dee mandala infomemo

Strictly Private & Confidential

DEE Mandala Properties Pvt. Ltd. - Information Memorandum

June 2014

Motilal Oswal Investment Advisors Pvt. Ltd. (MOIAPL)

Exclusive Strategic & Financial Advisor

2 This Confidential Information Memorandum (the IM) has been prepared by Motilal Oswal Investment Advisors Private Limited (MOIAPL), basedon information provided by the management of DEE Mandala Properties Private Limited (hereinafter referred to as DMP or the Company) and otherinformation by sources identified herein solely for the purpose of allowing interested investors an opportunity to evaluate a transaction involving theCompany.

The information contained in this IM is selective and is subject to updates, expansion, revision and amendment. MOIAPL has not independentlyverified any of the information and data contained herein and neither the Company nor MOIAPL (nor any of their respective affiliates, subsidiaries,advisors and agents thereof), make any representations or warranties, express or implied, as to the accuracy, or completeness of such information anddata. The information and data contained in this IM is confidential and may not be divulged or disclosed or reproduced or disseminated, in whole orpart, to any person or entity except to your directors, officers, employees and professional advisors who need to know the information for the purpose ofevaluating the transaction involving the Company. The information contained in this IM has been prepared to assist the recipients in making their ownevaluation of the Company and does not purport to be all-inclusive or to contain all of the information that may be material to the recipients decision toenter into a transaction. Recipients should conduct and rely upon their own examination, investigation and analysis of the business and operations of

Disclaimer


enter into a transaction. Recipients should conduct and rely upon their own examination, investigation and analysis of the business and operations ofthe Company and are advised to seek their own professional advice on legal, financial and taxation issues. The information and data contained herein arenot substitutes for the recipient's independent evaluation and analysis. MOIAPL has no obligation to provide the recipient with access to any additionalinformation or to update this IM with additional information or correct any inaccuracies herein, which may become apparent.

By accepting this IM, each recipient agrees that neither the Company nor MOIAPL shall have any liability for any representations (express or implied)contained in, or for any omissions from this IM or any other written or oral communications transmitted to the recipient by or on behalf of the Companyor MOIAPL in the course of the recipient's evaluation of any transaction involving the Company. Furthermore, upon request, the recipient agrees toreturn promptly all material received from the Company or MOIAPL without retaining any copies thereof. The IM in which this notice is incorporateddoes not constitute or form any part of any offer or invitation to any section of the public to subscribe for, underwrite or purchase securities in or assetsor liabilities of the Company or Associate/Group/Affiliate Companies thereof. Recipients of this IM shall not be deemed to be clients of MOIAPL, whoshall accordingly not be responsible to such recipients for providing the protection, afforded to clients of MOIAPL or for providing advice in relation toany transaction or arrangement referred to herein.

In no circumstances must recipients or their officers, employees, agents and professional advisors make contact with the management, employees,customers, agents or suppliers of the Company and its affiliates until permission to do so is given in writing by MOIAPL or the senior management ofthe company. All communications, inquiries and requests for information should be directed to MOIAPL.

3Transaction Overview & Investment Highlights

Promoter Background & Current Business

Horticulture Agreement with Government of Karnataka

Contents


Project Plan & Details

Business Plan & Projection

Industry Overview & Outlook

Comparative Analysis of Types of farming

4 Unique opportunity to invest in core agriculture business in the state of Karnataka which offers highly conducive climatic conditions for agriculture

DEE Mandala Properties Private Limited (DMP) intends to do protected farming using hi-technology methods for high value products. The products which have year round stable consumption level and stable price level like English Cucumber, European Salad Tomatoes , Bell Pepper and Bottle Brinjal

Sponsor of DMP has been involved in hi-technology agriculture since last 7 years in the state of Karnataka. Already doing over 10 hectares of greenhouse farming and intends to extend it to additional 200 hectares

Corporate Farming is not permitted in India through automatic route. However, DMP is the only large scale player in India

Transaction Overview


Corporate Farming is not permitted in India through automatic route. However, DMP is the only large scale player in India to have achieved all the requisite approvals for bringing large land parcel (200 hectares including 20 hectares for processing facilities) under Corporate Farming for vegetables

