Prabhat Dairy chief sees no impact of demonetisation on milk biz

  Prabhat Dairy reported a 12 percent increase in revenue at Rs 324 crore in the second quarter of this financial year as against Rs 289 crore in the same period in the last fiscal year. In an interview with CNBC-TV18, Vivek Nirmal, Joint MD of of the company, says that demonetisation is not having an impact on their business as they make payments directly to customers for milk procurement business. Government last week took a decision to ban Rs 500 and Rs 1000 notes, in a move to curb black money. Nirmal said the disturbance is for a few days and expect it to normalise soon. Below is the verbatim transcript of Vivek Nirmal's interview to Prashant Nair and Reema Tendulkar on CNBC-TV18.

Prashant: Could you tell us what is the impact of the demonetisation drive on your business, I am assuming yours is a predominantly a cash led business?

A: Obviously, this is the major event of demonetisation, normally our business has two large areas which is milk procurement and we procure milk from around more than 1 lakh farmers and another area is our sales. In procurement obviously we are one of very few private dairy companies in India who have milk sourcing directly from farmers and we directly make payments to their bank accounts, so I would say it actually a great positive for the company, because lot of farmers who were earlier getting cash from another agents and that is definitely a lot of problem to handle that cash.

Prashant: But right now it is all payments when you collect milk for example you pay in cash.

A: On milk we are not seeing any impact as such in past 5-6 days, but yes on products especially high value products like ghee and all, we have seen that the offtake from the retail outlets has reduced.

Prashant: When you buy how do you pay?

A: We pay directly to farmers’ bank account, so milk business is definitely in cash, but we pay our 100 percent milk payment only through bank accounts.

Prashant: How many people do you work with, how many people do you buy milk from for example?

A: We buy milk from around 1 lakh farmers plus and out of which around 65 percent milk is sourced directly, so we make payments directly through their bank accounts. In some cases in some villages where they don’t have bank branches, we have tied up with Vodafone for their M-Pesa and all and that is the channel we use for making payments.

Reema: So your only exposure to cash is what consumers use, if the consumers use at all, if they use cash to buy a product other than that you don’t have your business per se does not have any exposure to cash?

A: Yes, but on the consumer side obviously for the high value items we have seen the offtake going down and we expect that to be normalised because of this high value.

Reema: By how much the sales of your high value products have been impacted by how much so far by 10 percent, by 20 percent?

A: It would be very early to say because normally there is a cycle of company to distributor, distributor to retailer, so as of now that cycle lot of stock is there already there in the pipeline, it will take next few days for us to understand, but the firsthand information which we get from the market is definitely there is a low offtake, but since all these dairy products are under regular need items, these are daily need items, so we don’t see a really a large impact happening. Yes, there is a disturbance for few days. We expect the situation to be normalised in the next few days.

Reema: You very clearly said that you transact with the farmers via banking channel or M-Pesa etc. What about between you as well as the distributors, do they pay you in cash in that there is any exposure and therefore do you expect a hit on account of the fact that distributors perhaps used the medium of cash?

A: Yes, normally in milk channel there are lot of receipt which we also receive in cash and that is where we are definitely seeing some sort of disturbance, but normally milk industry we are right now getting cash, we are getting it in the old denomination right now and we are depositing it in our bank accounts.Reema: So no hit so far, it is not that the distributors have reduced or stopped payments to you?

A: Not yet, that is why I said it is very early to say, but not yet we have not seen a very large impact, but whatever impact is there, we see that in next few days it should be normalised.

Prashant: How much inventory is there it essentially depend on that right?

A: Not really because only our inventory is in the form of milk powder or butter or cheese and all and our sales mix is business to business (B2B) and business to consumer (B2C), this is largely a lot of B2B clients as well for which the material is produced against orders and second this inventory is for us to be used in for reconstitution in certain products, but whenever it is inventory of fresh milk for example it is only 2 days shelf life, that is an area which could come into problem, but fortunately we have seen in past few days fresh milk business has not really been affected largely, because it is a daily consumable item it has not impacted largely.

Prashant: I am surprised when you said that 100 percent of the payment that you make is all through directly into bank account?

A: Yes.

Prashant: I mean small marginal farmers he has 5 litres of milk and he comes sells 5 litres to you, how does the settlement work it is a monthly cycle?

A: No, it is a 10 day cycle and what happens normally there are smaller cooperative bank in that case or smaller credit cooperative societies if the banks don’t have branches, so we normally encourage farmers and especially for farmers to take the payment through banks, we have early payment cycles and all. It has taken a lot more years to set up this system, we have our own proprietary software working for that and with help of these we are able to manage all the farmer payments through the bank account.