MILK PROCUREMENT AND PROCESSING

The organized dairy sector (both cooperatives and private) is presently handles about
15 per cent of total milk production in the country. Thus it indicates, there is a wide scope for
processing of milk and manufacture of milk products for domestic consumption as well as
export.

PROJECT DETAILS

1. LAND AND LOCATION

 Ample space is required for buildings, future expansion, parking of transport

vehicles and for empty cans. About two acres of land is required for a milk processing
plant handling about 10000 liters of milk per day (8 hours). However, the built-up
area to total area should be normally around 1:3. The exact design and details of the
built up area has to be decided in consultation with the plant and machinery supplier or
with a professional dairy consultant.

 The location of a plant should be close to the milk producing area in case of products
manufacturing unit and if liquid milk is the main product it should be close to the
consumption centres.

 The location of site should have proximity to road/rail facilities, services, such as water,
electricity and effluent mains, social infrastructure, etc.

 Subsoil of the site should be firm with proper drainage. It is always advisable to
conduct soil investigation for load bearing before setting up dairy processing plant.

2.SITE DEVELOPMENT
 Preferably the entire site should be fenced with barbed wire or compound wall is
constructed with gates at suitable places

 Internal roads should be of tar/bricks/WBM depending upon the soil conditions,

rainfalland the number of vehicles moving every day.

 At the Raw Milk Reception area there should be provision for unloading cans from
different types of vehicle.

 Proper drainage arrangements should be made to ensure cleanliness.

3.LAYOUT AND BUILDINGS

The civil works comprise of main processing building, which includes Raw Milk
Reception Dock, Main processing hall, provision for manufacture of other products, cold
storage, CIP, Laboratory, quarters, office, garages, security post etc. The factory building
for the milk reception, quality control, processing, packing and storage of milk products
should be as per BIS specifications. The total covered area depends on the processes
involved, products manufactured, the quantity of milk handled and the equipment chosen
product manufacturing. About 4000 sq.ft. area of building is required for handling 10000
liters of milk. The essential sections of a milk processing plant are given in below.
The milk processing plant shall have the following essential facilities.

i) Raw Milk Reception Dock (RMRD) - consisting of can conveyor, can washer,
weighing balance, dump tank etc.

ii) Processing Hall - cream separator, chiller, homogenizer, pasteuriser and other
related machinery are installed.

iii) Storage area- for milk storage tanks.

iv) Products manufacturing area-depends upon the type of products, quantity of

milk handled and the machinery to be installed.

v) Packing area-for packing of liquid milk and other products.

vi) Cold storage-for keeping the milk and milk products before sending to market.

vii) Quality Control Laboratory- for testing the quality of milk and milk products.

viii) Utilities areas- for testing installing boiler, generator set, water treatment plant,
maintenance and store areas for spares.

ix) Quarters and office areas-for all the essential staff.

x) Vechicle parking area- both for the milk procurement and distribution vechicle.

xi) Input supply area- for providing veterinary service, supply of feed, fodder seeds
etc.

TECHNICAL COLLABORATION

Normally the technical collaboration may be for supply of machinery, technical

know-how for manufacture or marketing of products. If any collaboration arrangement

36
is there, name of the firm, country and term of agreement is required to be mentioned in
the project. While entering in to agreement with machinery supplier, provision should be
made for getting the training to the technical staff employed in the unit.

MANUFACTURING PROCESS

The operations involved in the manufacturing process should be given in the form of
a flow diagram. The flow diagram for a 10,000 litres per day milk processing plant is
furnished.

INFRASTRUCTURE FACILITIES FOR RAW MATERIAL

AND UTILITIES

Raw Material

The principal raw material is milk. The extent of milk procurement area, milch
animal population, average milk yield, percentage of animals in milk, marketed surplus
etc. will determine the size of the plant. The method of procurement, transportation of
milk and input supply to the farmers is required to be highlighted. The availability of
other inputs such as packing materials, disinfectants and consumables should be
ascertained.
UTILITIES

Power

Normally a three phase electricity supply is required for milk processing plants.
The power requirement depends upon the load to be connected and the necessary
approval from SEB should be obtained for connection. Depending upon the position of
power supply, standby generators may be considered for connecting the essential
sections.

