discussion document focus sectors | italian companies in … · opportunity sectors ... large...

NEW YORK CHICAGO LONDON PARIS DUBAI MUMBAI SHANGHAI SEOUL TOKYO www.cedar-consulting.com

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Cedar Management Consulting Pvt, Ltd 201 Tower A, Peninsula Business Park, Senapati Bapat Marg, Lower Parel, Mumbai 400013 Tel +91 22 61719800, Fax +91 22 61719801 Confidential Document v4

Discussion Document Focus Sectors | Italian Companies in India

November, 2016


Contents

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Introduction to Cedar

CedarView I Opportunities in India

CedarView | Food Processing In India

CedarView | Wooden Furniture and Flooring

Entry Options


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Global Presence

Offices Chicago

New York London

Paris Brussels Munich

Dubai Mumbai

Delhi Bangalore

Seoul Tokyo

Shanghai

Since 1985, Cedar has been assisting clients in the area of strategy, process, strategic human capital, & technology

Its heritage includes being part of the $1 Bn former Renaissance Worldwide, whose leadership included the creators of Balanced Scorecard

Cedar is a global consulting, research & analytics firm with network offices in 16 countries, having assisted over 1000 clients for 25 years.


Consulting Offering

STRATEGY

Business Transformation & Mergers

Balanced Scorecard

Global Entry Strategy

Due Diligence

TECHNOLOGY

IT Transformation

Digital & Disruptive Tech

Vendor Management

Program Management

PROCESS

New Process Framework

Lean/Six Sigma Improvement

Cost Optimization

Customer Experience

PEOPLE

Organizational Transformation

Structure & Roles

Compensation

Performance Management

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Contents

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CedarView: Opportunities in India



Entry Options


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Opportunity Sectors | India

# Sector Value ($ Bn)

1 Services Sector 50.8

2 Construction Development 24.2

3 Computer S/W & H/W 21.1

4 Telecommunications 18.4

5 Automobile Industry 15.1

6 Drugs & Pharmaceuticals 13.8

7 Chemicals 11.9

8 Trading 11.8

9 Power 10.5

10 Hotel & Tourism 9.2

Note: Top 10 sectors based on Cumulative inflows from FY00-FY16

FDI – Cumulative FY00-16 – Top Sectors Top 5 FDI Sectors - Performance

Key Focus Sectors

# Sector Market

Size Growth

1 Food Processing $ 292 Bn 13%

2 Furniture $ 21 Bn 30%

3 Wood Panel $ 5 Bn 9%

Source: Based on Cedar Research

Identification of 3 key sectors based on:

Overall attractiveness to foreign companies

Make in India promoted sector

Italian companies presence / potential

Other Sectors

# Sector Value ($ Bn) Growth

1 Services Sector 6.9 65%

2 Construction Development

0.7 -84%

3 Computer S/W & H/W 5.9 63%

4 Telecommunications 1.3 -50%

5 Automobile Industry 2.5 -2%


Contents

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Entry Options


Food Processing | Value Chain in India

8

Inputs Production Procurement &

Storage Processing Retailing

Seeds, Fertilizers & Farm Equipment

Farmers, Co-operatives, Private

Companies

Warehouses, Cold Storage & Silos

Grading, Sorting, Milling & Packing

Retail Shops, Malls, Cash & Carry

National Seeds Corp, Cargill & Advanta

Farmers, Amul, ITC, Pepsi, Hindustan

Unilver

Food Corp of India, NCMSL, Arshiya

International

ITC, Cargill, Adani Enterprises, Olam

International

General Stores, Bharti-Walmart,

Future Retail, Aditya Birla Retail

Cat

ego

rie

s K

ey

Pla

yers

Source: IBEF, APEDA, Cedar Research, News Articles

Large international players present across the Food Processing Value Chain in India


