ISI Analytics

FOOD & BEVERAGE INDUSTRY

ISSUE 2H 2010

India Industry Research

ISI Analytics the Business research arm of ISI Emerging Markets
A Euromoney Institutional Investor Company
www.securities.com

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1. Industry Profile Asia Pacific Overview India F & B Industry Overview 1.2.1 Dairy Segment 1.2.2 Processed Fruits and Vegetables Segment 1.3 Selected Segments for Review 1.3.1 Branded Flour Industry 1.3.2 Bread Industry 1.3.3 Biscuit Industry 1.3.4 Semi Processed/Cooked/Ready to Eat Food Industry 1.3.5 Culinary Products and Snack Food Industry 1.3.6 Confectionary Industry 1.3.7 Milk and Dairy Products Industry 1.3.8 Malted Food & Beverage Industry 1.3.9 Tea Industry 1.3.10 Alcohol Beverage Industry 1.4 Food and Beverages Policy Initiatives 2. Market Trends and Outlook 2.1 Decline in Tea Production 2.2 Major Investments in the F&B Industry 2.3 Foreign Trade 2.4 Industry Outlook 3. Leading Players and Comparative Matrix 3.1 Leading Players 3.1.1 Ruchi Soya Industries Ltd 3.1.2 Nestle India Ltd 3.1.3 Britannia Industries Ltd 3.1.4 Tata Global Beverages Ltd 3.1.5 Hatsun Agro Products Ltd 3.2 SWOT Analysis 13 1.1 1.2 1

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Notes: 1 USD = 46.4300 INR

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4. Tables and Charts Chart 1 Chart 2 Chart 3 Chart 4 Chart 5 Chart 6 Chart 7 Chart 8 Chart 9 Chart 10 Chart 11 Chart 12 Chart 13 Chart 14 : : : : : : : : : : : : : : Global Share of Food and Beverage Products in 2008 Contribution to Total Growth Value in Food and Beverage in 2008 Industrial Production Index Production of Wheat Flour and Maida Production of Biscuits Production of Chocolate and Sugar Confectionary Production of Milk Powder Production of Malted Food Production of Tea Production of Alcoholic Beverages Ruchi Soya Break-Up of Revenue Nestle India Composition of Sales Britannia Performance Trends Britannia PAT, Cash Profit and EPS

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1. Industry Profile
1.1 Asia Pacific Overview companies, particularly with the limited growth potential in North America and Western European markets. The food industry is a large and integral part of the economy in most countries in the Asia Pacific region, with each country having distinctive strengths in different segments. Three countries, namely China, Thailand and India are known as the rice bowl in the region with their high production volume and high quality of rice. Australia is the most developed market in terms of processed meat, wine and dairy, while the Philippines has an abundant supply of fruits and vegetables. Japan on the other hand, remains the second largest food importer and has an impressive processed food industry which accounts for 11% of its GDP of all industries in the country. The regulatory environment in most Asia Pacific F&B industries is continuously evolving, with policy makers responsible for fostering a competitive business environment but also ensuring safety for consumers. Most regulatory developments are now aimed at influencing product development and consumer choices. Asia Pacific not only provides a basket of opportunity for the F & B industry, but also is expected to be one of the hottest regions for food manufacturing in the coming years. Most Asia-Pacific economics slowed significantly in 2008 due to economic downturn in the United States, rising energy and food prices, weaker exports and shrinking corporate investment. This led to consequences such as rising unemployment, highly uncertain market conditions, drop in household wealth and excess capacity in both manufacturing and services sectors, which weighed down on consumer and investment spending and industrial activity across Asia Pacific countries. However, the economic unrest in some Asia Pacific countries showed signs of change in the second half of 2009, as government monetary and fiscal stimulus packages took effect. The fall in oil and commodity prices too helped to ease inflationary pressures. The effects of the global financial turmoil were felt on all manufacturing sectors, including the food and beverage (F & B) industry, albeit less affected than the others. Even before the crisis, the F & B industry was already hit by escalating commodity prices which have eaten into manufacturers profit margins. When the financial tsunami hit, firms raised prices to remain profitable, and now when raw materials and energy prices dropped, F & B manufacturers are unlikely to cut selling prices as they want a full restoration of profit margins in the medium term. Currently, Asia Pacific accounts for 7% of global F&B products. However, the region contributes 13% to the total growth of the global F&B industry (global F&B growth at 6%). As a region with highly diverse cultures, language, consumption pattern, economic freedom and laws, Asia Pacific continues to capture the attention of international

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ISI Analytics Chart 1: Global Share of Food and Beverage Products in 2008

