KBSL - Food Processing Industry

Equity Research
IndIan Food ProcessIng Industry

………………. Transforming india 12th March, 2010
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FOOD PROCESSING INDUSTRY
Table of Contents
Union Budget 2010-11 & Agriculture …................................... 3
Process Flow Chart ……………………………………………5
Business Model…………………………………………………6
Ratio Analysis ………………………………………………….8
Agriculture Sector Overview ……….………………………..11
Indian Food Processing Sector……………………………….14
Final Recommendations………………………………………32
 Agro Tech Foods Ltd. – Buy
 Lakshmi Energy & Foods Ltd. – Buy
 Ruchi Soya Industries Ltd. - Buy
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Key-Takeaways from Union Budget 2010 -11 for the Agriculture Sector
With major thrust on agriculture and rural development, the Union Budget 2010-11 reflected
government’s intentions of bridging the gap between Bharat & India which would lead to inclusive
growth. This is because the agricultural sector employ over 60% of India’s population, but only
contributes a meager 17% to India’s total GDP.
The Budget has a strong focus on agriculture through a four pronged strategy:
Impetus on
Food
Processing
Sector
Credit
Support Agriculture Improving
To Agricultural
Farmers
Focus
Productivity
Reduction
In
Wastage
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Key Takeaways:
 Extend green revolution to the eastern region of the country at an outlay of Rs. 400cr.
 Organize 60,000 "pulses and oil seed villages" in rain-fed areas during 2010-11
 Grant of Rs 300cr. for pulses and oilseeds through Ashtray Kristi Visas Yolanda
 Allocation of Rs 200cr. for launching climate resilient agriculture initiative focusing on soil health,
water conservation and preservation of biodiversity
 For reducing wastage, private sector participation for hiring god owns by Food Corporation of India
increased from 5 years to 7 years
 Provide impetus to the development of food processing sector by providing state-of-the art
infrastructure
 Set up five more mega food parks in 2010-11
 Agriculture seeds get service tax exemption
 Nutrient based fertilizer pricing from 1st April 2010
 Availability of credit to farmers increased from Rs 325,000cr. In the current year to Rs 375,000cr.
In 2010-11
 Farm loan repayment schedule extended by 6 months from December 31, 2009 to June 30, 2010
 Transportation of cereals and pulses by road to be exempted from service tax
 Concessional import duty to specified machinery for use in the plantation sector to be extended up
to March 31, 2011 along with a Counter Veiling Duty exemption
 Avaliability of External Commercial Borrowings for cold storage or cold room facility
All this strategy will help in promoting inclusive growth, enhancing rural incomes and
sustaining food security in the country.
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Study on business model and segmental presence -
We analyzed the companies according to their presence in various segments represented in the
flowchart below and companies having maximum and niche segment presence were chosen.
Segments
Fruits & Dairy Marine/ Beverages Packaged Staple

Vegetables Meat & Food Food
Poultry
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Segment wise company classification
Staple Foods
Dairy
Packaged Foods
Fruits & Vegetables
Beverages
Marine/Meat & Poultry
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Ratio Analysis –
We carried out the ratio analysis of the companies, based on our financial parameters. After analyzing
the financial parameters, we selected three companies, which showed better than average performance
over the last 5 fiscal years.
We considered the following ratios in our analysis:-
 Profitability Ratios
 EBITDA Margin
 EBIT Margin
 Net Profit Margin
 Solvency Ratios
 Debt Equity Ratio
 Interest Coverage Ratio
 Liquidity Ratios
 Current Ratio
 Quick Ratio
 Return Ratios
 Return on Capital Employed
 Return on Equity
The following chart depicts how the companies have performed as per industry average.
 0 means the ratio is below industry average
 1 means the ratio is above industry average
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RATIO ANALYSIS RESULTS

Debt Interest Sales OCF EPS
Quick Current equity Coverage Growth Net Profit Growth EBIT EBITDA Growth Quarterly
Companies Ratio Ratio Ratio Ratio ROCE RONW (YOY) Margin (YOY) Margin Margin (YOY) Study
ADF Foods Ltd. 1 1 1 0 1 0 0 1 1 1 1 1 1
Agro Dutch Inds. Ltd. 0 1 0 0 0 0 0 0 0 1 1 0 0
Agro Tech Foods Ltd. 1 1 1 1 1 1 0 0 1 0 0 0 1
Amrit Banaspati Company Ltd. 0 1 0 0 1 1 0 0 0 0 0 0 0
Amrit Corp. Ltd. 0 1 1 1 1 1 0 0 0 1 1 0 1
Anik Industries Ltd. 1 1 1 0 0 0 1 0 0 0 0 1 0
AVT Natural Products Ltd. 0 0 1 1 1 1 1 1 1 1 1 1 1
Chaman Lal Setia Exports Ltd. 0 0 1 0 0 0 1 0 0 0 0 1 1
Chordia Food Products Ltd. 0 0 1 1 0 0 1 1 0 1 1 1 1
Flex Foods Ltd. 0 0 1 0 1 1 0 1 0 1 1 0 1
Freshtrop Fruits Ltd. 0 1 1 1 0 1 0 1 1 1 1 1 0
Gokul Refoils and Solvent Ltd 0 1 1 0 1 1 1 0 0 0 0 0 0
Gujarat Ambuja Exports Ltd. 1 0 1 1 1 1 0 0 0 0 0 0 1
Hatsun Agro Products Ltd. 0 0 0 0 1 1 1 0 1 0 0 0 1
Heritage Foods (India) Ltd. 1 1 0 0 0 0 1 0 0 0 0 0 0
Himalya International Ltd. 0 0 1 1 1 1 1 1 0 1 1 1 1
Jayant Agro-Organics Ltd. 1 1 1 0 1 1 1 0 0 0 0 1 0
Kohinoor Foods Ltd. 0 0 0 0 0 1 1 0 0 1 1 1 1
KRBL Ltd. 0 0 1 0 1 1 1 0 0 1 1 1 1
Kwality Dairy (India) Ltd. 1 1 1 0 1 1 1 0 0 0 0 1 1
Lakshmi Energy & Foods Ltd. 1 0 1 1 1 1 0 1 0 1 1 0 1
Lotus Chocolate Company Ltd. 1 1 0 1 1 0 0 0 1 0 0 1 0
LT Foods Ltd 1 0 0 0 0 1 1 0 0 1 1 0 0
Murli Industries Ltd. 1 1 0 1 0 1 0 1 0 1 1 0 1
Rasoya Proteins Ltd. 0 1 0 0 1 1 1 0 0 0 0 1 1
Ravalgaon Sugar Farm Ltd. 1 1 1 0 0 0 1 0 0 1 1 0 1
Rei Agro Ltd. 0 0 0 0 1 1 1 1 0 1 1 1 0
RT Exports Ltd. 1 1 1 1 0 0 0 1 0 1 1 1 0
Ruchi Soya Inds. Ltd. 1 0 0 0 1 0 1 0 0 0 0 0 1
Sanwaria Agro Oils Ltd. 0 0 0 1 1 1 1 0 1 0 0 0 1
SKM Egg Products Export (India) Ltd. 1 0 1 1 1 1 1 1 1 1 1 1 0
Tasty Bite Eatables Ltd. 1 1 1 1 0 0 1 0 0 0 0 1 0
Temptation Foods Ltd. 1 1 1 1 1 1 1 1 0 0 1 1 0
Usher Agro Ltd. 1 0 0 1 1 1 1 1 0 1 1 1 1
Vadilal Industries Ltd. 1 1 0 0 1 0 0 0 1 0 0 0 0
Venky'S (India) Ltd. 1 0 1 1 1 1 0 0 1 0 0 1 1
Vimal Oil & Foods Ltd. 1 1 0 0 1 1 1 0 0 0 0 1 0
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SKM Egg Products Export (India) Ltd. 11

