An Amul IPO? Never, Says RS Sodhi Of GCMMF

Imagine the "Taste of India" on Dalal Street.

In the largest milk-producing country of the world, a dairy products brand with $7.3 billion in sales and 95% market share in packaged butter launching an initial public offering to become a public listed enterprise.

For investors to investment bankers, it's probably an "utterly butterly delicious" idea.

But it's unlikely to happen.

In fact, "never", says RS Sodhi, the managing director of the Gujarat Cooperative Milk Marketing Federation Ltd., which markets milk, butter, paneer, ice cream, chocolates and other food products under the Amul brand.

The GCMMF is India's largest food marketing organisation. It's a cooperative society with 36 lakh member producers—milk farmers that are the beating heart of the 75-year-old movement.

The GCMMF's objective is not to maximise profits. It is to pay farmers the best price for their milk. Of course, while ensuring high product quality and competitive prices for consumers.

"The day we will go public as a listed company, the objectives will change," says Sodhi on BQ's Leadership series.

...my farmers aren’t looking at quarterly results for profitability. They are looking at the price of milk only. So, we have to see how to continue to pay a better price, not a profitable price (for the GCMMF).

RS Sodhi, MD, GCMMF

The Amul girl cheering BSE Sensex crossing 60,000 in September 2021. (Image: Amul Twitter handle)

Who Owns GCMMF?

The milk farmers do, through district unions.

The 36 lakh milk farmers are organised into village dairy cooperative societies at up to 200 farmers in each. A representative of the village cooperative collects the milk, chills it and makes the payment—digitally nowadays.

A 1,000 village cooperative societies make a district union, which collects the milk and has processing facilities to convert it into dairy products.

The products are all packaged and sold under the Amul brand.

The GCMMF has 18,600 village dairy cooperative societies, 18 district unions and 84 processing plants in India and overseas.

What money I get when you buy a litre of milk, after deducting my expenses, I will give it to the district union. The district union deducts its processing expenses and gives it back to the village cooperative societies; and the village cooperative societies distribute it to the 200 members depending on the quantity of milk (they supply).

RS Sodhi, MD, GCMMF

All 18 district unions have shares of the GCMMF in proportion to the business transacted, the village dairy cooperative societies hold shares of the unions and the farmers of the societies, explains Sodhi. Surplus or dividend at the marketing organisation level, if any, is distributed to the district unions and trickles down to the village cooperatives, and ultimately the farmers.

The GCMMF's bylaws impose a restriction of up to 15% dividend payout. This serves to balance the interests of farmers and consumers.

"I don't know how much profit my balance sheet had last year. I don't remember. Only my CFO increases the profit, based on the increase in turnover, so that we can pay a slightly more income tax because every quarter or every month, we see what the surplus is so we can increase the price of the milk."

Net, over 80% of what a consumer pays to the GCMMF is returned to farmers, either via the price paid for milk or dividend. Sodhi says in other countries that return is as low as 35%.

If the GCMMF were to become a public listed company, then the focus on shareholder returns would rival farmers' interests.

"You can't have a company with two business objectives. Either I can buy it at a minimum or at a maximum, because in the milk business 80% is the cost of milk. So practically that is not going to work."

Menaka Doshi: If you were to list on a stock exchange all your 36 lakh farmers, who own shares in GCMMF, will become richer overnight, because of the ability to unlock the that you have created over 75 years.

RS Sodhi: The GCMMF will become richer and the farmers will become poor.

Menaka Doshi: They will become richer too because they are (indirectly) the actual shareholders...

RS Sodhi: But you're diluting equity to private people. Then those private shareholders will ask for more profits and they will say reduce the price of milk. So, who is ultimately losing? With an Australian cooperative the same thing happened. Farmers started going away from the cooperative, they said why would we sell milk at such a low price?

It will never happen.