10% 7%

3%

Europe North America Asia Pacific 50% Latin America EEMEA 30%

Note: EEMEA = Eastern Europe, Middle East and Africa Source: AC Nielson

Chart 2: Contribution to Total Growth Value in Food and Beverage in 2008

7% 21% 38%
Europe North America Asia Pacific Latin America EEMEA

13% 21%

Note: EEMEA = Eastern Europe, Middle East and Africa Source: AC Nielson

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1.2

India F & B Industry Overview industry associations and non-government organizations to organize exhibitions and conference as well as undertake research. However, industry growth is faced with constraints such as inefficient infrastructure, inefficient supply chain, seasonality of raw materials and cultural preference for fresh foods. 1.2.1 Dairy Segment

The robust growth in domestic companies, along with a growing trend towards outsourcing by global F & B manufacturers have taken the Indian food industry to new heights in the recent years. According to the Department of Commerce, the Indian economy grew by 7.9% y-o-y in 3Q2009, spurred by improved farm production that boosted food processing output. The overall economic growth too helped the F & B industry expand with products becoming more affordable due to rising income, changing lifestyle and rapid population growth. India has a competitive advantage over other countries with the availability of raw materials, low labor costs and government initiatives. Most F & B manufacturers are seen intensifying advertisements and expansion schemes to both retain and increase market share in India. In addition, Indias thriving tourism sector has attracted growing numbers of foreign customers to the local F & B market and has thus offered great opportunities for food processors in the country. The industry had a turnover of USD72 billion in 2008, or equivalent to 21% of Indias GDP. The country has also become one of the preferred outsourcing hubs for food manufacturing due to its low-cost skilled workers. It employs more than 1.6 million workers, representing 20% of the total manufacturing industry workforce. Although India has limited focus on exports, levels have been expanding for the past few years. Exports of processed foods in the first nine months of 2009 were valued at INR77.22 billion (USD1.67 million), an increase of 19% from INR64.76 billion (USD1.39 million) in the previous corresponding period. To promote the industry, the Indian Government has given high priority and has provided numerous incentives, including financial assistance to academic bodies,

The Indian dairy industry witnessed a significant increase in the sales of premium and high quality value-added products in 2009, despite higher milk prices and fierce competition. The large and emerging dairy market is expected to lure in foreign investors to the country through partnerships and acquisitions of incumbent local companies. In India, the rising preference for western food products, greater product availability, as well as rising income and more effective marketing strategies led to greater demand for processed dairy products over the past few years. According to the Ministry of Food Processing Industries, dairy products rose by 5% to 104.9 million tons in 2008, up from 99.9 million tons a year ago. Product innovation remains the key growth driver, especially in functional products, and should also help improve margins for the industry as a whole. 1.2.2 Processed Fruits and Vegetables Segment

India is the second largest producer of fruits and vegetables in the world, but the countrys ability to process them remain limited, suggesting vast opportunities for both investors and exporters. Every year around 108 million tons of fruit and vegetables are produced, with only 2% of it processed. However, there has been a steady increase in the production of readyf&b

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to-serve beverage, fruit juices, frozen fruits and processed mushroom and tomato juices. Value-added food products are essential for 1.3 Selected Segments for Review

the success in this segment and better quality products will give India access to international markets.

Chart 3: Industrial Production Index

700 600 500 1993-94 = 100 400 300 200 100 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Industrial Production Index: Manufacturing Manufacturing Food Products Manufacturing Beverages, Tobacco and Related Products
Source: CEIC

The Industrial Production Index (IPI) for the manufacturing sector (base year 1993-94 = 100) for the year 2009 was 314.8 (averaged). The IPI for manufactured food products was lower at 170.4 in 2009, down from 197.7 in the previous year. On the other hand, the IPI for manufactured beverage, tobacco and related products was much higher at 574.1. The sub-sector has been in a growth spur since 2000. The biggest setback in the food manufacturing sector is the lack of sufficient infrastructure. Currently there are numerous taxes, local taxes and levies imposed on a

variety of commodities belonging to F & B sector. Each state has their different individual sales tax rates. These multiform of taxes inflict serious damages to sound growth and development of the F & B sector.

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1.3.1

Branded Flour Industry

1.3.2

Bread Industry

Chart 4: Production of Wheat Flour and Maida

'000 tons 2,500

2,400

2,300

The market for bakery and cereals in India increased at a compound annual growth rate of 10% between 2003 and 2008. The large organized sector players who are prominent in the upscale segments include Britannia, Modern Industries Ltd. Brands like Modem and Britannia are major players in the bread market and together they account for 90% of the organized bread market. Local manufacturers armed with numerous local brands tend to target the populous segment and contribute substantially in the bread segment. Miniscule profits margins and high level of fragmentation are the salient characteristics in the bread segment.

