food survey of india

Fo

od

Edelweiss Securities LimitedAbneesh Roy+91 22 6620 [email protected]

Harsh Mehta+91 22 4063 [email protected]

1 Edelweiss Securities Limited

Food

Food for thought

Indians spend ~INR17tn per year on food

Current per capita food expenditure in India is 1/6th of China and 1/16th of US

Only 12% of food is processed, much lower than 40% in China and 80% in Malaysia

Spending on processed food likely to surge 4x by 2020 from current INR2tn

Salty snack category poised to double over next 3 years

Higher failure rate for new launches infood than non‐food

Healthy + snacks= recipe for failure

Most food companies trade at higher PE multiples compared to non‐food peers

Potatoes corner ~75% of existing storage capacity, with meager ~ 1% for other fruits and vegetables


Food

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Food

Food on fire “There is no love sincerer than the love of food” ‐ George Bernard Shaw The domestic Food and Beverages (F&B) market is a critical cog in the growth wheel of most consumer companies. Unlike apprehensions of market participants on sustainability of growth, our survey findings indicate that growth is not only here to stay, but will also move into the next orbit with the introduction of new products and categories. Higher growth will also improve overall profitability (as margins are relatively higher). Further, as is the norm, when all companies are in expansion mode, only a handful emerge potential winners. Hence, to understand these changing dynamics, we commissioned an extensive research across categories of F&B. Simultaneously, we dwelled on what we believe is the most important component for growth of F&B—development of a supply chain in India. We also delve deeper into the regulatory framework for this segment. With many food companies being privately held or regional, we tried to cover important unlisted players with a view to gauge the demand growth, competitive scenario and brand preference in the sector. We conducted a survey in urban markets (focused on earning population encompassing both genders). A field study of the same survey was also conducted that comprised face‐to‐face interviews of consumers at neighbourhood stores and hypermarkets. This was backed by secondary research primarily done to study changes in consumer habits and brand preference. Key questions addressed in the survey include:

• How has the consumer food habit and brand preference evolved over past 3‐5 years?

• What is the likely growth and key drivers?

• How sustainable is the current market growth across different food categories over next 3‐5 years?

Based on our survey findings, industry interactions, study of trends in China and analysis, we expect the growth trajectory to accelerate to 20% CAGR over the next five years (past five year CAGR of 18%). Our biggest bets are staples (current size ~INR3,325bn; packaged staples to grow at 18%), snacks (current size ~INR409bn; expected growth rate 20%), dairy (current size: ~INR3,500bn; expected growth rate 10%), beverages (current size ~INR193bn; expected growth rate 14%), and bottled water (current size ~INR30bn; expected growth rate 22%). Overall, branded players are expected to grow much faster (branded snacks growing at ~20% versus 7% for unorganized players) than the total market. We expect Nestle, ITC, GSK, Britannia, Marico, Agro Tech to be the biggest winners. We expect HUL, Dabur and Tata Global Beverages also to do well. There are big gaps in product portfolios of foreign parent companies and their Indian arms. We expect the latter to launch products from their parents’ stables; however, most products will need high localisation apart from India‐specific products.


Food

Contents

Executive summary .................................................................................................................... 6

At a glance ................................................................................................................................ 10

Why foods will outperform non‐food categories? ................................................................... 18

Two main macro drivers for packaged food ............................................................................ 22

Key trends witnessed in foods ................................................................................................. 40

Themes from Food survey and industry interactions ............................................................. 43

What happened in China? ........................................................................................................ 54

MNC companies to remain very aggressive ............................................................................. 57

We expect big opportunities in these food segments ............................................................ 61

Staples .............................................................................................................................. 62

Snacks ............................................................................................................................... 65

Milk and milk derivatives .................................................................................................. 76

Beverages ........................................................................................................................ 80

Bottled water .................................................................................................................... 87

Health Foods ..................................................................................................................... 89

Non‐vegetarian food ........................................................................................................ 96

Restaurant industry .......................................................................................................... 98

Investors have a huge appetite for Food companies ............................................................. 100

Supply chain and packaging‐ key for sustained growth ......................................................... 101 Case study

Nestle vs Britannia – All are not equal............................................................................ 109

Health and Wellness category ‐ No Compromise on taste ............................................. 111

Key risks ................................................................................................................................. 113 Rated companies

Dabur .............................................................................................................................. 115

GSK Consumer ................................................................................................................ 119

Hindustan Unilever ......................................................................................................... 123

ITC ................................................................................................................................... 127

Jubilant Foodworks ......................................................................................................... 131

Marico Industries ............................................................................................................ 135

Nestle ............................................................................................................................. 139

Pantaloon Retail ............................................................................................................. 143 Not rated companies

Agro Tech Foods ............................................................................................................. 147

Britannia Industries ........................................................................................................ 151

Tata Chemicals ................................................................................................................ 155


Food

Unlisted companies

Amul ............................................................................................................................... 161

Bagrry’s India .................................................................................................................. 163

Bisleri .............................................................................................................................. 165

Blue Foods ...................................................................................................................... 167

Cadbury/Kraft ................................................................................................................. 169

Calorie Care .................................................................................................................... 171

Capital Foods .................................................................................................................. 173

Coca‐cola india ............................................................................................................... 175

Cremica ........................................................................................................................... 177

Danone ........................................................................................................................... 179

Dr. Oetker ....................................................................................................................... 181

DS Group (Catch Masala) ................................................................................................ 183

Everest Spices ................................................................................................................. 185

Haldiram’s ....................................................................................................................... 187

JSM Corporation ............................................................................................................. 189

Jumbo King ..................................................................................................................... 191

KFC India ......................................................................................................................... 193

Little Italy ........................................................................................................................ 195

McDonald’s ..................................................................................................................... 197

Mirah Group ................................................................................................................... 199

Mother Dairy .................................................................................................................. 201

MTR Foods ...................................................................................................................... 203

Parag Milk Food .............................................................................................................. 205

Parle Agro ....................................................................................................................... 207

Parle Products ................................................................................................................ 209

Pepsico ........................................................................................................................... 211

Perfetti Van Melle .......................................................................................................... 213

Pizza Hut ......................................................................................................................... 215

Rasna .............................................................................................................................. 217

Subway ........................................................................................................................... 219

Tunip Agro ...................................................................................................................... 221

Unibic .............................................................................................................................. 223

Venky’s India .................................................................................................................. 225

Appendix I ‐ Evolution of food ............................................................................................... 227

Appendix II ‐ Food and food processing ................................................................................. 230

Appendix III‐ Trend of ad spends ........................................................................................... 233

Appendix IV‐ Consumer Survey .............................................................................................. 241


Food

Executive Summary

Food to outperform non‐food segments Food and Beverages (F&B), the largest category in Indian consumer spending, is expected to maintain its dominance. Food and food products constitute ~ 40% of urban household spending and 36% of the blended (urban + rural) wallet spent. The packaged F&B segment zoomed in past five years growing at a CAGR of ~18% and we expect growth trajectory to accelerate to 20% CAGR for the next five years. Overall, branded products are expected to grow much faster (branded snacks growing at ~20% vs 7% for unorganized players) than the total F&B market growth. For listed players revenues from Food segment (3‐year CAGR of ~19%) outpaced non‐food (3‐year CAGR at ~17%). Also, the profitability profile of food segment has turned superior to non‐food as the competitive intensity is lesser in food as the penetration level and per capita consumption are extremely low. The evolution and inflection of Indian packaged F&B market will be driven by several growth drivers such as urbanisation, demographics, female working population, low penetration, increasing media consumption aiding brand consumption et al.

New players to expand market, ready‐to‐eat may remain small Right strategy in packaged food is more about baking a new cake, rather than launching me‐too products to get a small market share. However entry of several new players in packaged foods will expand the market size, we believe, instead of cannibalising existing consumers. We have seen an example of this for Nestlé’s Maggi where the entry of HUL, ITC and GSK Consumer just helped the noodles market to expand. This is evident from Britannia entering upma and poha, Marico chipping into oats and rice (targeting 25% from Foods in Saffola from current 5%), ITC, GSK & HUL tapping multiple segments, Dabur tapping fizzy drinks, Agro Tech in convenience meals and peanut butter and Danone in dairy. Also Britannia is experimenting with fusion of products ‘biscuits mein chocolate’. As per ITC Chairman Y C Deveshwar, ITC will eventually enter dairy, tea, coffee and aerated drinks. Indian women want to retain control over the kitchen and taste. So while she will use cooking aids, masalas, she is less likely to buy Ready to eat “Meals”.

Expansion by MNCs turns heat on Indian counterparts Multinational F&B companies were always fascinated by the Indian growth story, primarily led by the favourable demographic profile as seen by the early entry of PepsiCo, Coke, Nestle and Cadbury. However, progressively more companies have become aggressive, initiating meaningful investments in the domestic market (Conagra via Agro Tech, Kraft tasting good success post Oreo’s entry via Cadbury, Nestle investing in capacity addition and HUL savouring its focus on foods segment). These investments though at nascent stage will eventually set the base for the next leg of growth. Most leading players are adopting a more localised business model, including India specific products (KFC selling vegetarian products, pizzas selling tandoori variants etc) and a well‐spread out distribution network.

Health, wellness key differentiators, but taste rules supreme India faces contrasting problems of facing one of the highest malnutrition cases and also being the diabetes capital of the World. In our view, both of these are an opportunity for Food companies. Intense focus on health and wellness plank is extremely important for Consumer players due to an alarming rise in obesity and diabetes (India is home to the largest diabetic population globally ), forcing companies to put nutritional information on


Food

food packs, stop promoting unhealthy food and introduce healthier items. Organized players are better placed in this segment. With the increase in disposable income of consumers, there is a marked inclination towards health foods. We believe that with an increasing set of serious health conscious consumers in the country, the big challenge is maintaining taste, where consumers clearly do not want to compromise. Taste remains of paramount importance to Indian consumers who would cut down on the frequency of consumption but without giving up on taste.

What happened in China? China with demographics, urban‐rural divide similar to that of India will provide good insight into evolution of food industry in India. Chinese over the time have moved from accepting basic features to demanding value added customized products, even if it comes at a cost. Chinese are brand conscious but not brand loyal. While quality remains a critical consideration, value is the most important one. Consumers do not approve of outstretching their budget; when they up trade in a particular category they down trade in less compelling categories. In 2011, domestic companies continued to lead China’s packaged food sales, with Mengniu and Yili ranked first and second respectively. Multinationals were in a weaker place in packaged food sales with Nestlé and Mars at the 9th and 10th positions. In China, where diabetes, cancer and other chronic illnesses are on the rise, people are growing more health conscious creating a fast‐growing market for companies selling health foods. The extent of food processed is significantly lower in India than most emerging and developing economies (12% in India vs. 40% in China and 80% in Malaysia).

Need supply chain efficiencies to help deliver value proposition The agri‐supply chain in India faces several constrains. It involves multiple players such as farmer, aggregator, commission agent, wholesaler and retailer, which results in price rise. Inadequate storage facilities lead to significant wastages (wastage is ~35% for tomatoes, ~30% for mangoes and ~25% for potatoes). High capex requirement for setting up cold storages and shortage of power are major hindrances to a ramp up in supply chains. Therefore, the FDI in modern retail will be the most important element, feeding investments in back‐end operations. Supply chain efficiencies will help offset rest of the inflation and deliver packaged foods as a value proposition to consumers. Through mega food parks, the government is creating necessary infrastructure and a viable ecosystem to enable cost efficient manufacturing of Consumer products. The government has already chosen public‐private participation (PPP) mode for this scheme and has kept its stake to less than 26%.

Biggest winners: Nestle, ITC, GSK, Britannia, Marico and Agro Tech. We also like: HUL, Dabur and Tata Global Beverages.


Food

Two‐three years view

We believe that within food, there are certain categories which will outperform the rest. Changing consumer habits, low penetration level, increasing health consciousness among consumers and changing demographics make these categories the best play within food. We expect, salty snacks to be INR299bn (from current INR120bn) category over next five years growing at a CAGR of ~20% thereby benefitting ITC, Haldiram, PepsiCo and Parle. Due to increased health awareness among consumers, we expect health and wellness segment to benefit the most. Such a change would benefit GSK Consumer (malted foods likely to grow at ~15% CAGR), Dabur (Juices to grow at 22% CAGR and chyawanprash to grow at 12% CAGR), Zydus Wellness (sugar free, adult nutrition and butter alternative), Marico (Saffola oil to grow at 20% CAGR value‐wise and foods to become 25% of Saffola portfolio from the current 5% in next 3 years) and Britannia extended its health biscuit brand, NutriChoice, to the Diabetic Friendly Essentials range after establishing it with the Hi Fibre and Multi Grain ranges. In the last three years, health and wellness (H&W) has become a key driver for Britannia and accounts for ~55% of sales. Due to the increased urbanisation and reduced time to prepare food, convenience food is going to be the other major category in the next five years. We anticipate Nestle (Noodles to grow at 20% CAGR and Pasta to display a CAGR of 25%), Agro Tech (entered Ready‐to‐cook (RTC) segment which we expect to grow at CAGR 25%), HUL (expanding in RTC), ITC (noodles and RTC) and MTR (present in RTC/RTE category) to benefit the most.

Three‐five years view In longer run there would be considerable shift in consumer habit and preference with Indian consumer moving more towards convenience and health related products. We expect surge in consumption of cooking aids, ready to cook which help the consumer reduce cooking time. Also, we are extremely positive on the companies playing health plank as we believe there is increasing drift towards health consciousness with lifestyle getting more and more stressed.

We expect big opportunities in the following eight food segments Staples: The ~INR3325bn category is one of the largest categories. Packaged part of this is expected to grow at a healthy rate of ~18%. It can be further classified into packaged salt, packaged wheat, packaged rice, packaged spices and edible oil. Snacks: This includes biscuits, namkeen, noodles, pasta, chocolates, confectionaries, Ready to eat (RTE), upma, poha etc. The snack food market in India is estimated to be worth INR409bn and growing at 15‐20% yearly. Munching between meals is common in the country with a variety of snacks ‐ offered in mind‐boggling regional specialties – gaining national acceptance. Salty snacks are rapidly replacing home‐made savouries in both big and small cities. INR70bn unorganised sector is growing at 7‐8%. We expect ITC, Haldirams, PepsiCo, Parle, Balaji Namkeen and Prakash snacks to benefit from this phenomenon. The Ready‐to‐Cook market is estimated at around INR15bn. With the changing socio‐economic pattern and increasing number of working couples, the concept of convenience food is fast becoming popular in India for saving time and effort. As this segment extends shelf‐life, making products available off the market shelves, demand has been rising at a good pace. We expect this to benefit ITC, Agro Tech, Britannia, MTR, McCain, Atkins.


Food

Milk and milk derivatives: Indian dairy industry stands at around INR3500bn with the unorganized segment dominating 80% of it. Indian dairy industry is still in its infancy and we expect it to be the biggest packaged food category in next 10 years (size of ~7042 bn) thereby benefitting Nestle, Britannia, Amul, Motherdairy and Danone. With Amul and Motherdairy also entering frozen foods which again is at a nascent stage makes us enthused about the companies. As per ITC Chairman Y C Deveshwar, ITC is experimenting with a programme in Munger in Bihar in dairy segment. Beverages: Total size is ~INR260bn. India accounts for approximately 10% of the global beverage consumption, being the third largest market in the world after United States and China. Main reasons for growth are: increasing population and disposable incomes. Around 120bn litres of beverages are consumed by Indians every year, of which only 5% comes from the packaged segment. Thus there lies an immense growth opportunity. Bottled water: The bottled water segment is estimated to be worth INR30bn. There are about 200 bottled mineral water brands in India and nearly 80% of them are local. Three key players who dominate the Indian bottled water market are Parle with Bisleri, Coca‐Cola India with Kinley and PepsiCo India Holdings with Aquafina. Health foods: This segment is likely to see one of the highest growth levels in the entire Food segment. It has many sub‐segments like Chyawanprash, Butter alternatives, healthy cooking oils, sugar substitutes, energy drinks, Health drinks, Healthy snacks and High fiber beverages. Non‐vegetarian food: The poultry market in India comprises of three main categories: meat, eggs and processed value added products. Organised sector dominates the poultry market (meat and egg comprise 95% of this segment) with a share of 70%. With INR300bn, meat segment dominates the market while eggs market stands at INR150bn in size. Restaurants: The total restaurant industry in India is ~INR430bn, comprising two distinct segments: the organized and the unorganized. The industry has shown a growth rate of 5‐6% per annum with the organized sector estimated at INR85bn and growing at an annual rate of 20‐25%. The changing perceptions of the rich and the upper middle class with a rise in their disposable income have always driven the market. We expect Jubilant, McDonalds, KFC, Blue Foods to do well.

Various unlisted multi‐national and local companies are betting big on Indian packaged food market. We see immense potential in these unlisted players who have either just entered Indian markets (Danone, McCain, Atkins, etc) or ones who exist in India (Amul, Mother Dairy, Parle, Rasna, MTR, Haldiram, etc).


Food

AT A GLA

NCE

Company

Price

(INR)

Shares

O/S (m

n no

s)

Mkt cap

(IN

R mn)

Reco

Revenu

eEBITDA

Net profit

EPS

(IN

R)Re

venu

eEBITDA

Net

profit

EPS

EV / EBITD

A

(x)

P/E (x)P/B (x)

ROCE

(%)

EBITDA

margins (%

)

Dab

ur98

1,75

0

171,46

7BU

YFY10

34,143

6,47

0

5,03

2

2.9

20.9

33.5

28.6

16.9

25.8

34.0

18.2

75

.6

19.0

FY11

41,045

7,62

5

5,68

6

3.3

20.2

17.9

13.0

12.7

22.8

30.1

12.3

48

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18.6

FY12

E51

,414

8,72

9

6,24

4

3.6

25.3

14.5

9.8

9.8

19.5

27.4

9.7

35.9

17.0

FY13

E59

,961

10,449

7,59

4

4.3

16.6

19.7

21.6

21.6

15.9

22.6

7.7

37.2

17.4

FY14

E70

,060

12,576

9,38

7

5.4

16.8

20.4

23.6

23.6

12.9

18.3

6.2

38.5

18.0

GSK

Con

sumer

2,66

4

42

112,03

6BU

YCY09

19,772

3,62

3

2,32

8

55.4

24.8

32.1

23.6

23.6

28.7

48.1

12.4

38

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18.3

CY10

23,685

4,36

5

2,99

9

71.3

19.8

20.5

28.8

28.8

23.4

37.4

11.7

42

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18.4

CY11

E27

,707

5,10

1

3,55

2

84.5

17.0

16.9

18.5

18.5

19.8

31.5

9.8

44.0

18.4

CY12

E32

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6,05

0

4,24

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100.8

18

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18.6

19.4

19.4

16.3

26.4

8.2

43.8

18.5

CY13

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7,11

3

5,01

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119.2

17

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17.6

18.2

18.2

13.5

22.4

6.8

43.3

18.4

Hindu

stan

Unilever

393

2,16

1

849,27

3BU

YFY10

177,64

3

25,759

21,566

9.7

(13.3)

(3.9)

(13.9)

6.3

32.0

40.7

32.0

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6.9

14

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196,91

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23,771

22,961

10.5

10.8

(7.7)

6.5

8.7

34.8

37.4

31.5

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3.0

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FY12

E22

6,24

6

30,142

26,864

12.4

14.9

26.8

17.0

18.1

26.9

31.7

24.3

14

4.6

13

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FY13

E25

8,26

4

35,004

30,252

14.0

14.2

16.1

12.6

12.9

22.9

28.1

19.5

11

8.4

13

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FY14

E29

2,29

3

41,142

35,458

16.4

13.2

17.5

17.2

17.2

19.2

24.0

15.8

10

4.2

14

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ITC

204

7,73

8

1,57

8,55

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YFY10

276,24

763

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41,684

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11.4

11.0

5.6

5.1

23.4

37.1

10.7

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22.9

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50,179

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16.4

17.1

20.4

20.4

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16.2

19.9

18.5

17.5

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58.6

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398

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69,303

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14.5

15.0

15.0

15.2

22.6

7.9

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23.4

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2,93

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66,820

REDUCE

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4,23

966

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05.3

51.0

97.3

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98.1

195.5

55.6

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4,82

4

3,19

1

5.2

29.0

17.7

11.4

11.6

21.1

31.2

8.4

24.5

12.0

FY13

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5,88

7

3,97

2

6.5

14.0

22.1

24.5

24.5

16.8

25.1

6.6

26.6

12.8

FY14

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7,05

0

4,82

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7.8

18.8

19.7

21.4

21.4

13.6

20.6

5.2

27.8

12.9

Nestle

4,27

0

96

409,92

0HOLD

CY09

51,294

10,345

7,19

6

74.6

18.6

19.8

27.5

27.5

39.5

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70.8

20

6.0

20

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62,547

12,497

8,55

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20.8

18.9

18.9

32.6

48.1

48.1

19

5.5

20

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CY11

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15,528

9,61

6

99.7

19.8

24.3

12.4

12.4

26.4

42.8

36.0

14

8.9

20

.7

CY12

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19,247

11,772

122.1

21

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24.0

22.4

22.4

21.4

35.0

27.5

12

9.5

21

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E11

0,41

423

,537

14,228

147.6

21

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22.3

20.9

20.9

17.5

28.9

21.4

11

8.1

21

.3

Pantaloo

ns Retail

190

217

41,249

HOLD

FY09

63,417

6,68

4

1,40

5

7.4

25.6

45.1

11.5

(6.6)

10.9

25.7

1.4

10.0

10.5

FY10

89,261

8,19

1

2,30

2

11.8

40.8

22.6

73.0

59.7

9.7

16.1

1.4

9.6

9.2

FY11

110,12

39,60

0

1,89

7

8.7

23.4

17.2

(22.0)

(25.9)

11.9

21.7

1.3

8.2

8.7

FY12

E12

3,04

510

,779

1,22

2

5.6

11.7

12.3

(35.6)

(35.6)

11.3

33.8

1.3

7.0

8.8

FY13

E14

3,98

812

,829

1,52

6

7.0

17.0

19.0

24.9

24.9

10.1

27.0

1.2

7.7

8.9

Financials (INR mn)

Growth (%

)Valuation

s


FoodAT A GLA

NCE

‐ (con

td.)

Company

Price

(INR)

Shares

O/S (m

n no

s)

Mkt cap

(IN

R mn)

Reco

Revenu

eEBITDA

Net profit

EPS

(IN

R)Re

venu

eEBITDA

Net

profit

EPS

EV / EBITD

A

(x)

P/E (x)P/B (x)

ROCE

(%)

EBITDA

margins (%

)

Agro Tech Food

s*42

9

24

10,296

Not rated

FY10

6,49

622

5

245

10.0

(16.0)

45.4

49.4

17.8

42.5

42.6

6.9

13.9

3.5

FY11

7,18

727

5

318

13.0

10.6

22.1

(42.8)

29.6

34.8

32.8

5.9

13.9

3.8

FY12

EN.A.

N.A.

N.A.

N.A.

N.A.

N.A.

N.A.

N.A.

N.A.

N.A.

N.A.

N.A.

N.A.

FY13

EN.A.

N.A.

N.A.

N.A.

N.A.

N.A.

N.A.

N.A.

N.A.

N.A.

N.A.

N.A.

N.A.

FY14

EN.A.

N.A.

N.A.

N.A.

N.A.

N.A.

N.A.

N.A.

N.A.

N.A.

N.A.

N.A.

N.A.

Britan

nia Indu

stries*

486

120

58,320

Not rated

FY10

37,729

1,62

9

1,03

2

9.0

10.3

(31.6)

(31.9)

(31.9)

37.2

56.2

20.5

17

.5

4.3

FY11

46,052

2,34

9

1,34

3

11.0

22.1

44.2

30.2

30.2

25.4

43.2

17.8

19

.2

5.1

FY12

E53

,643

3,10

2

1,85

1

15.5

16.5

32.0

37.8

40.5

22.2

34.3

12.3

18

.0

5.8

FY13

E63

,503

3,89

7

2,36

9

19.8

18.4

25.7

28.0

28.3

17.7

26.8

9.7

22.6

6.1

FY14

E74

,164

4,65

9

3,02

7

25.3

16.8

19.5

27.8

27.7

14.8

20.9

7.6

N.A.