AVT Natural Products Ltd.
Usher Agro Ltd.
Temptation Foods Ltd. 10
Himalya International Ltd.
ADF Foods Ltd.
Lakshmi Energy & Foods Ltd. 9
Freshtrop Fruits Ltd.
Venky'S (India) Ltd.
RT Exports Ltd.
Murli Industries Ltd.
Kwality Dairy (India) Ltd. 8
KRBL Ltd.
Chordia Food Products Ltd.
Amrit Corp. Ltd.
Agro Tech Foods Ltd.
Rei Agro Ltd.
Ravalgaon Sugar Farm Ltd.
Jayant Agro-Organics Ltd. 7
Flex Foods Ltd.
Vimal Oil & Foods Ltd.
Tasty Bite Eatables Ltd.
Sanwaria Agro Oils Ltd.
Rasoya Proteins Ltd.
Lotus Chocolate Company Ltd. 6
Kohinoor Foods Ltd.
Gujarat Ambuja Exports Ltd.
LT Foods Ltd
Hatsun Agro Products Ltd.
Gokul Refoils and Solvent Ltd 5
Anik Industries Ltd.
Vadilal Industries Ltd.
Ruchi Soya Inds. Ltd. 4
Chaman Lal Setia Exports Ltd.
Heritage Foods (India) Ltd.
Amrit Banaspati Company Ltd.
3
Agro Dutch Inds. Ltd.
0 2 4 6 8 10 12
The above chart reflects how the companies fared in ratio analysis. For example: Out of the total 13
ratios considered, Lakshmi Energy & Foods Ltd. scored well in 9.
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India’s Food Industry
With agriculture contributing to approximately 17.0% of the country's GDP and providing livelihood to
almost 60.0% of the population, it continues to be the main stay of the Indian economy. Initially it was
dominated by family farms, but now large companies that are better aligned across the supply chain
characterize it. The food sector is highly fragmented. The booming retail chain business is likely to lead
to more consolidation in this sector and be a force behind the increase of processed food.
Percentage share of Agriculture in GDP
25.0 22.9 21.8 22.0

19.4 19.9 18.5
20.0 17.9 17.0
15.0
10.0
5.0
0.0
0 1 2 3 4 5 6 7
-0 -0 -0 -0 -0 -0 -0 -0
9 99 0 00 0 01 002 003 0 04 0 05 0 06
1 2 2 2 2 2 2 2
Source: Central Statically Organization
 The Indian food sector possesses strong potential to grow at 30%-40% from the current rate of
15% in the next 10 years (by 2019)
 Determined to develop its food processing sector at a faster pace, the Indian ministry of food
processing industries has launched a strategy intended to double the size of the sector to Rs 8,
20,000 cr. by 2009-10 and treble it to Rs 13, 50,000 cr. by 2014-15.
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Agriculture's GDP growth (%CAGR)
5
4.0
4 3.5
2.7 2.8
3
2.1
2
0
Pre- Green Green Wider tech Post economic The Agri
Revolution Revolution diffusion 1980- reforms 1995- Challenge
1951-65 1965-80 95 2005 2005-20
Source: RBI, WTO & Indian Agriculture: Issues and Experience
It is estimated that if the country has to maintain a GDP growth rate of over 8.0%, the agricultural sector
has to grow at the rate of at least 4.0%. The country has a huge potential for growth in agriculture with
about 184 million hectares of arable land and diverse agro climatic conditions, suitable for cultivation of a
wide variety of crops.
 The government is targeting 4.0% growth for the agri-sector from 2005-20 and in order to achieve
it, the government is making huge investments in the areas of irrigation, storage and post-harvest
infrastructure and connectivity
 Private participation is increasing across the various segments of the agri-value chain. Companies
are increasingly focusing on areas of contract farming, raw material sourcing and creating agri-
linkages
 Corporate participation would not only yield better prices to farmers but also help them access
superior farming techniques, better management and risk mitigation methods.
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Indian Food Industry: Key Statistics

