india's food processing industry

7/27/2019 India's Food Processing Industry

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Sectoral Risk Outlook

Food Processing

October 2012

Dun & Bradstreet Information Services India Private Limited.

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TABLE OF CONTENTS

EXPLANATION OF RISK SCORE ............................................ 3

EXECUTIVE SUMMARY .................................................... 4

PRODUCT PROFILE ...................................................... 5

MACRO ECONOMIC ANALYSIS .............................................. 6

Macro Economic Growth ...................................................................................................... 6

Quarterly Performance .......................................................................................................... 8

Interest Rate Risk ................................................................................................................ 10

Debt-equity Ratio ................................................................................................................. 12

Interest Coverage Ratio ...................................................................................................... 12

Foreign Exchange Fluctuations ......................................................................................... 14

GOVERNMENTGOVERNMENT REGULATIONS .................................... 15

DEMAND SUPPLY DYNAMICS .............................................. 17

Historical Growth ................................................................................................................. 17

Growth Drivers ..................................................................................................................... 18

Export Import Scenario ....................................................................................................... 20

Projections ........................................................................................................................... 24

COMPETITIVE SCENARIO ................................................ 25

Nature of Industry ................................................................................................................ 25

FINANCIAL RISK ...................................................... 26

Profitability ........................................................................................................................... 26

Key Ratios ............................................................................................................................ 27




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Sectoral Risk Outlook Page 3

EXPLANATION OF RISK SCORE

Industry Risk Score reflects the effect that the various factors have

on the business prospects and operating environment of the industry

over the next 12 months. The risk score arrived at is an aggregate of

the individual scores assigned to the relevant industry parameters

identified.

The selected parameters are Government regulations, demand

supply dynamics, competitive scenario, macro-economic variables,

resource risk and profitability and cost structure. The scores given to

individual parameters reflect the extent of positive/ negative impact

on the business operating environment.

The industry risk scores have been graded on an 8 point scale with 1

indicating low risk and 8 indicating high risk.

Industry Risk Score - 4

Favorable Factors (+) Unfavorable Factors (-)

Change in consumption pattern

favoring processed foods, increase

in distribution reach and innovative

marketing strategies

Lack of adequate supply chain

infrastructure like warehouses and

cold storage has resulted in high

degree of product wastage.

Favorable Government initiatives

like National Mission on Food

Processing and Vision 2015

D&Bs assessment of the industry risk score is based on assessment of the sector specific risk factors and a sectors relative standing amongst

other sectors within D&Bs por tfolio of industries.




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EXECUTIVE SUMMARY

Food processing sector accounts for ~32% of total food market in the

country. Food processing sector contributes to ~6% of the countrys

GDP, ~13% of total exports and ~6% of total industrial investments.

The sector employs close to 13 million people directly and 35 million

people indirectly.

Favorable Government policies like National Mission on Food

Processing, Vision 2015, setting up of Mega Food Parks, various

incentives to set up 100% export orient units and tax emeption

extended to these export oriented units have helped the developmentof food processing sector.

Food processing sector in the country is estimated to be worth ~INR

3277.6 Bn. The sector grew by a CAGR of ~8.8% during the period

FY 2008-12.

Change in consumption pattern because of the change in population

mix and increase in disposable income, increase in rural demand due

to better distribution reach and innovative marketing strategies and

supportive Government policies have helped in the growth of the

sector.

Approximately ~INR 11.5 Bn worth of new investments were

announced in the food and beverage segment during the first half of

FY 2013. With this, the total investments outstanding in the sector

reached ~INR 670 Bn.

Food processing sector is highly fragmented with a large number of

players being concentrated in the unorganized segment. Organised

market accounts for ~25% of and SSI sector accounts for ~33% of

the market.

Food processing sector in the country is expected to grow by a

CAGR of ~7.4% during the period FY 2012-15 to reach ~INR 4,063.5

Bn. BY FY 2015, the contribution of the sector to the overall GDP is

expected to reach ~6.5%.




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PRODUCT PROFILE

Food processing involves transformation of raw food ingredients into

food or various forms of food. It includes any type of value addition to

agricultural / horticultural / animal products so as to increase the shelf

life of the product.

