Lactose India – Unique Play on Lactulose & Contract Manufacturer for MNCs

Hi folks,

Thanks for bringing this up here. Very educational & interesting. Had a couple of questions:

1. What exactly is the product and how are these margins justified?
The current financials (FY15) with 57% GM and 22% EBITDA sounds quite high. Even if one discounts the operating leverage, I couldn’t understand such high GM levels. Prabhat Dairy manufactures some specialised milk-based ingredients for a global pharma client that does into their formulations. Even Prabhat earns 15%-odd margins here, and significantly lower for their other B2B clients.

2. Wallet Share, Bargaining Power
From a rough reading of your post, I understood that Kerry and Sanofi are effectively loaning money out to Lactose to set up capacity. Why would they do that and let Lactose earn high RoCEs? What wallet share does Lactose have among other suppliers for the same product in Kerry and Sanofi?

3. Promoter and Management
Contracts into these companies require significant sales effort and track record. It’s unique to see a small-ish company achieve this break. Would love to get some background around the promoter and his ability to gain in-roads into these companies.

Best,
A