6.3

Tata Chemicals*

352

255

89,760

Not rated

FY10

95,438

18,374

8,69

3

30.8

(22.1)

(1.4)

(10.4)

(15.4)

6.4

11.4

1.8

14.0

19.3

FY11

110,60

218

,368

8,56

2

26.0

15.9

(0.0)

(1.5)

(15.7)

7.0

13.5

1.6

13.4

16.6

FY12

E12

7,26

022

,419

8,82

4

35.0

15.1

22.1

3.1

34.5

6.6

10.7

1.5

7.6

17.6

FY13

E13

4,97

823

,846

9,65

3

38.6

6.1

6.4

9.4

10.3

6.2

9.7

1.3

7.6

17.7

FY14

E13

2,86

623

,802

10,128

40.2

(1.6)

(0.2)

4.9

4.2

6.2

9.3

1.2

8.3

17.9

* Bloom

berg estim

ates

Price as on 09

th Feb

201

2Source: Edelweiss research

Financials (INR mn)

Growth (%

)Valuation

s


Food

Fig. 1: Competitive analysis of listed players in F&B category Company Brand salience Intensity of competition Product mix Distribution Appetite for Innovation Past Food as %

ad spend success of sales

ITC

HUL

Dabur

PRIL

Nestle

Marico

GSK Consumer

Britannia

Jubiliant Foodworks

Agro Tech Foods Ltd

Tata Chemicals

Source: Edelweiss research

Best Worst


Food

Table 1: Major food companies in India (as per FY11) Player Key brands Segment Category Revenue INR bn (food)Dabur Dabur Chyawanprash, Hajmola, Real, Active,

Burrst, Glucose D, Hommade, Lemoneez, Capsico, Honey

health, beverages, cooking aids

chyawanprash, digestives, fruit juice, energy drinks, tomato puree, coconut milk, lemonade, cooking paste‐garlic tomato puree, honey, mustard oil, rose syrup

6.8

HUL Red Label, Bru, Brooke Bond, Taj Mahal, 3 Roses, Kissan, Knorr, Kwality Wall's, Lipton, Modern

beverages, staples, dairy, bakery, ready to cook

tea, coffee, health drinks, salt, flour, ice cream, cream alternatives, bread, ketchup, jam, soup, noodles, pasta, ready to cook‐Indian cuisine‐ paneer, chicken, channa; Chinese cuisine‐ manchurian, schezuan

34.7

ITC Kitchens of India, Aashirvaad Atta, Aashirvaad Salt, Sunfeast Dark Fantasy, Sunfeast Glucose, Sunfeast Pasta, Sunfeast Yippee!, Mint‐o, Candyman, Bingo Mad Angles

ready to cook, ready to eat, frozen food, staples, bakery, confectionery, snacks

ready to cook‐ paneer, dal, mirch, chicken, biryani, curries, masala mixes, desserts; pasta, noodles, cooking sauces, frozen food, flour, salt, spices, ready to eat‐ idli, dosa, desserts, biscuits, health biscuits, premium biscuits, mint, toffees, chips, salty snacks

28.9

Marico Saffola Gold, Arise, Oats, Salt Plus Staples, breakfast cereals Edible oils, rice, oats, flour, salt 5.0Nestle Nescafe, Maggi, Kit Kat, Munch, Milkybar, Polo,

Everyday, Milkmaid, Neslac, Actiplus, Bhuna Jeera, Nestle Milk, Noodletz

dairy, beverages, ready to cook, ready to eat, chocolates, confectionery

coffee, tea, chocolates, confectionery, milk, milk whiteners, malted foods, ghee, dahi, condensed milk, baby food, noodles, pasta, ketchup, spices, ready to cook‐soup

62.6

PepsiCo Pepsi, 7UP, Gatorade, Nimbooz, Slice, Tropicana, Aquafina, Lays, Kurkure, Laher Namkeen, Quaker Oats, Aliva, Uncle Chips

beverages, chips, salty snacks carbonated drinks, fruit juice, lemonade, health drinks, bottled water, tea, oats, snacks, chips, healthy snack foods

N.A.

Kraft Dairy Milk, Perk, 5 Star, Bournville, Eclairs, Gems, Bourn Vita, Tang, Oreo, Halls, Bubbaloo

chocolate, beverages, biscuits, confectionery

chocolate, malted food drinks, powdered drinks, biscuits, candy, gum 25.0

Britannia Tiger, Good Day, Bourbon, 50‐50, Pure Magic, Treat, Nutri Choice, Time Pass, Crunch Cake, Daily Fresh, Healthy Start, Milk Man

bakery, chips, breakfast cereal, ready to eat, dairy

biscuits, cookies, digestive biscuits, oats, cakes, milk, flavoured milk, dahi, dairy whiteners, ghee, cheese, butter, bread; ready to eat‐upma, poha

42.1

Parle Products Parle G, Monaco, Hide & Seek, KrackJack, 20‐20, Digestive Marie, Melody, Mango Bite, Poppins, Monaco Smart Chips, Fulltoss

bakery, chips, salty snacks, confectionery

Biscuits, digestive biscuits, cookies, confectionery, snacks, chips 59.8

Parle Agro Frooti, LMN, Appy, Saint, Grappo, Bailley, Hippo, Buttercup

beverages, snacks, confectionery

lemonade, fruit juice, chips, snacks, bottled water, confectionery sweets N.A.

Amul Amul Milk, Amul Cheese, Amul Ghee, Amul Kool, Amul Mast Dahi, Sagar, Amul Ghee, Amulya, Nutramul, Amul Shrikhand, Mithai Mate, Fundoo

dairy products, chocolates, desserts

milk, flavoured milk, milk powders, ghee, butter, butter alternatives, cheese, cold coffee, ice cream, dahi, paneer, malted food drinks, condensed milk, desserts, chocolates, cream

97.7

GSK consumer Horlicks, Boost, Maltova, Viva, Foodles, Lucozade, Gopika Ghee

beverages, noodles, bakery, dairy products

malted food drinks, health drinks, instant noodles, biscuits, ghee 23.1

Agro Tech Foods Sundrop, Act II, Healthy World, Crystal, 10 min Yummeals

Staples, ready to cook Edible oil, Popcorn, healthy cooking oil, chocolate pudding, butter alternatives, peanut butter, frozen food; ready to cook‐green peas

7.2

Coca Cola Coca Cola, Thums Up, Sprite, Maaza, Minuit Maid Pulpy Orange, Minuit Maid Nimbu Fresh, Minuit Maid Juice, Nestea, Kinley, Burn, Georgia Gold

beverages Carbonated drinks, bottled water, lemonade, fruit juices, powdered drinks, health drinks, tea, coffee, energy drinks

N.A.

Zydus Wellness Sugar Free, Nutralite sugar substitutes, butter alternatives

sugar substitutes, butter alternatives 2.9

Unibic Anzac Cookies, Jamz, Oatmeal Digestive, Kiss bakery biscuits, digestive biscuits, cookies 0.6

Heinz Heinz Tomato Ketchup, Complan, Glucon D, Sampriti

beverages, dairy products, bakery

ketchup, ghee, powdered drinks, malted food drinks, health drinks, biscuits, baby food

N.A.

Hershey's Maha Lacto, Jumpin, Godrej Cooklite Oil confectionery, beverages, staples

confectionery, fruit drink, edible oil 3.6



Food

Table 2: Food segments – Key data points

Current size (INR bn)

5 year CAGR (%)

Proj. 5 year value

(INR bn) 10 year

CAGR (%)

Proj. 10 year value (INR bn) Companies Brands

Packaged Salt 25 12.0 44 10.0 65 Tata Chemicals Tata SaltITC Aashirvaad SaltMarico Saffola Salt

Wheat Flour 1,000 8.0 1,469 6.0 1,791 ITC AashirvaadShakti Bhog ShaktibhogHUL AnnapurnaPillsbury Pillsbury

Rice 1,000 7.0 1,403 6.0 1,791 LT foods ltd DaawatKohinoor Foods KohinoorLakshmi Energy Royal Bril l iance KRBL India GateMarico Saffola

Spices 400 8.0 588 6.0 716 MDH MDHMTR Foods MTREverest Spices EverestDS Group Catch

Edible Oil 900 7.0 1,262 6.0 1,612 KS Oils Kalash, Double Sher, KS GoldAgro Tech SundropCargil l Nature Fresh, GeminiAdani Wilmar Fortune, Kings Oil, FryolaRuchi Soya Nutrela, Mahakosh, Ruchi Gold

Healthy cooking oils 10 16.0 21 14.0 37 Marico SaffolaAgro Tech Sundrop

Instant FoodNoodle 18 20.0 45 17.0 87 Nestle Maggi

HUL KnorrGSK FoodlesITC Sunfeast YipeeNissin Foods Top Ramen

Pasta 1 25.0 3 28.0 12 Nestle Maggi Nutril icious PazztaITC Sunfeast PastaHUL Knorr soupy pastaFuture Group Tasty TreatBambino Agro Bambino Pasta

Breakfast cerealOats 1.5 28.0 5 25.0 14 PepsiCo Quaker

Bagrry Bagrry's OatsMarico Saffola OatsKellogg's Heart to Heart Britannia Healthy Start

Cornflakes 5 25.0 15 23.0 40 Kellogg's Kellogg'sMohan Meakin MohanFuture Group Tasty Treat

Salty Snacks 120 20.0 299 18.0 628 Haldiram HaldiramConAgra DavidPepsico Kurkure, Lehar NamkeenVenkatraman PeppyITC Bingo

Segment


Food


5 year CAGR (%)

Proj. 5 year value

(INR bn) 10 year

CAGR (%)


Chips 30 22.0 81 20.0 186 PepsiCo Lays, Uncle ChipsBalaji Wafers Balaji namkeenITC BingoHaldiram HaldiramParle Products Parle's WafersPrakash Snacks Yellow Diamond

Ready to eat 4 18.0 9 20.0 25 MTR MTRReady to cook 15 25.0 46 28.0 177 ITC Kitchens of India

Future group Tasty TreatAgro tech Sundrop 10min Yummeals

Ketchup 5 18.0 11 16.0 22 Nestle MaggiHUL KissanHeinz Heinz Ketchup

Pickles 17 15.0 34 13.0 58 Desai Brothers Mother's RecipeCavinKare Ruchi Pickles, Chinni's Pickles

Biscuit 126 15.0 253 13.0 428 Parle Products Parle G, Parle Marie, Hide & SeekBritannia Tiger, Good Day, 50‐50ITC Sunfeast

Confectionery 41 16.0 86 14.0 152 Perfetti van Melle Alpenliebe, Center Shock, Happydent White

ITC Mint‐OCandico Loco PocoParle Products Poppins, Mango BiteCadbury EclairsNestle Eclairs

Chocolate 25 20.0 62 18.0 131 Cadbury Dairy Milk, Perk, Gems, 5‐StarNestle Kit Kat, Munch, Milkybar

Indian dairy industrymilk 1,610 8.0 2,366 6.0 2,883 Amul Amul Taaza

Paras Dairy ParasMother Dairy Mother DairyNestle Nestle Milk

whiteners 123 17.0 270 15.0 498 Amul AmulyaNestle Everyday

Ghee 426 8.0 626 6.0 763 Amul Amul Gheeyogurt 245 20.0 610 18.0 1,282 Amul Amul Masti Dahi

Nestle Nestle DahiBritannia Daily Fresh DahiGowardhan Go DahiDanone India Danone Creamy

butter 228 10.0 367 8.0 492 Amul Amul ButterBritannia Milkman Butter

cheese 10 15.0 20 14.0 37 Amul Amul CheeseBritannia Cheese SliceGowardhan Go Cheese

ice cream 35 18.0 80 16.0 154 Amul Amul Ice CreamHUL Kwality WallsVadilal Group VadilalMother Dairy Mother DairyHatsun Agro Products Arun

Other 300 14.0 578 12.0 932 Amul AmulMother dairy Mother Dairy

Segment


Food


5 year CAGR (%)

Proj. 5 year value

(INR bn) 10 year

CAGR (%)


Restaurant 430 18.0 984 16.0 1,897 Dominos DominosPizza Hut Pizza HutMcDonalds McDonaldsKFC KFC

Non Veg FoodsMeat 300 9.0 462 7.0 590 Venkateswara Hatcher Venky's Chicken

Suguna Poultry Suguna ChickenGodrej Agrovet Real Good

Eggs 150 8.0 220 6.0 269 Raja Farms PeggsDream Farm Farm Fresh eggs

Chyawanprash 5 12.0 9 10.0 13 Dabur Dabur ChyawanprashEmami Himani Sona Chandi

Butter Alternatives 3 25.0 9 22.0 22 Zydus Wellness NutraliteAmul Delicious Table Margarine

Sugar Substitutes 1.1 20.0 3 18.0 6 Zydus Wellness Sugar FreeWipro Sweet & HealthyMerisant EqualBoots SweetexAlembic Zero Cook & Bake

Baby Food 15 15.0 30 13.0 51 Nestle Lactogen, Cerelac, NestumEnergy Drinks

powdered 6 18.0 14 15.0 24 Heinz Glucon DDabur Glucose D

RTD 1.5 20.0 4 18.0 8 Red bull Red bullHealth Drinks 1.5 20.0 4 18.0 8 Amul Stamina

HUL Kissan Fruit Juice and SoyaGSK LucozadePepsiCo Gatorade

Healthy snack foods 2 25.0 6 20.0 12 PepsiCo AlivaUnited Biscuits McVitie's

Digestive Biscuits market 1 25.0 3 22.0 7 Britannia NutrichoiceUnited Biscuits McVitie's

Malted Food Drinks 24 15.0 48 12.0 75 GSK HorlicksCadbury BournvitaHeinz Complan

100% Fruit Juice 5 22.0 14 20.0 31 Dabur RealPepsiCo TropicanaParle Agro SaintHUL Kissan

Carbonated Drinks 60 12.0 106 10.0 156 Coca‐Cola Coca cola, Sprite, FantaPepsiCo Pepsi, 7 UP, Mirinda

Segment


Food


5 year CAGR (%)

Proj. 5 year value

(INR bn) 10 year

CAGR (%)


Powdered drinks 4.5 15.0 9 12.0 14 Pioma Industries RasnaKraft Foods TangCoca‐Cola Fanta Fun Times

Lemonades 1 20.0 2 18.0 5 PepsiCo NimboozCoca‐Cola Nimbu FreshParle Agro LMN

Coffee 30 11.0 51 9.0 71 Nestle NescafeHUL Bru

Instant coffee 8 25.0 24 20.0 50 Nestle NescafeHUL Bru

Tea 75 12.0 132 10.0 195 Tata Global Beverages Tata Tea, TetleyHUL Brooke Bond, Taj Mahal, Lipton

Packaged drinking water 30 23.0 84 20.0 186 Parle Bisleri BisleriPepsiCo AquafinaCoca‐Cola Kinley

Natural mineral water 2 20.0 5 18.0 10 Mount Everest Mineral Water

Himalayan

Aava Aava

Segment



Food

Why foods will outperform non‐food categories? While the low penetration of certain Consumer classes will define the growth levels, we compare the food and beverage category with personal products (the other fast growing category) to understand which category would outperform. As compared to other developed countries which have reached saturation levels in terms of growth in convenience food categories, India possesses a huge potential in both segments though food is likely to grow faster. Historically, the food segment (3‐year CAGR at ~19%) has outpaced non‐food (3‐year CAGR at ~17%) segment. According to Mr. Antonio Helio Waszyk, MD, Nestle India, Indians spend ~36% on food, which translates into ~INR17tn per year (of which only INR2tn is currently processed). Processed food, as per a FICCI report, is likely to reach 20% of total food consumption, which is expected to grow to ~INR45tn by 2020. Chart 1: Spending levels in key states (monthly per capita expenditure)

780 784 899 1,234

1,510 1,649 1,835

1,238

1,647 1,574

2,238 2,321 2,109

2,413

Bihar

Chattisgarh UP

And

hra

Haryana

Punjab

Kerala

(Avg MPC

E (IN

R))

Rural Urban Source: Edelweiss research

Chart 2: Share of food Chart 3: Share of durables

0.0 20.0 40.0 60.0 80.0

FY10

FY00

(% sh

are of food

)

Urban Rural Source: Edelweiss research

0.0 2.0 4.0 6.0 8.0

FY10

FY00

(% sh

are of durables)

Urban Rural

Food is likely to grow to ~INR45tn by 2020 from current levels of ~INR17tn

Processed food to surge to ~INR9tn by 2020 from current levels of ~INR2tn


Food

Low penetration, higher disposable income and evolving consumer habits would ensure that packaged foods will have sustainable superior growth as compared to other Consumer categories. Table 3: Overview of India’s FMCG market

2009 2010 2009 2010Total FMCG Market 8.1 8.2 13.7 13Foods 9.7 8.7 13.1 17Non‐Foods 5.2 7.4 14.3 8.8

All India (Urban+Rural)% Change in Volume % Change in Value

Source: The Nielsen Company, Edelweiss research

Table 4: Performance of essential food categories

2009 2010 2009 2010Baby Foods 7.2 1.5 12.9 10.9Milk Foods 9.4 1.3 18.4 12.3Milk Powders 11.2 2.1 17.6 12.3Packaged Atta 7.1 0.7 11.1 22.9Packaged Rice 49.2 19.7 45.5 31.7



Table 5: Performance of impulse food categories

2009 2010 2009 2010Biscuits 6.3 10.1 13.7 17.3Namkeens (Salty Snacks) 18.7 27.7 18.4 29.9Chocolates 2 21.8 13.9 26.1



Table 6: Performance of non‐food categories

2009 2010 2009 2010Washing powder 7.6 13 20.7 5.5Shampoo 7.8 9.3 10.7 12.5Toilet Soap 3.8 5.4 10.3 6.6Hair Conditioner 31.6 36.4 33.3 37.2Hair Dye 27.8 20.5 21.3 21Liquid Soap 37.5 46.4 34.7 48.7

% Change in ValueAll India (Urban+Rural)

% Change in Volume


Table 7: Performance of various categories Food Category 2 year value CAGR (2009‐11)Salty snacks 55Refined edible oil 44Vermicell i & noodles 43Chocolate 42Confectionary‐eclairs 40


Food has clearly outperformed non‐food

Packaged food growing faster than the other categories


Food

We expect that the food segment will outperform the non‐food category. Also, profitability profile of the food segment is superior to non‐food due to lower competitive intensity (as penetration level and per capita consumption are very low). Chart 4: Food more profitable than non‐food (EBITDA %)

10.0

12.4

14.8

17.2

19.6

22.0

FY08 FY09 FY10 FY11

(%)

Food Non food

Source: Edelweiss research Chart 5: Share of segments in FMCG sales in CY10 Chart 6: Share of segments in FMCG sales in CY20E

Food46%

HPC38%

Others16%


Historically, retail sales of ready meals in India and China grew 26.9% and 11.8% respectively from 2003 to 2008 compared to a meager 2.8% in the US and 2.0% in the UK.

Food52%HPC

39%

Others9%


Food

Chart 7: Ready meals average growth rate

0.0

6.0

12.0

18.0

24.0

30.0

USA UK China Brazil Russia India

(%)

Source: USDA Economic Research Services, Edelweiss research

HUL’s increased focus on foods category bolsters our thesis that food will outperform other Consumer categories. HUL’s beverages, foods and ice creams business accounts for ~18% of sales while parent Unilever derives ~50% sales from the same. The management has stated its intention to expand its foothold in the fast‐growing food category. In line with this strategy, over the past few months, HUL has launched three new products—Kissan Nutri Smart, soy‐based juices in some cities, and Kissan mayo spreads. Chart 8: HUL’s growth in packaged foods superior to non‐foods

0.0

5.0

10.0

15.0

20.0

25.0

CY08 CY09 CY10

(% growth rate)

HUL Foods HUL non‐foods Source: Edelweiss research

Nestle is spending ~ INR18bn investment plan over the next two years and also on the anvil is second Research and Development (R&D) centre testimony for increasing demand in packaged food segment.

Sales growth of ready meals highest in India from CY03 to CY08


Food

Two main macro drivers for packaged food The Indian food industry is poised to grow by a whopping 63.5% from INR7,881bn now to INR12,889bn in next 5 years and by 137.8% to INR18,741bn in next 10 years, throwing up huge opportunities for investment across the entire value chain. The Indian food industry is a significant part of the Indian economy with food constituting about 36% of the consumer wallet. However, we believe that the market is at an inflection point as its progression and inflection will be driven by several growth drivers such as urbanisation, demographics, female working population, focus on health et al. We examine few factors that would help alter the landscape drastically. Fig. 2: Packaged Food driver

Rising urbanisation

trend

Increase in working women population

Demographic profile ‐ Over 300mn

people in the 25‐50 age bracket

Higher disposableincome

Increase in stresslevels and high pressure working environment

Rising awarenessin the public about

health andwellness

Low penetrationand introductionof mass market

products

Entry of severalorganised players

Migration of population from one region to another

Source: Industry, Edelweiss research

The key drivers for growth can be divided into two main factors:

Improving Demographics An increase in per capita disposable income leading to higher per capita consumption expenditure on packaged food although overall spends on food is likely to lag overall expenditure on other discretionary item. The current per capita expenditure on food is 1/6th that of China and 1/16th that of US with a significant opportunity for growth in the future. During the same period the youth population (age group 15‐ 25) in India is expected to surge. This will lead to an increasing demand for food products to meet demands of convenience, variety, health and a changing palate. Emergence of Tier 1 and Tier 2 cities which will present a key opportunity for future growth due to rising income, increased awareness and limited availability of products currently in these markets.

Food constitutes about 36% of the consumer wallet

The current per capita expenditure on food is 1/6th that of China and 1/16th that of US


Food

Improvement in backend infrastructure The improvement in back‐end supply chain (cold storage, mega food parks, contract farming, modern trade, GST), entry of more players will drive higher growth of packaged foods and beverages market. We discuss these two drivers in greater detail below:

Improving Demographics Booming youth population

With over 300mn people in the 25‐50 age bracket India’s demographic mix has changed in the last few years as more and more people are being added to the working population. Chart 9: Young Indian demographics

37 36 34 32 30 28

57 57 58 60 62 63

7 7 8 8 9 10

0%

20%

40%

60%

80%

100%

CY90 CY95 CY00 CY05 CY10 CY15E

<15 years 15‐60 years >60 years

Source: Mckinsey, Edelweiss research Chart 10: Demographic dividend favours India more than China

0.0

14.0

28.0

42.0

56.0

70.0

India Indonesia Europe China USA Japan

(%)

Age 24 and under Age 60 +


~63% of India’s population expected to be in the working population age group by CY15

India’s future in young hands… ~50% population’s age under 24 years


Food

Currently, India’s working population (as a % of total population) is below that of BRICS and G6 countries. By 2025, this would be ~960mn, surpassing similar statistics of Russia and G6 countries. Chart 11: % of working population

56.0

59.0

62.0

65.0

68.0

71.0

CY00

CY05

CY10

CY15

E

CY20

E

CY25

E

CY30

E

CY35

E

CY40

E

(% of total pop

ulation)

Brazil China India Russia Source: Global Insight database, Edelweiss research

Rising urbanisation

India’s rural economy is witnessing a structural change with population migrating to urban areas in search of jobs and growth opportunities. Moreover, the rise of non‐farm sector in rural areas is helping the farm sector lower the disguised unemployment. Lower remuneration in the farm sector and increasing opportunities in the non‐farm space, particularly due to various social sector schemes, are causing a shift in occupation.

Chart 12: Shift in occupation towards non‐farm sector

0.0

20.0

40.0

60.0

80.0

100.0

CY00 CY10

(% of respo

nden

ts)

Others Self‐employed in non‐agri Regular salary/wagesLabour Self‐employed in agri

Source: Edelweiss survey, NSSO survey, MART Knowledge Center, MAX‐NCAER survey

Dependence on agri‐income is going down


Food

Chart 13: Push and pull factors behind the shift in occupation

0.0

16.0

32.0

48.0

64.0

80.0

Nee

d for more

income gene

ratio

n

Increasing

resources

in village

Declining profitability

in previou

s occup.

Low risk involvem

ent

Increasing

market

demand

Govt.

programmes/incen

tives

Easy credit

availability for

activity

Migratio

n

(% of respo

nden

ts)

Source: Edelweiss survey, NSSO survey, MART Knowledge Center, MAX‐NCAER survey

Relocation of population

With more and more people relocating to other parts of country for better job opportunities, market for ready to eat/ready to cook is picking up (as relocation provides the consumer with access to regional taste). Such relocation might go up in line with aggressive hiring by IT companies for the next year. Also the increasing number of expats moving to India for work will provide fillip to packaged food and beverage industry. Table 8: Gross hiring for FY12 TCS 60,000Infosys 45,000

Source: Company, Edelweiss research

Table 9: Campus offers for FY12 TCS 37,000Infosys 26,000Patni 3,000


IT companies continue hiring to fuel the service sector's growth engine


Food

Urban population, currently at ~390mn, is expected to touch 590mn by 2030. Though difficult to quantify, this, in turn, implies that more and more people would use Ready to eat/Ready to cook food. Chart 14: Working population (age 15‐59) as a % of world's working population

0.0

5.0

10.0

15.0

20.0

25.0

CY00 CY05 CY10 CY15E CY20E CY25E CY30E CY35E CY40E

(%)

Brazil China India Russia


India to surpass China in terms of working population by 2025


Food

Chart 15: Urban population in mn ‐ India

0

140

280

420

560

700

CY91 CY01 CY08 CY30E

(mn)

Chart 16: Five states are likely to be more than 50% urbanised

912

18212424252528282931

3637

4444

53

Bihar

Orissa

Chhattisgarh

Jharkhand

Andhra Pradesh

West Bengal

Punjab

Maharashtra

Tamil Nadu

(% of total population)

Urbanization rate CY08

Source: India Urbanization Econometric Model, McKinsey Global Institute analysis, Edelweiss research

17202426

40333132

46414045

525758

6667

Bihar

Orissa

Chhattisgarh

Jharkhand

Andhra Pradesh

West Bengal

Punjab

Maharashtra

Tamil Nadu

(% of total population)

Urbanization rate CY30E


Food

Chart 17: Cities will account for nearly 70% of India's GDP by 2030

5446 42

31

4654 58

69

0.0

20.0

40.0

60.0

80.0

100.0


(%)

Rural Urban

Source: India Urbanization Econometric Model, McKinsey, Edelweiss research

Chart 18: India will drive a near fourfold increase in average national income

0

50

100

150

200

250

CY90 CY00 CY10 CY20E CY30E

(INR '000

)

Rural All India Urban

Source: India Urbanization Econometric Model, McKinsey Global Institute analysis, Edelweiss research

Increase in working women Historically, the joint family arrangement and lower education levels had ensured that Indian women were not involved in full time jobs and their role was limited to taking care of households. With the increase in nuclear families and education levels, more and more women are stepping out of homes to work in full time jobs.