Food processing sector accounts for ~32% of total food market in the

country.Food processing sector contribu tes to ~6% of the countrys

GDP, ~13% of total exports and ~6% of total industrial investments.

The sector employs close to 13 million people directly and 35 million

people indirectly.

As per the NIC (National Industrial Classification), food processing

sector broadly covers

Production. Processing and Preservation of Meat, Fish,

Fruits, Vegetables, Oils and Fats

Manufacturing of Dairy Products

Manufacture of Grain Mill Products, Starches and Starch

products and prepared animal feeds.

Manufacture of Beverages.




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MACRO ECONOMIC ANALYSISMacro Economic Growth

Indias GDP has grown at a CAGR of ~7.86% over the period FY

2007-12 while Index of Industrial Production (IIP) grew at a CAGR of

~6.5% during the same period.

9.5% 9.3%

6.7%8.4% 8.4%

6.5% 6.5%12.9%

15.5%

2.5%

5.28%

8.23%

3.2%

5%

FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013E

Macro Economic Indicator

GDP Growth Rate IIP Growth Rate

Source: CSO; D&B Estimates

Interest rate hike, high inflation, higher fiscal deficit and the influence

of external macro factors resulted in sharp decline in GDP to 6.48%

in FY 2012 from the level of 8% plus GDP growth witnessed in

previous two fiscal.

The countrys IIP growth figure also ref lected a steep fall of over 5

percentage point to 3.2 % in FY 2012 as compared 8.23% registered

during the previous fiscal.

As seen in below chart, the services sector has registered the

maximum growth over the period FY 2007-12 followed by the

industrial sector, while growth in the agriculture lags far behind.




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6,192

6,551 6,557 6,625

7,0917,287

F Y 2007 F Y 2008 F Y 2009 F Y 2010 F Y 2011 F Y 2012

Agriculture (I NR Bn)

10,21211,200 11,697

12,67913,587 14,047

F Y 2007 FY 2008 F Y 2009 FY 2010 FY 2011 F Y 2012

Industry (INR Bn)

19,24021,216

23,33325,772

28,18130,692

F Y 2007 F Y 2008 F Y 2009 F Y 2010 F Y 2011 F Y 2012

Services (INR Bn)

3.31%

6.58%

9.79%

Agriculture Industry Services

CAGR (FY 2007-12)

GDP (Factor Cost, Constant 2004-05 Prices) by Economic Activity

Source : Business Beacon

In FY 2012, services sectors contribution towards GDP stood at 59%,

followed by industry (27%) and agriculture (14%). Also, the share of

services in the GDP of our country is observed to be increasing,

while that of agriculture is seen declining over the period FY 2007-12.

1 7

. 4 %

2 8

. 7 %

5 4

. 0 %

1 6

. 8 %

2 8

. 7 %

5 4

. 4 %

1 5

. 8 %

2 8

. 1 %

5 6

. 1 %

1 4

. 7 %

2 8

. 1 %

5 7

. 2 %

1 4

. 5 %

2 7

. 8 %

5 7

. 7 %

1 4

. 0 %

2 7

. 0 %

5 9

. 0 %

Agriculture Industry Services

Contribution towards GDP by Key Economic Activity

FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012

Source: Business Beacon; D&B Research

The annual growth rate of services sector, industry and agriculture

sector declined to 8.91%, 3.38% and 2.76% in FY 2012 as compared

9.35%, 7.16% and 7.03% respectively, registered in previous fiscal.




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Quarterly Performance

As seen in below graphs, the overall economic activity witnessed a

declining trend in all 4 quarters of FY2012 when compared with

quarterly growth of FY 2011. Only exception to this trend was the 4%

growth registered in agriculture sector in Q1 FY 2012 as against 3%

growth registered in Q1 FY 2011.

In Q1 FY 2013, Indias Quarterly GDP growth grew by just 5.5% as

compared to 8% GDP growth in the same quarter in previous fiscal.

However, the GDP growth was marginally higher against the 5.3% in

preceding quarter (Q4 FY 2012). Growth in the entire segment

declined in Q1 FY 2013 from the year ago level.

