DPL Festive confident in IPO prospect

January 14, 2009
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, NAIROBI, Kenya, Jan 14 – Last year was quite a challenging year for the stock market in the country, dogged by corporate governance issues that saw two companies in the bourse go down – much to the disappointment of hundreds of investors.

Other than that, there was the bear run that characterised trading on the floor of the stock market for the most part of the year despite the listing of shares of one of the most profitable companies in the country, Safaricom, but this did not make things any better.
 
But in the face of all this, last December, bread maker DPL Festive Limited, maker of the Festive Bread announced its intentions to raise Sh500 million in fresh capital and list shares at the Nairobi Stock Exchange (NSE) through an Initial Public Offer (IPO) by end of March this year.

DPL Festive CEO Dipesh Shah said that the IPO would set the pace for the company’s expansion plan, which among other things includes diversifying its range of products to include other wheat-based products and expanding its distribution channels.

But who is DPL festive you may ask?

DPL Festive was originally a plastics company that started making bread after an industrial accident brought operations of the original Dippoly Plastics Industries Ltd to a halt in 1999.

The company was started in the early 1940’s by the late Suresh Premchand, who began his entrepreneurial ambitions as a shopkeeper in the garment business with his elder brother, with Dipco Garments, at the very young age of 16.

The two gradually moved into manufacturing trousers and ladies’ wear at around 1963. These businesses continued to perform well for the family, which included one other brother, until the second-hand clothes business began in the 1980s. As Dipco`s business slowed down, the brothers decided to venture into selling plastics, particularly household goods, through Vishal Wholesalers Ltd in 1983. 

In 1996, they then decided to move into manufacturing plastic household goods for sale to wholesale customers, marking the birth of Dippoly Plastics Industries Ltd in Thika. In 1998, they expanded into the manufacturing of industrial plastics for wholesale customers and since these were largely in Nairobi, they moved their industry to Nairobi. 

According to records from the company, the late 1990s were a very challenging period for the manufacturers due to the power rationing programme. The industry in Nairobi therefore needed a lot more capital expenditure than was originally anticipated.

However, at about the same time, a fire accident broke out and the plant was destroyed. The family used their insurance claim proceeds and sale of residual machinery to explore something new – and this is when the bread manufacturing company was born.

DPL chief Dipesh Shah says the company began initial operations with an investment of less than Sh10 million, which was used to purchase various pieces of machinery, accessories, a power generator, and employ a dozen employees.

Mr Shah narrates that the company began operations with 10 sales agents (distributors) and later with one truck began their ‘penetration strategy’ within the immediate vicinity of their godown cum production facility on Enterprise Road in Industrial Area, where they decided to name their brand ‘Festive’.

Dippoly Plastics Industries Limited was then renamed DPL Festive Limited in November 2008.

Mr Shah says the company currently has 250 employees and churns out at least 100,000 loaves per day.

“We have a fleet of 28 trucks as we speak and though at the beginning we were churning 8,000 loaves we are now at almost 10 times what we used to produce then,” he enthuses.

The CEO says good quality products had inspired the growth of the business despite stiff competition from other bakeries.

He further mentions that the biggest challenge has however been the operating environment, where under the current government policy millers in the country pay 35 percent import duty, while it is 10 percent and zero percent in Tanzania and Uganda respectively.

“Considering the looming food insecurity it will be prudent that wheat pricing is lowered to allow more people afford bread and it’s other by products,” Mr Shah offered, as a solution to overcome the challenge. 

But why the IPO?

“An initial public offer is a cheaper option compared to the bank loans,” Mr Shah confidently points out, noting that through this process the growth achieved by a company could be substantial because its interest free.

He said the company is hoping to raise Sh700 million for expansion and to introduce high end products like nutritious brands, scones and buns.

Are you confident of the success of the IPO considering you are a relatively unknown brand?

“The company plans to embark on an aggressive advertising campaign that will ensure that by the time of the IPO the public knows who we are,” Mr Shah answers.

He held that the brand Festive is well known, though the company is relatively unfamiliar.

“I’m optimistic that as a family business we will flourish on the bourse like companies like Access Kenya, who despite the bull run survived the onslaught,” was this man’s last expression of confidence in his company’s bid to become public.

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