Increase in nuclear families and education levels led to women stepping out of homes to work in full time jobs


Food

Chart 19: 80% of the population eats out at least once a month

Have gone to eat out

80%

Not gone to eat out

20%


A survey by research firm Nielsen in 21 countries establishes Indian women to be the most hard pressed for time. In the survey of 6,500 women from both developing and emerging countries, 87% of the respondents from India said they were pressed for time, providing tremendous opportunity (especially among women with financial independence and little spare time) for packaged food players. The stress is forcing women to splash money on health, vacations, beauty products and electrical appliances that are gaining a greater control over their lives. The survey also revealed that Indian women are the most optimistic about opportunities for growth with 78% of them being confident of financial stability and better prospects of education for their daughters. Higher disposable income Per capita income grew at a CAGR of ~14% between 2001 and 2010 and is expected to maintain the growth trajectory for the next ten years. According to Hewitt, India will see one of the highest salary hikes (salary hikes of ~13% in FY12 ‐ higher than 11.7% in FY11 and 6.6% in FY10). India is also the only country in Asia‐Pacific where double digit hikes are expected. “India will have 25% of world's total workforce with per capita income ~USD4,100 by 2025” India Labour report published by TeamLease Services

Once10%

2 to 3 times25%

4 to 6 times27%

7 to 9 times11%

10 to 12 times14%

More than 12 times13%

Indian women to be the most hard pressed for time

Per capita income grew at a CAGR of ~14% between 2001 and 2010


Food

Chart 20: Rising affluence levels

0.0

20.0

40.0

60.0

80.0

100.0

CY05 CY15E CY25E

(%)

Global (>1000) Strivers (500‐1000)Seekers (200‐500) Aspirers (90‐200)Deprived (<90)

HH income bracket INR. '000


Table 10: Number of millionaires

(mn) % of total populationUS 31 27India 3 1.25China 3 0.75

CountryHouseholds with investible funds exceeding USD 0.1mn

Source: TNS Global Affluent Survey, Edelweiss research

Chart 21: Asian middle class

0.0

20.0

40.0

60.0

80.0

100.0

Malaysia Thailand China Philippines Vietnam Indonesia India

(% of pop

ulation)

Source: Asian Development Bank, Edelweiss research

7

47

87

0

20

40

60

80

100

CY05 CY15E CY25E

(Middle class ho

useh

old mn)


Food

Chart 22: Middle class by per capita spend per day

0%

20%

40%

60%

80%

100%

China (CY07) India (CY05) Indonesia (CY09)

(% of pop

ulation)

> US$ 20 US$ 10‐20 US$ 4‐10 US$ 2‐4 US$ 1.25‐2 < US$ 1.25


Chart 23: A significantly high savings rate and low indebtedness means more spending

0.0

8.0

16.0

24.0

32.0

40.0

China

India

Thailand

South Ko

rea

Malaysia

Indo

nesia

(% of dispo

sable income)


Low penetration, introduction of mass market products

Low penetration and low per capita daily consumption offers room for further growth in the packaged food market. Increasing rural penetration will drive growth in rural areas; while multiple usages of products offer further upside in urban areas.

Improvement in backend infrastructure The poor quality of back‐end supply chain has restricted the growth of dairy and packaged foods market. ~25% of the population (in Tier I) spend less than INR100 when ordering food from outside. This, in turn, implies that there is still a huge opportunity to deliver packaged food at value price points to cater to mass segment.

810

171923

394955

6371

789697

0 20 40 60 80 100 120

IndoIndiaChinaThai

JapanKoreaSing

TaiwanMalay

UKAusNZ

USA

Consumer credit/GDP(%)

Indian middle class earn meager compared to China and Indonesia

~25% of the population (in Tier I) spend less than INR100 when ordering food from outside


Food

Table 11: Average monthly spends of households ordering in from outside

Tier I Tier II Tier III(population 3 mn +) (population 1‐ 3 mn) (population <1 mn)

Avg (INR) 671 691 351 up to Rs 50 13 13 20Rs 51‐100 12 13 17Rs 101‐200 19 17 22Rs 201‐300 12 11 13Rs 301‐600 18 23 14Rs 601+ 26 23 14

Monthly spends


Three reasons which have held the evolution of back‐end supply chain include

a) High capex for setting up cold storages

b) Supply‐demand mismatch – of electricity especially in rural/Tier‐II cities. Though the energy requirement has increased many‐fold in the last decade, the annual energy generation and growth rate has been dismal

Chart 24: Energy generation

0.0

1.6

3.2

4.8

6.4

8.0

400

484

568

652

736

820

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

(%)

Energy gen

eration (BU)

Energy (BU) Growth


c) High electricity rates as compared to the rest of the world: Compared to the world, India has a high cost of power which has dented supply chains hence the cost of final products.

Energy requirement has increased many‐fold in the last decade, however the annual energy generation and growth rate has been dismal


Food

Chart 25: Comparative analysis of power cost

0

14

28

42

56

70

US China India France UK

(No of kwh un

its/M

c Bu

rger)


Through Mega Food parks, the government is creating an infrastructure and ecosystem to attract entrepreneurs to enable cost efficient manufacturing of Consumer products. The government has also chosen public‐private participation (PPP) mode in this scheme and has kept its stake to less than 26%. More expressions of interest for 15 mega food parks would be invited in FY12. Though large Consumer companies are still shying away from participating due to the long term investment nature of these schemes, we believe that storage space issues like supply side constraint would be addressed in the longer run.

Chart 26: Projected increase in Freezer space Table 12: Proposed Mega Food sites

0

60

120

180

240

300

0

300

600

900

1,200

1,500

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

Freezer Space(Cu.Ft) No.of Stores

Feee

zer Space (Cu.Ft)

(No. ofStores)

Increase in Freezer Space

Source: Industry, Edelweiss Research

State Location Anchor (major) InvestorAndhra Pradesh

Chittoor Srini food Park pvt Ltd (Ravindra Nalluri)

Jharkhand Ranchi Jharkhand Mega Food Park (Nitin Shenoy)

Maharashtra Shirwal Western Agri Food Park Pvt Ltd (Pradeep Chordia)

Assam Nalbari North East Mega Food Park (HK Sharma)

Uttarakhand Haridwar Patanjali Food & Herbal Park (Baba Ramdev, Acharya Balkrishna & Rajiv Bansal)

Tamil Nadu Dharamapuri LMJ International LTD (agro‐commodity exporter, SK Jain)

West Bengal Jangipur Shiv Bidi (Jakir Hussain) & Temptation Foods (Vinit Kumar)

Cooking up plans

Mega Food parks would help improve infrastructure and supply chain

India’s power efficiency is significantly lower than other countries


Food

Fig. 3: Mega Food Parks plan for Future Group

Powering

Entrep

rene

urs

Access to products for FVIL private brands & food businesses

Enhance businessopportunity with newentreprenuers

High RoE on investment due to low capital investmentFood Parks

Sourcing Fresh

Staples

ProcessedFood

Manufacturing

Packaging

Cold Storage

Logistics

Source: Industry, Edelweiss research

Danone’s measured expansion plan in India is a classical case of high supply chain constraints. Estimated at over INR5bn in the organised sector (10% of total) and with a per‐capita consumption of 0.5 kg (30 kg for European countries), the Indian yogurt and dahi market is a huge opportunity. Yet Danone is expanding in a measured way as it wants the back end cold‐chain distribution in place sooner. In absence of price increases, a smart product mix + positioning + supply chain efficiencies can help offset inflation and boost profitability in the longer run. Consumer companies strategy is to partially absorb inflation (and limit price increases) to increase customer base. Supply chain efficiencies will help offset rest of the inflation, and deliver packaged foods as a value proportion to consumers. The agri‐economy has been growing at ~2‐3%, leaving sizeable room for expansion. Agri business in India is deeply under‐developed. For every USD1 of agricultural output, the incremental agri business generated in India is only USD1 versus USD2.2 in Brazil and USD12 in the US.

Table 13: Potential for impact of food processing across the value chain Farming Procurement Processing Consumption

2009 ~USD 175bn ~USD 80bn ~USD 40bn2020 ~USD 375bn ~USD 100‐150bn ~USD 300‐350bnOther impact Increase incomes Reduce wastage Increase in reliabil ity

Increase price realization Improvement in quality Fortification and nutritionReduce price volatil ity Food safety

Source: FICCI, Edelweiss research

Currently, total Indian grains production is ~240 MT. With development in the processing industry and implementation of advanced techniques, production of grains is expected to increase to ~300 MT. Also, only ~12% of the land is under fruits and vegetables cultivation; improvement in their processing will aid the shift towards a more profitable product mix. To triple food processing levels to 20% by 2020, following is necessary:

• Increase in secondary and tertiary manufacturing capacities from the current ~70 MT to ~210 MT in 2020.

• Increase in cold storage capacity from ~25 MT to ~150‐200 MT and in warehouse capacity from ~85 MT to ~250‐300 MT in 2020.

Danone’s measured expansion plan in India is a classical case of high supply chain constraints


Food

• Additionally, 1.7mn skilled manpower will be required including production managers, engineers, QC and R&D, supply chain and logistics, regulatory and legal experts.

Chart 27: Potential for food process

0.0

5.0

10.0

15.0

20.0

25.0

2005 2010E 2020E

(%)


Table 14: High processing levels positively impacting all stakeholders Farming 20‐40% increase in farm incomesProcurement 50% reduction in wastage levelsProcessing ~20‐30 mn direct jobs

~60‐80 mn indirect jobsConsumption Improved nutrition and fortification levels


Contract Farming

Contract farming is a forward agreement between farmers and buyers for the production and supply of farm produce under a contract, generally at predetermined quantities and prices. As a part of the agreement, buyers in certain cases also provide support to farmers for inputs, technology and production practices to ensure quality of the produce. In India, contract farming has slowly gained acceptance among creators in certain areas, facilitated by structural reforms initiated by the government.

Food processing levels expected to jump 3 times in 10 years.

Contract farming has slowly gained acceptance


Food

Table 15: Major Companies involved in contract farming

State CropArea under

acreageBuyer

Punjab Basmati 14700 Satnam Overseas, DD International, Amira FoodsBasmati, potato, tomato and chilli 6000 PepsiCo India LtdBasmati and maize 4000 Satnam Overseas, Mahindra Shublabh servicesBarley 2270 United Breweries LtdSoybean 1200 ITCTomato & chilli 250 Nijjer Agro Foods

Karnataka Marigold and chilli 4000 AVT Natural Products LtdAshwaganda 700 Himalaya HealthcareColeus 150 Natural Remedies Pvt Ltd

Karnataka, Andhra Pradesh, Tamil Nadu

Gherkins 8000 Multiple companies

Madhya Pradesh Wheat, maize and soybean N.A Cargill India LtdWheat 15000 Hindustan UnileverMaize and paddy 1000 Bhuvi Care Ltd

Tamil Nadu Cotton 570 Super Spinning millsCotton 260 Appachi Cotton Company

Maharashtra Soybean 134800 Tinna Oils & ChemicalsSafflower seeds N.A Marico


Table 16: State‐wise rules States where rules have been completely framed Rajasthan, Andhra Pradesh, Maharashtra, Orissa, Himachal Pradesh,

KarnatakaStates where rules have been partially framed Mizoram: only for single point levy of market fee

Madhya Pradesh: for contract farming & special l icence for more than 1 marketHaryana: for contract farming


Table 17: Stage of reforms in APMC (Agriculture produce market committee) Status States/UTReforms have taken place Andhra Pradesh, Arunachal Pradesh, Assam, Goa, Gujarat, Himachal

Pradesh, Tripura, Jharkhand, Karnataka, Maharashtra, Mizoram, Nagaland, Orissa, Sikkim, Rajasthan and Uttarakhand

with partial reforms Direct marketing Delhi, Chattisgarh, Madhya Pradesh Contract farming Chattisgarh, Madhya Pradesh, Haryana, Punjab and Chandigarhwith no APMC Act Bihar, Kerala, Manipur, Andaman & Nicobar Islands, Dadra & Nagar

Haveli, Daman & Diu, Lakshadweepwhere APMC provides for reforms Tamil Nadu



Food

Chart 28: Price surge on account of fragmented supply chain

4.40 0.48 0.08 0.30 0.46 0.460.61

8.30

0.0

1.8

3.6

5.4

7.2

9.0

Farm

gate price

cost of collection

centre

Market yard cess

Overall transit cost

Processor value

additio

n

Processor m

argin

Channe

l costs

Price to con

sumer

(Unit price)

Source: E&Y, Edelweiss research

We expect with number of new players entering the market and significant capacity expansion, competition to increase but the player who knows flavour, has good taste and can attract appetite can meet success. However, in nascent markets like India competition is not necessarily bad for new brands within the same category. If multiple brands are introducing similar products with proper marketing support, the new category experiences a larger share‐of‐voice in the minds of Indian consumers. Chart 29: Significant difference in processing levels across different categories

0.0

16.0

32.0

48.0

64.0

80.0

Grains and

pu

lses

Fruits &

Vegetables

Dairy

Marine

Poultry & non

bu

ffalo meat

Buffalo meat

(%)

Organised Unorganized


The growth will come from higher penetration and new categories that will cater to these different tiers. Most importantly, the frequency of consumption of some of the products is still very low, provides a huge opportunity.

Consumers pay a ~54% extra price

Grains & pulses and dairy processing is largely unorganised


Food

Streamlining supply chain and farm level productivity need of the hour

The agri‐supply chain in India faces several constrains. It involves multiple players such as farmer, aggregator, commission agent, wholesaler and retailer, which results in a significant price escalation. Inadequate storage facilities result in significant wastage (wastage is ~35% for tomatoes, ~30% for mangoes and ~25% for potatoes).

Chart 30: Intermediaries drive up prices by 40%

0

4

8

12

16

20

Farm

er

Interm

ediaries

Transport &

packaging

Who

lesaling

Retailing

Interm

ediaries

losses

Essential

losses

End price

(INR/KG

)


Chart 31: Potential to reduce wastage level by 75%

0.0

5.0

10.0

15.0

20.0

25.0

2009, unprocessed tomato 2020, processed tomato

(%)

Wastage due to essential activities

Wastage due to intermediaries and poor harvest infra


The current warehouse capacity shortage is estimated at ~50 MT compared to an installed capacity of 85 MT. Lack of infrastructure like power and transport hinders the industry. Power supply constraints in rural areas and long transportation times due to poor road infrastructure lead to high wastage. Lack of organized, large players in the Indian third party logistic industry leads to poor service levels with frequent delays and lack of cold transportation capabilities. FDI will propel investment in infrastructure across the entire supply chain.

The end price rises due to intermediaries, wholesaling and intermediaries’ losses

Intermediaries drive up cost 75%


Food

The current cold storage capacity is ~24.5 MT, leaving a gap of ~30 MT. This shortfall will further increase over the next decade. Out of the existing capacity, ~75% is utilized to store potatoes, leaving less than 1% for other fruits and vegetables. Adequate cold storage capacity will trim transit losses. Chart 32: 75% of cold storage space is meant for storing potatoes

0

6

12

18

24

30

Potatoes Multi purpose

Meat & fish Fruits & vegetables

Others Total

(MT)


Improving cold storage facilities would benefit other categories


Food

Key trends witnessed in foods

Entry of several organised players to expand market MNCs like Danone and GSK Consumer are highly focused on India, launching new products to increase their portfolios. Danone is getting aggressive in dairy sector while GSK is focusing on noodles and cookie segments. In addition, several companies have recently announced the intention to expand food portfolio in India, including:

• Delmonte

• Cargill (I)

• HUL

• Nestle

• Mother Dairy

• Amul

• ITC

• Danone

Entry of such new players would just increase the market size instead of cannibalising existing consumers. We have seen this recently for Nestlé’s Maggi where the entry of several big players like ITC and GSK Consumer helped in increasing the market size of packaged foods.

Modern trade to drive discretionary segment Retail is a catalyst for consumption which in turn drives the economy. The Modern trade retail format brings lower prices to the consumers and drives higher consumption, hence making a clear case for the existence of the Modern Trade. Modern trade provides an opportunity for new entrants and new products to get quick visibility and reach across consumers thus enabling consumers to make more informed choices. Though current contribution from organised retail is small, but it is increasing gradually across categories, most notably in personal care and packaged foods category.

Chart 33: Organised Retail Chart 34: Share of Modern & Traditional Retail

0

150

300

450

600

750


(USD

bn)

Modern Traditional

Source: India Retail Report, 2009, Edelweiss research

Entry of such new players would just increase the market size

The Modern trade retail format brings lower prices to the consumers and drives higher consumption

0 20 40 60 80 100

Clothing & Fashion

Beauty & Wellness

Electronics

Furniture & Furnishing

Food & Grocery

Others

(%)Modern Traditional


Food

GST could be a game changer for larger companies GST is a bigger game‐changer than FDI in multi brand retail because everybody will be on a level‐playing field. In India, the warehousing and distribution network is not geared to the fulfillment of customer demands at optimal costs. Most food companies operate with at least one distribution center or carrying and forwarding agents (CFA) in each state, where they sell their merchandise, to avoid interstate taxes. Indian companies use the services of 25 to 50 warehouses at the national level, which is a very high number compared to developed economies (less than five). The GST is a comprehensive value added tax (VAT) on goods and services. GST is collected on value‐added goods and services at each stage of the state or purchase in the supply chain through a tax credit mechanism.

Distribution network emerging as a key entry barrier The consumer is also highly sensitive to easy availability of products at nearby stores as 53% of the respondents were strongly sensitive to the same, finds our survey. Chart 35: Retail reach‐ key factor for consumer acceptance

0%

20%

40%

60%

80%

100%

Quality

Health

Co

nsiousne

ss

Easy Availability

At Stores

Brand

Conven

ient

to Coo

k

Price

Prom

otional

Offfers

Strongly Sensitive Mildly Sensitive Indifferent

Source: Edelweiss research Most Consumer companies (HUL, ITC, GSK, Agro Tech, Emami, Nestle and Agro Tech) are focusing on improving their distribution networks to gain more market access thereby bolstering growth. However, much more needs to be done. One such initiative, Mega Food parks by the government is aimed at creating infrastructure and ecosystem to attract entrepreneurs into cost efficient manufacturing of Consumer products. However, high capex requirement for setting up cold storages and shortage in power are major hindrances in ramping up the supply chain. Large Consumer companies are still shying away from investing because of the long term nature of these schemes. We believe this initiative will address storage space issues like supply side constraints in the long run. Supply chain efficiencies will help offset rest of the inflation, and deliver packaged foods as a value proportion to consumers.

JVs getting more relevant and prompt Recently many international food companies are entering into JVs with Indian firms to explore on the existing opportunities in the foods category. Jubilant entered into JV with Dunkin Donuts, Tata Global beverages partnering with Starbucks, Godrej with Tyson Foods, Pepsi’s association with Tata Global Beverages for bottled water and with Unilever for ice tea

Companies will be able to optimize logistics and distribution costs

High capex a major hindrances in ramping up the supply chain for Consumer companies


Food

and many more. This provides win‐win situation to both the partners as Indian players get access to expertise, technology and brand of foreign partner and foreign player get access to huge market and its distribution network.

MNCs better placed in segments which involves import of raw materials Edible oil category, dependent heavily for raw materials on imports, has seen surge of M&A activities with major MNC companies acquiring regional companies especially at lower end. In March 2011, Cargill Inc bought the premium sunflower brand Sweekar from Marico in a deal worth over INR2bn. In November 2010, the US‐based firm bought the Rath vanaspati brand from Agro‐Tech, reportedly for INR1.2bn. Another multinational and Swiss‐based Glencore hit the headlines on the possible takeover of K.S. Oils, based at Morena, Madhya Pradesh. Also, Archer Daniels Midland Company (ADM) acquired two oilseeds processing facilities earlier this month from Geepee Agri Pvt Ltd at Kota, Rajasthan and Akola, Maharashtra. These processing facilities are in addition to ADM's recent purchase of the entire stake in Tinna Oils that has facilities to process soyabean and sunflower in Latur (Maharashtra), soyabean and sunseed processing unit at Dharwad (Karnataka). The US‐based firm also bought the processing facilities of Madhur Agro in Nagpur. The reason, we believe, is that MNCs can have benefits of scale and sourcing benefits as India imports eight million tonnes of vegetable oils a year with crude palm oil alone making six million tonnes of it. Thereby, products wherein significant RM/product itself is imported will see significant amount of MNC presence. Other such example is maize.

High demand for Food experts Many companies aggressively looking to foray into fast growing food category are turning to former business heads of competing organisations for advice and handholding in product launches, entry strategies, acquisitions and new projects. When HUL poaches beverage and snacks foods giant PepsiCo's executive director and vice‐president for innovation, Geetu Verma, which is marked departure from its preference for homegrown leadership also highlights the challenges faced by companies to seize Indian consumer palate. Also, when GlaxoSmithKline Consumer Healthcare (GSKCH) decided to extend the Horlicks brand into the fragmented INR12.6bn biscuits market two years ago, it sought help from one of the most accomplished names in the industry. It leaned on the expertise of Sunil Alagh, a former managing director of Britannia Industries, who had built the Bangalore‐based biscuit‐maker's brand during his 29‐year stint, launching products such as Tiger and foraying into allied areas such as dairy products. Alagh's inputs were critical for GSKCH to gain a foothold in a market in which multinationals such as Cadbury Kraft are gaining ground and established players such as Britannia and Parle are fighting to retain their shares.

Several M&A activities being witnessed in edible oil category


Food

Themes from Food survey and industry interactions

We conducted a Food survey (Refer Annexure IV). From the survey, we found that most urban youth are getting more and more health conscious and with increasing urbanization this trend is expected to gain momentum. The key trends are given below:

• Changing food habits due to rising income, mobility & working women

• Health segment to outpace overall packaged foods

• `Premiumization’ on an overdrive, finds acceptance among consumers

We discuss this in detail below:

Changing food habits due to rising income, mobility & working women Urban India ‐ with two unique trend‐setters ‐ an increasing disposable income and more women taking up jobs ‐ is experiencing a new lifestyle. Urban populace is ready to experiment newer product categories which help them reduce efforts and excite their taste buds. There is a gradual and steady shift from home‐made to ready to cook or ready to eat foods. This category of homemakers spends an average of INR9,000 per month on grocery, says another industry survey. It is important to note that these consumers are also open to trying innovations ‐ be it in yoghurts, probiotic drinks, health bars, chips, ready‐to‐eat meals and or bhuna masala. For example, the premium biscuits category comprising cream, chocolate biscuits and cookies is growing at a phenomenal annual rate of 25% to 30% (compared to 8% in glucose and digestive segments) due to higher affordability and changing tastes. The sensitivity of the new class of influential consumers to price is low as against the average Indians. Playing an equally big role is the modern retail as it offers the right environment to experiment for brands besides educating consumers about new products. From the survey conducted by us, it was evident that consumers are experimenting more often and packaged food products are witnessing a surge in demand. Chart 36: On the fast track: HFD, Juice, Biscuits, Fast foods and Noodles

0.0

12.0

24.0

36.0

48.0

60.0

Health

(Fruit Juices)

Milk Produ

cts

Biscuits Chips

Chocolates

Pizza Bu

rger

Icecream

Breakfast Cereals

Packed

Indian

Snacks

Cooking Aids

Pack. Rice Atta Pu

lses

Noo

dles

Soft Drinks

Sauces

Pasta

Popcorn

Instant Sou

ps

Jams Jellies Spreads

Ready To

Coo

k Indian

Sales growth (%

)


Premium biscuits category is growing at a phenomenal annual rate of 25% to 30% compared to 8% in glucose and digestive segments


Food

Ready to experiment in breakfast, but prefer traditional diet for lunch and dinner

Juices, muesli and corn flakes are being steadily warmed to the Indian breakfast tables as seen in the rapid growth in the packaged breakfast market which has doubled in the last three years, growing at 30% annually. To capitalize on this fast catching trend, McDonalds and Barista have started offering breakfast menus. Executives in metros who prefer to reach office early act as ideal targets for these players. Fig.4 : Increase in focus on breakfast category by companies

Source: Company Chart 37: Change in frequency of eating non homemade food over last 5 years

Increased Significantly

46%

Increased Marginally/Remained Same

37%

Decreased17%


McDonalds and Barista have started offering breakfast menus


Food

Our survey indicates that there are more people consuming packaged breakfast with a higher frequency. Even though the frequency of having lunch and dinner has gone up steadily, people still prefer traditional home‐made food. The reason for this could be the health consciousness tag attached to homemade food than the packaged. As explained by Damodar Mall (customer director of Future Group) “Companies are trying to be chefs, but a woman wants the last mile of cooking to belong to her which is why she’d rather hire a cook”.