In Q1 FY 2013, the GDP growth of agriculture, industry and services

slowed down from 3.7%, 5.6% and 10% to 2.9%, 3.6% and 7%,

respectively. In sequential preceding quarter, the GDP of agriculture,

industry and services grew by 1.7%, 1.9% and 8%. Thus, growth in

services sector slowed to 7% in Q1 FY 2013 from 8% in Q4 FY 2012

whereas GDP of agriculture and industry reported a higher growth in

Q1 FY 2013 on sequential q-o-q basis.

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Q1:FY2011

Q2:FY2011

Q3:FY2011

Q4:FY2011

Q1:FY2012

Q2:FY2012

Q3:FY2012

Q4:FY2012

Q1: FY2013

Yearly Q-o-Q change in Sectoral GDP Compositon (%)

GDP Growth Agricuture Industry Service Services

Sources : Business Beacon

In Q1 FY2013, the Index of Industrial Production (IIP) reported a

negative growth of 0.2% on y-o-y basis and of 6.7% decline as

compared to preceding quarter i.e Q4 FY 2012




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8.5%

7.6%8.2%

9.2%

8.0%

6.7%6.1%

5.3% 5.5%9.6%

6.8%

8.6%7.9%

7.0%

3.2% 1.2%0.4% -0.2%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Q1: FY2011

Q2: FY2011

Q3: FY2011

Q4: FY2011

Q1: FY2012

Q2: FY2012

Q3: FY2012

Q4: FY2012

Q1: FY2013

Yearly Q-o-Q Growth Trend (%)

GDP Growth IIP Growth

Sources : Business Beacon




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Interest Rate Risk

0%

1%

2%

3%

4%

5%

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

A p r - 0 9

J u n - 0

9

A u g - 0

9

O c t - 0

9

D e c - 0

9

F e b - 1

0

A p r - 1 0

J u n - 1

0

A u g - 1

0

O c t - 1

0

D e c - 1

0

F e b - 1

1

A p r - 1 1

J u n - 1

1

A u g - 1

1

O c t - 1

1

D e c - 1

1

F e b - 1

2

A p r - 1 2

J u n - 1

2

A u g - 1

2

International Interest Rate Movement

3M-LIBOR(LHS) 10-Yr US T-Bond (RHS)

4%

5%

6%

7%

8%

9%

10%

0%

3%

6%

9%

12%

15%

A p r - 0 9

J u n - 0

9

A u g - 0

9

O c t - 0 9

D e c - 0

9

F e b - 1

0

A p r - 1 0

J u n - 1

0

A u g - 1

0

O c t - 1 0

D e c - 1

0

F e b - 1

1

A p r - 1 1

J u n - 1

1

A u g - 1

1

O c t - 1 1

D e c - 1

1

F e b - 1

2

A p r - 1 2

J u n - 1

2

A u g - 1

2

Domestic Interest Rate Movement

3M-MIBOR(LHS) 10-Yr GOI Security Yield (RHS)

Source : RBI, US Treasury, D&B Research

Domestic interest rates have started firming up in 2010 amid prospects of

economic revival after facing sharp decline in the previous one and half

years.3M MIBOR has reflected an increasing trend since November

2009. During FY 2012, 3M Mumbai Inter Bank Offer Rate (MIBOR)

remained in the range of 9.06%-11.06% which reflects expensive credit

availability to corporates which have either delayed or stalled the capacity

expansion activities and have pulled down the overall economic growth.

In the midst of bleak economic outlook on domestic economy, investor

have becomes risk averse. This is well captured by the increasing yield

on 10 Yrs G-Sec since April 2009. During FY 2012, it remained in the

range of 8.10-8.88%.

The prevailing uncertainty in the global economic environment like crises

in the euro zone, sustained weakness of the US economy, elevated

commodity prices etc. have adversely impacted consumer confidence

across the globe and have the potential to substantially lower theconsumption demand, resulting in a slowdown.

As a result, the industry players have been demanding the interest rate

cut to revive the domestic economy which has been witnessing a decline

in GDP growth in last four consecutive quarters of FY 2012 on y-o-y

basis.

To curb burgeoning inflation, RBI adopted the monetary policy tightening

since February 2010. RBI kept on increasing the repo and reverse repo

rate which saw last hike of 25 basis points each on 25th October 2011 to




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reach 8.5% and 7.5% respectively. On April 17th 2012, RBI slashed the

repo rate (rate at which RBI lend money to commercial banks) and

reverse repo by 50 basis point for the first time in three years even

though the inflation rate remain elevated in order to boost sluggish

economic growth.

