At Kwality we are at a point where we are competently prepared to address the emergingopportunities from the great consumption story of India.
We are in a very exciting phase of growth of the dairy sector. The prime driver of thesustainable growth of our business is prosperity within multiple sections of our society.With measurable improvements stemming from progressive government policies India hasemerged as a global economic outlier in terms of economic expansion while other largeeconomies are experiencing tepid growth.
This outperformance has catalysed economic development translating into enhanceddisposable incomes. This aided by rapid urbanisation health awareness and growing youthpopulation has resulted in a significant demand for branded value-added dairy products.Furthermore we believe that in a society that is becoming increasingly aware ofnutritional balance the consumption of milk will only continue play a growing role.
In addition to the encouraging demographics we are also strategically positioned tocater to the demand of fast growing regions of North India. We believe in our strategy ofconcentrating in the northern market as it enjoys reliable milk sources and has a strongconsumption base. Also these regions are also witnessing rising urbanisation and growingspending power. The fact that these regions have very few organised branded playersdespite offering substantial opportunities strengthens our hypothesis of strong demandgrowth in the packaged dairy segment. Having said that we would explore other metrocities across India for our high shelf life products to enhance visibility in the country.
Making Progress towards Business Transformation
At Kwality we are transforming rapidly from a traditional B2B dairy player to aconsumer-oriented branded specialty dairy products company. Presently on standalonebasis the Company derives 60% revenues from institutional segment and balance from retailsegment. Over the next 3 years we intend to increase the share of our consumer businessfrom the present 40% to 70%.
This metamorphosis is expected to materialise on the back of our widening productportfolio including differentiated value-added and fresh milk products strong brandsalience and increasing distribution reach. We have made substantial progress in expandingour direct procurement mix augmenting our capacities and deepening our distributionreach via traditional and modern trade channels. In doing so we have placed greatimportance to product quality and leveraged technology for seamless operations. We alsoundertook a number of welfare initiatives for farmers to improve their economicwell-being and at the same time correct demand-supply skews. These initiatives areallowing us to strengthen our business model across the long-term and protect ourmargins.
In a rising competitive environment we also invested significantly into brand buildingactivities. We recognise the multiple advantages of branding in an otherwise commoditisedmilk business. We are in the process of rolling our products under the mother brand -'KDIL's Kwality' which will eventually become a strong magnet attracting consumers acrossincome levels while also ensuring brand stickiness.
To drive our transformational initiatives and partner our growth leading PrivateEquity firm Kohlberg Kravis Roberts & Co. (KKR) has agreed to invest ' 520 crore inthe Company of which ' 300 crore have been withdrawn. The investment has been utilisedtowards capacity expansion for value-added products debt consolidation marketingbranding and IT infrastructure.
A Bright Future
We are confident of the Indian dairy sector which enjoys growing milk productionstrong shift from unorganised to organised suppliers and growing consumer acceptance ofvalue-added milk products. At Kwality we are at a point where we are competently preparedto address the emerging opportunities from the great consumption story of India. With thetransition in our business mix we should gradually move away from the vagaries of thecommodity business including limited margins and higher working capital days. We areconfident that the fruition of our various efforts towards this transformation willreflect in higher margins and improved earnings quality in terms of a leaner workingcapital cycle and healthier operating cash flows. Further as the leading organised playerin our chosen markets we enjoy a sizeable critical mass in terms of visibility andbusiness sustainability. Lastly I would like to thank all our stakeholders who stood byus in the journey of value creation.
Dr. Rattan Sagar Khanna