2,200

2,100

2,000

1,900 2005
Source: CEIC

2006

2007

2008

2009

Recently, organized bread industry is facing predicaments due to low profit margins partly due to rising prices of raw materials such as wheat flour, vegetable oil, sugar and milk. 1.3.3 Biscuit Industry

Production of wheat flour and maida during 2009 rose 9.88% to 2.36 million tons against 2008s production of 2.15 million tons. The milling industry is a trinity of rice milling, wheat-flour milling and pulse milling. It comprises an assorted range of products from ground wheat to flakes of wheat, rice or corn. The milling industry has undergone gradual proliferation of technology and rapid modernization. The grain processing sector is very fragmented, with a few large companies in the market. Mumbai-based DCW group entered the packaged flour market in 1994 with Captain Cook. Since then, other large players, like Hindustan Lever (with its Annapurna brand) and Godrej Pillsbury (Pillbury), Agro Tech (Healthy World), Nature Fresh and ITC (Aashirvaad) also moved into the market. Orthodox brands like Shakti Bhog have also taken the necessary steps to strengthen their position. The increased competitive activities among these companies are spurring the industry growth.

Chart 5: Production of Biscuits

'000 tons 1,600 1,400 1,200 1,000 800 600 400 200 0 2005 2006 2007 2008

2009

Source: CEIC

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Production of biscuits went up 8.78% y-o-y in 2009 (Chart 5). Britannia, Parle and Bakeman are the three large organized sector players who reign in the high and medium price segments. The major brands of biscuits include Britannia, Parle, Bakeman, Priya Gold, Eilite, Cremica, Dukes, Anupam and Horlicks. Within the sector, Britannia with its Tiger brand has become Parles Parle Gs biggest rival in the glucose biscuits category. Britannia and Parle rule the branded biscuit segment. The rapid urbanization has contributed significantly to the growth of the biscuit industry. Targeted advertising and new products has helped the biscuit industry to grow. The top five manufacturers Britannia, Parle, Priya Gold, Cremica and Anmol have competed with each other over prices and quantities. Biscuits packaging has gone through a complete overhaul. The transformation includes Britannias functional protective blister wraps which prevent breakage to Parles stylish offering packaging. The excise duty lowered on biscuits from 16% to 8% has given the biscuit industry a major lift. However, there are still some lingering issues facing the industry. The sales tax is disorganized all over the states. Andhra Pradesh has increased sales tax on India biscuits to 16% while Uttar Pradesh, Karnataka, Delhi and Haryana adopted 8%. The Federation of Biscuits Manufacturers of India (FBMI) urges the Central government to reconsider its decision to include biscuits in the category of Revenue Neutral Rate (RNR), and levy 12.5% value added tax. Biscuits ought to be acknowledged as a mass consumption item. 1.3.4 Semi Processed/Cooked/Ready Eat Food Industry to

new concept which is in its nascent stage. The market is worth INR800 million and shows huge potential for growth by tapping a larger consumer base. With the altering life styles of the Indian middle class and hectic schedules of both the working husband and wife, the demand for semi processed cooked/ready to eat food will be sustained. HLL has entered the ready to eat segment through Indus Valley rice metals in seven flavors. MTR Food has also launched a whole range of rice meals and other curries. Satnam Overseas has also entered this growing market with its Kohinoor brands of rice meals and curries. ITCs more than 50 packaged branded food products under Kitchens of India and Aaashirvard brands with different varieties of ready to eat/cooked food is gaining popularity in the market. 1.3.5 Culinary Products and Snack Food Industry

The culinary products market has been growing at a moderate pace for the pass few years. Culinary products includes wheat based products comprising noodles, vermicelli, marcaroni and spaghetti. In this segment, HLL (Kissan and Knorr range) and Nestle (Maggi) dominates as both have a large portfolio of products. Heinz and Top Ramen are waiting in the wings to enter into this segment. Indian snack food market is valued at around USD3 billion with a growth rate of around 1520%. It is one of the largest snack markets in the world as of this day. The biggest product category within snacks by a considerable margin is potato chips with 85% of the total market share. Snack nuts and savory snacks are also included into the market. The worlds largest producer of French fries and potato specialist McChain Foods with McChain Smiles and NP Foods has invaded the India potato snacks industry in 2005.

The ready to eat market in India has been a

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1.3.6

Confectionary Industry
Chart 6: Production of Chocolate and Sugar Confectionary

2009

2008

2007

2006

2005

Tons

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Source: CEIC

The output for chocolate and sugar confectionary stood at 63,535 tons in 2009, a 2.83% improvement from 2008 (Chart 6). The Indian confectionary market is estimated to be worth INR26.9 billion and can be segmented into sugar boiled confectionary, chocolates, mints and chewing gums. The whole market can be further separated into 7 major categories viz. - Hard Boiled Candies (HBC), Toffees, Eclairs, Chewing gums, Bubble gum, mints and Lozenges. The confectionary market is highly fragmented with several strong regional players. The prominent players are Cadbury India, Nestle, Nutrine, Parrys Confectionary, Parle, Ravalgon and Candico. The chocolate market in India is dominated by 2 major players, Cadbury India Ltd and Nestle India Ltd controlling about 90% of the total chocolate market. Standard grocers are the preferred distribution channel with 33% of the Indian confectionary market by value.