“Packaged food is a life style …. Natural and fresh food has always been my preference over packaged food. Always unpacked fresh food is preferred over packed food irrespective of the prices” Said one of the respondents from our survey.

Chart 38: Frequency of eating food not cooked at home

less than once a week40%

2‐4 times a week38%

Female

Male

More than 4 times a week

22%


‘Many Indias’ – A key theme driving the strategy of major players

Indians are highly certain about their taste preferences and as pointed out by the survey, 57% of the respondents were strongly driven by taste for the purchase of a product. Taste preferences vary significantly across cultures and geographies in India as 59% respondents favoured traditional regional food specialties while 29% sought Western and Chinese fast foods.

Due to such strong inclination towards traditional taste, `Indianization’ of products has been one of the key focus areas for the success of Western fast food players like McDonald’s, KFC and Subway in India who have launched products with a blend of Western preparation, but retaining the traditional Indian taste (e.g. Maharaja Mac, Aloo Tikki burger). The recipe of McDonald’s does not include beef in the Indian market to suit native sensibilities while McCain Food is test marketing three‐minute microwaveable idlis to test native taste buds. Amazingly, KFC has created a vegetarian menu for India. Interestingly, Consumer companies keep a dual strategy ‐ one at the national level and another to counter regional players. Though HUL had Red Label in its portfolio, it was not able to counter competition from local players hence Brooke Bond Sehatmand was launched to attract down trading customers. Heritage brand Ruby was launched in Karnataka while Red Label Dust was maintained in selected markets. Nestle launched BRU Mild coffee especially for the tea preferring North Indian markets. Hence taste preferences of the Indian consumer remain a key focus area and an important driver of strategy formulation for food companies.

Relatively Higher proportion of males eating outside food

MNCs focusing on Indianization of products

KFC has created a vegetarian menu for India


Food

Long working hours, high pressure at work places

High pressure at work, a working partner and rising stress levels induced by longer working hours can act as a major growth driver for the food segment. Benefits of higher stress levels and higher disposable incomes are clearly visible in the exponential growth of fast food outlets.

Table 18: Outlets in India

FY08 FY09 FY10 FY11 CurrentMcDonald's 135 NA 200 216 240Taco Bell NA NA 2 2 2Domino's 182 241 306 364 439KFC NA 72 105 114 156Pizza Hut NA 158 171 175 216


Table 19: Outlets in Metros

Mumbai Delhi Kolkata ChennaiMcDonald's 40 39 5 3domino's 57 42 21 14KFC 12 23 6 18Pizza Hut 19 53 18 7


Health segment to outpace overall packaged foods Health and wellness have been key focus area in the food and beverages industry in recent years due to an alarming rise in obesity, diabetes and other lifestyle diseases, forcing companies to introduce products on health plank. Many companies to exploit this trend has launched health based products viz. Britannia launched nutrichoice biscuits, Danone launching probiotic yogurt, Dabur introduced juice with fiber and HUL introduced it with Soya, multigrain atta, iodized salt, energy drinks. Unibic Biscuits India has developed chyawanprash fortified cookies, in an effort to grab a share of the market in the health and wellness space. Also, McDonald's India plans to list calorie counts of all its foods on menus. We believe that the demand for these products is going to outpace overall Food Category growth for many years to come.

Health foods is becoming a priority for most companies


Food

Chart 39: Chart from survey indicating high health consciousness

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Historically, various products based on the wellness plank have tasted reasonable success which we expect to continue in the future as well. However, taste is never substituted fully for the sake of health. Saffola Zest launched by Marico has failed for the same reason – not being palatable. Taste is a critical element for Indian consumer for choosing any product so much for the failure of sugar‐free juices and ice creams to gain market share. No wonder the fast food giant, McDonald's `does not feel’ the need to introduce healthier foods like salads since "the Indian consumer's health habits have not yet evolved". The psyche of the Indian consumer is best at display onboard full service airlines. Most travellers here are well educated, come in the age group of 30‐45 and have high awareness about healthy diets. However, on enquiries, in‐flight crew reveals that while most travellers gobble up the dessert, they insist on non‐calorific sweeteners for their hot beverages.

Rising awareness about health, wellness

India still has a large chunk of population suffering from underweight and malnutrition hence Consumer companies have a large market to tap for packaged nutritional products which promote growth and development in children and maintain required nutrition levels in adults. The table below indicates that the penetration of such products can go up several times.

Table 20: Child nourishment position‐ bit of concern % of infants with low birth weight, 2005‐2009 28Early initiation of breastfeeding (%), 2005‐2009 41% of children (2005‐2009) who are: exclusively breastfed (< 6 months) 46% of children (2005‐2009) who are: breastfed with complementary food(6‐9 months) 57% of children (2005‐2009) who are: still breastfeeding (20‐23 months) 77% of under‐fives (2003‐2009) suffering from: under weight (NCHS/WHO), moderate & severe 48% of under‐fives (2003‐2009) suffering from: under weight (WHO), moderate & severe 43% of under‐fives (2003‐2009) suffering from: under weight (WHO), severe 16% of under‐fives (2003‐2009) suffering from: wasting (WHO), moderate & severe 20% of under‐fives (2003‐2009) suffering from: stunting (WHO), moderate & severe 48Vitamin A supplementation coverage rate (6‐59 months) 2009, Full coverage (%) 66% of households consuming iodized salt, 2003‐2009 51

Source: UNICEF, Edelweiss research

Indian consumers prefer taste over health


Food

Better healthcare facilities have ensured a decline in death rate and life expectancy of Indians. This, in turn, would also mean that there could be an increased demand for high nutritional food products and supplements.

Chart 40: Decline in crude death rate Chart 41: Increase in life expectancy

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Though benefits of higher disposable incomes are clearly visible in the exponential growth of several Consumer categories, a change in the lifestyle and high pressure jobs have also led to an increase in stress levels among the working class. Other factors such as changes in eating habits and break down of the social fabric further add to stress levels.

Table 21: Increasing stress levels leading to various lifestyle diseases ~5% of the population estimated to have morbid obisity~20% of Indians above the age of 40 suffer from blood pressure~11% of urban population and 3% of rural population above 15 years of age has diabetesOver 62 mn patients with heart‐related ailments ‐ 60% of global heart patients will be from India

Source: Edelweiss research Food habits of Indians are contributing to cardio‐vascular diseases among them. These habits, however, are undergoing a change with healthy food gaining more and more importance as seen by the exponential growth in health foods such as Marico’s Saffola.

Table 22: Marico key segment growth Key business Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12Saffola 5 13 22 18 13 18 18 13 14 15 11 15 Kaya Clinics and growth

No. of clinics 85 97 99 100 101 99 101 102 103 105 105 107 Sales (INR mn) 430 440 490 440 450 455 624* 620* 691* 627* 662* 750*Y‐o‐Y growth (%) 52.5 25.7 24.0 10.0 5.0 3.0 28.0 40.0 54.0 24.0 7.0 21.0 Source: Edelweiss research

* Includes Derma Rx revenues

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Food

With the increase in disposable income, there is a marked inclination towards health foods. PepsiCo and Coca‐Cola have introduced ‘0 cal’ as well as non‐aerated drinks while many health and pro‐biotic drinks have also made their presence felt in the market. Fast food chains have also joined the health bandwagon by introducing salad meals and salad burgers along with various sugar substitutes. Also, low fat substitutes to soy milk are also available for the health conscious. For categories perceived as less healthy, 'better‐for‐you' variants will succeed while for the perceived neutral or healthy categories, functional variants will succeed. Some of the recent introductions include:

• McDonalds and KFC promoting a healthy lifestyle and balanced eating by modifying menus (introduction of salads) and introducing campaigns

• Unilever working on a salt reduction strategy in India

• PepsiCo to remove sugary drinks from schools

• Coca‐Cola to include nutritional information of products by end 2011

• HUL extended Kissan to Soya Juice in different fruit flavours (first time extension to a health platform)

• Kellogg's launched All Bran, a 100% whole wheat ready‐to‐eat cereal targeted at women. Kellogg says its research indicated that fibre intakes amongst women are between 25‐30 grams during the day whereas they are between one and two grams for breakfast. This is below the recommended desirable level of 10 grams for a breakfast meal. This has prompted the company to launch All Bran. Different consumers have different needs and Kellogg’s will launch various need based products after mapping out consumer needs.

• Britannia extended its health biscuit brand, NutriChoice, to the Diabetic Friendly Essentials range after establishing it with the Hi Fibre and Multi Grain ranges. In the last three years, health and wellness (H&W) has become a key driver for Britannia and accounts for ~55% of sales.

• Nestle launched brand extensions such as Maggi Atta and Maggi Multigrainz noodles.

• Indian consumers refuse to compromise in food and health and these have emerged as key categories to register higher spending even in inflationary times, as per Boston Consulting Group (BCG). The study also highlights that the tendency to trade up in developing economies — such as India (34%), China (38%), Brazil (26%) and Russia (22%) — was much higher than that in developed countries such as the US (17%), the EU (15%) and Japan (9%).

In the last three years, health and wellness accounts for ~55% of Britannia’s sales

Consumers in developing nations spend higher on health and wellness


Food

Fig.5: Salad menu at Subway Fig.6: KFC’s Chana snacker aided with salad

Fig.7: Britannia increases its focus on health related products

Source: Company

• Increase in disposable income as well as health awareness has also led to the emergence of specialised food delivery options such as calorie care, magic‐o‐meal, etc. These services provide freshly cooked calorie counted meals and deliver food at office places.

• India is home to the largest diabetic population globally hence the beverage category

with claims like ''no added sugar'' can attract new consumers. The packaged juice segment displayed a healthy 15% CAGR over the past five years reflecting the growing demand as consumers begin preferring healthier beverages over aerated drinks.


Food

Chart 42: Importance of food hygiene

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Chart 43: Importance of Brand

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I like to buy products with prestigious brand names

I only buy products and services from a trusted brand

Source: Roper Reports Worldwide 2010, Edelweiss research Health and wellness have been the most talked‐about subjects in the food and beverages industry in recent years due to an alarming rise in obesity and diabetes, forcing companies to put nutritional information on food packs, stop promoting unhealthy food and introduce healthier items. But the Indian consumer is yet to go aggressive on healthy food habits. Sugar‐free juices and ice creams have not gained market and fast food giant McDonald's does not feel the need to introduce healthier foods like salads in India because "the Indian consumer's health habits have not yet evolved". Despite being in India for almost a decade, diet colas contribute ~2% to overall cola sales; 100% juices are still lagging behind sugary ones, and pizza chains like Domino's are beating sales targets. With the increasing set of serious health conscious consumers in the country, the big challenge would be to maintain taste where consumers clearly do not like any compromise. PepsiCo and Parle Products have withdrawn low‐sugar, low‐fat 'healthier' products Pepsi Max, Monaco Smart Chips due to poor demand. Says Parle’s Group Product Manager Mayank Shah,

Indian consumers give high priority to brand name

BRIC nations more cautious towards hygiene


Food

"the learning for us from Monaco Smart Chips was that consumers are willing to cut down on frequency of consumption but won't give up on taste." Fig.8: Focus on health plank

Source: Company

`Premiumization’ overdrive, finds acceptance among consumers In India, premiumisation in the Consumer space is not new but has largely been driven by

personal care and household care brands. Categories like anti‐aging and toothpaste for sensitive teeth are niche areas which personal care brands have exploited to drive premiumisation. It is only now that food companies are more actively latching on to the trend and the reasons are many. Leave aside the rise in disposable income in metros; changing lifestyles and health awareness are driving demand for better quality foods. Thus it is no surprise why mainstream food brands are enhancing their portfolios with renewed vigour. Hindustan Unilever’s coffee brand Bru stepped up its regular brew portfolio by bringing to market Bru Exotica, a super premium coffee. HUL’s soft launches like ‘Soya juice’ and ‘Kissan creamy spread’ are at a premium to current offerings. GlaxoSmithKline’s Horlicks launched Horlicks Gold at a 30 per cent premium to the base variant, in select markets across India. The smaller premium biscuits segment, comprising cream, chocolate biscuits and cookies are growing at an annual rate of 25% to 30% thanks to rising disposable incomes and growth in modern retail outlets. Britannia, ITC and GSK are focusing more on non glucose segment which helps the company to improve profitability. In confectionary, Cadbury is driving premiumisation through the launch of Cadbury Silk and Bournville. To capitalize on this trend, Nestle launched wheat/rice/multi grain noodles, Danone launched fruit Yogurt. Ice cream segment is witnessing surge of premium products by HUL, Vadilal.

Nestlé India launched Actiplus Probiotic Dahi (yoghurt), priced at ~5% premium to regular SKU (INR40 for a 400gm SKU) to target higher share in the nascent market but fast growing probiotic foods segment. Danone India also added a premium offering to its yoghurt portfolio – Cremix, priced at ~30% premium to regular yoghurt variants. From our survey, it was clear that predominantly, consumers are mildly sensitive to price (65%). In the case of a high inflation scenario, players in this segment can afford to pass on some of the cost increases to consumers without getting much hit on the sales.

Changing lifestyles and health awareness leading to premiumization


Food

Delighting through morphing‐ Innovation at fore

Many companies are experimenting with Fusion of products like Britannia introduced Choco Decker i.e. ‘biscuits mein chocolate’ or Time Pass (biscuit or rusk or salty snack?). The companies high on innovation, well established in a particular segment and desire to enter new segment utilizing its brand salience comes out with fusion of products. HUL’s soupy noodles combine soup and noodles thereby creating a different category. With consumers ready to experiment with newer category, fusion of products can provide the companies with decent initial trial and demand.

Fig. 9: Biscuits or chocolate? Fig. 10: Biscuit or rusk or salty snack?


Price sensitivity; lower SKUs have limitations

Apart from taste, Indian consumers are known for their price sensitivity and that explains some smart and some equally failed strategies of players. Kitkat suffered a setback in volumes when Nestle India took a bold step of moving away from the traditional price points of INR2, INR5 and INR10. Instead, it started experimenting with price points of INR7, INR12 and INR14. At the same time, Cadbury grew substantially as it cut the grammage though kept the price intact. Typically, stock‐keeping units (SKUs) at low price points or popular price points of INR1, INR2, INR5 and INR10 help Consumer companies add new consumers and drive volumes. These price points have been touted as a huge success in rural markets by most companies, and even as consumer goods companies have hiked product prices on larger SKUs and reduced weight on smaller SKUs, no player wants to fiddle with the low price points, until now. Though low priced SKUs act as volume pullers, beyond certain point grammage reduction becomes difficult. In inflationary environment being witnessed currently, the low priced units become unviable.

Indian consumers are price sensitive


Food

What happened in China? China with demographics, urban‐rural divide similar to that of India will provide good insight into evolution of food industry in India. The Food Industry in China has evolved into what could be called ‘the breeding ground’ for India with China being the home to some of the big players in the industry. In China, expenditure on foods and beverages stands at ~33% of the total consumer expenditure during 2008 vis‐à‐vis 36% in India. Chart 44: Split in spends in China

Food & non‐alcoholic beverages

33%

Clothing & footwear

9%Household

goods & services5%

Health goods & medical services

8%

Transport3%

Communications11%

Leisure & recreation

3%

Education6%

Miscellaneous goods & services

3%

Others19%

Source: Euromonitor International, Edelweiss research

Chart 45: Sales of Packaged Food by Sector, 2003 Chart 46: Sales of Packaged Food by Sector, 2008

Confectionery9% Bakery

products15%

Dairy products14%

Sweet and savoury snacks8%

Noodles8%

Dried processed

food9%

Others37%

Source: Euromonitor International, Edelweiss research

Confectionery7% Bakery

products13%

Dairy products18%

Sweet and savoury snacks7%

Noodles8%

Dried processed

food10%

Others37%

In China, expenditure on foods and beverages stands at ~33% of the total consumer expenditure during 2008 vis‐à‐vis 36% in India


Food

• In 2010, in China packaged foods recorded a higher value growth than that of 2009. Over the 2003‐2008 period the category grew at 11.5% CAGR. With increasing in disposable income, shrinkage in average household size, enrichment in lifestyle consumer enthusiasm is upbeat in packaged foods which offer convenience and easy accessibility. Change in consumer behavior coupled with expansion in distribution channels has created a good opportunity for packaged food players in China to continue their expansion, through providing high quality products to Chinese consumers.

• In terms of retail value growth in 2003‐2008 period, baby food products grew at a CAGR of ~21% and dairy products and ready meals grew at ~17% CAGR each. In terms of volume growth, oils and fats led the way with overall growth of 111.6% over the 2003‐08 period and had a compound annual growth rate (CAGR) of 16.2%. Next to follow were soup (12.5% CAGR), dried processed food (10.6% CAGR), and ready meals (10% CAGR).

Table 23: Consumption of pleasure‐orientated F&B by volume (mn litres) in China

Market CY00 CY06 CY09CAGR

(CY00‐09)CAGR

(CY06‐09)Carbohydrates 6,363 11,098 14,190 9.7 8.5 Cookies 849 1,151 1,230 5.2 2.3 Ice Cream 799 1,832 2,624 14.8 12.7 Wine 270 411 477 7.2 5.1

Source: Datamonitor, Edelweiss research

• Consumption of pleasure oriented foods – namely, cookies, carbohydrates, ice‐cream, has seen a growing trend.

• Increasing consumer disposable incomes and rising consumer confidence together with the ongoing efforts from packaged food players, consumers have increased their purchases of packaged food products, particularly for health and wellness or premium products claiming to offer extra benefits or functionality.

• Chinese over the time have moved from accepting basic features to demanding value added customized products, even if it comes at a cost. So MNCs who earlier stripped down their existing products to basics face an entry hitch as these offerings are unable to match consumer’s new expectations. Also companies that relied on low‐cost, low‐quality offerings are losing on account of shift in value. This has however been beneficial for companies that have differentiated niche products.

• Retailers to differentiate themselves and to win the increasingly health conscious target audience are focusing on health and wellness concept. Dairy and baby food players focused on addressing the safety and nutritional features of their own products, such as organic, the traditional Chinese medicine (TCM) concept, and functional benefits. Confectionery players, on the other hand, such as Mars, stated its Dove Xinsui dark chocolate contained higher cocoa and lower fat, while sauces and dressing players ‐ Foshan Haitian and Lee Kum Kee ‐ launched better‐for‐you soy‐based sauces featuring low salt. These trends supported good value growth of the overall packaged food market in 2010

• Chinese are brand conscious but not brand loyal. 23% of shoppers in China would go out of their way to buy from stores that offered the best prices, compared with 18% in the United States and 12% in Japan. While quality remains a critical consideration, value is the most important one.

Packaged food category grew at 11.5% CAGR over 2003‐08

Chinese are brand conscious but not brand loyal


Food

• Consumers do not approve of outstretching their budget; when they up trade in a particular category they down trade in less compelling categories. More than 70% of trade‐up demand for dining out and 50% for alcohol come from white‐collar men who want to improve their standing with clients or colleagues and trade down on personal‐care and packaged‐food and snacking products to balance their overall spending.

• Cross category promotions is the new buzzword which helps to influence purchase in categories related to the ones consumers target for up‐trading. For instance consumers who up trade in entertainment may show a similar trend in alcohol consumption. So this provides an opportunity for alcohol vendors to team up with pubs, restaurants etc.

• Like in most developed nations, the consumer purchasing pattern is moving to declining shopping frequencies with larger basket sizes. The number of weekly purchasing trips fell from 0.6 in 2008 to 0.5 in 2010; the average basket size rose from 18.42 renminbi in 2008 to 24.10 renminbi in 2010. This can be mainly attributed to increasing popularity of modern retail formats. As quality of life improves, time becomes more valuable.

• In 2011, domestic companies continued to lead China’s packaged food sales, with Mengniu and Yili ranked first and second respectively. Shineway, Hangzhou Wahaha, Bright Dairy & Food and Want Want Group were all within the top ten players. Multinationals were in a weaker place in packaged food sales in with Nestlé and Mars at the 9th and 10th positions.

Table 24: China Packaged Food Company Shares Rank Company Value (%) % top 10 Artisanal (%)

25.4 7.1

1Inner Mongolia Mengniu Dairy Industry (Group) Co Ltd

4.5

2Inner Mongolia Yili Industrial Group Co Ltd

4.1

3 Kuok Oils & Grains Pte Ltd (KOG) 3.34 Ting Hsin International Group 2.95 Shineway Group 2.86 Hangzhou Wahaha Group 2.17 Want Want Group 1.88 Bright Food (Group) Co Ltd 1.69 Mars Inc 1.210 Nestlé SA 1.1


In China, where diabetes, cancer and other chronic illnesses are on the rise, people are growing more health conscious creating a fast‐growing market for companies selling health foods. Food giants such as Nestlé and PepsiCo have begun introducing foods that have a traditional Chinese folk‐medicine twist.

• In 2009, sales of wellness foods and beverages in China had increased 28% from five years earlier to USD1.5bn, driven by the elderly and women, according to Euromonitor

• Nestlé is investing USD0.5bn globally over ten years to develop foods with health benefits. It is currently testing five of them in China

• PepsiCo launched Quaker Herbal Oatmeal while Coca‐Cola is hoping to attract customers concerned about their health with its Vitaminwater

Modern retail formats are gaining popularity in China


Food

MNC companies to remain very aggressive Multinational F&B companies were always fascinated by the Indian growth story, primarily led by the favourable demographic profile as seen by the early entry of PepsiCo, Coke, Nestle and Cadbury. However, progressively more companies have become aggressive, initiating meaningful investments in the domestic market (Conagra via Agro Tech, Kraft tasting good success post Oreo’s entry via Cadbury, Nestle investing in capacity addition and HUL savouring its focus on foods segment). These investments though at nascent stage will eventually set the base for the next leg of growth. Most leading players are adopting a more localised business model, including India specific products (KFC selling vegetarian products, pizzas selling tandoori variants etc) and a well‐spread out distribution network. There are big gaps in products between MNC Consumer companies and their Indian unit. We have analysed the gap in the table below. We expect Nestle, HUL, Agro Tech, Pepsi, Kraft, Kellogg’s and Reckitt to be at the forefront on new launches in the coming decade.