Years 2002 - 03 2006 - 07 2010 -11 2014 -15
Food Industry Size 175.0 200.0 250.0 300.0
Food Processing Industry Size 70.0 85.0 110.0 150.0
Size of organized sector in Food Processing
Industry 13.0 23.0 37.0 60.0
% Share of Food Processing Industry in Total
Food Industry 40.0 43.0 44.0 50.0
% Share of organized sector's in Food
Processing Industry 19.0 27.0 36.0 40.0
Source: Ministry of Food Processing Industries
India's agricultural sector, especially food processing and allied activities, is going through a major
transformation driven by improving policy environment, increasing public private participation and an
increasing thrust on the improvement of rural infrastructure.
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India’s Food Processing Industry – An Overview
The food processing industry in India is one of the largest in terms of production, consumption and
exports growth. It is widely recognized as a 'sunrise industry' with a vision to make India “the Food
Basket of the world”. The food-processing sector is critical to India's development. It establishes vital
linkages and synergy between industry and agriculture, the two pillars of the economy. India enjoys a
leadership position in the production of several key agricultural commodities including cereals, fruits &
vegetables and dairy products. With vast supply strength in agriculture, India can become a leading agro-
economy of the world. The growth of this industry will bring immense benefits to the economy, raising
agricultural yields, enhancing productivity, creating employment and raising life-standards of people
across the country, especially in rural areas.
 Ministry of Food Processing Industry (Mofpi) is planning to triple the growth rate of food processing
from the current 6.0% to 20.0%, further from 20.0% to 35.0% and increase export contribution to
3.0% from the present 1.5% by 2015
 The Confederation of Indian Industry (CII) has estimated that the food-processing sector has the
potential of attracting US$ 33 billion of investment in 10 years and can generate employment of 9
million person-days
 Though the industry is large with a strong agricultural base, it is still at a nascent stage in terms of
development and has massive wastage of agricultural produce. Overall processing level in India is
about 43.0%, which is much lower than most of the developed and developing countries
 Food processing helps in enhancing the shelf life and adding value to the agri produce. While
enhanced shelf life leads to reduction in wastages, value addition enables remunerative prices to
farmers
 Moreover, food processing is employment intensive. At present, the food-processing sector

employs about 13.0 million people directly and about 35.0 million people indirectly. It provides
effective linkage between consumers and farmers, thus promoting diversification and
commercialization of agriculture. It also provides convenience and safe food to consumers. Hence,
rapid growth of food processing sector is necessary for national economy, farmers and consumers.
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Food Processing Industry
Adds value to agri-produce Enhances Shelf life of food

for consumers
Remunerative prices to Reduction in wastages

farmers
 Value addition helps in improving the quality of the agri-produce leading to compensable prices
for farmers for their produce
 Post harvest handling facilities like cold storage, grading and packing centres helps in enhancing
the shelf life of the products, thus resulting in reduction of wastes
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FDI inflows in India
With the opening of the Indian economy plus favorable regulations, the Indian food-processing sector in
coming years is expected to attract huge investment. It can be said that the Indian food processing
industry is a sleeping giant ready to get up from its slumbering stage.
FDI Inflow in Indian Food Processing Industry
632.00
700.00
600.00 462.00
441.00
500.00
400.00
174.08 182.94 FDI (in Rs. Cr.)
300.00
200.00
100.00
0.00
2004-05 2005-06 2006-07 2007-08 2008-09
Source: Ministry of Food Processing Industries Annual Report 2008-09
 The total inflow of FDI in FPI sector during the last five years since April 2004-March 2009 is
Rs.1892.02cr.
 As per the report by FICCI, food-processing market in India is likely to attract phenomenal
investment, in the form of capital, technology and finance of over Rs 3,667.00 cores or US $ 83.34
million by 2014-15
 The total inflows have increased from Rs 174.08 cores in 2004-05 at a CAGR of 35.00%
 The government of India has approved 27,273 foreign collaboration (technical & financial)
proposals, with a corresponding FDI of Rs 26,896.00 cores over the last decade
 The FDI inflow during the year 2008-09 declined due to global financial crisis and liquidity crunch
adversely affecting investment flows during the year
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Structure of the Indian Food Processing Industry
The food-processing sector is highly fragmented industry, it widely comprises of the following sub-
segments: fruits and vegetables, dairy products, beverages, meat and poultry, marine products, grain
processing and packaged or convenience food. A huge number of entrepreneurs in this industry are
small in terms of their production and operations, and are largely concentrated in the unorganized
segment. This segment accounts for more than 70.0% of the output in terms of volume and 50.0% in
terms of value. Though the organized sector seems comparatively small, it is growing at a much faster
pace.
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Structure of the Indian Food Processing Industry
33% 42%
Unorganized
Organized
Small Scale Industries
25%
While the agricultural productivity needs a definite improvement, it is increasingly becoming evident that
only a vibrant food-processing sector can lead to an increase income levels, reduction in wastages and
boost up employment opportunities.
Strong macro-economic fundamentals and changing socio-economic scene are driving what was once a
traditional, small-scale processed food production system into a modern industry aimed at catering to the
evolving tastes and needs of discerning consumers.
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India’s Food Processing Industry – Key Segments
The Food Processing Industry, as vast as it is, can be classified into various broad Key Segments as
discussed below.
Fruits & Vegetables – India is the second largest producer of fruits (50 million tons) & vegetables
(100 million tons) in the world. However, the amount of processing activity in this segment is very low at
2.2%, indicating that people prefer fresh & raw fruits & vegetables to processed ones.
 Fruit and vegetable processing is almost equally divided between the organized and unorganized
sectors, with the organized sector holding 48.0% of the share
 Fruit & vegetable processing, which is currently around 2.2% of total production will increase to
25.0% by 2025
 Domestic consumption of processed fruits & vegetable products is low, indicating a potential for
growth through increased penetration of the domestic market
Processing level of fruits & vegetables in Different Countries
78.0%
80
65.0%
60
Processing level
of fruits &
vegetables (%)
40
23.0%
20
2.2%
0
Philippines USA China India
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Dairy - India is the largest producer of milk (96 million tons), accounting for nearly 17.0% of global milk
production. Milk and milk products contribute to a significant 17.0% of India’s total expenditure on food.
 Milk processing in India is healthy at around 37%, while the rest of the milk is either consumed at
farm level, or sold as fresh, non-pasteurized milk through unorganized channels
 In this segment, most of the processing is done by the unorganized sector. The share of organized
sector is only 24.0%, which is expected to rise rapidly, especially in the urban regions
 Over the next three years, the dairy market is likely to increase by 15.0% -20.0%
 Packaged liquid milk along with cheese, packaged paneer, khoya and other traditional dairy
products are growth areas while skimmed milk powder and casein are potential export
opportunities
Market Size and Composition of Dairy Products (value in US $ billion)