The only other channel to take a double digit share is the traditional grocers. Low profit margins, high volumes, price sensitivity and high advertising expenses are salient features of the chocolate industry. Given the perishable nature of the product and the fact the India lacks an effective cold chain distribution network are amongst the major predicaments that restrain any market expansion. The chocolate companies are having predicaments due to scarcity of milk and ascending prices. Most the private dairies have increased the prices including the prices of Skimmed Milk Powder (SMP), a crucial ingredient for manufacturing milk chocolates and ice cream mixes besides biscuits and confectionary products.

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1.3.7

Milk and Dairy Products Industry

Chart 7: Production of Milk Powder

2009

2008

2007

2006

2005

Tons

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

Source: CEIC

Indias milk powder production was down by 19.21% from 178,808 tons in 2008 to 144,468 tons in 2009 after shooting up 23.68% from 144,569 tons in 2007. Milk and milk products are regarded as one of the most promising sectors in the food processing industry. Predominantly, India is the one of the worlds largest milk producing country and is estimated to have a production of more than 109 million tons by 2010. As a corollary with increased production in liquid milk, there has been a concurrent growth in the production of various processed milk products including milk powder, infant milk food, condensed milk, butter, cheese, ice- cream, curd, khoa and khoa based sweets. With the liberalization, the influx of technology and machinery has a positive effect on the in the production of traditional milk products and this has given the dairy segment an impetus to continue to grow. The cooperative sector dominated the dairy

industry and about 60% of the installed processing capacity is owned by the cooperative sector. The National Dairy Development Board (NDDB) is a major player in the market with its major, ubiquitous brand, Amul. Leading brands like Amul, Nestle, Mother Dairy and Britannia are competing fiercely with each other to take advantage of the growing market. SmithKline Beecham Consumer Healthcare, Nestle India and Heinz India are amongst the large MNCs that dominate the premium segment of the milk products market. There are different set of taxes and duties imposed by both the Central and State governments. Some of the procedural issues including amendment of Milk and Milk Products Order (MMPO) of the government of India need to be reviewed and reevaluated for improving viability in the production of milk and milk products.
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In order to tap the opportunities and potentials, certain initiative and steps are needed to be adopted for technology improvement , automation and computerization in the manufacturing processes, quality control, and improvement of packaging to improve shelf life of products, investment in R&D to develop new products and for establishing an efficient cold 1.3.8 Malted Food & Beverage Industry

chain system. Nowadays, the consumers are paying more attention about health products, rapid urbanization, improving standards of living and popularity of convenience foods, the industry is anticipated to witness sustainable demand growth potential.

Chart 8: Production of Malted Food

Tons 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Malted Food
Source: CEIC

2005 84,581

2006 77,704

2007 82,115

2008 61,821

2009 49,732

In this segment, malted foods production was down by 19.55% in 2009 (Chart 8). Indias malted food market consists of two segments, namely brown and white. The brown drinks are deemed to be energy boosters, while the white drinks are considered as milk substitutes. Malted beverages with nutritional attributes take up around 70% of the total market and energy drinks (brown beverages) account for the rest. Few players dominated the malted food drink industry. These include brands such as Horlicks, Complan and Viva which

are mainly reagarded as white beverages. Boost, Bournvita, Milo and Maltova on the other hand are known as brown drink. The consumption pattern of malted beverages varies across different geographic zones according to the each distinctive usage pattern. In the southern and eastern regions white beverages are the preferred choice. The people in the east prefer sweeter based beverages, meanwhile the southern prefers more cocoa based beverages.

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1.3.9

Tea Industry
Chart 9: Production of Tea
Production in Tons

2009 979,010

2005 879,420

2008 976,100 2007 944,690

2006 960,510

Source: CEIC

Production of tea recorded a slight increase of 0.30% in 2009 (Chart 9). India has a big domestic tea market. Tea has managed to retain its leading position despite recurring attempts by other beverage segments to overtake it, predominately because of its price advantages. Cost of production of Indian tea remains the highest amongst tea producing countries, and the factor has been impeding Indias competitiveness. A major component of the cost of production is the cost of employment which includes social welfare cost on account of statutory amenities such as water supply, medical, primary education to be provided to workers in India under the Plantation Labor Act. In 2009, exports are expected to reach 185 million kilograms, a decline of 18 million kilogram from 2008 levels. Therefore, competitiveness remains a key factor to the exports efforts and the industry warmly welcomes the step taken by the government towards the inclusion of tea (across all

categories) as part of thr Foreign Trade Policy announced in early 2009. Consumers in different parts of the country have various tastes and preferences. Dust tea is very popular in the south and central India. In the western states, good quality loose tea is preferred choice in Gujarat, on the other hand, consumers prefer packet and unbranded tea in Maharashtra. Hindustan lever leads in the branded tea segment. The other significant players in this segment are Tata tea, Duncans, Goodricks and Jay Shree. The unorganized players dominate the major segment of the market. In addition, many local brands have entered the packaged tea segment. There are approximately about 1000 brands of tea in the country and out of which more than 90% brands belonged to the regional players. Regional brands have further tightened their grip on their market share from about 37% to around 50%.