Total outlay for developing 180 hectares of greenhouse cultivation is estimated a t around Rs 2600 mn, of which DMP intends to raise Rs 800 million through equity and balance as debt from banks on the back of equity investment. The capital to be invested in phases over next 15 months for following

o Developing land into table-top form, building at least 150 greenhouses, developing crop support systems, manufacturing media for soil-less farming, developing irrigation system, water harvesting, drip irrigation, store house and power backup

Land parcel is strategically located within one hour drive from Bangalore city (capital city of Karnataka) and on National highway 4 connecting Andhra Pradesh and Maharashtra. It is well connected by road to major metros and regional major cities. There is a large natural lake in close vicinity which ensures favorable water table and water supply round the year

5State of Karnataka offers very conducive climatic condition for hi-technology agriculture at low cost level

The current business (under the Sponsor and family name) is already the largest greenhouse hydroponics production setup in India with over 10 hectares of greenhouse already under cultivation producing high value products like European cucumber, European salad tomato, bell pepper, basil

Reported sales of Rs 140 million (US$ 2.5mn) during year ending March 31, 2014

Sponsor has made significant capital and R&D investments over last 7 years and has demonstrated successful implementation of hi-tech agriculture

Investment Highlights Business


Sells vegetables under own brand DEE Mandala to both organized retail as well as unorganized vendors

The Sponsor is a noted environmentalist honored by the President of India as well as on several occasions by the Government of Karnataka

Corporate Farming is not permitted in India through automatic route. However, DMP is the only player in India to have achieved such large scale cabinet approval to bring 200 hectares of land under hi-technology agriculture through Corporate Farming. Has potential to receive over Rs 500mn of capital subsidy

Entire land parcel is already in possession of the Sponsor

6Investment Highlights - Horticulture Sector

Capital subsidy from National Horticulture Board

o For production related component of horticulture project, a subsidy of 20% of the total project cost is applicable

o For primary processing related component, a subsidy of 40% of the total project cost is applicable subject to certain conditions & ceiling

Support from Central and State Government

o The Food Security objectives have led government to setup several agencies like National Horticultre Board, National Horticultre Mission, Rashtriya Krishi Vikas Yojna etc to support & promote horticulture. Protected farming specifically grew 93.2% between FY2007 & FY2012

100% income tax exemption under Section 2 (1A) of Income Tax Act


100% income tax exemption under Section 2 (1A) of Income Tax Act

FDI allowed upto 100% through Automatic Route as per clause 6.2.1 of Consolidated FDI Policy 2014

Easier access to bank loans with cheaper cost - the sector enjoys Priority Sector Lending category

Large consumption based demand supply gap in India, which is further widening

Huge export potential as India offers better quality at competitive price

7 Sponsor of Project Green has been involved in horticulture since 1991 and greenhouse agriculture since last 7 years

Sponsor has fine-tuned the greenhouse cultivation over last 7 years at his own cost

Key Achievements

Developed hydroponic techniquesHydroponic is a method of growing plants without soil, using mineral nutrients in an inertmedium like perlite, gravel, biochar, mineral wool, expanded clay pebbles or coconut husk. Mr.Gowda has developed unique hydroponic techniques which helped improve the yieldsignificantly while controlling the infection and other problems associated with soil. This furtherenhanced the yields of the high yield imported seeds, has been able to beat the maximum yield

Promoter Experience


enhanced the yields of the high yield imported seeds, has been able to beat the maximum yieldguidance of supplier

Developed unique rainwater harvesting systemsDeveloped a network of canals leading to several water bodies. This ensures large quantity ofwater availability throughout the year while continuously charging the water table. Greenhousesare designed to capture rainwater which is then collected in tanks

Developed efficient & economical processesHas been able to significantly reduce capital expenditure for greenhouse setup by training owngroup of contractors. In-house development and enhancement of drip-irrigation techniqueresulting in significant water saving. Has facilities for reuse of Hydroponic media aftersterilization and mineral treatment

Developed in-house brandUnder which he has been selling vegetables to organized retail as well as unorganized vendors

8Land LocationLocated within 1 hr drive from Bangalore city centerLocated in amidst vast land of approx 6,000 hectares. The neighborhood is home to vast variety of fauna & flora where a variety of eco-friendly agri projects are already executed