Years 2002-03 2006-07 2010-11 2014-15
Market Size 38.5 45.0 61.2 83.3
Processed 26.4 32.9 43.2 57.9
Non-Processed 12.1 12.1 18.0 25.4
Processed
Organized 5.8 7.9 12.8 20.9
Unorganized 20.6 25.0 30.4 37.0
Source: Ministry of Food Processing Industry
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Marine/ Meat & Poultry – Processing level is very low i.e. 26.0% for marine, 6.0% for poultry and
20.0% for buffalo meat, as against 60.0% - 70.0% in developed countries. Majority of the processed
production is dedicated to exports.
Marine:
 With a long coastline of 8129 kms, 2 million square km of Exclusive Economic Zone, and 1.2
million hectares of brackish water bodies, India has a vast potential for development of fisheries
 The fisheries sector contributes 1.4% to the agricultural GDP, which is very low when compared to
the potential of the country
 Post harvest, pre-processing, processing and marketing sectors are very much export-oriented and
the domestic market awaits a major thrust
 To reach the fish production target of 95 lakhs MTs by 2010, the capacity utilization of fish
processing sector needs to be raised
 The Government plans to increase its share of marine exports by focusing on non-traditional export
markets such as Japan and China
Market size and composition of Fish and Marine products (value in US $ billion)
Years 2002-03 2006-07 2010-11 2014-15
Market Size 7.7 8.7 10.2 11.9
Processed 0.9 1.2 1.6 2.1
Non-Processed 6.7 7.5 8.5 9.7
Processed Organized 0.6 0.6 1.0 1.5
Processed Unorganized 7.0 8.1 9.1 10.3
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Fish and Marine Products Volume & Revenues

Year Quantity (MT) Value (Rs. Crores)
2004-05 461329 6647
2005-06 512164 7245
2006-07 612641 8634
2007-08 541701 7621
2008-09 602835 8608
Source: Ministry of Food Processing Industries, Annual Report 2008-09
Meat and Poultry:
 During 2007-08, meat production was just 2.0% of world meat production
 Consumption per head of both fresh and processed meat is very low at 1.5 kg compared with world
average of 35.5 kg
 In spite of big potential due to its large livestock population, the meat industry in India has not taken
its due share
 The contribution by bovine, ovine, pig and poultry is 43%, 12%, 8% and 37%, respectively
 Hygienic and scientific slaughtering and optimum utilization of by-products are the most important
issues in the Indian meat industry
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Staple Foods – Grain processing is the biggest component of food processing sector as it accounts
for 40.0% share in this sector. The major food grains produced are rice, wheat, maize, barley and millets
like jowar, bajra and ragi.
 India is the second largest producer of the wheat and rice in the world
 Processing of rice and wheat is the most important activity in food grains processing as they
constitute the major staple diet of the entire population of the country
 More than 65.0% of the wheat is converted into wheat products such as atta, together by organized
and unorganized sector. India accounts for nearly 22.0% of the global rice production and is
world’s largest basmati rice producer
 Rice is consumed primarily in the form of polished rice, parboiled rice, parched rice, flaked rice
whereas the demand for branded rice (especially basmati rice) is increasing at both the domestic
as well as the export market
 Nearly 50.0% of the maize production is consumed either as the staple food or for producing starch
and starch-based products and the rest of production is utilized for poultry feed purpose
 India is the second largest producer of sugarcane with a production of 18.5 million tons and
accounts for nearly 21.0% of the global sugarcane production
 The sugar industry is one of the leading agro processing industries, with an annual turnover of US
$3.4 billion, along with more than 450 sugar factories located throughout the country
 India, the second largest importer and third largest consumer of edible oil in the world, accounts for
nearly 7.0% of the global oilseed production
 The major consumption includes the palm oil and soybean oil followed by mustard and groundnut
oil
 The consumer demand for edible oil is growing at a CAGR of 7.0%, whereas the demand for
branded edible oils is rising faster at 8.0% and estimated to increase in the years to come
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 Thus, this segment offers tremendous growth potential and investment opportunities in marketing
of staples, and other food products including branded food grains marketing as well as grains
processing.
Beverages – The Indian beverage industry is in an infant stage considering its size and place in the
market. India is the third largest beverage consumer, next to United States and China. It accounts for
almost 10.0% of global beverage consumption. The beverage market primarily consists of non-alcoholic
beverages which can be broadly classified into carbonated drinks and non-carbonated drinks (functional
beverages).
 The beverage industry in India is likely to grow at 17.0% in 2010
 The market size of organized carbonated drinks is estimated at US $119.0 million
 Functional beverages are primarily classified into sports drinks, energy drinks, fortified fruit juices,
and soya enhanced beverages
 The Indian market for functional beverages was valued at US $111.45 Million as of 2007 and is
expected to reach a value of US $345.0 million in the year 2014
 In this sector, enhanced fruit beverages would remain the fastest growing segment and the prime
revenue earner during the period 2008-2014
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Packaged Foods – The market for packaged food has grown from US $0.9 billion in 2002-03 to US
$2.6 billion in 2006-2007. This is an upcoming segment in the food industry and major factors driving the
change are changing lifestyle, eating and cooking habits, increasing young population.
 MNCs and national players have penetrated 80.0% of this segment
 It is expected to grow ten times its current size in the coming decade
 Higher disposable incomes and the willingness of consumers to try new brands have attracted a
number of players to this segment, both at the national and local level and have generated intense
activity in the marketplace
Market Size and Composition of Packaged Foods (value in US $ billion)