Water

A milk processing plant requires the water in the ratio of 2:1 (2 liters of water for
1 liter of milk processed) for cleaning of equipments, cold storage and drinking purposes
(source of water supply, quantity available and suitability for the purpose has to be

37
mentioned). Accordingly, the size of the well is required to be designed and depends on
the quality of water, the water softening plant may be considered.

Steam

The steam requirement (kg/hr) depends upon the processes involved and the
source of steammay be met by coal/oil/gas fired / electric boiler.

Fuel

The fuel is need for various processing operations. The type of fuel will depend
upon the type of boiler used for steam generation. It is therefore necessary to assess
the requirement of LDO/coal/gas and also ascertain the easy availability before
purchase of boiler.

Compressed Air

It will be required for various pneumatic operations flow control operations as well
as for cleaning purposes. The total requirement of compressed air and the capacity of
the compressors are required to be furnished.

Vehicles

The vehicles required for procurement and distribution of milk depends on the
quantity of milk to be handled. The number of vehicles required, source of supply,
rental charges etc. need to be furnished. Depending upon the need, the requirement of
vehicles may be considered in the project cost. Generally, insulated vehicles will be
required to transport chilled milk and reefer vans for transport of finished products like
ice cream, cheese, etc.
Other Services

A maintenance workshop is an integral part of milk processing for carrying out

repairs and maintenance of equipment.

MANPOWER

38
 While selecting the site, the availability of manpower should be looked into and
the total requirement of manpower depends on the operations involved and the quantity
of milk handled.

ENVIRONMENTAL ASPECTS AND POLLUTION

CONTROL
The process involved is milk pasteurisation and processing of milk into toned milk
and products such as cream and ghee. The effluent will be in the form of washed water
and milk solids apart from the detergents and sanitizers used in the plant. There are no
hazardous effluents generated from a milk processing plant. However, construction of
effluent treatment plant is necessary for treating the effluents before discharging for
proper disposal. The final effluent should meet the requirements of Pollution Control
Board and is necessary to get clearance from them. The treated water can be utilised
for irrigation or creating a biotic zone where plants can be grown in and around the
dairy plant.

SCHEDULE OF IMPLEMENTATION
Generally, it takes about 4 to 6 months period for getting the DPR, obtaining loan
sanctions, approval of plans, finalizing the suppliers and construction of various civil
structures and installation of plant and machinery. Hence, during first year of
operations, only six months of milk procurement can be assumed. Proper planning
needs to be done so as to take up various activities without any break. The activity wise
schedule of implementation is to be given in the project.

MARKETING AND SELLING ARRANGEMENTS

The market for the product (domestic and export), type of arrangements for
distribution and sales, commission and additional incentive to be given, the proposed
network and the advertisement plans should be furnished. Detailed market survey report
is required to be submitted. In the present model, the product range proposed includes
toned milk, cream and ghee. The proportion of these products (product mix) needs to be
decided as per the market requirements and it can be varied depending upon market

39
situation and lean and flush seasons.

WORKING CAPITAL
Working capital is the most crucial input for viability of any milk processing unit.
Nowadays, banks are free to finance working capital based on actual need of the
borrower. A provision of adequate working capital needs to be considered by the
financing banks. The banks provide Cash Credit Limit, commonly known as CC limit
to the borrowers for meeting their day to day expenses. The different components of
working capital are work-in-process, finished goods, sundry debtors and sundry
creditors.

SECURITY
As per RBI guidelines, the banks are required to take adequate security for the
loans extended by them. The borrowers should plan projects in such a manner that
they have enough fixed assets to offer as security against bank loan.