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1.3.10 Alcoholic Beverage Industry

Chart 10: Production of Alcoholic Beverages
Beer Country Liquor Indian Made Foreign Liquor Rectified Spirit

2009

499,059

238,007

354,779

709,694

2008

443,991

237,905

335,112

1,073,639

2007

398,065

175,434

296,268

1,135,114

2006

323,939

153,571

267,732

1,000,454

2005

295,882

138,218

226,295

945,683

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100% '000 liters

Source: CEIC

During the period of 2005 to 2009, the rectified spirit segment consistently recorded the highest production level amongst the 4 types of alcoholic beverages (Chart 10). Alcoholic beverages are a growing industry in India. The alcoholic beverages industry in India is segregated into two main categoriesIndustrial Alcohol and Potable Alcohol. Potable Alcohol segment constitutes beer, country liquor, Indian Made Foreign Liquor (IMFL) and wine. IMFL mainly contains wine, vodka, gin, whisky, rum and brandy. United Breweries Ltd, Shaw Wallace, MC Dowell & Co Ltd (part of UB Group), Radico Khaitan, Mohan Meakins, Sula Vineyards, Mount Shivalik,and Seagram India Ltd are amongst the easily recognized names in the alcoholic beverage industry in India. United Breweries Ltd takes up nearly 40% of the total domestic beer sales and owns roughly 50% of the brewing capacity. United Breweries Ltd and Millennium Alcobev Ltd

and UKs Scottish & Newcastle, a three way joint venture presently account for nearly half of the beer sales in India. India is one of the ten fastest growing nation for the consumption of wine, both in terms of value and volume. In 2008, wine consumption in India reached 1.45 million 9liter cases, equivalent to 17.38 million bottles, an increase of 372% compared to 2004. Champagne Indage Ltd is Asias largest wine producer and the biggest indigenous wine maker in India. It is planning to take its niche red and white wine to enter the mass market by offering low prices simultaneously entering into the beer market and buying up a vineyard in Maharashtra. The domestic alcoholic beverages industry is beset with issues and constraints. The bulk of the issues relate to distribution, mobility, labeling laws and duty structure.
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Distribution schemes vary between states. Free market system practiced in Mumbai while Government operated system is followed in Delhi. The auction system is operational in Haryana and Madhya Pradesh. Lack of uniformity in sales tax rates and other charges by different state governments is an important deterrent. Each state has a different tax structure and levies and other regulations regarding licensing fees and sales of new brands. Different states have different labeling laws that lead to wastage, delay and higher cost of production. Besides heavy financial implications on them, they cannot transport their products from a market that has excess capacity to one where there is a short supply. The liquor output should be brought under the purview of the Value Added Tax (VAT) in all States. However, the VAT should comply with the principle of revenue neutrality rather than a revenue enhancing measures. According to All India Distillers Association, there is the need for a review of the ban imposed in the year 1975 on the expansion of capacity for production of alcoholic beverages As the quantitative restrictions on the import of alcoholic beverages has been removed on 1st April 2001, there is no justification for the ban on expansion of domestic capacity by the domestic industry. Increase in the price of molasses, essential raw materials for production of alcoholic beverages due to shortage and inadequate availability, has affected production adversely.

1.4

Food and Beverages Policy Initiatives

The government has devised and implemented a number of initiatives to provide financial assistance for establishing and overhauling the food processing units, modernization and creation of infrastructure, funds for research and development and a number of other measures to promote growth in this sector. Buoyed by the potential growth of the food and beverages industry, the government has embraced the following policies to give the sector a much needed boost:

Food processing industry declared a priority area Entire sector is de-licensed Automatic approvals for foreign investment up to 100%, except for alcoholic beverages and also technology transfer Import of capital goods and raw material for 100% export oriented units waived Export earnings are exempted from corporate tax All processed fruits and vegetables product exempted from central exercise duty Government grant given for setting up of common facilities in agro Food Park Full duty exemption on all imports for units in Export Processing Zones Use of foreign brand name is freely permitted

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2. Market Trends and Outlook

