Growth Amidst Challenges: Country Delight Achieves Rs 543 Crore Revenue in FY22, Despite Losses Surging 6.6X

Growth Amidst Challenges: Country Delight Achieves Rs 543 Crore Revenue in FY22, Despite Losses Surging 6.6X

Country Delight, a direct-to-consumer (D2C) dairy brand, experienced impressive growth in its scale, with its revenue surging by nearly 70% to surpass the Rs 500 crore mark in the fiscal year ending in March 2022. Despite this revenue growth, the company also faced a substantial increase in losses, which surged by 6.6 times during the same period.

Specifically, the company’s revenue from operations witnessed a significant rise, reaching Rs 543 crore in FY22, a substantial increase of 69.2% from the previous fiscal year’s Rs 321 crore. This growth underscores the brand’s increasing popularity and consumer demand in the market.

It’s worth noting that while Country Delight’s revenue growth is impressive, the considerable increase in losses raises questions about the company’s profitability and the challenges it might be facing in managing its costs and expenses effectively.

Country Delight has established a diverse product range, encompassing various dairy products, bakery goods, poultry, and farm produce. With a wide operational footprint spanning over 25 cities, the company boasts a substantial customer base exceeding 600,000 individuals and collaborates with more than 10,000 farmers in its supply chain.

Notably, the sale of fresh milk, a flagship offering of the D2C brand, accounted for 67.8% of the total operating revenue. This segment saw a significant growth of 46%, amounting to Rs 368 crore in FY22. Additionally, the sales of other dairy products, including paneer, curd, ghee, and bakery items like bread, recorded an impressive surge of 2.5 times, reaching Rs 175 crore in the same fiscal year.

Country Delight’s focus on providing fresh and diverse dairy products, along with its strategic partnerships with farmers, seems to have contributed to its substantial revenue growth, particularly in the fresh milk segment and the broader range of dairy offerings.

In the fiscal year 2022, Country Delight experienced a significant rise in its expenditure across various categories. The cost of procurement emerged as a substantial component, accounting for 49.3% of the total expenses. This cost saw a remarkable increase of 86.6%, reaching Rs 362 crore in FY22.

Advertising and promotional expenses witnessed a substantial surge, growing 5 times to Rs 125 crore. Moreover, the company’s spending on employee benefits and contract labor charges also rose significantly by 76% and 100%, respectively, resulting in expenses of Rs 67 crore and Rs 74 crore in FY22.

The company’s expenses related to secondary packaging and freight added up to an additional Rs 42 crore, contributing to an overall expense increase of 2.1 times, totaling Rs 734 crore in FY22. These expense trends indicate that while Country Delight’s revenue experienced notable growth, its increased costs across various operational areas, including procurement, advertising, employee benefits, and packaging, impacted its profitability and led to a substantial rise in its overall expenses.

The financial figures reveal that elevated procurement and advertising expenses had a significant impact on Country Delight’s financial performance, leading to a substantial increase in its losses by a factor of 6.6 times, resulting in losses amounting to Rs 186 crore in FY22. This rise in losses is attributed to the substantial costs incurred in acquiring raw materials and promoting the brand’s offerings.

The company’s Return on Capital Employed (ROCE) and Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) margin experienced a deterioration during FY22. The ROCE declined to -71.5%, indicating that the company’s operational performance didn’t generate sufficient returns to cover the capital invested. Similarly, the EBITDA margin worsened to -30.9%, reflecting that the company’s operational profitability before accounting for certain expenses like interest, taxes, depreciation, and amortization was negative.

Moreover, the figure of spending Rs 1.35 to earn a unit of operating revenue highlights the financial strain faced by the company, where its expenses are significantly outweighing the revenue generated. These metrics collectively demonstrate the financial challenges Country Delight encountered in FY22, with increased costs impacting its profitability and operational efficiency, leading to a negative financial performance.

Country Delight faces competition from various players in both its core dairy segment and non-core segments. In the dairy sector, it competes with companies like Milkmantra, Parag Dairy, and Akshayakalpa. In the non-core segments, it faces competition from D2C bakery brands and platforms like Milkbasket and Otipy.

After concluding FY22, Country Delight successfully secured $108 million in a Series D funding round in May 2022 (FY23). This funding injection is intended to support the company’s expansion plans and its entry into multiple food staple categories such as rice, wheat, pulses, grains, jams, and pickles. In the current fiscal year, FY23, Country Delight reports surpassing the significant milestone of achieving a revenue of over Rs 1,000 crore. Looking ahead, the company has set its sights on achieving profitability by the fiscal year FY24, aiming to turn its operations into a sustainable and profitable venture.

Achieving profitability for Country Delight seems contingent on a strategic shift in revenue composition, with non-milk sales needing to surpass 50% of the total revenues. This is driven by the relatively inelastic margins on milk products. In a competitive distribution landscape that includes players like Swiggy’s Instamart and BigBasket, improving margins appears to be a formidable challenge compared to optimizing costs in areas such as advertising and procurement. Enhancing distribution efficiencies also holds potential as a means to enhance the company’s financial performance.

The prevailing trend in the industry involves expanding product offerings by introducing more Stock Keeping Units (SKUs) to the portfolio. However, this strategy has often led to increased costs rather than delivering swift improvements in revenues or profits. While Country Delight’s flagship product, milk, holds a premium position compared to established mass market brands like Amul and Nandini, expanding its market share or market presence in this core segment might be limited without substantial funding for consumer education.

Unless significant funding is secured to educate consumers, the company may be better served by focusing on minimizing losses to mitigate the risk of being forced into a sale due to financial stress. Despite challenges, Country Delight has managed to build a valuable brand and infrastructure that could be appealing to various players within the industry landscape.