Various types of securities generally considered by the Banks are given here:

 Primary Security
The land and buildings acquired through the bank loan are mortgaged to
financing banks. The mortgage can be regllaneous fixed assets acquired by bank
loan shall have to be hypothecated to the bank. The value of all these assets is known
as primary security for the bank.

 Collateral Security
As the value of primary assets, especially buildings and plant and machinery
is not enough to cover the bank loan, the banks insists for mortgage of any other
property or asset of the company or promoters. This is known as collateral security.

APPROVALS AND PERMISSIONS

The unit based on its location has to obtain various approvals and permissions
from statutory agencies. An indicative list of approvals and permissions required are as
under:

40
 • MMPO registration with Commissioner, Dairy Development,
concerned state or relevant authority under Food Safety and Standards
Act.
• NOC from fire services Department.

• Approval of plan by gram panchayat/municipality

• Clearance from Pollution Control Board.

• Registration with District Industries Centre or small industries department.

• License from Factory inspector for installation of boiler.

RATIONALE AND KEY RATIND DRIVERS

The rating assigned to the bank facility of Jayamm Milk Products Private
Limited (JMPL) is constrained by nascent stage of operations presence in highly
fragmented and competitive industry, high customer concentration. The Rating also
factors in the high debt funded capex plan of the company and expected moderation in
the leverage profile. However, the ratings draw strength from the experience of
promoters in the milk processing industry, locational advantage of the plant being in
the high milk producing belt and improvement in scale of operations.

RATING SENSITIVES: FACTORS LIKELY TO LEAD TO RATING ACTIONS

Positive factors
 Sustained improvement in scale of operations above ₹300 crores with a profit
before interest, lease rentals, depreciation and taxation (PBILDT) margin above 3%.
 Improvement in capital structure with overall gearing below 1.5x.

Negative factors
 Deterioration of the capital structure with an overall gearing above 3.5x.
 Any sharp deterioration in the scale of operations and consequent impact on
overall return indicators.

41
 ANALYTICAL APPROACH: Standalone

OUTLOOK:Stable

CARE Ratings Limited (CARE Ratings) believes that the operations of the company
will continue to remain stable in the medium term, deriving benefits from the
experience of promoters in the milk processing industry.

DETAILED DESCRIPTION OF KEY RATING DRIVERS:

KEY WEAKNESS

NASCENT STAGE OF OPERATIONS

JMPL, in corporate in July 2022 and commenced operations in September

2022. FY24 marks their first full year of operations of the business. Initially, company
focused on B2B sales of SMP through wholesale dealers and institutional customers.
In FY24, JMPL entered the retail market under the brand name Swastika. Company
sells liquid milk and value-added products through agents, with around 200
distributors in Tamil Nadu and Andhra Pradesh.

LEVERAGED CAPITAL STRUCTURE WITH FURTHER MODERATION

ENVISAGED
Capital structure of the company remained at moderate level with overall gearing
of 1.09x as on March 31,2024 (PY: 2.06x). Company is planning to acquire the milk
processing unit which is currently being operated on lease basis. With the proposed
capex plans and envisaged increase in working capital borrowing, leverage position is
expected to deteriorate during the forthcoming period.

EXPLORE OF CHANGE IN GOVERNMENT REGULATIONS,

ENVIRONMENTAL CONDITIONS AND INDUSTRY COMPETITION

The dairy industry is highly regulated and vulnerable to changes in government

policies. The supply and pricing of milk are subject to various external factors, such as,

42
cattle diseases, and yield fluctuations, which JMPL cannot directly control.
Consequently, any changes in milk prices can negatively impact profitability margins.
Additionally, JMPL faces strong competition from well- established national and
regional brands. This competition, from both organized and unorganized sectors, along
with limited bargaining power with customers and suppliers, puts pressure on the
company’s operating margins.