Years 2002-03 2006-07 2010-11 2014-15
Market Size 0.9 2.6 10.0 20.7
Organized 0.7 2.1 8.5 18.6
Unorganized 0.2 0.5 1.5 2.1
Source: Ministry of Food Processing Industry
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Key Growth Drivers and Opportunities:
 Changes in Customers’ Income, Preferences and Lifestyle
As per a report by FICCI – Ernst & Young, the current per capita expenditure on food in India is 1/6th that
of China and 1/16th that of US with a significant opportunity for growth in the future. With rise in per
capita income, rapid urbanization and increased literacy, there has been a significant change in food
habits and shifts in spending orientation of the consumers. Urbanization and nuclear family are becoming
the norm. Eating out is a booming practice in urban India and processed foods are accepted as
alternative to the home cooked food because of the convenience it offers. Also, increasing consumer
awareness about health and hygiene has shifted the focus of the market to "safe" foods.
Rupee Spending
Food & Grocery
9.00% 7.00%
Savings & Investments
5.00%
Consumer
5.00% Durables/Appliances
4.00%
Clothing, Footwear &
Accessories
3.00% Personal Care Items
3.00% Books & Music
1.00%
Movies & Entertainment
Vacation
63.00%
Home Textiles
Source: NCAER
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 Increased Organized Food Retailing
Like developed countries, organized retail has come up as a key driving factor in the development of
packaged and processed food through its innovative methods of marketing. Clarity on the policy front
from the government on FDI in retail, regulatory framework facilitating backward integration would further
strengthen the development of food industry in India.
The demand for ready-to-eat meals has captured a large amount of the food retail market in India and
around the world. In addition, the use of new technology and ensured sterilization that has helped
reduces prices and increase shelf life without the need for refrigeration.
 Export Opportunities
India’s share in the global agricultural exports is around 1.5%, whereas the size of the global processed-
food market is estimated at US$ 3.2 trillion and nearly 80.0% of agricultural products in the developed
countries get processed and packaged. Indian exports constitute mainly of commodity and primary
processed items where the price realization is low. They are largely opportunistic in nature as there are
wide fluctuations in year-to-year growth for most of the items. However, today, multinational companies
are betting on India as a source to feed the world. Large investors and corporations, both Indian and
international, are capitalizing on the Indian agribusiness as an emerging market with twin opportunities,
to cater to the growing Indian middle-class and to export premium processed food.
Growth in India’s food sector is fueled by the phasing out of agricultural subsidies in developed countries
under the World Trade Organization agreements and the rationalization of tariffs and trade restrictions on
food items. In the wake of reduction in import duties, removal of non-tariff barriers and reduction in
subsidies to domestic agriculture, the industry will benefit from additional export opportunities.
Quality assurance and competitive pricing will be the key to success.
Export potential areas are as follows –
 Fresh & processed Fruits & Vegetables - grapes, mangoes, gherkins, broccoli and colored
capsicum
 Dairy products - processed cheese, butter, yoghurt, skimmed milk powder
 Meat, poultry and marine products
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 Grain based products

 Confectionery and sugar
 Fruit juices, tea and coffee
 Favorable regulatory environment and Government support
 Extend green revolution to the eastern region of the country at an outlay of Rs. 400cr.
 Organize 60,000 "pulses and oil seed villages" in rain-fed areas during 2010-11
 Grant of Rs 300cr. for pulses and oilseeds through Rashtriya Krishi Vikas Yojana
 Allocation of Rs 200cr. for launching climate resilient agriculture initiative focusing on soil health,
water conservation and preservation of biodiversity
 For reducing wastage, private sector participation for hiring godowns by Food Corporation of India
increased from 5 years to 7 years
 Provide impetus to the development of food processing sector by providing state-of-the art
infrastructure
 Set up five more mega food parks in 2010-11
 Agriculture seeds exempted from service tax
 Nutrient based fertilizer pricing from 1st April 2010
 Availability of credit to farmers increased from Rs 325,000cr. in the current year to Rs 375,000cr.
In 2010-11
 Farm loan repayment schedule extended by 6 months from December 31, 2009 to June 30, 2010
 Transportation of cereals and pulses by road to be exempted from service tax
 Concessional import duty to specified machinery for use in the plantation sector to be extended up
to March 31, 2011 along with a Counter Veiling Duty exemption
 Availability of External Commercial Borrowings for cold storage or cold room facility
 Considerable Production Potential with Abundance of raw material
India has the second largest arable land in the world. It has diverse agro-climatic zones: hot and humid in
its long coastal line area, dry and cold in mountain ranges, hot and dry in plateau regions. This makes
India unique for producing variety of crops, cereals, pulses, fruits and vegetables all over the year. Thus,
a wide ranging, large crop, and material base offer a vast potential for agro processing activities.
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 Low Cost of Production
India has a competitive edge over its global peers due to low cost of production. India’s comparatively
cheaper workforce can be effectively utilized to setup large low cost production bases for domestic and
export markets.
Key Risks and Challenges:
 Currently, the unorganized sector dominates food processing sector
 The most crucial challenge today that the Indian food processing industry is facing is the lack of
suitable infrastructure in the shape of cold chain, packaging centers, value added centre,
modernized abattoirs etc. Only 2.0% of agricultural produce is processed in India, currently, due to
the lack of storage facilities, while in US, about 70.0% of agricultural produce is processed
 Affordability is a major issue in the domestic market. Price differential between fresh and
processed food in India is very high relative to convenience, hygiene and health values of the
processed food. In the developed countries processed and fresh food compare well in prices.
Further, as food accounts for nearly 50.0% of the family budget, Indians are very sensitive to
increase in food prices
 The issues at micro level, confronting the growth of processed food industry are production and
procurement of quality raw materials for processing, use of traditional (obsolete) technologies;
incurring huge per unit operational cost, poor economies of scale and fragmented processing
capacities
 Non-compliance of GMP (Good Manufacturing Practices) in the processing plants, less awareness
about the quality certifications like HACCP, ISO etc. are considered as serious impediments to the
industry and its export prospects
 A large proportion of the companies have stand-alone operations with no linkage with farmer, and
reliant on other organizations to undertake marketing/further processing of their products.
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Consequently, companies in the food processing sector usually bear a steep cost of interest for the
high risk perception associated with the nature of their operations
 Several agricultural commodities, perceived as sensitive from Indian perspective, bear higher rates
of duty
 There are differences in standards and consumer preferences across potential markets. Hence,
meeting these standards with up-scaled production is a big challenge
 While the demand for processed or pre-cooked foods is rising, fresh food choice will pose a barrier
to processed food producers and marketers
Reforms to be taken to facilitate the development of the food processing