Food Processing | Indian Market Overview

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30%

70%

Split of Market

Organized Sector Unorganized Sector

40%

20% 11%

5%

24%

Split of Market

Meat, Fish, Fruits, Veg & Oil Beverages

Grain Mill Products Dairy Products

Other Products

181,0 204,5

231,1 258,0

291,5

050

100150200250300350

FY12 FY13 FY14 FY15 FY16

$ B

n

Food Processing Market

170 402

3.982

515 513

0

1.000

2.000

3.000

4.000

5.000

FY12 FY13 FY14 FY15 FY16 (e)

$ M

n

Food Processing FDI

Food Processing Market in India ~$292 Bn; Majority Unorganized



Food Processing | Trade

10

28%

22% 14% 8% 3%

25%

Split of Market

Animal Products Basmati Rice Other RiceFruits & Veg Guargum Others

17,3

21,7 22,0 21,5

16,2

0

5

10

15

20

25


$ B

n

Food Processing | Exports

Total: $16 Bn

Exports ~$ 16 Bn; Key Categories Animal Products & Basmati Rice


Main exports for food products Middle East (KSA & UAE) and South East Asia (Vietnam, Malaysia); exports to developed countries increasing (USA)


Food Processing | Machinery

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2,1 2,2 2,3 2,4 2,5

0,0

0,5

1,0

1,5

2,0

2,5

3,0


$ B

n

Food Processing Machinery Market

65% 35%

Machinery Demand – Imports

Domestic Imports

206 239

276 320

371

0

100

200

300

400


$ M

n

Food Processing Machinery Exports

720 760 801 845 892

0

200

400

600

800

1.000


$ M

n

Food Processing Machinery Imports

Food Processing Machinery Market ~ $2.5 Bn; 35% met by imports



Food Processing | Govt Policy

12

Key drivers for food

processing in India

Equipment Import :

Imports of equipment at a uniform concessional customs duty (for select

projects*)

Mega Food Parks

Defined processing zones with

infrastructure support and supply chains

~ 42 Food Parks being setup

Foreign Investment :

100% foreign investment allowed under

automatic route

Repatriation of profits and capital allowed

Storage Facility Incentives

Investment linked tax incentive of 100% of

capex for setting up and running cold chain &

warehousing facilities**

Tax:

Import duty scrapped on capital goods and raw

materials of 100% export oriented units

Source: IBEF, APEDA, Cedar Research, News Articles Note: *mechanized food grain handling, cold storage, pallet racking systems **for select industries

Govt taking actions to increase foreign investment & involvement Comments

• Food Processing sector recognized as a priority sector under the new manufacturing policy of 2011

• Government setup a “food processing fund” of $300 Mn to extend credit to food parks


Italian Food Companies in India | Select

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Entered the country in 2008

Invested ~ $ 55 Mn in 2015 to expand operations

India operations 3rd largest by workforce for Ferrero

Products made here are exported to the Middle East, China and SE Asia

Entered in 1994 with 1 brand, Center Fresh

Currently has an estimated 25% market share in organized confectionery in India

Currently offers more than 15 brands in India, customized to Indian tastes and preferences

Entered in 2007, through an acquisition

Currently is a leading player in the retail branded coffee, café products and coffee machines segments in the country

Announced plans in 2016 to open its first Indian training center for Caterers, Bartenders & Baristas

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2

3

Strong presence of Italian food companies in the Indian market


Contents

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Entry Options


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Inputs

Procurement Designing Production Distribution

Raw Material Procurement

Designing furniture (home, office,

contract, others)

Processing, Assembling and

Finishing

Direct Sale, Wholesale, Retail

Cat

ego

rie

s

Furniture | Value Chain in India

Illustrative value chain for furniture in India


Furniture Market | India Overview

11 14

17 21

27

33

0

5

10

15

20

25

30

35

40

2013 2014 2015 2016 2017 2018

Furniture Market

US

D B

n

Furniture Market ~ $21 Bn in 2016; Growing at 30% CAGR

Source: IBEF, Cedar Research

65% 25%

10%

Split by Raw Material Usage

Wood Metal Plastic

65% 20%

15%

Split by Segment

Home Office Contract

7,1 8,9

11,1 13,9

17,3

21,7

0

5

10

15

20

25

2013 2014 2015 2016 2017 2018

Home Furniture Market

US

D B

n

2,2 2,7

3,4 4,3

5,3

6,7

0

1

2

3

4

5

6

7

2013 2014 2015 2016 2017 2018

Office Furniture Market

US

D B

n

16


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Furniture Market | India (2/2)