Table 25: Existing opportunities for MNCs Company Products in India Parent Portfolio of Parent GapHUL Tea, coffee, flour, salt, ketchup,

jam, soup, noodle, pasta, ice cream, bread, health drinks; ready to cook‐soup, Indian & Chinese cuisine, cream alternatives

Unilever Margarines, milk drink, yoghurts, olive oil, vinegar, cream alternatives, cheese spreads, ice cream, dressings, ketchup, mayonnaise, frozen foods, iced tea, health drinks, range of weight management products, ready to cook‐chicken, Italian cuisine, soup

Margarines, milk drink, yoghurts, olive oil, vinegar, cheese spreads, dressings, frozen foods, mayonnaise, range of weight management products, ready to cook‐chicken, non veg

GSK CH Malted food drinks, health drinks, biscuits, instant noodles

GSK Health drinks, malted food drinks, fruit drinks

Fruit drinks

Agrotech Edible oil, popcorn, healthy cooking oil, chocolate pudding, peanut butter alternatives, frozen food; ready to cook‐green peas

Conagra Frozen food, ketchup, snacks, egg whites, health foods, tomato paste, children food, popcorn, whipped cream, chocolate pudding, edible oil, cooking oil, margarine, mustard spread, peanut butter, flour products, French fries, roasted sunflower seeds, malted food drinks; ready to cook, ready to eat‐ chicken, ham, pasta, pizza

Ketchup, snacks, egg whites, health foods, tomato paste, children food, whipped cream, margarine, mustard spread, flour products, French fries, roasted sunflower seeds, malted food drinks; ready to cook, ready to eat‐ chicken, ham, pasta, pizza

Most leading players are adopting a more localised business model


Food

Company Products in India Parent Portfolio of Parent GapNestle IndiaMilk, milk whiteners, malted

foods, ghee, dahi, condensed milk, baby food, coffee, tea, noodles, pasta, ketchup, spices, chocolates, confectionery, ready to cook‐soup

Nestle SA Baby food, bottled water, cornflakes, oats, chocolates, confectionery, coffee, tea, desserts, frozen foods‐ non veg, sandwiches; cream, ice cream, juice, malted foods, noodles, pasta, health drinks ready to cook, ready to eat‐ non veg, gravy, soup, pasta

bottled water, cornflakes, oats, desserts, cream, ice cream, juice, health drinks; ready to cook, ready to eat‐ non veg, gravy; frozen food‐ non veg, sandwiches

PepsiCo Carbonated drinks, bottled water, lemonade, fruit juices, tea, oats, salty snacks, chips, health drinks, healthy snack food

PepsiCo Carbonated drinks, oats, cornflakes, rice flakes, coffee, health drinks, lemonade, tea, fruit juice, pasta, salty snacks, chips, popcorn, bottled water, ready to drink (energy drinks)

cornflakes, rice flakes, pasta, popcorn, ready to drink (energy drinks)

Coco Cola Carbonated drinks, bottled water, lemonade, fruit juices, powdered drinks, health drinks, tea, coffee, ready to drink (energy drinks)

Coca Cola Carbonated drinks, health drinks, fruit juices, tea, coffee, bottled water, lemonade, milk, ready to drink (energy drinks)

milk

Kraft chocolates, malted foods, powdered drinks, biscuits, confectionery

Kraft chocolates, biscuits, confectionery, cottage cheese, sour cream, cookies, cheese, fruit juice, coffee, tea, snacks, frozen foods, ready to drink (energy drinks), malted foods, salty snacks, desserts, powdered drinks, whipped

cottage cheese, sour cream, cookies, cheese, fruit juice, coffee, tea, snacks, frozen foods, ready to drink (energy drinks), salty snacks, desserts, whipped cream, dressing

Danone yogurt Danone Milk, yogurt, baby foods, bottled water, desserts

Milk, baby foods, bottled water, desserts

Perfetti vanconfectionery, chips Perfetti van confectionery

Heinz ketchup, ghee, powdered drinks, malted food drinks, biscuits, baby food, health drinks

Heinz ketchup, baby foods, frozen food, ready to cook, ready to eat‐chicken, starters, soup, salsa, pasta, baked beans

frozen food, ready to cook, ready to eat‐chicken, starters, soup, salsa, pasta, baked beans

Hershey's confectionery, fruit drink, edible oil

chocolates, confectionery, milk, biscuits

chocolates, milk, biscuits

Unibic biscuits, digestive biscuits, cookies

Unibic biscuits, chips, snacks, healthy snacks, digestive biscuits

chips, snacks


Food

Company Products in India Parent Portfolio of Parent GapKellogg's Cornflakes, oats Kellogg's cornflakes, rice flakes, health

drinks, health bars, flavoured milk, desserts, cookies, snacks, chips, frozen foods, ready to cook, ready to Eat‐ hot dogs, breakfasts

rice flakes, health drinks, flavoured milk, desserts, cookies, snacks, chips, frozen foods, ready to cook, ready to eat‐ hot dogs, breakfasts

Dr Oetker Mayonnaise, different cuisine sauces, syrups, peanut butter, breakfast‐ cornflakes, oats; ready to cook‐cake

Dr Oetker flavorings, breakfast‐ cornflakes, oats; baked foods, snacks, cuisine sauces, frozen foods‐ vegetables, pizza; ready to cook‐ pizza, pie, pasta, cake, organic mix, mashed potatoes, jel ly mix

flavorings, baked foods, snacks, frozen foods‐ vegetables, pizza; ready to cook‐ pizza, pie, pasta, organic mix, mashed potatoes, jel ly mix

Domino's starters, pizzas, pastas, calzone, desserts, chicken, beverages

Domino's starters, pizzas, pastas, sandwich, chicken, desserts, beverages

sandwich, calzone

Pizza hut pizza, beverages‐ mocktails, shakes, aerated drinks, soup, salad, pasta, ice creams, desserts

Pizza hut Pizza, calzone, pasta, pizza dough, chicken, starters, beverages‐aerated drinks

pizza dough

McDonalds Burger, wrap, salad burger, French fries, puff, potato wedges, aerated drinks, ice cream, breakfast burgers, milkshakes, cold coffee

McDonalds Burger, wrap, salad burger, French fries, chicken, salad bowl, breakfast meals, yogurt, ice cream, beverages, cookies, milkshakes, cold coffee, aerated drinks, fruit plate, juice, apple pie

chicken, salad bowl, yogurt, cookies, fruit plate, juice, apple pie

KFC burger, French fries, rice, flavoured curry, chicken, wrap, aerated drinks, milkshakes, buttered corn, ice cream, chocolate cake

KFC chicken, pie, burger, wrap, rice, ice cream, chocolate cake, cookies, mashed potato, pasta, baked beans, corn, potato wedges, aerated drinks

pie, mashed potato, pasta, baked beans, potato wedges

Starbucks Starbucks coffee, flavoured coffee, chocolate beverages, espresso, cold coffee, fruit juice, milk, flavoured milk, tea, iced tea, green tea, lemon tea, flavoured tea, milk shakes, bottled drinks, desserts; bakery‐muffins, bagel, cookies, cake, doughnut; breakfast‐wrap, sandwich, salads; ice cream, yogurt, cream cheese

coffee, flavoured coffee, chocolate beverages, espresso, cold coffee, fruit juice, milk, flavoured milk, tea, iced tea, green tea, lemon tea, flavoured tea, milk shakes, bottled drinks, desserts; bakery‐muffins, bagel, cookies, cake, doughnut; breakfast‐wrap, sandwich, salads; ice cream, yogurt, cream cheese


Food

Company Products in India Parent Portfolio of Parent GapDunkin Donuts Dunkin Donuts apple pie, bagel, breakfast,

sandwiches, cookies, hash brown, muffins, breadsticks, juice, coffee, cold coffee, milkshakes, tea, iced tea, chocolate milk

apple pie, bagel, breakfast, sandwiches, cookies, hash brown, muffins, breadsticks, juice, coffee, cold coffee, milkshakes, tea, iced tea, chocolate milk

Subway sandwich, fat free sandwich, breakfast sandwich, salad, cookies, aerated drinks, cold coffee, iced tea, pastry

Subway sandwich, fat free sandwich, breakfast sandwich, salad, muffin, chips, cookies, aerated drinks, cold coffee, iced tea, juice, apple, milk, yogurt

muffin, chips, juice, apple, milk, yogurt

McCain Foods

frozen food‐French fries, aloo tikki, wedges, nuggets, burger patty, Rice Idli

McCain Foods frozen food‐French fries, spiral fries, rosti, patties, sweet potato, onion rings, cheese sticks, baked potato, pizza, peas, carrots, desserts

frozen food‐spiral fries, rosti, patties, sweet potato, onion rings, cheese sticks, baked potato, pizza, peas, carrots, desserts

Cargill edible oil, mustard oil, olive oil, healthy cooking oil

Cargill edible oil, salt, fresh meat, frozen meat, mayonnaise, olive oil, salad dressing, sugar substitutes, chocolates, frozen food‐turkey, chicken

salt, fresh meat, frozen meat, mayonnaise, salad dressing, sugar substitutes, chocolates, frozen food‐turkey, chicken

General Mills

flour, vermicell i , cream, healthy bars, ice cream, mixes‐ cake, custard, desserts, ready to cook‐corn

General Mills flour, breakfast cereals, ice cream, snacks, yogurt, cream, mixes‐ cake, cookie, bread, muffin, biscuit, desserts; ready to eat‐salad; ready to cook‐potato, biscuit, pasta, meat, Chinese, soup; frozen food‐puddings, dough, pizza, fruits, vegetables

breakfast cereals, snacks, yogurt, mixes‐ cookie, bread, muffin, biscuit; ready to eat‐salad; ready to cook‐potato, biscuit, pasta, meat, Chinese, soup; frozen food‐puddings, dough, pizza, fruits, vegetables

Reckitt Benckiser

Reckitt Benckiser

mustard oil, salt alternatives, flovoured sauce, snacks‐potato chips, fried onions

mustard oil, salt alternatives, flovoured sauce, snacks‐potato chips, fried onions



Food

We expect big opportunities in these food segments Staples: The ~INR3325bn category is one of the largest categories. Packaged part of this is expected to grow at a healthy rate of ~18%. It can be further classified into packaged salt, packaged wheat, packaged rice, packaged spices and edible oil. Snacks: This includes biscuits, namkeen, noodles, pasta, chocolates, confectionaries, Ready to eat (RTE), upma, poha etc. The snack food market in India is estimated to be worth INR409bn growing at 18% yearly. Milk and milk derivatives: Indian dairy industry stands at around INR3500bn with the unorganized segment dominating 80% of it. Beverages: Total size is ~INR193bn. India accounts for approximately 10% of the global beverage consumption, being the third largest market in the world after United States and China. Main reasons for growth are: increasing population and disposable incomes. Around 120 bn litres of beverages are consumed by Indians every year, of which only 5% comes from the packaged segment. Thus there lies an immense growth opportunity. Bottled water: The bottled water segment is estimated to be worth INR30bn. There are about 200 bottled mineral water brands in India and nearly 80% of them are local. Three key players who dominate the Indian bottled water market are Parle with Bisleri, Coca‐Cola India with Kinley and PepsiCo India Holdings with Aquafina. Health Food: This segment is likely to see one of the highest growth levels in the entire Food segment. It has many sub‐segments like Chyawanprash, Butter alternatives, healthy cooking oils, sugar substitutes, energy drinks, Health drinks, Healthy snacks and High fiber beverages. Non‐vegetarian food: The poultry market in India comprises of three main categories: meat, eggs and processed value added products. Organised sector dominates the poultry market (meat and egg comprise 95% of this segment) with a share of 70%. With INR300bn, meat segment dominates the market while eggs market stands at INR150bn in size. Restaurants: The total restaurant industry in India is ~INR430bn, comprising two distinct segments: the organized and the unorganized. The industry has shown a growth rate of 5‐6% per annum with the organized sector estimated at INR85bn and growing at an annual rate of 20‐25%. The changing perceptions of the rich and the upper middle class with a rise in their disposable income have always driven the market. We expect Jubilant, McDonalds, KFC, Blue Foods to do well. We analyze this in greater detail below:


Food

Staples Staples form a major chunk of consumer’s daily consumption and can be classified into packaged salt, packaged wheat flour, packaged rice, spices and edible oil. This category requires low processing, makes less margins and is a high volume business. Since technology requirement is fewer, it is still dominated by unorganized players. However, we are witnessing an increasing shift towards brands as consumers are getting more health and quality conscious.

Table 26: Snapshot‐ Staples

Segment

Current size (INR

bn) 5 year

CAGR (%)

Proj. 5 yr value (INR

bn) 10 year

CAGR (%)


bn) Companies BrandsPackaged Salt 25 12.0 44 10.0 65 Tata Chemicals Tata Salt

ITC Aashirvaad SaltMarico Saffola Salt

Wheat Flour 1,000 8.0 1,469 6.0 1,791 ITC AashirvaadShakti Bhog ShaktibhogHUL AnnapurnaPillsbury Pil lsbury

Rice 1,000 7.0 1,403 6.0 1,791 LT foods ltd DaawatKohinoor Foods KohinoorLakshmi Energy Royal Bril l iance KRBL India GateMarico Saffola

Spices 400 8.0 588 6.0 716 MDH MDHMTR Foods MTREverest Spices EverestDS Group Catch

Edible Oil 900 7.0 1,262 6.0 1,612 KS Oils Kalash, Double Sher, KS GoldAgro Tech SundropCargil l Nature Fresh, GeminiAdani Wilmar Fortune, Kings Oil, Fryola


Packaged Salt

• Market size: the branded salt market in India is INR25bn. • Main players: Tata Salt from Tata Chemicals dominates the branded salt category,

followed by ITC. Marico has a niche presence through Saffola Salt.


Food

Chart 47: Market share

Tata62%ITC

10%

Others28%


Wheat flour: Branded wheat flour accounts for only 4% of the total market. Main players include Aashirvaad (50%+ share), Shaktibhog, Annapurna and Pillsbury. Packaged rice

• Market size: With a branded market of ~INR5bn, India is the second largest producer of rice in the world after China. Rice is grown both in summer as well as in winter in major producing states such as West Bengal, Uttar Pradesh, Andhra Pradesh, Punjab, Tamil Nadu, Bihar, Orissa, Assam, Karnataka and Haryana.

• Growth: Packaged rice has been growing at a CAGR of ~30% over the past four years.

• Main players: LT Foods Ltd, Kohinoor Foods Ltd, Lakshmi Energy and KRBL Ltd. Marico too has entered this segment.

Table 27: Organised rice players

Best food group KRBL REI Agro Ltd LT Foods Kohinoor FoodsYear of Incorporation 1998 1889 1994 1965 1976Milling Capacity (MT/Annum) 600,000 975,000 515,000 190,000 300,000Major Brand Noor India Gate Kasauti Daawat Kohinoor% basmati 100 89 95 100 100% non‐basmati 0 11 5 0 0% domestic 68 42 20 40 45% exports 32 58 80 60 55


All categories are based on FY10

Milling Capacity is considered the assumption of 20hr and 250 days within the working year cycle

Spices

• Market size: Currently estimated at ~INR400bn.

• Branded market at around INR55bn is extremely fragmented and includes national, regional and local players with in‐store brands. In the branded segment, MDH is the leader with a 7% market share. Catch brand of Spices commands a 3‐4% share while MTR, Everest and in‐store brands have a share of 3‐5% each.


Food

Chart 48: Total spice market

Un‐branded86%

Branded14%


Edible Oil

• Market size: At ~INR900bn out of which the branded edible oil market is ~INR200bn

• Palm and soy oils constitute more than 95% of total edible oil imports

• Although penetration is high, share of brands is low. The penetration of edible oil in urban and rural market is 98% and 95% respectively

• Per capita consumption: At 12.7 kg, the domestic per capital consumption is on an upward trend but is well below the world average of 20 kg thus providing growth opportunities.

• Branded oil segment is annually growing at the rate of 20%. Major players in the edible oil segment are Marico, KS Oil, Agro Tech, Cargill and Adani Wilmar. In the premium end of healthy edible oil category, Saffola leads the market.

Chart 49: Per Capita Consumption

8.6 8.99.8 10.1 10.3 10.6

9.510 10.3

11.1 11.1 11.4 11.2

0.0

2.4

4.8

7.2

9.6

12.0

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

(Kg/annu

m)



Food

Dal

• Less than 1mn tonnes of dal come under the branded segment out of the total market size of around 20mn tonnes.

• India faces a demand‐supply gap in pulses. The annual supply of pulses is ~15mn tonnes, whereas the demand exceeds 18mn tonnes, thus creating a dependence on imports.

• Pulses are in short supply in India; hence a significant part is met through imports, which are of a different quality.

• A large consumer base and a high annual demand growth is prompting many companies to expand their agricultural products portfolio with branded pulses.

• Safety and hygiene reasons are likely to attract more consumers.

• The semi‐urban and rural areas are likely to take time to accept branded pulses.

• Main players‐ Future Group, Reliance Retail, ITC, Tata Chemicals, Adani Wilmar and Lakshmi Energy Foods.

Snacks This includes biscuits, namkeen, noodles, pasta, chocolates, confectionaries, Ready to eat (RTE), upma, poha etc. The salty snack food market in India is estimated to be worth INR120bn with the branded snack market at INR50bn and growing at 15‐20% yearly. Modernization and urbanization are driving a sea change in the lifestyle of Indian consumers. With more people living away from home, increase in the number of working women and rise in single member households, the convenience foods market has gained huge popularity of late. The convenience food market can be broadly classified into noodles (instant food segment), breakfast cereals, savouries (namkeens, chips etc.) and soups. Despite the presence of Nestle, ITC, HUL, Pepsi, MTR, Kohinoor Foods and Haldirams and variety of products, the market is still at a nascent stage since the Indian consumer is willing to spend on snacks that offer convenience, variety and health. The convenience foods market faces two key challenges: lack of validated quality standards and the association (by many consumers) that it is junk food. Players are rising to these challenges and trying to reformulate these snacks by using healthy fat and oil, whole grains, fibers and sodium alternatives. “Those who forget the pasta are condemned to reheat it” ~Anonymous

Pulses are dominant in the non‐branded form


Food

Table 28: Snapshot snacks

Segment Current size

(INR bn) 5 year

CAGR (%) Proj. 5 yr

value (INR bn) 10 year CAGR (%)

Proj. 10 yr value (INR bn) Companies Brands

Biscuit 126 15.0 253 13.0 428 Parle Products Parle G, Parle Marie, Hide & SeekBritannia Tiger, Good Day, 50‐50ITC Sunfeast

Salty Snacks 120 20.0 299 18.0 628 Haldiram HaldiramConAgra DavidPepsico Kurkure, Lehar NamkeenVenkatraman PeppyITC Bingo

Chips 30 22.0 81 20.0 186 PepsiCo Lays, Uncle ChipsBalaji Wafers Balaji namkeenITC BingoHaldiram HaldiramParle Products Parle's WafersPrakash Snacks Yellow Diamond

Instant FoodNoodle 18 20.0 45 17.0 87 Nestle Maggi

HUL KnorrGSK FoodlesITC Sunfeast YipeeNissin Foods Top Ramen

Pasta 1 25.0 3 28.0 12 Nestle Maggi Nutril icious PazztaITC Sunfeast PastaHUL Knorr soupy pastaFuture Group Tasty Treat

Bambino Agro Bambino PastaBreakfast cereal

Oats 1.5 28.0 5 25.0 14 PepsiCo QuakerBagrry Bagrry's OatsMarico Saffola OatsKellogg's Heart to Heart Britannia Healthy Start

Cornflakes 5 25.0 15 23.0 40 Kellogg's Kellogg'sMohan Meakin MohanFuture Group Tasty Treat

Ready to eat 4 18.0 9 20.0 25 MTR MTRReady to cook 15 25.0 46 28.0 177 ITC Kitchens of India

Future group Tasty TreatAgro tech Sundrop 10min Yummeals

Ketchup 5 18.0 11 16.0 22 Nestle MaggiHUL KissanHeinz Heinz Ketchup

Pickles 17 15.0 34 13.0 58 Desai Brothers Mother's RecipeCavinKare Ruchi Pickles, Chinni's Pickles

Confectionery 41 16.0 86 14.0 152 Perfetti van Melle Alpenliebe, Center Shock, Happydent WhiteITC Mint‐OCandico Loco PocoParle Products Poppins, Mango BiteCadbury EclairsNestle Eclairs

Chocolate 25 20.0 62 18.0 131 Cadbury Dairy Milk, Perk, Gems, 5‐StarNestle Kit Kat, Munch, Milkybar



Food

Biscuits • Biscuits market size is INR126bn and is the largest branded consumer segment.

• The per capita consumption of biscuits in India is 1.5 kg per year.

• The penetration of biscuits in urban and rural market is 85% and 55% respectively.

• McVitie's, launched a year back, now claims a 20% share of the INR1bn digestives category, growing at a rapid rate of 40%. Parle and Britannia are also present.

Main categories of biscuits: Glucose, Marie, Sweet, Salty, Cream and Milk. Glucose biscuits accounts for ~30% of the total market value with Parle G dominating with ~60% share, followed by Britannia and ITC. In the non‐Glucose, Britannia is strong. Most players except Parle are focusing on non‐glucose segment which is growing faster, showing the Premiumization effect. Britannia has forayed into diabetic‐friendly products. Chart 50: Biscuit market

98.3

112.1

126.6

0

28

56

84

112

140

FY 08‐09 FY 09‐10 FY 10‐11

(INR bn

)

The biscuit market


The Indian biscuit industry is dominated by major brands like Parle, Britannia and ITC Sunfeast. Also the category has strong regional brands such as Priya Gold, Cremica, Dukes, Anmol, Biskfarm, Rose, Sobisco, etc. GSK too is expanding its presence in biscuits under Horlicks brand.


Food


Parle40%

Britannia25%

ITC8%

Priyagold5%

Anmol4%

Others18%

2010‐11


Chart 52: Biscuit consumption in India

North25%

West23%South

24%

East28%


Salty snacks/Savouries

The salty snack food market in India is estimated to be worth INR120bn including the branded snack segment of ~INR50bn, growing at 15‐20% yearly. The INR70bn unorganised sector is growing at 7‐8 %. Munching between meals is common in the country with a variety of snacks ‐ offered in mind‐boggling regional specialities – gaining national acceptance. According to an Apeda (Agricultural and Processed Food Products Export Development Authority) survey, there are about 1,000 snacks items and 300 types of savouries sold in the country. Salty snacks are rapidly replacing home‐made savouries in both big and small cities. As per a survey conducted by electronics payments company VISA on mystery spending or cash spent but which cannot be accounted by consumers, Indians spend the second highest on snacks. The average mystery spending per week of young Indians in the age group of 18 to 24 years stood at INR383 ‐ of which almost 36% was for snacks. The total spending per year on snacks for one person thus stands at around INR7,000.

Parle42%

Britannia25%

ITC8%

Priyagold5%

Anmol4%

Others16%

2009‐10


Food

As per AC Nielsen, the CAGR for snacks in the rural market over the last two years stood at 26.7% as against 13.2% in urban areas. Though contribution of rural areas is ~ 35%, it is growing much faster than urban markets. Large part of the market is dominated by unorganized local players. This segment includes chips/crisps, extruded snacks, nuts, popcorn, and mixtures. The well known names in this segment are Haldiram, ConAgra, PepsiCo’s Kurkure, Cheetos and Leher, ITC’s Bingo, Venkatraman Food Speciality Ltd’s Peppy, Senor Pepito tortilla chips and Piknik. Chips

Chips is the single biggest item in the snacks and savoury category and has seen the highest interest from larger players. ITC’s launched Bingo to compete with PepsiCo (Frito Lays, market share: 58 %; brands: Lays, Kurkure, Aliva and Uncle Chipps.) While Bingo has grown through some innovative products and advertising/ promotion, taking its share of the INR30bn market to 9%, Frito Lays has retaliated with its new range of Indian snacks. Parle too has entered the market aggressively. In fact, Pepsi expanded the organised snacks market since 1995 when there were only few players like Haldiram and Amrit Agro. When PepsiCo launched Kurkure in 1999, it became a runaway success.

In 2000, Frito Lay India, a division of PepsiCo India, acquired the Uncle Chipps brand adding to its success. Aliva marks Pepsi’s creation of yet another segment; blending ingredients and textures from biscuits and flavours from namkeens and positioning it as a healthier snacking option. The next big leap happened in 2007 when ITC launched Bingo which brought flavours familiar to Indian taste buds. Next major launches were Parle Agro’s Hippo and Parle Products’ Smart Chips in 2009. Table 29: Market share‐ Chips

Mar‐11 Mar‐08Frito Lay India 58.0 66.0 (8.0) 28Balaji Namkeen 14.0 13.0 1.0 55ITC 9.0 11.0 (2.0) 36Haldiram 5.0 3.0 2.0 55Parle Products 5.0 0.0 5.0 30Prakash Sancks 4.0 2.0 2.0 45

Snacks MakersMarket share (%)

% ChangeOffering per INR 10 Pack*

Source: The Nielsen co, Edelweiss research

*Weight in gram Instant food The instant food segment mainly consists of noodles and pastas. The noodles market is around INR18bn with Nestlé’s Maggi dominating the market. Other players in the noodles market are HUL with Knorr, Glaxo SmithKline with Foodles, ITC with Sunfeast Yipee and Nissin Foods with Top Ramen.


Food

Chart 53: Noodle‐ market share Chart 54: Pasta‐ market share

nestle80%

HUL2%

GSK3%

ITC5%

Indo nissin7%

others3%


Though at a nascent stage, the pasta market is around INR1bn with Nestle leading the market with 70% share, far ahead of ITC’s Sunfeast Pasta (27%). Nestle became the fastest leader in pasta, riding on the strength of Maggi brand and its large product portfolio. Breakfast cereal

The total market of INR6.5bn (with Kellogg’s India leading with a massive ~65% share) can be divided into two main categories: oats and cornflakes. Muesli is also a type of cereal though with a small market while oats is ~23% of the total breakfast cereals market with a share of ~INR1.5bn, growing at ~40% per annum. Cornflakes market is growing at 20% per annum. Oats are more popular in South India while cornflakes generally sell better in metros. Recently Marico and Britannia have entered oats.

Key players

• Oats: PepsiCo’s Quaker Oats, Bagrry’s Oats, Marico’s Saffola Oats, Kellogg’s Heart to Heart oats, Britannia’s Healthy Start

• Cornflakes: Kellogg’s is the dominant player in corn flakes with ~65% share while Mohan Meakin with its Mohan brand is strong in the North. Most retailers including Pantaloon (Tasty Treat cornflakes) and Birla Retail (Feasters) have private labels which are doing fairly well.