sector:
 Promotion of appropriate crossbreeds while conserving indigenous breeds of livestock
 Establishment of livestock marketing system
 Promotion of rural backyard poultry in a cooperative marketing setup
 Development of cooperative dairy firms
 Enhancing livestock extension services
 Encouraging private veterinary clinic
 Institutionalizing a framework for utilizing synergy between restoration and creation of water bodies
for water harvesting and fishery
 Sustained campaigns to create awareness for increasing acceptance of processed food
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 Implementation of Goods and Services Tax (GST) from April 1, 2011, will reduce prices of
manufactured products
 Public investment in the supply chain providing backward linkages to the farm with processors and
retailers
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Companies Section
1. Agro Tech Foods Ltd. (ATFL) - BUY
2. Lakshmi Energy & Foods Ltd. (LEAF) - BUY
3. Ruchi Soya Inds. Ltd - BUY
Given the fact that because of the rise in global equity markets the prices of the mentioned
stocks have already gone up by an average of 150% in last 6 months, one can make an
initial small investment and then add on dips. The SIP form of investment with equal weight
on the three stocks is also a feasible way to invest.
\
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Agro Tech Foods Ltd.

BSE : 500215 Company Background:
NSE : ATFL
Agro Tech Foods Ltd (ATFL) is engaged in the business of marketing food
Bloomberg : ATFL:IN and food ingredients to consumers and institutional customers. It is
CMP (Rs.) : 255.95 affiliated to ConAgra Foods, Inc. of USA, which are one the world's largest
Sector : Food Processing food companies. It operates in two business segments: branded foods and
View : BUY sourcing and institutional business (SIB).
Key Metrics as on 12th March, 2010 Investment Rationale:

 ATFL can exploit the potential opportunity in the processed foods
Listing NSE/BSE market in India with ConAgra’s brands and its sourcing capabilities
Current Price (Rs) 245.70  Its Sundrop is one of the top-selling brands in the premium
Market Cap (Rs Cr) 597.05
refined vegetable oil segment in India with a market share of 13.8%
 It has a strong distribution network of 1000+ distributors taking its
Free Float (%) 37.13
product across the length & breath of the country
52-WEEK HIGH (Rs) 308.75  Also, it has direct selling agreement with key retail players like
52-WEEK LOW (Rs) 76.15 Reliance Retail, Spencers, Food World, Big Bazaar, etc
BETA 1.06  To expand the reach of ACT II popcorn, it has tied up with
P/B (x) 4.61
cinema theatres, amusement parks, shopping malls, coffee parlours,
college canteens, bus stands & railway stations at 400 locations
Current P/E (x) 25.32 across the country providing them with popcorn vending machines, a
Dividend Yield (%) 0.41 model which it plans to replicate with French Fries brand Just Fries“”
 To leverage on its established “Sundrop” brand name in the
Price Performance (%) as on 12th March, 2010 refined vegetable oil segment, it introduced many variants like
Sundrop lite, Sundrop Heart in the market
Period Stock S&P CNX NIFTY  Again, to further enhance its customer base, ATFL introduced
“Crystal” brand of medium-priced edible oil which has enabled it
1M -5.34 6.43
capture a fairly strong presence in the mass market
3M -10.99 0.38
1 Year 205.03 96.26 Risks:
 Though the company has diversified its portfolio of products yet it
still largely depends on two-three brands for a majority of its revenue
Shareholding Pattern (%) as on 31st December, 2009
PROMOTER 62.87
FII 3.31
DII 0.86
PUBLIC 23.30
OTHERS 9.66
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Product Profile
The Company’s subsidiary includes Heera Seeds Trading and Warehousing Limited. Branded Foods
segment includes products sold under the brands of Sundrop, Act II, Crystal, Rath, Sudham and Healthy
World. SIB segment includes oils, agricultural raw materials procurement, crystal, rath bulk packs, seed
buying, and processing operations, food service and poultry feed ingredients. The Company has a
diversified product profile catering to different needs of the consumers in retail packaged form as well as
through the catering industry.
Edible Oil Snacks
Butter Peas Vanaspati
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ANALYSIS – Annual:
 Fluctuating Net Sales reflect the continued progressive reduction of the company’s trading activities as well as
discontinuation of the Seed Crushing and Poultry Feed Ingredients businesses and an increased focus on its more
profitable Branded Foods Business
 This increased focus on its more profitable Branded Foods Business has helped the company improve its Net Profit
as well as Net Profit Margin
 The Company’s Profit before Tax has grown at a CAGR of 30.9% over the period of five years
 The company has maintained EBITDA margins of around 1.5-2% over the past 5 years. IN FY09 EBITDA margins
didn’t suffer a major decline because of a decline in raw material costs
 Net profit of the company in FY09 stood at 20.94 crores but that was due to an increase in other income and a
onetime interest income of 4 crores against advance tax paid
 The company has negligible debt on its books which is reflected in the debt equity ratio thus the company can raise
additional capital in the future without the risk of leveraging
 The company maintains an ROE between 13-16% and in FY09 it declined to 13.99% because of a decline in asset
turnover ratio
 EPS of the company shows an increase in FY09 but that has been due to a 237% increase in Other income & a
onetime interest income against a payment of advance tax
 The ROCE of the company has decreased over the years because returns on capital have stagnated over the last 3
years where as company has been increasing capital employed regularly
Analysis – Quarterly:
 Again, the reason for falling sales in past 4 quarter is the increasing focus by the company on its more profitable
branded products business, a shift away from its old less profitable businesses like seed crushing, etc
 Another reason for a lackluster performance in Sales and in turn profitability of the company is the global downturn
which left an impact on the company because its branded products are more of luxury in nature
 However, despite all this the company has managed to post a growth in both Net profit as well as EPS
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Lakshmi Energy & Foods Ltd.