2.1 Decline in Tea Production by 2015. The investment will also see processed food exports jump by 70% to USD25 billion a year within five years, while imports of foodstuff will climb to USD13 billion per annum by 2015. At present, India processes just over a third of its milk, 26% of its fisheries output, 20% of its buffalo meat, 6% of poultry and around 2.2% of fruits and vegetables. But given the investment, Assocham predicts fisheries could rise to about 40%, 15% for poultry, 60% for milk and 40% for buffalo meat. Some major investments in the industry are:
IFFCO is planning to enter the dairy market by setting up a new venture by the end of 2010 with an investment of USD224.9 million. Capital Foods and Kishore Biyani-led Pantaloon Retail plans on setting up a Special Purpose Vehicle (SPV) that involves an investment of USD60 million for two mega food-parks in Maharashtra and Karnataka. Shree Renuka Sugars, Indias largest sugar refiner plans to acquire 50.34% stake in Brazils Equipav AA for USD248.4 million. McDonalds India plans to invest up to USD2.15 million a year, for the next three to four years, adding 30 restaurants annually in the western and southern region.

Indias tea production fell close to 12% in June 2010 to 104.03 million kilograms. The lower production was attributed to lower rainfall, decreased soil humidity as well as increased pest attack in some of the major tea growing areas in the country, especially in the northeast region. Though there was a slight increase in south Indian production (Tamil Nadu), it was still unable to offset the significant fall in north India, including Assam and west Bengal. Biggest production losses were reported from Assam, especially from the Assam valley plantation. The countrys exports fell close to 15% to 12.76 million kilograms in June 2010, against 14.95 million kilograms in the last corresponding period. The fall in value of tea exports was even sharper at 21.5% from INR166.96 crore (one crore equals to ten million) as against INR213 crore. The higher fall in value can also be attributed to lower unit realization, in which unit value for tea fell to INR130.84 per kilogram as against INR142.46 per kilogram last year. According to a Reuters report, a pest attack of helopeltis adversely affected tea gardens in Assam. Though the pest attack is now under control, it has likely caused damage in July production as well. 2.2 Major Investments in the Industry F&B

According to the Associated Chambers of Commerce and Industry of India (Assocham), a USD30 billion worth of investment is needed to revolutionize the countrys food processing sector. The multibillion dollar injection will boost volume of processed products to 10% of overall output

Amul plans to add an additional 15,000 retail outlets to its existing 70,000 outlets by the end of 2010.

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2.3

Foreign Trade

2.4

Industry Outlook

Indias anxiety over its erratic monsoon rains becomes more acute as both rising income and a growing population push up demand for farmed products faster than supply, turning the nation into a major importer within five years. Forecasts of a normal monsoon in 2010 have set hopes for smooth supplies and low inflation. However, the country is in need to boost yields if it is to feed its nearly 1.2 billion populations. India is already the worlds top importer of edible oils and ranks among the biggest producers and consumers of wheat, rice, cotton and sugar, making the country a key driver of global prices in the case of unfavorable weather forcing it to import grains and sugar. According to the Agricultural and Processed Food Products Export Development Authority (APEDA), exports of agricultural products from India are expected to reach around USD22.billion by 2014 and account for about 5% of the worlds agriculture exports. Exports of floriculture, fresh fruits and vegetables, processed fruits and vegetables, animal products, other processed foods and cereals rose to USD7,891.8 million in 200809 against USD7,877.1 million in the previous year, according to DGCIS annual data by APEDA. In addition, APEDA reported that India exported schedule products, floriculture and seeds, fruits and vegetables, processed fruits and vegetables, livestock products, other processed foods and cereals worth USD6.53 billion between April 2009 and February 2010. India also exported 502,750 million tons if spices valued at USD1.25 billion in 2009-10, according to statistics from Spices Board of India. The nation enjoys a 48% and 44% share in terms of volume and value respectively in the world spice trade.

The Indian F & B market is one of the fastest growing markets in the world. The market remained unaffected by the economic downturn and is expected to register doubledigit growth in the coming future. One of the key drivers of the growth in the industry includes the rapid expansion of organized retailing in the country. All segments in the F & B industry is predicted to show positive growth, with the beverage industry being the most promising and is projected to post maximum returns in the coming times. The two segments that are expected to boost growth are the alcoholic drinks segment and the soft drinks segment, of which, the soft drinks segments is forecasted to have a CAGR of 11.6% from 2010 to 2013 in terms of volume. Despites current under-developments in food processing, India still has the potential to become one of the leading players in the industry due to its low labor and production cost, government initiatives and the availability of raw material. The booming tourism sector and rapid growth of western-style fast food chains offers great opportunity for the exports of foreign food products to this large but rather untapped market. Investment in the F & B industry is also expected to rise along with the countrys burgeoning population. However, the industry is vulnerable to domestic and external risks such as trade protectionism and volatile oil prices, which could hinder industry growth.