Area Cultivated Cultivated 10 hectares of land under greenhouse

Crops Cultivated European cucumber, cherry tomato, salad tomato, bell pepper, bottle brinjal, broccoli, sweet basil, rosemary etc

Historical Financials Generated Rs 140 million of sales during FY14

Current Employees / Employee Welfare

Employs post graduates and diploma holders from reputed agricultural universities advising on cropping, nutrition, pest control, production and yield improvement etc

One of the largest employer of women workers (over 300 women currently employed) in agriculture sector

Current Business Profile


Employee Welfare Plans

One of the largest employer of women workers (over 300 women currently employed) in agriculture sector with facilities of a) Whole day meal arrangement for workers and their childrenb) Primary education facility for their childrenc) Accommodation facility for several workers

9Snapshots of Existing Facilities & Resources


Cucumber plants in Greenhouse Greenhouse Cluster

Tomato plants in GreenhouseVast natural lake

Cucumber

10

DMP Committed to Large Horticulture Project with GoK Huge Future Business Potential


DMP entered into MoU with Government of Karnataka to setuphorticulture projects valuing over Rs 63 bn

Current approval of 200 hectares of hi-tech agri is a subset of thelarger project MoU

Offers unique project expansion potential for DMP with high levelof support and assistance from the state Government

11

Plans to expand the greenhouse cultivationto additional 180 hectares and 20 hectaresfor food processing facilities

o86 hectares would be brought underdirect ownership

oBalance 114 hectares would beincluded through long term leasecontract

Land already under possession

All necessary government approvals havebeen attained including State High Level

Phase I of Expansion Plan


been attained including State High LevelClearance Committee (SHLCC) approvalwhich allows the Company to consolidatethe land parcel under corporate entity, thusmaking Corporate Farming approvalavailable to the Company

Corporate Farming is not permitted byany state government in India

However, Karnataka state provides anexemption under its Land Reform Actas mentioned below

Application for the approval wasmoved in 2011

12

Project Plan

DMP intends to bring 200 hectares of land under Corporate Farming structure 86 hectares through purchase of land and 114hectares through 30 years long term lease

oEntire parcel of 200 hectares is under direct / indirect control of the sponsor

Poly Greenhouses will be built over 180 hectares while balance 20 hectares would be used for primary processing,warehousing, sorting / grading and packing purposes

oSHLCC has approved the same project plan

Project would be executed over 18-20 months under the direct supervision of the Company engaging 4-5 contractors

o Including leveling of land (table top land needed for greenhouse), erecting steel structures, polycarbonate plastic


o Including leveling of land (table top land needed for greenhouse), erecting steel structures, polycarbonate plasticcovering, ventilating, irrigation system, power system, worker quarters etc

Products would include European Cucumber, European Tomato, Bell Pepper and Bottle Brinjal

o All creeper plant which would grow vertically along the strong tied to the roof-top, thus very high yield per unit land

o Seed varieties available especially for Greenhouse which can generate yields in the range of 8-12x in comparison to theopen-field cultivation

o The varieties grown under Greenhouse are highly differentiated in look, feel, shelf-life and nutritional content

o These vegetables have quite have demand levels throughout the year in urban areas

Nearly 30% to be sold within Bangalore , balance across Rest of Karnataka, Hyderabad, Chennai, Mumbai, Pune, Delhi

13

Current business plan involves 200 hectares of land

The entire land parcel is located within one hour drive from Bangalore centre

o About 35 km from international airporto On NH 207 / NH 4 Express Wayo Well connected by road to major metros and

regional cities

Average annual rainfall of 859mm and ambient temperature of 26-32 degrees, suitable for agriculture

Project Location Sponsor has access to nearly 1,000 hectares of contigeous land


Large natural lake within the premises

14

Its the primary type of cucumber grown under greenhouse

Differentiating characteristics

o Seedless, Mild in flavor

o Thin edible skin that requires

no peeling

o Larger shelf life

It excels in flavor and crispiness

compared to other cucumber varieties

Products Targeted under the Project Creeper plants, highest yield per unit land

European Cucumber

Differentiating characteristics

o Thick wall

o Minimal seed

o Large in size

o 2-3 times longer shelf life

It excels in taste over other tomato

varieties

European Tomato


Year round consumption pattern

Much lesser seed content

Much better look & feel as compared to

normal brinjal

Larger shelf life

compared to other cucumber varieties

Has an impressive 96% water content

and the skin is high in Vitamin A

Cannot grow in open field

varieties

Yields under greenhouse is 12-15 times compared to traditional plants under open-field cultivation

