providing transparency on price, quantity and quality to over 10,000 farmers," said Babu.

The fund will support businesses that create value for small and marginal farmers along with generating good commercial returns. Lok believes that there is tremendous scope for agri-dairy enterprises to innovate, scale-up and address the challenges faced by the Indian agri and dairy sectors.

The funding in Osam marks Lok's first investment in dairy and second investment in the agri-diary space, following earlier investment in a Pune-based company, SV Agri Processing from its fund II-Sarva Capital.

Unitus Capital was the exclusive investment banking advisor.