Organized sector only ~15% of market, Tier 1 & 2 cities ~33%

Source: Cedar Research

Contributes ~0.5% of India’s GDP

Dominated by unorganised sector; ~85% of market

Tier 1 & 2 cities account for ~ 33% of market

Furniture Market

Largest segment of furniture market ~65%

Home Furniture & Homeware retailers account ~ 5.2% of Specialist retail market

Key products: dining tables, chairs, sofas, beds, table units & wardrobes

Home Furniture

Key products : seating furniture, executive furniture, office desks, wall to-wall units, cabinets & office storage

Operative/Office desks account for ~40% of Office furniture market

Office Furniture


India Wood Panel Industry | Market

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Indian wood panel industry growing at ~9%; 65% Plywood

Source: Spark Capital, Cedar Research

4,5 4,9 5,3 5,8

6,3

01234567

2015 2016 2017 2018 2019

$ B

n

Indian Wood Panel Industry

65%

20%

15%

Split by Type

Plywood Surface Products Engineered Products

65%

35%

Split by Type

Organized Unorganized

2,9 3,1 3,2 3,4 3,6

0

1

2

3

4

2015 2016 2017 2018 2019

$ B

n

Plywood

0,7 0,8

0,9 1,1

1,2

0,0

0,5

1,0

1,5

2015 2016 2017 2018 2019

$ B

n

MDF & Particle Board

MDF is 100% organized

Note: Surface Products includes Laminates & Veneers; Engineered Products include MDF and Particle Boards


India Wood Panel Industry | Pricing

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Plain Rs 110/Sq Ft Rs 65/Sq Ft Rs 40/Sq Ft

Prelam (both sides) Rs 150/Sq Ft Rs 75/Sq Ft Rs 55/Sq Ft

Branded 1

Plywood MDF Segment Area Particle Board

Plain Rs 50/Sq Ft Rs 45/Sq Ft Rs 35/Sq Ft

Prelam (both sides) Rs 95/Sq Ft Rs 55/Sq Ft Rs 40/Sq Ft

Unbranded 2

Preference Preferred by Carpenters

Preferred by Furniture Manufacturers

Suitability All Furniture Applications

Wardrobe Doors, Cabinets etc

General ready made furniture

Features 3

Unbranded products significantly cheaper than branded varieties

Source: Spark Capital, Cedar Research


India Wood Panel Industry | Players

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CenturyPly and Greenply leading companies in the sector

# Category Century Ply Greenply Rushil Décor Uniply

1 Founded 1986 1990 1993 1996

2 HQ Kolkata Kolkata Ahmedabad Chennai

3 Distribution Network 18,000+ 10,000+ 2,000+ 500+

4 Products

• Plywood • Laminates • Veneers • Blockboards • Doors

• Plywood • MDF • Doors • Floors

• Laminates • MDF Boards

• Plywood • Veeneers • Doors • Boards

5 Revenue $235 Mn $232 Mn $40 Mn $16 Mn

6 EBITDA $38 Mn $31 Mn $4.2 Mn $1.7 Mn

7 Net Profit $22.1 Mn $18.4 Mn -$0.1 Mn $0.1 Mn

8 Net Profit Margin 9.4% 7.9% N/A 0.4%

9 Share Price $3 $3.7 $6.7 $2.6

10 Market Cap $682 Mn $442 Mn $96 Mn $51 Mn

Source: Company Websites, CapitalIQ, Cedar Research


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India Wood Panel Industry | Trends

Growth

Manufacturers looking to setup manufacturing units in the north and western regions, due to expected growth in demand