High premium product with stable consumption level round the year

Demand has been growing with

changing lifestyle & food consumption

pattern

Bell PepperBottle Brinjal

15

Current & Targeted Yield

Open Field Yield DMPs Yield Guidance / Attestation of Greenhouse Yields

Vine-Ripened Tomato & Bottle Brinjal

100-120 ton / ha 600 ton / ha

Jain Irrigation

Greenhouse Vegetable Production Statistics - A review of Current Data on the International Production of Vegetables in Greenhouses, 2013 Edition, Gary W. Hickman


European Cucumber

Cannot be grown 150 ton / ha

Department of Horticulture, Government of Karnataka

Bell Pepper 20-40 ton / ha 150 ton / ha

Indian Council of Agricultural Research, Goa

16

Current Organized Retail Institutional Clients, Bangalore Potential Markets

Delhi

Pune

Potential Customers Organized retail, food businesses, unorganized retail


Bangalore city has atleast 10,000 unorganized vendors with large clientele base who can potentially buy over 20kg per day from DMP

Already supplying to over 700 unorganized retail vendors

Unorganized Retail Vendors, Bangalore

Mumbai

Chennai

Sample delivery started to Mumbai clients like Hypercity

Sample delivery started to Pune clients

Strategic tie-up done with logistic partner

Rest of Karnataka

Hyderabad

17

Business Plan Implementation over next 6 quarters

Total Area of 180 ha, effectively 80% utilized for Greenhouses

Planned product composition Product Yield / Ha

per cycle (tn)Cycles per yr Selling Price in yr0

European Cucumber

150 tn 3.0 cycles Rs 30 per kg

European Tomato

500 tn 1.0 cycle Rs 20 per kg

Bell Pepper 150 tn 1.0 cycle Rs 50 per kg

Bottle Brinjal 500 tn 1.0 cycle Rs 20 per kg

Product-wise Assumption


Bottle Brinjal 500 tn 1.0 cycle Rs 20 per kg

Q1 Q2 Q3 Q4 Q5 Q6 Q7

Effective Average Cultivated Area (Ha)

12.0 36.0 60.0 84.0 108.0 132.0 144.0

Produce(Tn)

1,350 4,050 6,750 9,450 12,150 14,850 16,200

Revenue (Rs Mn)

27 82 136 191 249 308 342

Project Buildup PlanCapex Breakup per Hectare (Rs Mn)

Crop Support System 0.7

Irrigation & Water harvesting 0.5

Micro Irrigation, Use of Plastic Mulching etc 3.5

Land Development 2.6

Greenhouse Structure 7.3

Hydroponic Soil-less Media 2.5

Other Infra 0.8

Total 17.8

18

Rs Million FY15 FY16 FY17 FY18 FY19 CAGR (%)

Effective Greenhouse Area (Ha) 48 132 144 144 144

Produce (Tonnes) 21,600 59,400 64,800 64,800 64,800

Total Revenue 390 1,115 1,289 1,368 1,452 39%

EBITDA 133 377 451 486 523 41%

EBITDA Margin (%) 34.2% 33.8% 35.0% 35.6% 36.0%

PAT 29 176 293 374 458 100%

Financial Projection of the Project


PAT 29 176 293 374 458 100%

PAT Margin (%) 7.4% 20.6% 25.8% 29.6% 33.0%

Networth 925 1,549 1,842 2,216 2,675

Total Debt 1,037 1,245 934 622 311

Note:

Income from agriculture is tax exempted as per Indian Income Tax Act

Capital subsidy to the tune of Rs 500 million from various schemes like from National Horticulture Board is not accounted in the projection

Projections include addition of 200 hectares of land for hi-technology agriculture to be added over 6 quarters starting April 2014 i.e. Q1 FY15