In a measure to contain the inflation RBI in its Monetary Policy Review in

September 2012, kept both repo and reverse repo rate unchanged

against expectation of the industry experts who were expecting a rate cut

as a measure to prevent the decelerating economic growth.

4.0%4.5%5.0%5.5%6.0%6.5%7.0%7.5%8.0%8.5%9.0%9.5%10.0%

120.0

125.0

130.0

135.0

140.0

145.0

150.0

155.0

160.0

165.0

170.0

A p r - 0

9

J u n - 0

9

A u g - 0

9

O c t - 0

9

D e c - 0

9

F e b - 1

0

A p r - 1

0

J u n - 1

0

A u g - 1

0

O c t - 1

0

D e c - 1

0

F e b - 1

1

A p r - 1

1

J u n - 1

1

A u g - 1

1

O c t - 1

1

D e c - 1

1

F e b - 1

2

A p r - 1

2

J u n - 1

2

A u g - 1

2

Movement: Inflation, CRR & Repo Rate

WPI (LHS) CRR (RHS) Repo Rate

16th September 2012;CRR ratecut to 4.5%

17th April 2012;Repo Rate cutby 50Basispoint

Index (2004-05) = 100

Source : Office of the Economic Advisor; RBI

Also, the CRR which kept increasing in phases from 5% to 6%, during

February to April 2010 and remained at same level thereafter was

slashed by 50 basis point on Jan 24, 2012, further by 75 basis point on

9 th March 2012 and 25 basis point on 16 th September 2012 inorder to

infuse the primary liquidity in banking system and supports the GDP

growth. The CRR currently stands at 4.5%.




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Debt-equity Ratio

Debt-equity ratio fluctuated between the range of 0.70 1.00 during

the five years FY 2008-12. All the large companies in the segment

Britannia Industries, Ruchi Soya, KS Oils increased their debt over

the period FY 2008-12. Increase in debt component was the primary

reason for the growth in debt-equity ratio.

0.700.67 0.73

0.88 1.00

0.00

0.50

1.00

1.50

FY 2008 FY 2009 FY 2010 FY 2011 FY 2012

Debt-Equity Ratio

Source: CMIE Prowess, Sample 18 companies

Interest Coverage Ratio

9.288.71 9.66

6.00

6.97

0.00

5.00

10.00

15.00

FY 2008 FY 2009 FY 2010 FY 2011 FY 2012

Interest Coverage Ratio

Source: CMIE Prowess, Sample 18 companies

Interest coverage ratio fluctuated between the period FY 2008-12.

The ratio moved within the range of 6.00-9.28. The steep decline




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during the period FY 2010-11 was due to the 48% increase in debt of

Ruchi Soya, which accounts for ~48% of total debt of companies

considered in the sample size. Increase in debt by Ruchi Soya in FY

2011 was to augument its working capital needs.




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Foreign Exchange Fluctuations

Being a net exporter of processed food products, depreciation in

rupee helps food processing exports increase their export revenue.

During the major part of fiscal 2012, rupee was depreciating against

dollar which helped in increasing the export earnings

~INR Touched Lowestagainst USD at 57.26

on 29th June, 2012

43.5

45.5

47.5

49.5

51.5

53.5

55.5

57.5

0 1 / A p r / 1 0

0 1 / J u n

/ 1 0

0 1 / A u g

/ 1 0

0 1 / O c t

/ 1 0

0 1 / D e c / 1 0

0 1 / F e b / 1 1

0 1 / A p r / 1 1

0 1 / J u n

/ 1 1

0 1 / A u g

/ 1 1

0 1 / O c t

/ 1 1

0 1 / D e c / 1 1

0 1 / F e b / 1 2

0 1 / A p r / 1 2

0 1 / J u n

/ 1 2

0 1 / A u g

/ 1 2

Exchange Rate (INR per USD)Inverse Scale

FY'11INR Appreciating

FY'12INR Depreciating

Y T D

F Y ' 1 3

I N R D

e p r e c i a t i n g

Source: Ministry of Finance, Government of India

Although the rupee has strengthened in August 2012, compared tolow level that was prevailing during the first quarter of FY 13 it is still

relatively lower than the rate that was prevailing during the FY 2010

and first two quarters of FY 2011.