Slowdown in the Chinese plywood industry set to benefit local players

Organized Market

Shift from unorganized market to the organized market due to better product mix, design, lower prices

Introduction of GST expected to benefit the organized sector

MDF MDF forecasted to increase its share in the market over Plywood

Consumers shifting from low-quality plywood to MDF

Players Centuryply and Greenply account for ~50% of the Organized Plywood market

MDF dominated by Greenply, VIR Laminate, Action etc

Key trends in the Wood Panel Industry

Source: Company Websites, AMSEC, ICICI, edar Research


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Furniture & Panels Market | Trade

355 398

443 418 423

0

100

200

300

400

500

2011 2012 2013 2014 2015

$ M

n

Wooden Furniture Exports

44%

12% 9% 7% 5%

23%

Split by Destination

USA Germany United Kingdom

France Netherlands Others

38 35 45

62

49

010203040506070

2011 2012 2013 2014 2015

$ M

n

Plywood, Veneered Panels & Laminated Woods Exports

12%

8% 4%

3% 3%

70%

Split by Destination

Turkey United Arab Emirates

Saudi Arabia Netherlands

Thailand Others

Note

HS Codes considered

Wooden Furniture – 940330, 940340, 940350 & 940360

Plywood, Veneered Panels & Laminated Woods - 4412

Source: UN Comtrade Data

Wooden furniture exports ~ $423 Mn; Wooden Panels ~ $49 Mn


Furniture & Wood Panelling | Key Drivers

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Key drivers for Furniture & Paneling In

India

100% FDI

Government allowed 100% FDI into the retail

sector

Online Sales:

Increasing sales of furniture through online

portals with specific furniture websites

operating

Niche Segments

Growth in niche segments such as branded kids furniture driving the

market

Demographic factors:

Increasing per capita income and increasing

urbanization driving spending in the furniture

market

Source: IBEF, News Articles, Cedar Research

Increasing per capita income, new segments and FDI driving growth


Italian Furniture Companies in India | Select

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Entered in 2010

Focus on premium and luxury segment products in India

Offerings include Sofas, Chairs, Beds, Tables, Lamps etc

Currently has 8 stores across India

Poltrona Frau entered in 2007 via a JV with Tata Group

Offers three brands in India – Poltrona Frau, Cassina & Cappellini, operating in the high-end furniture sector

Also offers Turnkey solutions to clients

Entered in 2011, opening up its first store in India

Tied up with a local company, M Concepts to enter

Offers modular furniture and home accessories

1

2

3

Limited presence of Italian furniture brands in India

Source: IBEF, News Articles, Cedar Research


Contents

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Entry Options


Entry Options | Comparison

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Foreign Company Entry Options

Unincorporated Entities

Incorporated Entities

Liaison Office

Acts as representative of parent co.

Cannot undertake any commercial activities

Approval valid for 3 years

Used by cos. that want to explore opportunities

Branch Office

Can act as buying and selling agent of company

Cannot carry out retail, manufacturing or processing activities

Used by cos that want to undertake R&D

Project Office

Permitted to operate a bank account in India & remit surplus revenue to parent company

Project offices are preferred by companies engaged in one-time turnkey projects

Partnership

Partnership firms own assets and personally liable for business debts & taxes

Investment by foreign firms in partnerships allowed based on prior approval

Limited Liability

Partnership

Partnership where individual partners not responsible for partners liabilities

LLP is a body corporate, exists independent of its partners

LLP allowed in under the automatic route where 100% FDI is allowed

Private Limited

Company

Registered under the companies act

Minimum of 2 & max of 200 employees

More flexible than public companies & easier to register

Limited exit options

Cannot invite public to subscribe to its shares

Public Limited

Company

Public company has a minimum of 7 members and maximum can be more than 200 shareholders

May list shares on a stock exchange by way of an IPO

Minimum public shareholding of 25%

Source: Cedar Research Note: Unincorporated entities have one additional entry form – Trust

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