19

Organizational Structure Modular structure based on greenhouse units

1 Production Manager per 3AMs 6 PMs, MSc Agri

Chairman & CEO

Marketing Head

Post Harvest Department

Chief Technology Officer /

Production HeadHR Head

Finance Head

Project Head Legal Head

General Manager


15 workers per hectare




Supervisor Supervisor

Assistant Manager





Supervisor Supervisor

2,160 Workers

72 Supervisors, Dipl. Agri

18 AMs, Dipl. Agri

1 Production Manager per 3AMs 6 PMs, MSc Agri

Each greenhouse operates as a separate reporting segment and each supervisor is responsible for end-to-end operations, maintenance & yield

20

Mahadev Gowda

CMD & CEO

Aged 51 years, Mr. Gowda is a mechanical engineer by qualification

He is one of the pioneers in Bangalores organized real estate business and thus has great insights into the real estate dynamics and regulations

Noted environmentalist. Received National Award for Environment Preservation & Conservation from the President of India. Received several awards from Government of Karnataka

Heads all marketing & sales strategies and initiatives. Manages retail & institutional clients in Bangalore and setting up client base outside Bangalore

Shashikanth Goni M.Sc. (Agri) in Horticulture, specializes in Hydroponic technique

Management Team


Shashikanth Goni

Chief Technology Officer, Production Head

M.Sc. (Agri) in Horticulture, specializes in Hydroponic technique

Has around 10 years of horticulture experience in Greenhouse as well as Open Field

Oversees processes right from land development, media preparation, sowing to post harvest handling

Rajesh RK

Project Head

B. Sc. (Elec), PG (Systems)

Heads the entire Greenhouse project execution including land development, operations, co-ordination with contractors for erecting the structures, layout designing, electrical & power systems

Anitha Subbaiah

General Manager, HR Head

A Commerce Graduate with around 13 years of industry experience.

Handles overall co-ordination for the Chairman and also heads the Human Resource division

21

Major Greenhouse Production Areas in the World

37%

3

33

3

Country

% Arable Land

Under

Greenhouse As of

Israel 4.235% 2012

S Korea 3.866% 2010

China 1.963% 2010

Japan 1.134% 2010

Holland 0.987% 2007

Spain 0.411% 2007

Italy 0.370% 2007

Greece 0.183% 2007


North America Europe

Asia

Top 5 countries by area (ha)

Source: Worldstat, Eurostat, Yang, Lee, MAFF, Turkstat, SANGARPA, US censusIndia

IndiaIndia

India

1,098 ha

1,098 ha1,098 ha

1,098 ha

Greece 0.183% 2007

Turkey 0.153% 2007

Poland 0.060% 2007

France 0.052% 2007

Mexico 0.048% 2009

Canada 0.007% 2012

US 0.005% 2009

India 0.001% 2012

India ranks amongst lowest

Israel

IsraelIsrael

Israel

13,000 ha

13,000 ha13,000 ha

13,000 ha

22

Tremendous Growth in Vegetable Cultivation, Rising Per Capita Consumption

Development of improved vegetable varieties/hybrids/ technologies through systematic research

Vegetable Production Drivers:

Tremendous growth in area undervegetable cultivation andproductivity due to:


Source: Indian Institute of Vegetable Research.

Adoption of improved varieties by the farmers

Developmental policies and support of the government culminated in

(grams)

Vegetable Demand Drivers: Rising per capita income, urbanization, health consciousness,increasing working women, rising per capita income of farmers, favorable income elasticity ofdemand and annual growth rate for domestic demand for fruits & vegetables

23

Protected Farming is refers to farming done in a closed environment and includes greenhouse, shade nets, mulching, plastic tunnelsand anti-bird nets. This results in increased yield

The area under protected cultivation accounts for 0.23% of the total area under horticulture FY12

The Food Security objectives have led to National Horticultre Board (NHB), National Horticultre Mission, Rashtriya Krishi VikasYojna promoting increase in area. Giving a sharp rise of 93.2% CAGR protected farming growth between FY2007 & FY2012

The protected cultivation gained momentum after the 11th five year plan FY2007-12 where government agencies and initiativessupported the growth

Method Market size by value (Rs mn)

Market Share

Shade Nets 21,140 81%

Area Under Protected Farming

50,968Cumulative Area (Hectares)

Indian Protected Farming Trends


Shade Nets 21,140 81%

Mulching 4,010 15.4%

Plastic Tunnels 370 1.4%

Anti-bird Nets 340 1.3%

Greenhouse 230 0.9%

Total 26,090

Source: Indian Horticulture Board

Shade Nets & Mulching were most widely used methods because of lowcapital expenditure involved