Trends

• We expect Nestle India to launch breakfast cereals in India followed by HUL. Heinz India would enter the breakfast cereal market by introducing Complan Nutri Bowl Muesli.

Nestle70%

ITC27%

others 3%


Food


65

35

0.0

20.0

40.0

60.0

80.0

100.0

Market share (%)

(%)

Kellogg's Others

Source: Edelweiss research Ready to Eat/ Ready to Cook

The RTE market in India is in its nascent stage and is worth around INR4bn, but has a huge potential. The Ready‐to‐Cook market is estimated at around INR15bn. With the changing socio‐economic pattern and increasing number of working couples, the concept of convenience food is fast becoming popular in India for saving time and effort. As this segment extends shelf‐life, making products available off the market shelves, demand has been rising at a good pace. There is enough latent market potential waiting to be exploited through developmental efforts. This segment is growing at ~25% CAGR. Factors helping growth would be cold chain development, disintermediation, streamlining of taxation, economies of scale on the supply side, coupled with increasing disposable incomes, diminishing culinary skills and the rising need for convenience on the demand side. Read to Eat to remain niche, will lag Ready to Cook: Indian woman wants to retain control over the kitchen and taste. While she would use cooking aids and masalas, she is less likely to buy ready to eat “meals”. So Ready to Eat will be niche segment catering to bachelors and students. According to Sanjay Sharma, CEO, MTR Foods, Indian woman wants products that enable her and not replace her. That's a critical thing food marketers in India need to understand. As explained by Damodar Mall, customer director of Future Group “Companies are trying to be chefs, but a woman wants the last mile of cooking to belong to her which is why she’d rather hire a cook”. The convenience food could be classified into two categories:

1. Shelf–stable convenience food

2. Frozen convenience food Shelf‐stable convenience food is further classified as:

• Ready‐to‐Eat (RTE): Idlis, dosas, pav bhaji, meat products like pre‐cooked sausages, ham, chicken products, curries, chapattis, rice, vegetables like aloo chole, navratan kurma, channa masala etc.


Food

• Ready‐to‐Cook: Instant mixes like cake mixes, gulab‐jamun mix, falooda mix, ice cream mix, jelly mix, pudding mix etc.

Fig. 11: MTR Ready to eat products

Source: Company

Major players

• MTR Foods is the market leader, having captured 53% of market share.

• Through Kitchens of India, ITC presents Ready to Eat, Ready to Cook packaged foods.

• The Future Group is present only in the Ready to Cook segment under the Tasty Treat brand.


MTR Foods53%

Others47%



Food

Frozen food

Mother Dairy is using its ice cream carts for an interesting experiment — distributing its Safal peas. It will also soon move beyond peas, corn and mixed vegetables and offer a whole basket of frozen snacks, including buttered and salted corn cobs, cheese cutlets and French fries. There are other players like Godrej Tyson Foods' Yummiez brand; Canadian French fries giant McCain and India Equity Partners' Sumeru brand. This segment is now doing well on the back of new products, better infrastructure, joint‐promotions with modern retail and higher consumer acceptance. Convenience and the out‐of‐home experience is a trigger. As more Indians eat out and try to replicate it at home, frozen foods is set to explode. With two new Yummiez offerings, Dilli Aloo Chaat and Seekh Kabab, Godrej Tyson Foods has recently launched typical restaurant or street food items that are difficult to be made at home as potatoes need to be coated with chutneys and seasonings. Godrej Tyson Foods is innovating on 5‐6 frozen products at its Bangalore R&D Lab. McCain, after wooing Indians with its frozen potato offerings has gone in for a local twist by recently launching frozen idlis in the Delhi market. India Equity Partners bought out the Tata‐group controlled Innovative Foods, which retails the Sumeru brand of frozen paranthas, peas and sea food products. Competition in this segment at the national brand level is from Yummiez, Venky's, McCain and Mother Dairy's Safal. As per McCain's MD Mr K. S. Narayanan, Managing Director, in the last few years, consumers in India have gone through a dramatic transformation in lifestyle by moving from traditional spending on food and groceries to lifestyle and convenience foods, driving home consumption of frozen items. The key challenge in expansion into tier 2 and 3 towns is the shortage of power for which, the solution lies in smaller packs. Mother Dairy is looking at launching single‐use packs ‐ 100 gm sachets of peas to address the power issue. Mother Dairy sells 10,000 tonnes of Safal peas yearly and says it is the market leader in consumer packs. The branded frozen foods category is estimated at INR10bn and growing at 20‐25 per cent per annum. Ketchup

With the growing patterns of fast food consumption in the country, the need for ketchup with a current market size of INR5bn is also increasing. Fast foods and ketchups are directly proportional to one another. According to a recent survey (conducted by Down to Earth), Indians spend about INR44.49bn a year in fast‐food centers. Thus ketchup has seen a similar rise in demand in line with fast foods. The penetration of ketchup in urban markets is 15% with a lower penetration in rural areas. Main players

• The top ketchup brands in India are Maggi, Kissan and Heinz.

• There are also a host of local ketchup brands that account for the rest of the market share of the ketchup industry in India.

Pickles

Market size

• The pickles market in India is worth ~INR17bn of which organized market is around INR5bn. The market is highly fragmented and dominated by local players.


Food

Chart 57: Total pickle market

Unorganized73%

Organized27%


Confectionery

• The confectionery sector includes chocolates like éclairs and toffees, sugar confectionery or hard boiled candies, lollipops, mints and lozenges, bubble gums and cereal bars.

• The Indian confectionery market has a size of INR41bn (non‐chocolate). The chocolate market is worth INR25bn.

• This market is largely consumed in urban areas with a 73% skew to urban markets and a 27% to rural markets. The penetration of chocolates in urban and rural market is 28% and 7% respectively.

• The major confectionery companies in India are Cadbury (Dairy Milk, Perks, Gems, 5‐Star celebrations, Bytes, Dairy Milk Eclairs, Eclairs Crunch, Halls, Bubbaloo Bubblegum), Nestle (Kit Kat, Kit Kat Chunky, Munch, Munch Pop Choc and Milkybar Crispy Wafer), Parle Products (Poppins, Mango Bite), Parle Agro (Simply Imlee), ITC (Mint‐O), Perfetti van Melle (Centre Shock, Happydent White, Alpenliebe, Big Babol, Chloromint and Cofitos) and Candico (Loco Poco). Perfetti van Melle has 30% market share whereas Parle 15%.

Table 30: Market share Product Market share (%)Hard boiled candy 18.0Éclairs and toffees 18.0Gums, mints and lozenges 13.0Digestive candies and lollipops 2.0



Food

Chocolates

The chocolate market in India is ~INR25bn ‐ 65% of it is consumed in urban areas. The Indian confectionery market is highly concentrated (top four players have ~80% share) and dominated by MNCs like Cadbury (now Kraft), Perfetti Van Melle, Nestlé and Mars. India’s per capita (yearly) consumption of chocolates is just ~54 gm in comparison to the 10.5 kg in the US and 10 kg in UK. India might have a low per capita chocolate, but it is not low in terms of consumption of sweets. Chocolates are increasingly replacing Indian sweets as gift items during festivals. Companies are capitalizing on this trend by introducing chocolate gift packs for festivals such as Diwali, Raksha Bandhan etc. Chocolate gifts offer convenience in terms of packaging and shelf life. Cadbury (now Kraft) has ad campaign “Shubh Aarambh” (meaning ‘Good Beginning’) to promote the chocolate as the substitute of sweets, banking on the Indian tradition of having something sweets before every auspicious occasion. Fig. 12: Consumption pyramid

Aspirants & Destitutes

Consumingclass & climbers

RichHighly influenced by health, premium and value add products

Knack for experimenting, not prices conscious but brand conscious

Prices sensitive, brand hoppers

Sugar free products, Bournvitta, Cadbury silk

Kit Kat, Munch, Dairy Milk

Cadbury shots, xxxx


Table 34: Market share form‐wise Form Market share (%)Bars/moulded 35‐40Counts 30.0Assorted chocolates 20.0Panned chocolates 10.0Eclairs 5.0

Source: Edelweiss research Chart 58: Market share company‐wise

Cadbury70%

Nestle20%

Others10%



Food

Milk, milk derivatives India is the world leader in milk production. Its Indian dairy industry is worth ~INR3500bn with the unorganized market accounting for ~80%. Contribution from various categories‐ Liquid milk INR1610bn, INR426bn from ghee, INR245bn from yogurt, INR123bn from milk powder, INR228bn from butter, INR10bn from cheese, INR35bn from ice cream and INR300bn from other products.

Table 31: Snapshot‐ dairy


(INR bn) 5 year

CAGR (%) Proj. 5 yr value

(INR bn) 10 year

CAGR (%) Proj. 10 yr

value (INR bn) Companies BrandsIndian dairy industry

milk 1,610 8.0 2,366 6.0 2,883 Amul Amul TaazaParas Dairy ParasMother Dairy Mother DairyNestle Nestle Milk

whiteners 123 17.0 270 15.0 498 Amul AmulyaNestle Everyday

Ghee 426 8.0 626 6.0 763 Amul Amul Gheeyogurt 245 20.0 610 18.0 1,282 Amul Amul Masti Dahi

Nestle Nestle DahiBritannia Daily Fresh DahiGowardhan Go DahiDanone India Danone Creamy

butter 228 10.0 367 8.0 492 Amul Amul ButterBritannia Milkman Butter

cheese 10 15.0 20 14.0 37 Amul Amul CheeseBritannia Cheese SliceGowardhan Go Cheese

ice cream 35 18.0 80 16.0 154 Amul Amul Ice CreamHUL Kwality WallsVadilal Group VadilalMother Dairy Mother DairyHatsun Agro Products Arun

Other 300 14.0 578 12.0 932 Amul AmulMother dairy Mother Dairy

Source: Edelweiss research Fluid milk

• India is the world leader in milk production but demand is growing faster than supply leading to high inflation in milk prices.

• This is because of a huge base of around 11mn farmers organised into about 0.1 mn Village Dairy Cooperative Societies.

• The Indian dairy market is currently growing at an annual growth rate of 7%.

• The organized sector still remains small at about 20% of the diary industry whereas the unorganized sector controls about 80%

• According to NDDB the dairy cooperative network includes 177 milk unions operating in over 346 districts and covering 133,349 village level societies is owned by around 13.9mn farmer members of which 3.9mn were women


Food

ITC plans to enter the country's fast‐growing domestic dairy business by building a dairy in Bihar. ITC chairman Y. C. Deveshwar said that first products at the site in Munger would be skimmed milk powder and ghee followed by long‐life milk, refrigerated milk, cheese, butter and milk chocolates. ITC is currently running a milk enhancement programme with 500,000 cattle in Munger. Danone on its part has acquired Wockhardt's nutrition business and brands such as Farex, Dexolac, Nusobee and Protinex. Market size:

• The branded milk market in India is around INR400bn.

Main payers

• The milk market in India does not have many strong brands

• Amul enjoys a healthy market share of 26% in branded milk category.

• Others include Paras, Mother Dairy, Britannia, Gowardhan, Nestle, Aarey, Gokul, Vadilal etc.

Growth

• The demand for milk has increased in urban areas despite price hikes.

• Packaged milk has been growing at 24% annually

Trends

• Increasing preference for branded dairy products.

• Growing focus on health and nutrients in urban market

Dairy whiteners

• These are liquid or granular substances intended to substitute for milk or cream as an additive to coffee or other beverages.

Market size

• The dairy whiteners total market size is around INR123bn.

Main Players

• The main players include Nestle, Amul, Mother Dairy, Britannia, Dynamix Diary, Sterling Agro, Haryana Milk Foods, Modern Dairy

• Amul enjoys a healthy market share of 45% through its brand Amulya.

Penetration

• The penetration of milk powder in urban and rural market is 7% and 3% respectively.

Yogurt

• Market size: The Indian packaged yogurt market is around 0.1mn tonne per annum with the organised part of the industry at ~10%. Size of packaged yoghurt is INR5bn.


Food

• Main players: Amul Dahi (Masti brand), Nestle, Britannia, Gowardhan (Go) and Chitale Dairy. It is also available in loose form at local mithai stores, often extremely sour. Recent entrant is Danone.

• Per capita consumption: The per‐capita consumption in India is at 0.5 kgs while in European countries the average is around 30 kgs

• Growth: The yogurt industry is growing at a healthy rate of 15‐20% annually ‐ the organised market growing at about 20%. There is plenty of room for growth in metros.

Butter

• Amul enjoys leadership position across segments ~90% market share in branded butter.

• Major players: Amul, Britannia, Nandini, Aavin and Mother Dairy Cheese

• Amul's value‐for‐money pricing strategy has assisted the brand in strengthening its volume share from 72% to 83% during the period.

• According to the data, the volume share of Go, a relatively new brand in the market from Gowardhan, has gone up from 1% to 3%. Go is also aggressively pushing its product in modern retail format stores through discounts and heavy margins.


Amul83.0%

Britannia8.3%

Gowardhan3.0%

Others5.7%



Food

Ice creams

The growth in the ~INR35bn Indian ice cream industry has been primarily due to a strong distribution network and a good cold chain infrastructure. The market can be divided into branded and the grey or unbranded. The branded market is currently is valued at ~INR15bn. The grey market consists of small local players and cottage industry. Per capita consumption of ice cream in India is about 300 ml as compared to the world average of 2.3 liters per annum. The penetration of ice cream in urban and rural market is 25% and 9% respectively. HUL reported sales of INR2720mn from Frozen Desserts and Ice Cream in FY11. Chart 60: Market share

Amul38%

Kwality14%

Vadilal12%

Mother Dairy8%

Arun4%

Others24%



Food

Beverages India accounts for approximately 10% of the global beverage consumption, being the third largest market in the world after United States and China. Main reasons for growth are: increasing population and disposable incomes. Around 120 bn litres of beverages are consumed by Indians every year, of which only 5% comes from the packaged segment. Thus there lies an immense growth opportunity.

Table 32: Snapshot‐ beverages

Segment

Current size (INR

bn) 5 year

CAGR (%)

Proj. 5 yr value (INR bn)

10 year CAGR (%)


100% Fruit Juice

5 22.0 14 20.0 31 Dabur Real

PepsiCo TropicanaParle Agro SaintHUL Kissan

Carbonated Drinks

60 12.0 106 10.0 156 Coca‐Cola Coca cola, Sprite, Fanta

PepsiCo Pepsi, 7 UP, Mirinda

Powdered drinks

4.5 15.0 9 12.0 14 Pioma Industries

Rasna

Kraft Foods TangCoca‐Cola Fanta Fun Times

Energy Drinkspowdered 6 18.0 14 15.0 24 Heinz Glucon D

Dabur Glucose DRTD 2 20.0 4 18.0 8 Red bull Red bull

Health Drinks 2 20.0 4 18.0 8 Amul StaminaHUL Kissan Fruit Juice and

SoyaGSK LucozadePepsiCo Gatorade

Lemonades 1 20.0 2 18.0 5 PepsiCo NimboozCoca‐Cola Nimbu FreshParle Agro LMN

Coffee 30 11.0 51 9.0 71 Nestle NescafeHUL Bru

Instant coffee 8 25.0 24 20.0 50 Nestle Nescafe

HUL BruTea 75 12.0 132 10.0 195 Tata Global

BeveragesTata Tea, Tetley

HUL Brooke Bond, Taj Mahal, Lipton Source: Edelweiss research


Food

The per capita consumption of beverage in various countries is shown below: (Based on 250ml of a finished beverage) Chart 61: Per capita consumption

0 50 100 150 200 250

India

china

brazil

russia

indonesia

worldwide

2010 2000 1990 Source: Edelweiss research

This data shows the growth potential in this market. The main categories in the industry include:

Fig. 13: Beverages classification

Non alcoholicbeverages

Fruit juice beverages

Carbonateddrinks

Powdereddrinks

Energydrinks

Health baseddrinks Tea/coffee Lemonades

Fruit juice

Nectar

Fruit drinks

Ready to drink

Powdered



Food

Fruit juices

This segment includes

• Fruit juices like PepsiCo’s Tropicana

• Nectars like Dabur’s Real

• Fruit drinks like Frooti and Slice

All these are real, reconstituted from fruit pulps or concentrates. They only differ in pulp content: juices have over 85%, nectars have about 20 to 80% and fruit drinks have less than 20%.

• The total market in 100% fruit juice is about INR5bn

• The per capita consumption is very low at only 20ml. (China has a consumption level of 1500ml).

In the fruit juice segment comprising fruit juices and nectars, major players are Dabur (Real), PepsiCo (Tropicana) and Parle Agro (Saint). Others players include Surya Foods, Mother Dairy, Ladakh Foods, Pioma industries, Del Monte and HUL. Chart 62: Market share

Dabur50%

Pepsico35%

Parle Agro8%

Others7%


The fruit drink segment is dominated by Parle Agro’s Frooti which has 70‐75% market share while other two hot sellers are PepsiCo’s Slice and Coca‐Cola’s Maaza. Dabur has introduced its Burrst Fizz brand in South India and has plans to introduce it in North India next summer. The fruit‐based carbonated drink segment has a market size of INR2bn with products like Parle Agro's Appy Fizz, Pepsi's Nimbooz and Coca‐Cola's Minute Maid Nimbu Fresh having a strong presence.


Food

Carbonated drinks

• The Indian carbonated industry is worth INR60bn

• The consumption pattern is seen to be skewed towards urban population with the urban market share being 75% of the total soft drinks market.

• The consumption is seen to be the highest in summer season with 25mn crates being consumed per month as compared to only 15mn crates being consumed per month during the rest of the year.

• The dominant players in this sector are Coca‐Cola and PepsiCo which together have a market share of more than 90%

• The penetration of carbonated drinks in urban and rural market is 37% and 12% respectively.

Chart 63: Consumption

Urban76%

Rural24%


Powdered drinks

• The branded powdered market is INR4.5bn

• This sector amounts to only 1% of the total beverage market

• The market is growing at a rate of 20% per annum

• Per capita consumption is just 3‐4 glasses

• The orange flavour is the largest segment in the powdered drink industry There is one dominant player in this category; Rasna which controls ~90% of the total market. Second in line is Kraft Foods’ Tang which has been in the market for about three years but has been unable to give competition to Rasna. Coca‐Cola has entered the market for the second time with Fanta fun times after failure of its Sunfills brand.


Food

Energy drinks

• The total energy market is to the tune of INR7.5bn

• Total sales is of 1.5mn cases (of 24 cans each) per annum

• The market is predicted to grow at CAGR of 29% during the 2009‐12 period

• The market can be divided into ready‐to‐drink and powdered

• The powdered market dominates the energy drink segment with INR6bn while Ready‐to‐drink enjoys the remaining INR1.5bn

• Glucon D by Heinz, the market leader in the powdered drinks segment, enjoys a market share of 55%, followed by Dabur with 25% share

• Red Bull leads the ready‐to‐drink segment with a share of more than 50% followed by Power house which has a share of 22%

Fig. 14: Classification of energy drinks

Glucon‐D from HeinzGlucose by DaburRasana Glucose D by RasnaGlucovita by Wipro

Power house Romanov red Cloud 9 SoBe Burn SJ XXX

Red bulls

Powdereddrinks

Ready‐to‐drink


Lemonades

• Of the total juice market, lemon is the most preferred flavour in India with a 49% market share

• Annual consumption of lemonades is around INR1bn

Major brands: Three players namely, PepsiCo’s Nimbooz, Parle Agro’s LMN and Coke’s Nimbu fresh. Coffee

Market size

• The organized coffee market in India is around INR20bn.

• The total domestic coffee consumption is INR30bn.


Food

Chart 64: Production

240,000

255,000

270,000

285,000

300,000

315,000

02‐03 03‐04 04‐05 05‐06 06‐07 07‐08 08‐09 09‐10 10‐11

(MT)

Production

Source: Edelweiss research Consumption

• As per the Indian Coffee Board, domestic coffee consumption is increasing 5‐6% annually, partly due to expansion of the coffee café culture and the spread of the coffee drinking habit throughout India, even into non‐traditional coffee drinking regions in the north.

Chart 65: Consumption

0

25,000

50,000

75,000

100,000

125,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E

(MT)

Consumption


• The per capita consumption of coffee is about 600 gm in India compared to 10 kg in

Austria and close to 5‐6 kg in United States.

Penetration: The penetration of coffee in urban and rural market is 23% and 8% respectively.

Main players

• Main players in the organized segment are Nestlé’s Nescafe and HUL’s Bru.


Food

Instant coffee

• Instant coffee is a beverage derived from brewed coffee beans.

• The total instant coffee market is around INR8bn out of which INR3bn is organized.

Tea

• Tea is an essential item of domestic consumption and is the major beverage in India.

• Tea is also considered as the cheapest beverage amongst the beverages available in India.

• India is the world’s largest tea producer and the third largest exporter after Sri Lanka and Kenya.

Market size

• The branded tea market is ~INR75bn. The tea market size in India is ~980 mn kilograms annually, out of which 150‐180 mn kg is exported. The market size for vending iced tea is around INR0.3bn.

Main players

• Two main players in the branded tea segment are Tata Global and HUL. Other key players are Wagh Bakri, Duncan Tea etc.

Consumption of tea in India

• India with their huge population and growing income levels are making a major impact on the rise in world tea consumption.

• The per capita tea consumption in India is 0.75 kg. Chart 66: Consumption

0

180

360

540

720

900

2000 2004 2008

(Gram/head)

Domestic consumption Per Capita Consumption

Source: Edelweiss research Market penetration

• The penetration of tea in urban and rural markets is 92% and 82% respectively.


Food

Bottled water The bottled water segment is estimated to be worth INR30bn. There are about 200 bottled mineral water brands in India and nearly 80% of them are local brands. Three key players mainly dominate the Indian bottled water market; Parle’s Bisleri, Coca‐Cola’s Kinley and Pepsi’s Aquafina.

Table 33: Snapshot‐ bottled water

Segment

Current size (INR

bn) 5 year

CAGR (%)


10 year CAGR (%)


Packaged drinking water 30 23.0 84 20.0 186 Parle Bisleri BisleriPepsiCo AquafinaCoca‐Cola Kinley

Natural mineral water 2 20.0 5 18.0 10 Mount Everest Mineral Water

Himalayan

Aava Aava Source: Edelweiss research

• Mounting number of cases of water borne diseases, increasing water pollution, growing

urbanization, rising scarcity of pure and safe water etc. have boosted demand for bottled water.

• Making of bottled water has become a cottage industry task nowadays in the country. Most of the cities and even small towns of India have bottled water manufacturers.

• Scarcity of potable and wholesome water at railway stations, tourist spots and role of tourism corporations etc. have also added to the growth.

Consumption

• Consumption of bottled water in India is linked to the level of prosperity in the different regions.

• The Western region accounts for 40% of the market while the Eastern region has just 10%.

• However, bottling plants are concentrated in the Southern region ‐ of the approximately 1,200 bottling water plants in India, 600 are in Tamil Nadu.

Bottled water market comprises of two segments:

• Packaged drinking water: Water from any source which is treated for consumption.

• Natural mineral water: Drawn from a natural underground source. Packaged water

• The packaged water industry is worth INR 22bn.

• There are about 200 bottled mineral water brands in India and nearly 80% of them are local brands.

• Making of bottled water has become a cottage industry task nowadays in the country. Most of the cities and even small towns of India have bottled water manufacturers.


Food


0.0

15.0

30.0

45.0

60.0

75.0

Bisleri Aquafina Kinley

(%)


• In addition to these international players like Coco‐cola and Pepsico, there are also

national players like Indian Railways, SKN Breweries, Mohan Meakins, Kingfisher, Manikchand, Mount Everest, etc.

• This market is expected to grow at a 30% rate in the next 7 years. In 2010 the revenue generated by this market was over USD250 mn.

Natural mineral water

• For the natural mineral water, 90% of sales come from institutions and 10% from retails.

Market size

• This segment of the bottled water market is worth INR2bn and growing at a CAGR of 20%.

Main players

• In natural mineral water, there are very few companies like Himalayan, Aava, and Evian.

• 50% of the market is captured by Himalayan.


Food

Health Foods This segment is likely to see one of the highest growth levels in the entire Food segment. It has many sub‐segments like Chyawanprash, Butter alternatives, healthy cooking oils, sugar substitutes, energy drinks, Health drinks, Healthy snacks and High fiber beverages.

