Is the French dairy major, Lactalis, going overboard with its investments in India? The dairy major has been on an acquisition spree since 2014 when it first announced its entry into the country with the acquisition of the Hyderabad-headquartered Tirumala Dairy for Rs 1,679 crore. It then acquired the Indore-based Anik Dairy last year at Rs 452 crore and its most recent buy is the controversy-ridden Rs 1,700 crore deal with Prabhat Dairy. "Lactalis has been paying too much, it will regret these investments in the years to come," says the head of a leading dairy company.

As the investors wonder how a promoter could sell its entire core business on the basis of which it raised money from the market, one also wonders what made Lactalis dole out Rs 1,700 crore for a company whose over 60% of revenue comes from selling powdered milk and liquid milk to various consumer companies. The dairy company which collects around 1.0 million litres of milk per day hasn't had a great run either. It registered a net sales of Rs 1,554 crore in FY17-18, and its net profit was Rs 82 crore, the lowest among its other listed peers. The company has forayed into the B2C space with products such as cheese, butter, milkshakes, shrikhand etc but has not been able to break into the fortress of the likes of Amul or Parag Foods. "Their products are not to be seen too much. In some markets they are heavily discounting their products just to get topline growth," says this dairy company head

A senior dairy expert suspects that Lactalis would have been convinced to invest in Prabhat by politicians. "Most dairy companies, including a few private companies have political backing. If you notice, 30% of Prabhat is held by an overseas institutional investor, which is not clear. For all you know, the unknown institutional investor could be a politician who may have influenced Lactalis. The deal comes across as extremely fishy." The other reason why Lactalis may be hurriedly wanting to expand, according to this dairy industry expert, is because the global milk prices are likely to go up this summer after consecutive years of low growth, and western and central India is where bulk of the milk procurement takes place.

Merely acquiring dairy companies to get scale will not help in building a profitable business, one has to invest in procurement which will take time. "Dairy is a long gestation business and requires lot of patience. The private companies which enter the fray play to the tune of the stock market and the stock market doesn't want to wait," explains this dairy company head. He says that the private players invest and expect growth overnight but the Indian dairy industry is a long gestation business. The foreign companies are also used to high margin growth, and the Indian dairy business is a low margin business. Danone is a classic example of a company which priced its products at a premium just to get higher margins. But the consumers are value conscious and were not prepared to pay a premium. Despite being the most innovative dairy company, Danone burnt its fingers in India and exited.

It took Amul 70 years to become Rs 41,000 crore entity and the private dairy companies still have a lot to learn from Amul.