Thus the exporters of food processing companies, still continues to

enjoy the advantage of a weak currency.




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GOVERNMENTGOVERNMENT REGULATIONS

Government has permitted up to 100% FDI under automatic route in

food infrastructure like food parks, cold chain and warehousing. Up to

100% FDI under automatic route is allowed in processing of agri

products, milk and milk products and marine and meat products.

Automatic Government approval is also provided for projects which

involve technology transfer to the local partner.

Various incentives are provided for companies to set up 100% Export

Oriented Units. These units can retain up to 50% of the foreign

exchange earnings in foreign currency accounts.

Import duty on capital goods and raw materials for 100% EOUs are

waived. In the case of new agro processing industries, 100% tax

exemption is provided for the first 5 years, thereafter 25% exemption

for the next 5 years.

Between April 2000 and June 2012, FDI worth ~USD 1,456.2 million

were made in the food processing sector.

National Mission on Food Processing (NMFP)

One of the main objectives of NMFP is the decentralization in the

implementation of schemes in the sector, leading to greater

involvement of State Government / Union territories.

Approved by the cabinet committee in August 2012, NMFP is

expected to be implemented along with State Government

cooperation from the current fiscal.

Vision 2015

Ministry of food processing has come up with a vision document

Vision 2015 to promote the growth of food processing sector in the

country. By the end of plan period, the vision document aims to

Treble the size of domestic food processing industry

Raising the level of processing of perishable items from

current level of 6% to 20% of total produce.

Increasing the value addition in the sector from the current

level of 20% to 35%.




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Enhancing Indias share in global food trade from 1.5% to

3.0%.

Mega Food Parks

Government is expected to set up 30 food parks across the

country to attract FDI. Till date, the Government has released

~USD 23 Mn to implement the Food Parks scheme. As per the

data available with the ministry the Government has approved

financial assistance for 56 food parks.




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DEMAND SUPPLY DYNAMICS

Historical Growth

Food processing sector in the country is estimated to be worth ~INR

3,277.6 Bn. The sector grew by a CAGR of ~8.8% during the period

FY 2008-12.

This growth have been fuelled by increase in consumption from both

rural and urban segment, increasing share of processed food in total

food intake and improvement in distribution network which ensured

better accessibility to consumers.

2338.02495.2

2704.6

3078.23277.6

FY 2008 FY 2009 FY 2010 FY 2011 FY 2012

Indian Food Processing Sector (INR Bn)

Source: Ministry of Food Processing




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Growth Drivers

Consumption habits prevalent in the country are witnessing a shift as

a result of change in population mix and increase in disposable

income. A youth centric population tends to prefer value added

processed food over unprocessed food due to increased product and

health awareness. Increase in disposable income on this population

mix because of better access to jobs has helped in increasing the

affordability of processed foods.

The growth in consumption of dairy products like cheese, meat

products like sausages and bakery products like biscuits and breadsis a testimony to this trend.

To cater to the low income consumers, major food processing

companies introduced lower priced small sized packs.

This helped increase the affordability, particularly among rural

consumers where the affordability is relatively low. This strategic

initiative by the players in the segment fueled the growth of the

sector.

Current generation of consumers have a better access to processed

foods when compared with the previous generations due to better

distribution reach. In urban areas, the spread of organized retail

format stores have helped in increasing the distribution. In rural

areas, realizing the increasing income levels, companies have

increased their investments in setting up large distribution networks,

thereby assuring better accessibility to processed foods in rural

areas.

Various tax incentives and policy initiatives taken by the Government

to increase its share in global food trade have encouraged

entrepreneurs to set up food processing units. Combined with the

increasing demand for processed foods from both developing market,

the number of export oriented food processing units have gone up.

Improvement in food products procurement due to spread of

practices like contract farming and special initiatives ensuring better

price for farmers (by eliminating middle men in procurement) have in

turn reduced the wastage of food products available for processing.




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These initiatives have helped in increasing the supply of processed

foods.