Table 34: Snapshot‐ Health Foods

Segment

Current size (INR

bn) 5 year

CAGR (%)


10 year CAGR (%)


Chyawanprash 5 12.0 9 10.0 13 Dabur ChyawanprashHimani Sona Chandi

Butter Alternatives

3 25.0 9 22.0 22 Nutralite

Delicious Table Margarine

Healthy cooking 10 16.0 21 14.0 37 Marico Saffola

Agro Tech SundropSugar Substitutes

1.1 20.0 3 18.0 6 Sugar Free

Sweet & HealthyEqualSweetexZero Cook & Bake

Baby Food 15 15.0 30 13.0 51 Lactogen, Cerelac, Nestum

Energy Drinkspowdered 6 18.0 14 15.0 24 Glucon D

Glucose DRTD 1.5 20.0 4 18.0 8 Red bull

Health Drinks 1.5 20.0 4 18.0 8 StaminaKissan Fruit Juice and SoyaLucozadeGatorade

Healthy snack 2 25.0 6 20.0 12 Aliva

McVitie'sDigestive Biscuits market

1 25.0 3 22.0 7 Nutrichoice

McVitie'sMalted Food 24 15.0 48 12.0 75 Horlicks

BournvitaComplan

100% Fruit Juice

5 22.0 14 20.0 31 Real

TropicanaSaintKissan Source: Edelweiss research


Food

Chyawanprash

• Chyawanprash is a traditional poly herbal formulation, prepared according to an ancient Ayurvedic formula. It is widely used as a tonic, rejuvenator anabolic and memory enhancer.

• It is perceived as a health supplement for the young and the elderly.

Market size

• The market is growing significantly over the past few years as people are becoming more health conscious.

• Chyawanprash is an INR5bn market currently.

Main players

• Dabur Chyawanprash is the leader in the chyawanprash category with a market share of ~70%.

• Emami, through its Himani Sona Chandi Chyawanprash, has ~ 22% market share.

• Other players include Ranbaxy, Baidyanath and locals.


Dabur70%

Emami22%

Others8%


Penetration

• Chyawanprash penetration continues to be low at around 4‐5%.

Future

• The product is much more accessible due to modern trade and its salience has grown. Butter Alternatives

• Butter alternatives are healthier substitutes to butter.

• They can also be used as a bread spread and for culinary applications as well.


Food

Market size

• The market for butter alternatives is small at under INR3bn.

Main players

• Zydus Wellness is the market leader in this segment with its product Nutralite.

• Amul and HUL have recently entered this segment.

Market share

• Zydus Wellness has ~ 70% share of the "butter alternative" market.


Zydus Nutralite70%

Amul & others30%


Trends

• With obesity, cardiovascular diseases, diabetes and other lifestyle diseases emerging as greatest challenges in urban India, it has become imperative to alter or introduce products that provide healthier solutions.

• Margarine also continues to remain a popular substitute for butter among restaurants and dhabas which utilize this low‐cost ingredient to give a "butter‐like" taste.

The per capita consumption and market penetration of butter alternatives is very low. Healthy cooking oils

This segment is worth ~INR10bn and has two main players, Marico’s Saffola and Agro Tech’s Sundrop. Saffola

• The flagship brand of Marico is worth INR5bn

• The focus primarily is on health and wellness with Saffola edible oil as its foremost product (INR4.75bn market size and 52% market share)


Food

Table 35: Saffola volume growth (%) Key business Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12Saffola 5 13 22 18 13 18 18 13 14 15 11 15


• Marico is leveraging this strong health brand by launching various health based food

products under Saffola.

• Saffola oats is well received by the costumer and showing good traction in the category dominated by an MNC (Kellogg’s).

• Saffola Arise (Packaged low cholesterol rice) has met with some success and the company is confident of its future prospects.

• Saffola Zest (salty baked snack) launched by Marico to penetrate fast growing snacking industry was withdrawn from the market due to poor consumer response.

Sugar substitutes

• The increasing incidence of obesity and the consequent growing calorie consciousness has sparked off a growing consumer base for low calorie products.

• Higher incidence of lifestyle diseases like cholesterol, obesity, etc. has given rise to a corresponding awareness for calorie consciousness amongst urban individuals.

Market size: The size of the sugar substitute category is rapidly increasing from INR0.6bn in 2007 to INR1.1bn in 2011, largely limited to urban centers. Chart 70: Market size

600

1,100

0

250

500

750

1,000

1,250

2007 2011

(INR mn)


Main Players

• Zydus Wellness is the market leader in India with 86% share, and has two blue‐chip products ‐ Sugar Free Gold and Sugar Free Natura.

• Other players are Wipro's Sweet & Healthy, Merisant's Equal, Boots’ Sweetex and Alembic's Zero Cook & Bake with a combined market share of 14%.


Food


Zydus86%

Others14%


Future growth

• The annual growth rate for sugar substitutes or artificial sweeteners is about 15‐20% which may pick up every passing year.

• India is now becoming a huge market for sugar substitutes and sugarless products. Baby food

• Most of the top baby food brands in India are known for providing the right amount of nutrition to babies.

• Prescribed by most paediatricians, these products are generally given to the child after he/she completes 12 months.

Market size

• The global annual baby food market is estimated at USD31bn, according to IBFAN.

• The Indian market is estimated to be around INR15bn.

Penetration:

• Penetration of the infant‐food category is below 10% as products are very expensive hence unaffordable to a large section of consumers.

Main players

• The undisputed leader in the Indian baby food market is Nestle (85% share) with its Lactogen being the top brand. Nestle also produces a host of other brands like Cerelac and Nestum.

• Some of the Popular Indian baby food and cereal brands are:

• Nestle (manufactures Lactogen, Cerelac and Nestum)

• Nusobee

• Farex


Food


Nestle85%

Others15%


Growth

• Growth is expected to be driven by Indian women’s increasing reliance on packaged baby food in the forecast period.

Energy drinks

• The total energy market is of the size INR7.5bn

• Total sales is of 1.5 mn cases (of 24 cans each) per annum

• The market can be divided into ready‐to‐drink and powdered

• The powdered market dominates the energy drink segment with INR6bn while ready‐to‐drink enjoys the remaining INR1.5bn

• Glucon D by Heinz, the market leader in the powdered drinks segment, enjoys a market share of 55% followed by Dabur with a 25% share

• Red Bull leads the ready‐to‐drink segment with a share of more than 50% followed by Power house with 22%

Fig. 15: Energy drinks classification

Glucon‐D from HeinzGlucose by DaburRasana Glucose D by RasnaGlucovita by Wipro

Power house Romanov red Cloud 9 SoBe Burn SJ XXX

Red bulls

Powdereddrinks

Ready‐to‐drink



Food

Health drinks

The market is still in its nascent stage, but is being pegged at INR1.5bn, lucrative enough for many players.

• Amul has entered the market with ‘Stamina’

• PepsiCo’s isotonic formulation Gatorade

• GSK’s isotonic formulation Lucozade

• ‘Kissan Fruit Juice and Soya’ launched by HUL is a mixture of taste and health

• XXX Energy Drinks launched ‘Minus’ its health drink in January 2011

• Caldris 28 will launch two health drinks in India –black 28 and white 28 soon. Consumer food and drinks choices are now driven not only by taste, nutrition and price but also by core values and lifestyle aspirations. Within the wellness trend, consumers are looking to food and drinks to provide them with physical, mental, emotional and spiritual health ‐ whether or not they are suffering from a particular illness or condition. Healthy snack foods (Biscuits, baked chips/snacks)

• Healthy snacks market stands at INR2bn

• It has a growth of 25 % per annum

• Main players are PepsiCo and United Biscuits (McVitie's)

• Products like Saffola Zest (Marico) and Monaco Smart Chips (Parle) have not met with success.

Table 36: Healthy snacks Brand Company Health benefit offeredAliva Pepsico Rich in wheat, BakedHippo Parle Agro Baked chips with low fat and high wheat contentMyMy Dawaat Foods Rice chips enriched with multi‐grain nutrients

Source: Edelweiss research Digestive biscuits market

• The digestive biscuits market stands at INR1bn

• The market is growing at a healthy rate of 40 % per annum

• The main players in the market are Britannia, with its Nutrichoice brand and Mrs Bector’s Cremica Digestive biscuits. United Biscuits’s McVities, a late entrant in this segment, enjoys a 20% market share.


Food

Malted food drinks

• The size of malted food drinks is ~INR24bn and GSK Consumer dominates this segment with ~70% market share.

• Overall penetration of the category is ~20%; 50% urban penetration and 5% rural penetration

• Penetration is skewed towards Southern and Eastern India where overall penetration is ~35% as against ~15% in Northern and Western India

• The market is dominated by GSK’s Horlicks and Boost brands with a combined share of ~70 %.

• Other players include Cadbury and Heinz Chart 73: Market share

GSK71%

Cadbury16%

Heinz10%

others3%


• The dominance of GSK has created an entry barrier, evident from withdrawal of quite a

few brands like Milo (Nestle), Amaze (HUL) and Chyawan Junior (Dabur)

Non‐vegetarian food The poultry market in India comprises of three main categories: meat, eggs and processed value added products. Organised sector dominates the poultry market (meat and egg comprise 95% of this segment) with a share of 70%. With INR300bn, meat segment dominates the market while eggs market stands at INR150bn in size.


Food

Table 37: Snapshot‐ Non Veg Foods


(INR bn) 5 year

CAGR (%) Proj. 5 yr value

(INR bn) 10 year

CAGR (%) Proj. 10 yr

value (INR bn) Companies BrandsNon Veg Foods

Meat 300 9.0 462 7.0 590 Venkateswara Hatcheries

Venky's Chicken

Suguna Poultry Suguna ChickenGodrej Agrovet Real Good

Eggs 150 8.0 220 6.0 269 Raja Farms PeggsDream Farm Farm Fresh eggs


Fig. 16: Non‐Vegetarian food split

Poultry market‐INR470bn

Fresh segment(95%)

Processedsegment (5%)

Meat‐INR300bn Eggs‐INR150bn


• The value added category is at a very nascent stage in India and comprises only 5% of

the total poultry market that stands at INR470bn. This is very low as compared to many other countries where processed market has a share of about 20%.

• The processed category mainly supplies to QSRs (quick service restaurants) and institutional buyers like big hotel chains. The retail clientele base is small as customers prefer fresh meat to packaged meat.

• The main players in the poultry market are Venkateswara Hatcheries, Suguna Poultry Farms Ltd and Godrej Agrovet Ltd.

• Future growth: the meat segment is expected to grow at 15‐18% CAGR while growth in the egg category is estimated at 5‐7% CAGR.

• Poultry farms are jumping into branded eggs: Due to the increasing brand consciousness and points of sale available at retail stores in larger cities, poultry farms have started selling branded eggs. Their USP is that these branded eggs are produced in a clean, hygienic environment. Punjab’s Rajpura‐based Raja Farms Pvt Ltd and Karnal (Haryana)‐based Kansal & Kansal Agro Farms have forayed into branded eggs. They supply branded eggs to organized retail like Bharti‐Walmart and easyday stores. These eggs have a higher vitamin and mineral content and, it is also free from odour (in case of organic).


Food

• The Indian poultry industry needs to ramp up due to rising domestic demand for broiler meat (likely to grow at ~18% CAGR) while that of eggs is likely to grow at 5‐7% CAGR over the next few years as per ICRA.

Restaurant industry The total restaurant industry in India is ~INR430bn, comprising two distinct segments: the organized and the unorganized. The industry has shown a growth rate of 5‐6% per annum with the organized sector estimated at INR85bn and growing at an annual rate of 20‐25%. The changing perceptions of the rich and the upper middle class with a rise in their disposable income have always driven the market. We expect Jubilant, McDonalds, KFC, Blue Foods to do well. Chart 74: Restaurant industry

Organised20%

Unorganised80%


Table 38: Snapshot‐ restaurant

Segment

Current size (INR

bn) 5 year

CAGR (%)


bn) 10 year

CAGR (%)


bn) Companies BrandsRestaurant 430 18.0 984 16.0 1,897 Dominos Dominos

Pizza Hut Pizza HutMcDonalds McDonaldsKFC KFC


The organized sector mainly consists of:

• Fine dining restaurants

• Casual dining restaurants

• Bars and lounges

• Quick service restaurants

• Food courts

• Cafes

• Kiosks


Food

The growth in the sector can be attributed to the change in food habits of the urban Indian consumer whose standard of living has improved and so has the spending power. Table 39: Changing food habits Change in food habits over the last couple of years (%)Become more health conscious now, regarding food consumed 51.0 Eat more junk food now 15.0 Eat less often at roadside eating joints or carts 15.0 Eat more food now 14.0 Eat out, at hotels more often now 5.0 Eat western cuisine more often now 5.0

Source: Technopak Research, Edelweiss research

Many international chains want to enter India including Burger King, Applebees, CKE Restaurants (brands Hardee's and Carl's Jr.), British noodles chain Wagamama, Carluccio's and Chinese chain PF Chang's. With the resounding success of Pizza business in India, many more pizza chains such as Pizzeria Uno, Donatos, Famous Famiglia, Little Caesar's, Round Table pizza, Spanish brand Tele Pizza and Pizza Express too want to set up shops here. India's increasing appetite for outside food and a rapid jump in the number of double‐income families are helping quick service restaurants, casual dining and fine dining grow sharply. Also in the current slowdown though the usage of 5‐star outlets might decline, eating out at value‐for‐money places or food courts in malls continues to grow robustly. In larger cities, choices for entertainment and leisure are limited to shopping, movies or eating out. In a recent survey, nearly 63% of the participants in Mumbai said they eat out, followed by Bangalore and New Delhi at 53% and 44% respectively. This trend is getting replicated even in smaller cities like Ahmedabad where 85% respondents eat out while in Kochi; the number is 59% (as per Target Group Index data for 2010). More than half of these consumers eat out 2‐3 times a month. As per IRS, ~2.1 mn people have joined the list of double‐income homes between July 2010 and June 2011. Pizza Hut is all set to serve wine and beer at its outlets across the country after pilot‐testing in Delhi and Bangalore which further adds to attractions for consumers.


Food

Investors have a huge appetite for Food companies Increasing food consumption and the disposable incomes of Indian consumers have accelerated the growth of food sector making it attractive for PE investors. In the past 3 years more than 20 deals worth INR26bn have taken place; and two IPO of major food companies which were both oversubscribed and opened at the upper price band. The budding enthusiasm of PE investors will help the sector to proliferate at a higher pace.

Table 40: Rising interest of PE funds in food companies PE fund Company Food category Deal size (in Mn) Remarks DateBlackstone REI (Basmati exporter) Rice 2,835 picked up a minority stake 2010Carlyle Group Tirumala Milk Products Milk 1,035 Jun‐10Darby Overseas Investment Café Coffee Day QSR‐coffee shop 1,125 2011Global Emerging Markets (GEM)

Bakers Circle supplier of dough and desserts

80 took 34% stake in the company; helped to set up a new facility at Uttarakhand

through a few years

Hleion Venture Partners, Footprint Ventures and salarpuria group

Mast Kalandar (restaurant chains)

restaurant NA popular North Indian QSR owned by Spring Leaf Retail

2010

ICICI Venture Devyani International fast foods 2,520 owns and runs Pizza Hut, KFC and Costa Coffee outlets in India

2011

Indian equity partners (IEP)

Sagar Ratna Hotels hotel 1,800 bought controll ing stake; fund will be used to open 200 more outlets and revamp existing 70 restaurants in North

Aug‐11

KKR Coffee Day Holding QSR‐coffee shop 3,375 Mar‐10New Silk Route Coffee Day Holding QSR‐coffee shop 3,375 Mar‐10Nine Rivers Capital Global AgriSystem agri‐logistics 315 Mar‐10Rabo Bank LT Foods exporter of packaged 250 27% stake 2010Rabo Bank Dawaat Foods rice 250 14% stake 2010Rabo Equity Advisors Global Green Company vegetables 450 Mar‐10SAIF Partner Speciality Restaurants restaurant 900 owner of Mainland China and Oh!

Calcutta2011

SAIF Partner Manpasand beverages juices 450 juice mfg and marketing co Sep‐11Siva Ventures Ruchi Soya oils 2,205 2010Siva Ventures KS Oils oils 2,475 2010Standard Chartered PE Coffee Day Holding QSR‐coffee shop 2,250 Mar‐10Standard Chartered PE Bush Foods Overseas rice 1,125 processes and sells Basmati rice Aug‐11

TVS Capital Om Pizzas and Eats Pvt Ltd snacks‐pizza 495 Indian franchisee of int'n chain of Papa John's Pizza, Chil i 's Grill & Bar, and The Great Kabab Factory

2011

Venture East Goli Vada Pav snacks‐vada pav 212 Aug‐11IPO Jubil iant Foodworks pizza 3,292 IPO for 2.27crore shares issued at

upper price band of INR145; oversubscribed 31 times

Feb‐11

IPO Raj Oil Mills oils 1,140 IPO for 0.95 crore shares issued at upper price band of INR120; oversubscribed 1.24 times

Aug‐09

JV between McCormick Kohinoor Foods rice 5,000 McCormick and Kohinoor have entered a 85:15 JV to set up new facility at Haryana. Further investment in RTE foods is l ikely in near future

Sep‐11


In the past 3 years more than 20 deals worth INR26bn have taken place


Food

Supply chain and packaging‐ key for sustained growth The poor quality of back‐end supply chain has restricted the growth of dairy and packaged foods market. According to JFL data, ~25% of the population (in Tier I) spend less than INR100 when ordering food from outside. This, in turn, implies that there is still a huge opportunity to deliver packaged food at value price points to cater to mass segment. Chart 41: Average monthly spends of households ordering in from outside

Tier I Tier II Tier III(population 3 mn +) (population 1‐ 3 mn) (population <1 mn)

Avg (INR) 671 691 351 % Distributionup to Rs 50 13 13 20Rs 51‐100 12 13 17Rs 101‐200 19 17 22Rs 201‐300 12 11 13Rs 301‐600 18 23 14Rs 601+ 26 23 14

Monthly spends


Three reasons which have held the evolution of back‐end supply chain include

a) High capex for setting up cold storages

b) Supply‐demand mismatch – of electricity especially in rural/Tier‐II cities. Though the energy requirement has increased many‐fold in the last decade, the annual energy generation and growth rate has been dismal

Chart 75: Annual energy generation and growth rate

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Source: Edelweiss research c) High electricity rates as compared to the rest of the world: Compared to the world, India

has a high cost of power which has dented supply chains hence the cost of final products.

Energy requirement has increased many‐fold in the last decade


Food

Chart 76: India has high cost of power

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Through Mega Food parks, the government is creating an infrastructure and ecosystem to attract entrepreneurs to enable cost efficient manufacturing of Consumer products. The government has also chosen public‐private participation (PPP) mode in this scheme and has kept its stake to less than 26%. More expressions of interest for 15 mega food parks would be invited in FY12. Though large Consumer companies are still shying away from participating due to the long term investment nature of these schemes, we believe that storage space issues like supply side constraint would be addressed in the longer run.

Chart 77: Projected increase in Freezer space Table 42: Proposed Mega Food sites

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State Location Anchor (major) InvestorAndhra Pradesh Chittoor Srini food Park pvt Ltd

(Ravindra Nalluri)Jharkhand Ranchi Jharkhand Mega Food Park

(Nitin Shenoy)Maharashtra Shirwal Western Agri Food Park Pvt Ltd

(Pradeep Chordia)Assam Nalbari North East Mega Food Park (HK

Sharma)Uttarakhand Haridwar Patanjali Food & Herbal Park

(Baba Ramdev, Acharya Balkrishna & Rajiv Bansal)

Tamil Nadu Dharamapuri LMJ International LTD (agro‐commodity exporter, SK Jain)

West Bengal Jangipur Shiv Bidi (Jakir Hussain) & Temptation Foods (Vinit Kumar)

Cooking Up Plans

Government is encouraging investment in back end infrastructure


Food

Fig 17: Mega Food Parks plan for Future Group

Powering

Entrep

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Access to products for FVIL private brands & food businesses

Enhance businessopportunity with newentreprenuersHigh RoE on investment due to low capital investmentFood Parks

Sourcing Fresh

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ProcessedFood

Manufacturing

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Cold Storage

Logistics


Danone’s measured expansion plan in India is a classical case of high supply chain constraints. Estimated at over INR5bn in the organised sector (10% of total) and with a per‐capita consumption of 0.5kg (30kg for European countries), the Indian yogurt and dahi market is a huge opportunity. Yet Danone is expanding in a measured way as it wants the back end cold‐chain distribution in place sooner. Another interesting example is how Vadilal Industries survived the price war and cost inflation era of 1993‐2003 when Amul launched a price war offering ice‐creams 80% cheaper.

To counter competition and maintain profitability, it did the following:

• Improved operational efficiencies, invested in technology and strengthened supply chain to deliver goods profitably in market place

• Ad spends were slashed to 3% of sales from 8% earlier. While Vadilal was not seen on hoardings or TV commercials, the company worked silently to grow the brand

• Reduced product prices to INR10 (for 110 ml cone) from INR15‐18 earlier to counter Amul’s offer

Recently Baskin Robbins ‐ the INR800mn premium ice cream brand ‐ announced that it would sustain prices in times of commodity driven inflation, and is betting on cost saving measures such as buying huge volumes of commodities in advance to offset the cost inflation. Input cost inflation has resulted in innovation in packaging thereby cutting down costs. Some of the packaging innovations include:

• Tetra Pak India says “when the norm was for dairies to offer milk in half‐litre and one‐litre packs, we offered our customers a 200ml alternative in the TFA (tetra fino aseptic) pouch‐shaped format”. Tetra Pak India has a 90% share in packaged fruits and juices segment, introduced smaller 60‐65 ml and 100‐110 ml pack offerings for brands such as Parle Agro's Frooti.

• Jindal Polyfilms whose clients include HUL and Colgate has reduced the thickness of packaging material for products such as soaps from 12 microns to 8 microns. According to the company, "packaging looks almost the same and consumers wouldn't even realize such as small change, but it’s a substantial 10‐15% cost saving for companies".

• Noida‐based packaging firm Uflex "is trying to use less of polyester and substitute it with polyfilms that are relatively cheaper”.

Vadilal took various initiatives to survive against market leader Amul

Packaging initiatives seen a key to reduce costs midst rising inflation


Food

• Parle Products, the country's largest biscuit maker, is playing with the size of cartons to save further costs

In absence of price increases, a smart product mix + positioning + supply chain efficiencies can help offset inflation and boost profitability in the longer run. Consumer companies strategy is to partially absorb inflation (and limit price increases) to increase customer base. Supply chain efficiencies will help offset rest of the inflation, and deliver packaged foods as a value proportion to consumers.

Govt initiatives provide fillip The Ministry of Food Processing Industries, the central agency catering to the development of food processing sector in India, is focused on increasing the industry to three times of the present size and the country’s share in global food trade to 3%, as per its Vision 2015 action plan. The ministries of Agriculture and Ministry of Food Processing Industries are together taking steps in this direction with the food processing sector being declared a priority sector. In order to enhance the FDI inflow into the food processing sector, food parks are being established and the government is extending its assistance for the successful implementation of the scheme. Schemes for the upgradation of quality of street food are also being introduced to ensure the hygiene. The union budget has also allocated schemes and tax incentives to boost storage of agricultural food produce. Various schemes have been put up in place to make the cold storage infrastructure more robust and upgrade the food processing industry through quality assurance, modernization and promotional activities. • A foreign company can start operations in India as an Indian unit by being incorporated

under the Companies Act, 1956 through a joint venture or wholly owned subsidiaries or even as a foreign company through a liaison office, project office or branch office.

• FDI of up to 100% equity in Indian food and beverages companies is permitted through the automatic approval with no need for an industrial license. Exception to this are industries producing alcoholic beverages and products that are reserved for small scale sectors, like pickles, bread, pastry, hard boiled sugar candy, rapeseed oil, mustard oil, sesame oil, groundnut oil, processed spices other than spice oil and oleoresin spices, Tapioca sago and flour.

• Even for above reserved items, a foreign equity ownership of 24% is allowed beyond which an industrial license with a mandatory export obligation of 50% would be required.

• Agro based industries that are 100% export‐oriented are allowed to sell up to 50% of their produce in the domestic market as well. Such Units are permitted to import capital goods and raw materials at 0% import duty.

• In order to boost FDI in this sector, Mega Food Parks are being established ‐ 30 such parks have been planned for the 11th Five‐year Plan out of which 15 are initially being set up. The government has approved INR0.5bn worth of grant for every park. Food parks will facilitate the use of capital intensive units like warehouses, cold storage and R&D facilities by food and beverage companies.

• Central Excise Duty is completely exempted for fruits and vegetable products.

• As per FY11 budget, specific equipments for preservation, storage or processing of apiary, horticultural, dairy, poultry, aquatic and marine produce and meat products have been given complete exemption from excise duty.

Opening up of FDI in Indian food and beverages companies has largely helped the sector

Govt. keeps a focus on hygiene to ensure proper quality of food


Food

• As a part of the initiative ‘Project Import’ status, customs duty at a concessional rate of 5% has been granted to cold storage units for preservation or storage.

• In order to ensure the hygiene and quality of food being consumed in the streets, the Ministry has formulated an ‘Upgradation of Quality of Street Food’ scheme.