KEY STRENGTHS
LOCATIONAL ADVANTAGE OF PLANT BEING IN HIGH MILK PRODUCING
BELT

JMPL’s plant is located in Chittoor district, AndhraPradesh, offers a significant

advantage as it is one of the high milks producing belt in the state. The company is
operating out of a leased unit located in Chittoor district with capacity of 1.25 LLPD for
processing of milk. The plant does not have a Skimmed Milk Powder (SMP) capacity
and company out source the processing of SMP as per the market demand. The company
has an established procurement network, sourcing milk from over 6,200 farmers across
four districts. JMPL operates two chilling centres in TamilNadu, each with a 10,000-litre
capacity, one in AndhraPradesh with a 10,000- litre capacity, and five bulk cooling
centres, each with a 5,000-litre capacity.

DIVERSIFIED PRODUCT PORTFOLIO WITH IMPROVEMENT IN SCALE OF

OPERATIONS
The company offer a diverse range of dairy products through four main trade
channels: B2B, Modern Trade, General Trade, and Fresh Category ,with around 43
different SKUs. JMPL’s product line up includes ghee, butter, paneer, skimmed milk
powder(SMP) flavoured milk, curd, sweets, and other dairy products. In FY24, SMP
was the highest revenue contributor (40%), followed by butter (34%) and liquid milk
(23%). With the increased focus on B2C segment company is expected to achieve
higher contribution from Milk and other value-added products during the forth coming
period.

EXPERIENCE OF THE PROMOTERS IN THE MILK PROCESSING

INDUSTRY

43
 The company, founded by Srinivasan Balaji in July 2022, benefits from the
extensive experience of over 15 years of promoter being in the Aqua and FMCG
sectors and more than 5 years in the milk industry.

Liquidity: Stretched

Liquidity of the company is stretched marked by high working capital utilization.

Working capital utilization remains high at 96.88% for the 12-month period ended in
June 2024. The company has gross cash accruals of ₹4.31 crores in FY24 as against the
scheduled debt repayment of ₹1.42 crores in FY25. Cash & bank balance as on
March31, 2024, stood at ₹1.31 crores.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE (ESG): Not applicable

ABOUT THE COMPANY AND INDUSTRY

INDUSTRY CLASSIFICATION

Macro economic indicator Sector Industry Basic industry

Fast Moving Consumer Fast Moving Consumer Food Products Dairy Products
Goods Goods

Jayamm Milk Products Private Limited (JMPL) was incorporated in July 12,2022 and
commenced operations in September 2022. The company is engaged in the processing
of milk and curd and other value-added products like ghee, butter, panneer under the
brand name ‘Swastika’. The processing unit is located at Pathikonda, Chittor,
AndhraPradesh with a capacity of 1.25 Lakh Liters per day. JMPL is promoted by
Srinivasan Balaji, who has around 15 years of experience in Dairy, aqua and FMCG

44
sectors.

Brief Financials(₹crore) March31,2023 (A) March31,2024 (UA) 5MFY2024(UA)

Total operating income 63.43 235.65 50.00

PBILDT 0.34 6.58 NA

PAT 0.07 3.44 NA

Overall gearing(times) 2.06 1.09 NA

Interest coverage(times) 4.84 7.23 NA

Status of non-cooperation with previous CRA: Not applicable

Any other information: Not applicable

ABOUT US:

Established in 1993, CARE Ratings is one of the leading credit rating agencies
in India. Registered under the Securities and Exchange Board of India, it has been
acknowledged as an External Credit Assessment Institution by the RBI. With an
equitable position in the Indian capital market, CARER ratings provides a wide array
of credit rating services that help corporate raise capital and enable investors to make
informed decisions. With an established track record of rating companies overall most
three decades, CARE Ratings follows a robust and transparent rating process that
leverages its domain and analytical expertise, backed by the methodologies congruent
with the international best practices. CARE Ratings has played a pivotal role in
developing bank debt and capital market instruments, including commercial papers,
corporate bonds and debentures, and structured credit.

45
46