Factors affecting the growth of the sector

Inspite of the increased presence of private players and dedicated

efforts of Government, the country lacks the necessary supply chain

infrastructure required to streamline the processes starting from

product procurement to sales of processed food.

The supply chain components in the sector include procurement

mechanism, warehouses for storage, cold storage chains to preserve

perishable goods and transportation to processing centers. As per

the planning commission, approximately 35% of total food products

produced in the country is wasted annually due to the

underdeveloped supply chain infrastructure.

Crop wise wastage accumulated in the country

Crop Wastage as a percentage of totalproduce

Cereals 3.9 6.0%

Puses 4.3 6.1%

Fruits & Vegetables 5.8 18.0%

Oil Seeds 6.0%

Milk 0.8%

Fisheries 2.9%

Meat 2.3%

Poultry 3.7%

Source: Study by Central Institute of Post-Harvest Engineering and Technology




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185.7 168.7205.2

380.8 384.4

493.7

244.4

365.7400.3

354.8

475.6

730.1

FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 11M FY 2012

Import-Export

Impo rts Exp or ts

Export Import Scenario

India is a net exporter of processed food products. During the 11months of FY 2012, the country exported ~INR 730 Bn worth of

processed food as against ~INR 493 Bn worth of imports.

During the period FY 2007-11, exports increased by a CAGR of

~18.1% to reach ~INR 475.6 Bn, while imports increased by a CAGR

of ~20% to reach ~INR 384.4 Bn.

Source: India Trade

Indonesia is the largest exporter of processed food into India and

accounts for ~47.6% of the total annual import bill. Major imports

from Indonesia include Coffee and tea, Oil seeds and vegetable fats

and oils.




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Indonesia 47.6%

Argentina 10.8%

Malaysia 9.7%

Ukraine 7.1%

Brazil 7.0%

Rest of the World17.8%

Origin of Imports to India

Source: India Trade

Exports from India are fragmented, with no country accounting for

more than ~10% of total exports. UAE followed by Saudi Arabia are

the two largest importers of processed foods from India.

UAE 10.1%Saudi Arabia

8.0%

USA 5.9%

Iran 5.5%

Malaysia 4.9%

Rest of the World65.7%

Export Destinations

Source: India Trade




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Capital Expenditure

Approximately ~INR 11.5 Bn worth of new investments wasannounced in the food and beverage segment during the first half of

FY 2013. With this, the total investments outstanding in the sector

reached ~INR 670 Bn.

Fifty three new investment projects were announced during H1 FY

2013, taking the total number of projects outstanding to 438.

1 3 5

. 9 8

2 3 5

. 1 6

1 1 6

. 9 5

1 2 1

. 1 8

1 3 4

. 6 2

1 1

. 5 0

433.4

568.6

490.0

567.9 654.3 669.9

0

100

200

300

400

500

600

700

800

0

50

100

150

200

250

FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 H1 FY 2013

Food & Beverage -Capital Expenditure (INR Bn)

New Investments (LHS) Outstanding Investment (RHS)

Source : CMIE Capex

Few of the projects announced in the segment

COMPANY PROJECT INVESTMENT (~INR MN)

Nestle India Ltd. Orissa Food Processing

Unit Project

5,000

Gujarat Agro Inds.

Corpn. Ltd.

Patan Integrated Agro

Food Park Project

4,000

Pepsico India Holdings

Pvt. Ltd.

Dhulagarh Snacks Plant

Expansion Project

2,000

Indo Nissin Foods Ltd. Harohalli Noodles

Manufacturing Unit

Project

1,600

I T C Ltd. Barasat Noodles Plant 1,500




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Expansion Project

Raja Udyog Pvt. Ltd. Maner Biscuit Plant

Project

1,000

Anmol Biscuits Ltd. Khurda Biscuit Plant

Project

810

Source: CMIE Capex




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Projections

Food processing sector in the country is expected to grow by a

CAGR of ~7.4% during the period FY 2012-15 to reach ~INR 4063.5

Bn. BY FY 2015, the contribution of the sector to the overall GDP is

expected to reach ~6.5%.