Greenhouse being the most expensive accounts for smallest share

1,8926,689

13,778

20,412

27,598

50,968

FY2007 FY2008 FY2009 FY2010 FY2011 FY2012

24

1,098

Greenhouse technique is cultivation of crops under a closed environment where the components of the climate are controlled liketemperature, humidity, air flow and even the root media

Accordingly, the yields of crops under Greenhouse can be 10-12 times higher than the open field cultivation

There has been considerable growth in the Greenhouse installation due to growing popularity, established yield levels and supportsby government agencies

National Horticulture Board provides capital subsidy to the extent of 40% of capital invested per unit of project subject certain pre-conditions

Area Under Greenhouse Advantages of Greenhouse

Creates favorable micro-climatic conditions. The temperature and moisture isCumulative Area (Hectares)

Indian Greenhouse Market


149

337440

496

762

1,098

FY2007 FY2008 FY2009 FY2010 FY2011 FY2012

Source: National Horticulture Mission

Creates favorable micro-climatic conditions. The temperature and moisture iscontrolled through artificial ventilation. Root medium (replacement for soil) isdeveloped using non-soil materials and added with micro-nutrients mostsuitable for specific crop

Much higher yield per unit area compared to conventional farming 10-12x

Superior protection from pests, birds, soil infections, crop infections, weatherconditions

Very favorable for high value off-season crops

Propagation of planting crops is possible throughout the year

Requires significantly less water resources compared to conventional farming

Export quality yields can be produced from the greenhouses

25

Key Trends Driving Greenhouse Development

Forecasted Water Scarcity Population Density, 2100 CO2 Emission, Today

As per OECD, people living undersevere water stress is projected to

As per United Nations estimates, theworld population will reach 8bn by

Globally the CO2 emission has beenon high to meet energy requirements


severe water stress is projected todouble between 2000-2050, reaching3.9 bn people - India to be one of themost affected geographies

Greenhouse will emerge as the mosteffective technique for food securityin the backdrop of worsening waterscarcity

Irrigation is very precise andtechniques like hydroponics usesignificantly lower water than openfield

world population will reach 8bn by2025 and 9 bn by 2043 from currentlevel of 7bn - India will be home tothe largest population in the world,with one of the highest density

Greenhouse is most effective inmeeting food requirement for denselypopulated areas with lesseravailability of arable land

Greenhouses have significantly higheryield per unit of land

Yield visibility is very strong due tohighly controlled environment

on high to meet energy requirements& construction - India has been one ofthe highest CO2 emitting countries

Greenhouse contributes substantiallyin reducing Greenhouse gases

Combined heat and power systems ongreenhouses are over 40% moreefficient

47% reduction in CO2 convertingCO2 to Oxygen

26

Comparative Analysis of Types of Farming

Parameters Private Farming Co-operative Farming Contract Farming Corporate Farming

Ownership Individual farmer Group of farmers Individual farmer Company

Risk Sharing Entirely by the farmer Collectively by the group Mostly by farmers as most contracts are Company biased

Entirely by the Company

Capital Completely by the farmer Infused by the group Majority by the farmer Entirely by the Company

Farm-firm flow Many intermediaries Many intermediaries by better bargaining power

Very less / no middle men No intermediaries

Market Access Uncertain & difficult Better than private Reliable access assuming Fool proof access


Market Access Uncertain & difficult Better than private Reliable access assuming company doesnt default

Fool proof access

Technology Unsophisticated Slightly better than Private Farming

Certain sophistication as may be contributed by the Company

Latest technologies used

Sustainability Tough for farmer to remain profitable

Relatively better than Private Farming

Short term in nature Long term in nature

Social Impact Status quo of society Unity, self-sufficiency Often leads to arm twisting of small famersCorporate might end up dictating

High prosperity for farmers by selling land, earning rentals, guaranteed employment

Environmental Impact

Status quo Status quo Squeezing of resources due to myopic view of the contracting company

Strong positive impact due to long term view & commitment

THANK YOUTHANK YOU

For any further information please contact:

Ujjwal SinghPh: +91 22 3980 4347Mobile: +91 [email protected]

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