Company Background:
BSE : 519570
NSE : LAKSHMIEFL Lakshmi Energy Food Ltd. (LEAF) is manufacturer and processor of rice and
also engaged in the activity of trading of agriculture commodities. Products of the
Bloomberg : LKEF:IN
Company include basmati rice, long grain white rice, non-basmati rice, refined
CMP(Rs.) : 132.25 oils, and cattle feed under Lakshmi Foods, Gold Crown, and Hira Moti brand
Sector : Food Processing names. Its subsidiaries are: Punjab Greenfield Resources Limited, victor Foods
View : BUY India limited.
Key Metrics as on 12th March, 2010

Investment Rationale:
Listing NSE/BSE  India’s annual rice production is slated to increase to 16.3 million tonnes
Current Price (Rs) 129.70 by the year 2016
 Located in one of India’s rice bowl states of Punjab, it has successfully
Market Cap (Rs Cr) 814.20
completed downstream integration, thus leading to almost zero wastage in
Free Float (%) 55.03 the production process; adding value to each by-product; reducing power
52-WEEK HIGH (Rs) 175.45 consumption & labour cost
52-WEEK LOW (Rs) 63.00  It also produces “green energy” from its husk based co-generation
BETA 0.68 Power Plant, and has also recently started exporting power to the state grid
P/B (x) 1.41  The company’s Biomass based co-generation power plant qualifies for
Current P/E (x) 7.58 carbon credit and the revenue receipt from the same being available to the
Dividend Yield (%) 0.38 company for working capital & capital expenditure
 The shortage of rice in various countries is opening up the opportunities
Price Performance (%) as on 12th March, 2010 for export of non-basmati rice
 With the rise in income levels and the culture of buying daily kitchen
requirements from organized malls & cash-n-carry stores is increasingly
Period Stock S&P CNX NIFTY benefiting the company giving it opportunity to venture into retail sales in a
big way with increased capacity
1M -8.37 6.43
3M -22.27 0.38
Risks:
1 Year 33.85 96.26
 The Govt.’s policies in relation to procurement of paddy/rice and their
pricing for PDS & the policy on export of non-basmati rice would continue to
Shareholding Pattern (%) as 31st December, affect LEFL in as much as the rice industry in general
2009  Export demand fluctuation for 1121 Pusa would pose a risk in the form
of substitution by any other variety of basmati rice
PROMOTER 44.97
 The company depends on Food Corporation of India to a large extent
for its revenue
FII 25.90
DII 6.33
PUBLIC 9.97
OTHERS 12.83
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Recent Developments:
 The Company will expand in renewable energy by way of setting up biomass based Power Plant of
60 MW next to its existing state of the art food grain processing factory and 30 MW biomass based
power plant at Chandigarh-Ludhiana National Highway, Khamano, Punjab
 PUSA-1121 basmati rice is eligible for exports and has been very well accepted worldwide. The
Company has started processing of PUSA-1121 basmati rice and recently received an export order
worth Rs.300cr.
Segment-wise / Product-wise performance

Rice continues to be the dominant product contributing 86% of the total revenue, followed by rice bran oil
(5%), De- oiled cake (2%), Cattle Feed (2%). This product mix is expected to continue in the same ratio
however, within rice segment Retail & Export are expected to receive more focus.
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Product Profile
The company's endeavor is to give our customers fresh products in international standard packaging.
Special kinds of packaging jute bags are used for rice to make it moisture proof for transportation by any
means of transport. Smaller quantities are packed in thematically sealed packs. The unique design packs
for the smaller packaging are tamper-proof and are vacuumed to retain freshness.
Its eco-friendly plants further process by-products into crystal clear Rice Bran edible oil, Cattle feed,
Boiler fuel, etc. Special packaging for cattle feed enables storage for a longer period of time. It is
marketed under the brand name Heera Moti and has been granted ISI certification.
Product Range:
Rice Whole Wheat Chakki Atta Refined Oil Cattle Feed
Segmental Revenue Reporting
SEGMENT Mar-05 Mar-06 Mar-07 Sep-08

Rice 257.17 487.51 612.69 1348.74
Oils 13.6 45.84 37.45 110.66
Wheat 126.15 20.34 29.57 8.07
Power 0 0 0 1.97
Others 10.79 4.7 16.56 132.38
Total 407.71 558.39 696.27 1601.82
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Annual Analysis:
 The company has seen its EBITDA margins increasing by nearly 300 bps and PAT margins by 150 bps because of
a stupendous increase in profits due to better cost management and a good growth in sales
 The growth in Sales has been consistently outdone by the growth in its Net Profit due to the cost management
techniques adopted by the company
 Even though the company added debt its debt equity ratio has declined due to addition of a lot of reserves which
has doubled its Net Worth
 The company has generated very good returns which has seen its profit increase almost 3 times and as a result it
has seen its ROE and ROCE increase in FY08
 A huge pile up of inventories in FY08 which has seen its inventories almost double has led to an increase in the
current ratio
Analysis:
 The YoY quarterly growth numbers for the company have been dismal, due to the economic meltdown witnessed
by the world in the past 4 quarters
 The Company’s revenue are dependent on export which explains why it has been more than just another casual
victim to the downturn
 However, things are starting to look up with the December quarter numbers
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Ruchi Soya Industries Ltd.

BSE : 500368 Company Background:
NSE : RUCHISOYA The Company is largest and most integrated player in the domestic edible oil industry
Bloomberg : RSI:IN commanding about 17.0% share of the palm oil market and 25.0% of soya oil. It is also
CMP (Rs.) : 98.40 the highest exporter of soya meal.
Sector : Food Processing
View : BUY
Investment Rationale:
Key Metrics as on 12th March, 2010
 About 35.0% of India's edible oil requirement is met through imports due to
lower production and less yield in the country
Listing NSE/BSE  It will enjoy high margins with focus on branded products
Current Price (Rs) 99.95  By foraying into overseas markets, it will be able to secure low cost supply of
Market Cap (Rs Cr) 2186.60 raw materials
Free Float (%) 63.76  It plans to leverage its existing distribution network and also expand the same
52-WEEK HIGH (Rs) 112.90 in new areas to offer value added products so as to serve across a wide spectrum
52-WEEK LOW (Rs) 18.80
of current and potential customers
BETA 0.95  It has a strong brand portfolio of Nutrela Soyumm, Ruchi Gold, Ruchi Star,
P/B (x) 1.95 Sunrich and Mandap
 Demand for protein rich meal in Asia is growing in recent past and India is
Current P/E (x) 14.61
better placed in the Asian region from the point of logistics and customer servicing
Dividend Yield (%) 0.50
 The Indian soya meal being processed from Non Genetically Modified soya
seed, gives a value advantage as compared G M O products in the international
Price Performance (%) as on 12th March, markets
2010  It has signed an MOU with the Ethiopian Government for 123,550 acres of
land for soyabean cultivation and is looking for land for palm oil cultivation in
Indonesia and Malaysia
 Further, it plans to increase its capacities for producing mustard oil by about 1
Period Stock S&P CNX NIFTY
million tonnes by the end of 2012
1M 12.94 6.43  It has strong sourcing strengths and processing capabilities in port based
3M 18.56 0.38 locations to process imported palm oil
1 Year 401.00 96.26  With the acquisition of Palmtech India Ltd., it will be able to achieve backward
integration in palm oil business
Shareholding Pattern (%) as on 31st Risks:

December, 2009
 The Company's business is exposed to price fluctuations on its major raw
materials, with bulk of them being agro-based and subject to market price
PROMOTER 36.25
variations
FII 26.69  It is exposed to foreign exchange risk on account of products imported for sale
DII 0.79 in domestic markets and its export business
PUBLIC 10.87
OTHERS 25.42
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Recent Developments:
 The Company has acquired Palmtech India Limited ('PTIL') as 13th February 2010. PTIL is engaged in the business
of development of oil palm plantation and processing of oil palm fruits with exclusive rights for development of oil
palm plantation in allotted areas in Andhra Pradesh and Karnataka
 The Company has acquired over 50% stake in Andhra Pradesh-based Gemini Edible and Fat for Rs 45.0cr in order
to consolidate its presence in the southern markets. Post the acquisition, Ruchi Soya will scale up the annual
crushing capacity at Gemini’s Krishnapatnam, Andhra Pradesh, unit by 10% to 24.4 lakh tonne
 Scheme of amalgamation with Mac Oil Palm Ltd. Is pending for appropriate order of the Honorable Bombay High
Court. Mac oil is engaged in the business of development and extraction of palm oil with exclusive rights for
development of oil palm plantations in Andhra Pradesh
 Promoters have hiked stake to 42.24% from 36.24% after acquiring 2.27 crore shares through preferential allotment
on 13 February 2010. Increase of stake in a company by promoters helps boost investor confidence.
Range of Products
Oil Fruit Juice Soya Soap
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Annual Financial Analysis:
 The profitability of the Company was hurt due to increase in employee cost (47.14%), selling & distribution
expenses (311.36%) and general & administrative costs (110.92%) in FY09
 The debt equity ratio of the Company has declined over the last three years due to decline debt and increase in
reserves and surplus
 ROE of the Company declined due to declining net profit margins which is partially offset by the decrease in
leverage ratio
 Interest Coverage Ratio has declined due to decline in interest charges with the reduction in debt which lower than
the decline in EBIT
Quarterly Financial Analysis:
 Over the last three quarters, the net profit of the Company has improved more than the improvement in sales as a
result of cost control measures
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Member: National Stock Exchange (Cash, FO & Currency)

Bombay Stock Exchange Limited (Cash & FO)
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Ph: +91 033 2225 3783/4/5/6/7
Fax :+91 033 2225 3788
research@kredent.com
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KBSL - Food Processing Industry

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Equity Research

IndIan Food ProcessIng Industry

Union Budget 2010-11 & Agriculture …................................... 3

Process Flow Chart ……………………………………………5

Ratio Analysis ………………………………………………….8

Agriculture Sector Overview ……….………………………..11

Indian Food Processing Sector……………………………….14

 Lakshmi Energy & Foods Ltd. – Buy

 Ruchi Soya Industries Ltd. - Buy

Study on business model and segmental presence -

Fruits & Dairy Marine/ Beverages Packaged Staple

Segment wise company classification

Fruits & Vegetables

Marine/Meat & Poultry

We considered the following ratios in our analysis:-

 0 means the ratio is below industry average

 1 means the ratio is above industry average

RATIO ANALYSIS RESULTS

SKM Egg Products Export (India) Ltd. 11

India’s Food Industry

Percentage share of Agriculture in GDP

25.0 22.9 21.8 22.0

Source: Central Statically Organization

Agriculture's GDP growth (%CAGR)

Source: RBI, WTO & Indian Agriculture: Issues and Experience

Indian Food Industry: Key Statistics

India’s Food Processing Industry – An Overview

 Moreover, food processing is employment intensive. At present, the food-processing sector

Food Processing Industry

Adds value to agri-produce Enhances Shelf life of food

Remunerative prices to Reduction in wastages

FDI inflows in India

FDI Inflow in Indian Food Processing Industry

Source: Ministry of Food Processing Industries Annual Report 2008-09

Structure of the Indian Food Processing Industry

Source: Ministry of Food Processing Industries

Structure of the Indian Food Processing Industry

Source: Ministry of Food Processing Industries

India’s Food Processing Industry – Key Segments

Processing level of fruits & vegetables in Different Countries

Source: Ministry of Food Processing Industries

Market Size and Composition of Dairy Products (value in US $ billion)

Fish and Marine Products Volume & Revenues

Meat and Poultry:

 The beverage industry in India is likely to grow at 17.0% in 2010

 The market size of organized carbonated drinks is estimated at US $119.0 million

 MNCs and national players have penetrated 80.0% of this segment

Market Size and Composition of Packaged Foods (value in US $ billion)

Key Growth Drivers and Opportunities:

 Changes in Customers’ Income, Preferences and Lifestyle

Food & Grocery

 Increased Organized Food Retailing

Quality assurance and competitive pricing will be the key to success.

Export potential areas are as follows –

 Grain based products

 Favorable regulatory environment and Government support

 Considerable Production Potential with Abundance of raw material

 Low Cost of Production

Key Risks and Challenges:

 Currently, the unorganized sector dominates food processing sector

Reforms to be taken to facilitate the development of the food processing

 Promotion of appropriate crossbreeds while conserving indigenous breeds of livestock

 Establishment of livestock marketing system