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3. Leading Players and Comparative Matrix

3.1 3.1.1 Leading Players Ruchi Soya Industries Ltd series is targeted at the premium market and offers healthy options in soya foods and edible oils. Some of the prestigious awards won by Ruchi Soya Industries Limited are as below:

Ruchi Soya is the biggest player in India specializing edible oils, soya foods and processed foods. This is largely ascribable to its strict quality dedication and continuous innovation and improvement to stay ahead of times. Besides that, Ruchi Soya has moved away from being a big manufacturing company to focus on branded path. Its two biggest brands, Nutrela and Ruchi Gold have gained leading positions in the soya foods and edible oils segment respectively. Ruchi has extensive distribution network. Presently, the company has 5 Lac retail stores, with 90 company depots, 2,000 distributors and over 200 sales staff. Ruchi has a dual strategy for the popular and premium market. Ruchi Gold is well liked by the consumers due to its value for money but with no compromise in quality. The Nutrela

Global Gold Award for Outstanding Performance: Highest Exporter of Oil Meals for the years 2000, 2003, 2004 and 2006. Soyabean Processors Association of India, Indore: st 1 Highest Exporter as Manufacturer Exporter 2004-2005 st 1 Highest Processor 2004-2005 st 1 Certificate of Merit for Highest sale of textured vegetable protein (Soy Nuggets) 2004-2005 st 1 Certificate of Merit for Highest Sale of Lecithin

Chart 11: Ruchi Soya Break-Up of Revenue

2% 3% Oil 6% Seed Extraction 16% Vanaspati

73%

Food Products

Others

Source: Company Website

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For the financial year 2009, income for the company was INR12,209.51 crore, a 10.31% increase from INR11,068.81 crore from the previous financial year. Profit after tax, however drop from INR159.23 crore to INR93.28 crore, representing a 41.42% drop. 3.1.2 Nestle India Ltd

Milkybar, Milo, Kit Kat, Bar-One, Milkmaid and Nestea and lately the company has also launched products of daily consumption such as Nestle Milk, Nestle Slim Milk, Nestle Fresh n Natural Dahi and Nestle Jeera Raita. Over the years the company has been very passive. For long, Nestle was satisfied achieving the same growth with the GDP and underperformed given the potential that they have. However, Nestle has finally turned the corner and the recent performances have vindicated it, partly due to a shift in paradigm by the management for a more aggressive approach. For first six months of 2010, net sales for Nestle India increased 19.0% y-o-y to INR29.4 billion, driven by strong domestic and export businesses. Domestic business grew by 18.4% y-o-y to INR27.5 billion, driven mostly by volume growth. Profit after tax climbed 10.4% y-o-y to INR3.97 billion, while EPS was higher at INR41.14 compared to INR37.27 a year ago.

Nestle India is one of the subsidiary of Nestle S.A. of Switzerland. Nestle started doing business in India since 1912, at that time under the name of The Nestle Anglo-Swiss Condensed Milk Company (Export) Limited. Currently, Nestle India has seven factories and a large number of co-packers. Nestle has been a loyal partner with India for over 90 years hitherto, thus has developed a very close and special relationship with the people of India. The companys activities have directly and indirectly brought about employment for over one million people including farmers, suppliers, services and other goods. Nestle India has a number worldwide famous brand names such as Nescafe, Maggi,

Chart 12: Nestle India Composition of Sales

Chocolates & Confectionery, 16%

Milk Products, 44%

Culinary Products, 25%

Beverages, 15%

Source: Company Data

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3.1.3

Britannia Industries Ltd

Britannia started from humble beginning and it is now one of Indias favorite biscuit brands. In 2002, Britannia formed a joint venture with Fonterra, the worlds second biggest Dairy Company and Britannia New Zealand Food Pvt. Ltd was established. In acknowledgement of its outstanding performance, Forbes Global rated Britannia, One amongst the Top 200 Small Companies of the World, and The Economic Times awarded Britannia Indias 2nd Most Trusted Brand. The secret to Britannias successful story rests on its strategy of identifying high value

opportunities and capitalizing on them through differentiated brands, underpinned by an effective supply chain. The key to this strategy is brand building. The driving forces are availability, presence and merchandising for brands that provides the consumers a satisfying experience and reasonable prices. For the financial year ended 31 March 2010, gross sales increased by as much as INR2,817 million (8.96% ) to INR34,246 million. Profit from operations fell from INR2,293 million to INR1,257 million, including the provisions for one-off items worth INR258 million. Net profit fell 35.42% from INR1,804 million to INR1,165 million in the reporting period.

