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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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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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