3277.63498.5

3748.24063.5

FY 2012 FY 2013 FY 2014 FY 2015

Indian Food Processing Sector - Forecast (INR Bn)

Source: Industry Sources, D&B Research

Supportive Government policies like National Mission on Food

Processing (NMFP) and Vision Plan 2015 will help the growth in the

sector.

NMFP which is aimed at decentralizing policy decisions concerning

the sector will help in reducing the time taken to execute projects

conceived in the sector.

Vision Plan 2015 is expected to provide a conductive environment

required to set up food processing units.




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FINANCIAL RISK

Profitability

YearRaw

Materials%

Power& Fuel

%

Salaries& Wages

%

SGAExpenses

%

InterestExpense

%

PBDITMargin

%

NetMargin

%

FY 200856.2% 2.0% 3.2% 7.6% 1.1% 10.2% 5.1%

FY 200952.5% 2.0% 3.1% 7.5% 1.2% 10.3% 4.9%

FY 201048.4% 1.9% 3.2% 7.9% 1.1% 10.8% 5.6%

FY 201151.2% 1.9% 3.1% 7.7% 1.5% 9.2% 4.2%

FY 201248.7% 1.8% 2.8% 7.0% 1.4% 9.4% 3.6%

S ource: CMIE Prowess, Sample 18 Companies

Raw material expense declined during FY 2008-09 on account of the

decline in raw material expense of large companies in the sample

segment.

Raw material expense of Ruchi Soya, which accounts for ~48% of

total raw material expense in the sample declined by ~1.6% due to

the decline in consumption of oil seeds.

During FY 2009-10, there was a drop in raw material margin from

~52.5% to 48.4%. This drop was due to the reduced consumption of

soya flour and oil seeds by Ruchi Soya (which resulted in raw

material expense borne by the company decline by ~5.4%)

SGA Expenses which includes marketing and distribution expense is

the second largest operating expense in the segment. It accounted

for ~7% of total sales during FY 2012.

Profitability margins dropped considerably during FY 2011 and FY

2012 owing to the decline in profitability of Ruchi Soya and K.S Oils.




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Key Ratios

Number of companies (market leaders) considered in the

sample set = 18

The ratios are averaged over the FY 2010, 2011, and 2012.

Ratios Median Value

Gross Margin 45.8%

Net Margin 4.3%

Current Ratio 1.89

Quick Ratio 0.95

Account Receivables Days 28

Inventory Days 64

Account Payable Days 56

RONW 22.8%

ROA 15.9%

ROCE 27.2%

Long Debt-Equity 0.89

Networth to Total Liabilities 31.1%

Interest Coverage Ratio 7.19

Fixed Asset Turnover 6.82

Asset Turnover 1.64

WC turnover ratio 12.49

Inventory Turnover 6.33

Fixed Assets to Networth 0.78

Sales to Capital Employed 2.81

S ource: CMIE Prowess




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Registered Office ICC Chambers,Saki Vihar Road, Powai,Mumbai - 400 072Tel: +91-22 2857 4190/92/94, 6676 5555Fax: +91-22-2857 2060

Email: [email protected]: www.dnb.com

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Chennai2 D, 2nd Floor, Tass Mahal,No.10, Monitieth Road,Egmore,Chennai 600 008Tel: +91-44 2851 6648/79Fax: +91-44 2851 6698Email: [email protected]

Bangalore # 7/2 Gajanana Towers ,1st Floor , Annaswamy Mudaliar Street,Opposite Ulsoor Lake,Bangalore 560042Tel: 080-40731100

Fax: 080- 40731110Email: [email protected]

Kolkata166 B, S.P. Mukherjee Road,Merlin Links,Unit 3E, 3rd Floor,Kolkata 700 026Tel: +91-33-24650204Fax: +91-33-2465 0205Email: [email protected]

Hyderabad #103, Saeed Plaza,6 1 73, Above HDFC Bank,Lakdi-Ka-Pul,Hyderabad 500 004Tel: +91-40-6662 4102 / 6651 4102 / 6661 9357Fax: +91-40-6661 9358Email: [email protected]

Ahmedabad 001, Samruddhi, Opp.Old High Court,Income Tax, Ashram Road,

Ahmedabad 380 014Tel: +91-079-27540558 / 27540559Fax: +91-079-27540560

Email: [email protected]

india's food processing industry

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