Chart 13: Britannia Performance Trends

Source: Company Annual Report

Chart 14: Britannia PAT, Cash Profit and EPS

Source: Company Annual Report

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3.1.4

Tata Global Beverages Ltd

3.1.5

Hatsun Agro Products Ltd

Tata Global Beverages Ltd (formerly Tata Tea Ltd) was born in 1964 as a joint venture with UK-based James Finlay and Company to produce value-added tea. Presently, the company is the worlds second largest global branded tea with products available in 40 countries. The consolidated worldwide branded tea business of Tata Tea Group chips in around 86% of its consolidated turnover with the rest coming from bulk tea, coffee and investment income. The companys headquarter is sited in Kolkata and possesses 27 tea estates of Assam and West Bengal in eastern India and Kerala in the south. The company has five major brands in the Indian market viz. - Tata Tea, Tetley, Kanan Devan, Chakra Gold and Gemini, each brand to cater for various consumer segments for tea. The Tata Tea brand dominates the market share in terms of volume and value in India and the Tata Tea brand is accorded Super Brand. Tata Global Beverages has a 100% exportoriented unit manufacturing Instant Tea in Munnar, Kerala, which is also the largest facility of this type outside the United States. Instant Tea is used for light density 100% Teas, Iced Tea Mixes and in the preparation of Ready-to-drink (RTD) beverages. The company has around 15,900 hectares of area under tea cultivation, with an annual production of approximately 30 million kilograms of Black Tea. For the year ended March 31 2010, Tata Global Beverages Ltd registered net sales of INR169,792 lakhs (1 lakh = 105). Income from operation for the second quarter of the year stood at INR45,101 lakhs, and increase of 7.94% y-o-y from the previous corresponding period. However, profit after tax fell by INR681 lakhs to INR3,615 lakhs.

Hatsun Agro Products Ltd is Indias largest private diary with the span of three decades. It started from a modest ice-cream manufacturer to one of the biggest names in Indias dairy sector. They company has over 70 types of flavors and its the number 1 selling ice cream in south India. Arun Ice Creams is manufactured at Chennai. Arun Ice Cream reaches the consumer through the largest network of exclusive parlors in India. Arokya is one of the most preferred milk brand consumed by India before Komatha came along. Komatha is Hatsuns proudest product to date. It embodies the values and attributes of fresh milk. Komatha is well liked by kids and adults for its taste and freshness and is acclaimed as the most suitable milk for the whole family. Hatsun produces a total of 1.8 million liters of milk per day, and the companys quest for quality starts at the procurement stage, twice a day from over a thousand collection centers and from over a hundred thousand farmers. For the financial year ended 31 March 2010, Hutsun had net sales of INR114,060.31 lakhs, up from INR101,305.01 lakhs in the previous financial year. Profit after tax however slump by 77.53% to INR268.93 lakhs, due to unfavorable economic conditions and rise in input material prices. Sales from its milk and milk products segment was 10.52% higher at INR110,570.61 lakhs while sales from other segments surged by 177.90% to settle at INR3,489.70 lakhs.

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3.2

SWOT Analysis
Ruchi Soya Strengths Weaknesses

Strong Brands Economies of scale Market leader in edible oil segment Amalgamation with Mac Oil Palm has expanded its presence in the oil plantation in India Opportunities Threats Increasing import of foreign vegetable oils will give tough competition to Ruchi Soya

Rise in disposable income in India offers opportunities Rally in cost of raw materials drive down profits for the company

Nestle India Strengths Strong stable brands Low penetration levels Large diversified portfolio Nestle India has a very strong parent, Nestle SA Superior capital efficiency Opportunities Threats Weaknesses

Rise in disposable income in India offers opportunities Rally in cost of raw materials drive down profits for the company

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3.2

SWOT Analysis (Cont)

Britannia Strengths Weakness

Market leader in bread and cakes industry in India Entered the value-added dairy products namely UHT milk category and milk-based drinks. Strong competitive pressures from rival companies

Economic Times pegged Britannia as the 2nd most trusted brand in India Opportunity Threat

Rise in disposable income in India offers opportunities Rally in cost of raw materials drive down profits for the company

Tata Global Beverages Strengths Second largest branded tea in the world Strong global presence in over 40 countries Accepted and has significant market presence in western countries Opportunities Threats Rally in cost of raw materials drive down profits Weakness Adverse currency movements would have an impact of Tata Global Beverages

Rise in disposable income in India offers opportunities Black tea segment has been showing flat growth for for the company some time Sluggish growth of European tea market is a cause of concern

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3.2

SWOT Analysis (Cont)

Hatsun Agro Strengths Weaknesses

India's largest private diary company Large diversified product portfolio that is popular with consumers Arun ice cream is the no.1 selling ice cream in south India Efficient and management effective supply and cold chain Strong competitive pressures from rival companies

Opportunities

Threats

Rise in disposable income in India offers opportunities Rally in cost of raw materials drive down profits for the company

The research report is based on material compiled from data considered to be reliable at the time of writing. However, information and opinions expressed will be subject to change without notice. We do not accept any liability directly or indirectly that may arise from investment decision-making based on this report.

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