• The concept of ‘Safe Food Towns’ has been proposed that would provide an identity to the street food vendors and open up avenues for their economic betterment and simultaneously cater to the up gradation of the quality of food being served.

• ‘Food‐Streets’ are proposed to be developed that would be tourist attraction centers where local ethnic dishes would be available.

• ‘Modernization of abattoir’ scheme was launched in 2008‐09 with the objective of modernization of existing abattoirs and establishment of modern ones in order to ensure hygienic slaughtering of animals, waste management and safety.

Packaging laws and relevant regulations in India Packaged Commodities Rules 2011 stipulates 19 consumer products (15 food related products) to be sold in specific pack sizes. This will not only make the popular price point concept difficult to implement, but also curtail the grammage reduction lever that companies use to tackle inflation, leaving them with no option but to raise prices. We expect the norm to impact consumer goods companies as the Indian consumer is far more sensitive to price points than to grammage, thereby impacting not only revenues but also profitability of companies. The new packaging legislation would impact food categories like biscuits, milk powder, tea and coffee which in turn would affect affordability and thereby overall sales.

The new law would negatively affect affordability and thereby overall sales


Food

Table 43: Packaging SKU Guidelines for food products Sr. No. Commodities Quantities in which to be packed1 Baby food 100g, 200g, 300g, 400g, 500g, 600,g, 700 g, 800 g, 900g, 1 kg, 2kg, 5 kg and 10

kg.2 Weaning food. 100g, 200g, 300g, 400g, 500g, 600g, 700g, 800g, 900g, 1 kg, 2kg, 5 kg and 10 kg.

3 Biscuits 25g, 50g, 75g, 100g, 150g, 200g, 250g, 300g and thereafter in multiples of 100g up to 1 kg.

4 Bread including brown bread but excluding bun.

100g and there after in of multiples 100g.

5 Un‐canned packages of butter and margarine

25 g, 50 g, 100 g, 200 g, 500 g, 1 kg, 2 kg, 5 kg, and thereafter in multiples of 5 kg.

6 Cereals and pulses 100g, 200g, 500g, 1 kg, 2 kg, 5 kg and thereafter multiples of 5 kg

7 Coffee 25g, 50g, 100g, 200g, 250g, 500g, 1kg and thereafter in multiples of 1kg.

8 Tea 25g, 50g, 100g, 125g 250g, 500g, 1kg and thereafter in multiples of 1kg.

9 Materials which may be constituted or reconstituted as beverages.

25 g, 50 g, 100 g, 200 g, 500 g, 1 kg and thereafter in multiples of 1 kg.

10 Edible oils Vanaspati, ghee, butter oil

50 g, 100 g, 200 g, 500 g, 1 kg, 2 kg, 3 kg, 5 kg and thereafter in multiples of 5 kg If net quantity is declared by volume the same number in milli l iters or l iters, as the case may be. If the net quantity is declared by volume, then the equivalent quantity in terms of mass to be declared in brackets in same size of letters/numerals

11 Milk powder. Below 50g no restriction, 50 g, 100g, 200g, 500 g, 1 kg and thereafter in multiples of 500 g.

12 Rice(powdered), flour, atta, rawa and suji.

100g, 200g, 500g, 1kg, 2kg, 5 kg and thereafter in multiples of 5 kg.

13 Salt Below 50g in multiples of 10g, 50g, 100g, 200g, 500g, 750g, 1 kg, 2 kg, 5 kg and thereafter in multiples of 5 kg.

14 Aerated soft drinks, non‐alcoholic beverages.

65 ml (fruit based drinks only), 100 ml, 125ml (fruit based drinks only), 150 ml, 200 ml, 250 ml, 300 ml, 330ml(in cans only), 500ml, 750 ml, 1 l itre, 1.5 l itre, 2 l itre, 3 l itre, 4 l itre and 5 l itre.

15 Mineral water and drinking water 100 ml, 150 ml, 200 ml, 250 ml, 300 ml, 500 ml, 750 ml, 1 l itre, 1.5 l itre, 2 l itre, 3 l itre, 4 l itre and 5 l itre.

Source: Ministry of consumer affair, food and public distribution, Edelweiss research

Packaging of food products in India are primarily covered under the Standards of Weights and Measures Act (SWMA), Prevention of Food Adulteration Act (PFA), Fruit Products Order (FPO), Meat Food Products Order (MFPO), Edible Oil Packaging Order and Agmark rules. The SWMA makes it mandatory to declare specifications like the identity of the commodity, net quantity and sale price and names of manufacturer, packer and distributors. It mandates the declaration of net quantity in any advertisement where the retail price of the commodity is stated.

Packaging laws help protect consumer interest


Food

The Prevention of Food Adulteration Act specifies the norms regarding adulterated food and prohibits its manufacturing, storage and sale with a mandatory imprisonment for a minimum of three months. It also specifies the packaging and storage requirements to ensure that the food does not get adulterated by the packaging material. FPO and MFPO are concerned with regulations for fruit and vegetable products including synthetic beverages and meat products respectively. In addition to regulations related to licensing and proper display of specifications, the use of misleading statements is prohibited.

Advertising regulations Advertising Standards Council of India (ASCI) is the regulatory body for controlling the advertisement content in India. In early 2010, various additions were incorporated into the advertisement code that included the food and beverages segment. It prohibits advertisements from displaying changes in personal characteristics like intelligence and physical ability, unless substantiated scientifically. Also, products with health and nutritional benefit claims are required to be accompanied with scientific substantiation. Showing offers for excessive consumption and advertisements with misleading representations are prohibited. Some of the recent interventions by ASCI with respect to advertisements in food and beverages segment are listed here:

• Last year, an advertisement LMN juice by Parle Agro was discontinued as it was said to be portraying an African national in bad light.

• In April 2010, a TVC of Nestle India Limited was discontinued as it showed “an obese aged gentleman, eating a burger” in conjunction with a claim, “Make India Healthy”, which was judged by ASCI to be misleading.

• Advertisement content on leaflets and on the website of Supreme Food Industries (MeriiBoy Ice Cream) were modified as the comparison between MeriiBoy Ice Cream and Medium Fat Frozen dessert was found to be unfair and misleading.

• In August 2010, a TVC on Dabur Pudin Hara Lemon Fizz was modified as its claim of not containing any chemicals was found to be misleading.

• A TVC by Coca‐Cola India Pvt. Ltd on its carbonated beverage drink Sprite was withdrawn since July 2010 as it was found to catering to stereotypes about Africans which are racist.

• In October 2010, Parle Products Pvt. Ltd. had to substantiate its claim of “the world’s largest selling biscuit brand” with a proof by AC Neilson research data.

• For Coca‐Cola’s promotional offer on Thumbs up which said, “a Suzuki bike to be won hourly and a grand prize of Suzuki”, the advertiser was advised to publish the main results in leading newspapers.

• Heinz India Pvt. Ltd. had aired a TVC for its product Complan, claiming that “Children taking Complan are found to grow taller by 3 centimeters as compared to non Complan drinkers”. It had to provide results of an independent scientific research to substantiate claims. (May 2009)

• Heinz India Ltd was asked to modify its claim of “New Complan Memory helps in 4 signs of Brain Development” as the claim was based on study done on Complan and therefore misleading.

Few product ads discontinued as content was found to be misleading

Several restrictions have been put on advertising food & beverages


Food

India Pledge On the lines of the European Union Pledge, seven Indian multinational food and beverages majors have planned to introduce India Pledge which would be set guidelines for restricting unhealthy food. These include Hindustan Unilever, Coca‐Cola, PepsiCo, Nestle, Kellogg’s, Mars and General Mills who would publish their commitments on the website and provide frameworks for healthy diets for an active lifestyle. According to recent media reports, under the India Pledge, participating companies will make individual commitments on food and beverage advertising to children and will develop and publish a company action plan, subject to monitoring and review. Companies would not air any advertisement to children under the age of 12. Additionally, they would not engage in any commercial communication related to food and beverage products in primary schools. Independent monitoring of advertisement commitment on TV, print and Internet in addition to the existing Advertising Standards Council of India code for self regulation in advertising is proposed to be implemented. Such a pledge has already been implemented in 11 countries like US, Canada, Australia, Thailand, South Africa and Brazil.

Several MNC’s have come together for restricting unhealthy food


Food

Case study

Nestle and Britannia – All are not equal The Indian processed food industry is on a high growth trajectory with multiple growth drivers in place including low penetration levels, rising income levels, urbanisation, and changing lifestyle. The demand of these food products are going to continue for multiple years to come, resulting in good upside for stake holders. We look at a case study of Nestle and Britannia Industries, which both have registered good top line growth in last five years across their product categories, aided by good demand of its product portfolio.

Chart 78: Britannia ‐ Bread, Cake and Rusk Britannia – Dairy 4‐year CAGR 17.4%

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Chart 79: Nestle ‐ Prepared dishes and cooking aid Nestle ‐ Chocolate and confectionery

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4‐year CAGR 27.7% 4‐year CAGR 19.0%


Food

However, not all food companies are equal i.e. not every company has been able to crack the model right. Though Nestle has been successful to improve ROCE of its overall business, Britannia has mostly struggled to improve the ROCE of the underlying business.

Chart 80: Nestle – ROCE Chart 81: Britannia – ROCE

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We attribute this to the following

Parent’s back up

Nestlé with established brands across food categories is expected to be a major beneficiary of this growth. It is increasingly focusing to expand into Tier II and Tier III cities by introducing stock‐keeping units (SKUs) below INR10. Also, the company has effectively leveraged its recent innovations/renovation positioned on health and wellness platform from the parent’s portfolio to gain incremental sales in India.

Diversified product portfolio

Nestle has well‐established brands including Maggi, Nescafe, Lactogen, Kit Kat, and Milkmaid with leadership position in core categories like baby foods, instant noodles and instant coffee. Nestle enjoys a distinct advantage over competitors in the F&B space on account of its strong focus on developing products around the nutrition, health and wellness and a culture of renovation and innovation in its offerings backed by the strong parent support.

Improving capex, back‐end sourcing of key raw materials like milk

Nestle plans to significantly step up capex over the next few years to meet the growing demand for its products, launch new ones and maintain the market leadership (existing plants are operating at maximum capacity). The company is investing in brownfield projects in Karnataka (INR3.6bn) for noodles to expand capacity, Goa (INR5bn) for expansion in confectionary, Punjab (INR2bn) for chocolates, and Haryana (INR6bn) for a Greenfield project and Himachal Pradesh (INR4‐5bn) for chocolate and noodles greenfield project. It plans to invest ~INR18bn over the next two years. The company has set up its first factory at Moga, Punjab to develop back‐end sourcing like milk production. Over the years, Nestlé has set up seven factories across the country and is now involved in manufacturing and marketing a range of quality products.

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Nestle ahead of competitors in the F&B space

Nestle has accelerated the capex activities


Food

Britannia’s presence in categories with intense competition

Biscuit being a well penetrated segment with presence of players like Parle, ITC, etc. hinders the growth as well as profitability of Britannia whereas Nestle completely dominates the category in which it is present (Maggi has 80% market share). Though few players have entered the segment but it has not impacted the volumes of Nestle which is now present in less penetrated categories like chocolate and dairy products.

Health and Wellness category ‐ No Compromise on taste Health and wellness have been the most talked about subject in the food and beverages industry in recent years due to an alarming rise in obesity, diabetes and other lifestyle diseases, forcing companies to put nutritional information on food packs, stop promoting unhealthy food and introduce healthier items. We believe that the demand for these products is going to outpace food category growth for multiple years to come. Historically, various products based on wellness plank have tasted credible success and we expect it to continue in the future. However, taste has always been the clinching factor for Indian consumers. The fact that ‐ sugar‐free juices and ice creams have not gained market and fast food giant McDonald's does not feel the need to introduce healthier foods like salads in India because "the Indian consumer's health habits have not yet evolved" ‐ is a testimony to this argument. Despite being in India for almost a decade, diet colas contribute less than 2% to overall cola sales while 100% juices still lag behind sugary ones by a wide margin and pizza chains like Domino's are beating sales targets. Though we acknowledge the emergence of health conscious consumers in the country, the big challenge still remains to maintain taste where fewer consumers would want a compromise. F&B firms like PepsiCo and Parle Products have withdrawn low‐sugar, low‐fat 'healthier' products, Pepsi Max, Monaco Smart Chips etc due to poor demand. "The learning for us in the case of Monaco Smart Chips was that consumers would cut down on frequency of consumption, but not at the cost of taste," says Parle Products Group Product Manager Mayank Shah. Low priced warriors ‐ Need to straddle all price points to gain market share

Price still holds the key as you can see from Lays losing market share in chips due to low priced strategy of new entrants. Table 44: Market share

Mar‐11 Mar‐08Frito Lay India 58.0 66.0 (8.0) 28Balaji Namkeen 14.0 13.0 1.0 55ITC 9.0 11.0 (2.0) 36Haldiram 5.0 3.0 2.0 55Parle Products 5.0 0.0 5.0 30Prakash Sancks 4.0 2.0 2.0 45

Snacks MakersMarket share (%)

% ChangeOffering per INR 10 Pack*

Source: The Nielsen Co, Edelweiss research

*Weight in gram

Indians never compromise on taste

A few healthy products have been withdrawn


Food

Historically, Lays, which dominated the branded chips market, lost the market share when ITC made a big bang launch of Bingo (in 2007) with frenzy advertisements, retail tie‐ups, regional flavours and distribution muscle. However, since then both ITC and Lays lost some market share to new entrants, Balaji Namkeen, Haldiram and Prakash Snacks who effectively played with the low priced strategy against them. To counter this, PepsiCo plans to launch 'Lehar', a new potato chips brand that is 40% cheaper than its flagship Lays. Parle, however, gained market share purely on the back of its strong distribution network.


Food

Key Risks

Inflation risk Above‐trend growth in domestic private consumption has been the primary driving force behind the economic expansion in recent years. However, there are concerns that elevated inflation and rising interest rates may meaningfully dent private consumption hence growth of the packaged foods market. We believe the broad‐based demand destruction is unlikely because:

• Our analysis of the past two decades did not yield any conclusive evidence of elevated inflation hurting consumption demand significantly

• The link between interest rates and consumption is largely limited to few categories of products in urban areas (where some moderation is likely) while in rural areas, the government’s social sector spending will continue to support incomes and thereby consumption.

• We expect the inflation to average 7.5%‐8% in FY12 ‐ not a very high level in itself and certainly lower than the ~9.3% average in FY11

Chart 82: Previous high inflation phase Chart 83: Real deposit rates still below trend

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Overall, while a mild moderation in private consumption is likely following the high inflation, we do not foresee a broad‐based slowdown.

Availability of key raw materials While the global population expanded 85% in the past four decades, consumption of edible oils increased almost nine fold as incomes rose, people moved to cities and demand for processed foods jumped. Vegetable oils are used in everything from mayonnaise to candy bars as well as soaps, cosmetics and fuels. US Department of Agriculture (USDA) estimates that stockpiles of edible oils are dropping to a three‐decade low and that the combined

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Food

stocks of nine oils will plunge 25% to 9.39 mn metric tonnes in FY12 or about 23 days of demand, the fewest since 1974.

Brand equity risk Recently a raid was carried in Dabur Nepal factory as juices ‐ manufactured in November 2010 – carried stickers with the manufacturing date as January 2011, according to the Commission for Investigation of the Abuse of Authority (CIAA). With the Indian consumption story at an inflection point, we believe there is a serious risk to the overall growth of packaged foods industry if such claims resurface.

Technology, skill development, and plant productivity In India, farmer incomes are adversely impacted by low productivity and poor price valuations, leading to low incomes. But select interventions, like via private players, has led to ~30‐40% surge in income/acre through higher productivity and better price realizations. Also, lack of sufficient storage facilities forces farmers to sell their produce early without waiting for better market prices. Poor access to credit makes it difficult to implement new technology. Significant investment in skill development for food processing, R&D and technology, and logistics are required to enhance productivity and competitiveness. In addition, a right balance of large and small scale units is required to drive scale and efficiency.

Reducing inconsistencies between centre and state laws and regulations The system of Minimum Support Prices (MSP) could lead to price distortions, encouraging farmers to produce products quo ting highest MSP rather than those most needed by the market. This could lead to a demand‐supply mismatch. In addition, due to the Agriculture Produce Marketing Commission Act (APMC Act) which differs across states and restricts the number of market players in several states, private sector processors and retailers are unable to integrate their enterprises directly with farmers. The current processing capacity is highly fragmented and sub‐scale with two thirds of the players in the unorganized or small scale sector. Projects eligible for government assistance schemes or subsidy are small, which has led to highly disjointed processing market for staple products such as rice with over 150,000 processing units throughout the country. A supportive regulatory environment is crucial to catapult growth of the food processing industry.

Table 45: Food processing industry Industry Non processed Primary processed Secondary and tertiary processedDairy products Unprocessed milk Packaged milk, cheese, butter,

ice cream, ready made curdFruits & vegetables Directly consumed raw fruits &

vegetablesCut, cleaned, packed vegetables and fruits

Jam, pickles, juices, sauce

Grains & pulses Seeds, animal fodder Milled rice, flouring wheat at small chakkis

Biscuits, flakes, bread

Meat Non processed meat sold in local markets

Non processed meat sold in local markets

Preserved meat, ready to eat packaged meat

Marine products Non processed fish sold in local markets

Non processed fish sold in local markets

Preserved and packaged fish


Lack of infrastructure and meager credit access a big negative aspect

MPS could lead to a demand‐supply mismatch


Food

Dabur’s uninterrupted focus on health and wellness presents humungous growth opportunities in food categories (contributing ~30% to revenue). Being the market leader in most categories (juices, chyawanprash, honey, digestives), the company is in an enviable position to enjoy exponential growth. With Dabur facing severe competition (in shampoo, hair oil, toothpaste) and slowdown in volume growth, foods to provide reprieve and help accelerate growth. Maintain ‘BUY’.

Health and wellness: Primary focus While Dabur already has in its fold a smattering of food products (contributing ~30% to top line) such as Real fruit juice, Hommade cooking pastes, honey and other convenience food products, not to mention its blockbuster Chyawanprash, it is now eyeing a bigger opportunity in foods. The company’s major brands are undisputed leaders with ~69% market share in Chyawanprash (11% CAGR), honey 50% market share (15% CAGR), glucose 25% market share and digestive Hajmola 55% market share.

Real: Next growth driver; competitive intensity in fruit juice swells The fast‐growing fruit juice segment (growing at ~17%) is dominated by Real which has cornered 50% market share. In 2010, Dabur launched fibre‐based juice in the Real category, corroborating the company’s health and wellness focus, thereby catering to higher end of the value chain and improving margin profile. However, apart from fruit juices, no major product has been launched in the past two years in F&B. Recently, multinational majors like Coke, Pepsi and HUL have entered Dabur’s core category of fruit juices, threatening its dominance in the segment.

Outlook and valuations: Cautious; maintain ‘BUY’ Continous slowdown in domestic volume growth over the past few quarters is a cause of concern. However, we are extremely positive on the company’s health and wellness focus. We maintain ‘BUY’ recommendation with ‘Sector Outperformer’ rating.

Abneesh Roy +91 22 6620 3141 [email protected] Harsh Mehta +91 22 4063 5543 [email protected]

February 9, 2012

Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset. Edelweiss Securities Limited

DABUR

Cashing in on health and wellness

COMPANY UPDATE

India Equity Research | Food

Absolute Rating BUY

Rating Relative to Sector Outperformer

Risk Rating Relative to Sector Medium

Sector Relative to market Equalweight

MARKET DATA (R: DABU. BO, B: DABUR IN)

CMP : INR 98

Target Price : INR 120

52‐week range (INR) : 122 / 90

Share in issue (mn) : 1,742.1

M cap (INR bn/USD mn) : 171 / 3,439

Avg. Daily Vol. BSE/NSE (‘000) : 1,581.1

SHARE HOLDING PATTERN (%)

* Promoters pledged shares : 0.1 (% of share in issue)

PRICE PERFORMANCE (%)

Stock Nifty EW Consumer Goods Index

1 month 5.7 11.0 2.0

3 months 4.3 3.1 (2.1)

12 months 12.3 3.0 30.8

EDELWEISS 4D RATING

FinancialsYear to March FY11 FY12E FY13E FY14ERevenues (INR mn) 41,045 51,414 59,961 70,060Rev. growth (%) 20.2 25.3 16.6 16.8EBITDA (INR mn) 7,625 8,729 10,449 12,576Net profit (INR mn) 5,686 6,244 7,594 9,387Shares outstanding (mn) 1,740 1,741 1,741 1,741Diluted EPS (INR) 3.3 3.6 4.4 5.4EPS growth (%) 12.7 9.8 21.6 23.6Diluted P/E (x) 30.2 27.5 22.6 18.3EV/EBITDA (x) 22.9 19.5 16.0 12.9ROAE (%) 51.2 42.3 40.3 39.4

Promoters*68.7%

MFs, FIs & Banks5.7%

FIIs19.1%

Others6.5%


Food

Financial Statements Income statement (INR mn)Year to March FY10 FY11 FY12E FY13E FY14ENet revenue 33,905 40,774 51,103 59,603 69,648Other operating Income 238 271 311 358 412Total operating income 34,143 41,045 51,414 59,961 70,060Cost of materials 15,507 19,053 25,515 29,485 34,082Gross profit 18,636 21,992 25,899 30,476 35,978Employee costs 2,847 3,222 4,088 4,828 5,642Advertisement & sales costs 4,935 5,346 6,260 7,301 8,706Others 4,383 5,799 6,822 7,897 9,054EBITDA 6,470 7,625 8,729 10,449 12,575.9Depreciation 503 624 844 928 993EBIT 5,968 7,001 7,885 9,521 11,583Other income 244 381 490 528 680EBIT incl. other income 6,211 7,382 8,375 10,049 12,263Net interest & Finance charges 202 303 604 551 523PBT 6,009 7,079 7,771 9,498 11,740Provision for taxation 985 1,390 1,523 1,900 2,348Core PAT 5,024 5,689 6,248 7,598 9,392Minority interest 8 (3) (4) (4) (5)Profit after tax after Minority Interest & Associate 5,032 5,686 6,244 7,594 9,387Equity shares outstanding (mn) 1,734 1,740 1,741 1,741 1,741EPS (INR) basic 2.9 3.3 3.6 4.4 5.4 Diluted shares (mn) 1,741 1,750 1,750 1,750 1,750EPS (INR) fully diluted 2.9 3.3 3.6 4.3 5.4 CEPS (INR) 3.2 3.6 4.1 4.9 6.0 DPS 1.0 1.2 1.3 1.5 1.9Dividend payout ratio (%) 34.5 35.2 35.2 35.2 35.2

Common size metrics (%)Year to March FY10 FY11 FY12E FY13E FY14ECost of materials 45.4 46.4 49.6 49.2 48.6Employee costs 8.3 7.9 8.0 8.1 8.1Advertising & sales costs 14.5 13.0 12.2 12.2 12.4Other general expenditure 12.8 14.1 13.3 13.2 12.9Depreciation 1.5 1.5 1.6 1.5 1.4Net interest expenditure 0.6 0.7 1.2 0.9 0.7EBITDA margin 19.0 18.6 17.0 17.4 18.0EBIT margin 17.5 17.1 15.3 15.9 16.5Net profit margin 14.7 13.9 12.2 12.7 13.4

Growth metrics (%)Year to March FY10 FY11 FY12E FY13E FY14ERevenues 20.9 20.2 25.3 16.6 16.8EBITDA 33.5 17.9 14.5 19.7 20.4PBT 35.1 17.8 9.8 22.2 23.6Net profit 28.6 13.2 9.8 21.6 23.6EPS 16.9 12.7 9.8 21.6 23.6


Food

Balance sheet (INR mn)As on 31st March FY10 FY11 FY12E FY13E FY14EShare capital 869 1,741 1,741 1,741 1,741Reserves 8,485 12,170 15,858 20,344 25,888Shareholders' funds 9,354 13,911 17,599 22,084 27,628 Minority 38 41 44 49 54Secured loans 702 703 4,505 4,280 4,055Unsecured loans 1,091 9,807 5,506 5,231 4,956Borrowings 1,793 10,510 10,010 9,510 9,010Deferred tax l iabil ity 107 189 189 189 189Sources of funds 11,291 24,651 27,843 31,832 36,882 Gross block 9,857 19,338 20,838 22,338 23,838Less depreciation 3,391 4,351 5,194 6,122 7,115Net fixed assets 6,466 14,987 15,643 16,215 16,722 Capital work in progress 301 430 400 350 300Investments 2,641 4,274 4,274 4,274 4,274Current assets 11,058 18,525 21,503 26,193 32,214 Inventories 4,262 7,085 7,097 8,261 9,634Sundry debtors 1,198 3,555 2,965 3,441 4,002Cash and bank balance 1,923 2,724 6,281 9,330 13,416Loans and advances 3,674 5,161 5,161 5,161 5,161Current l iabil ities 9,202 14,576 14,989 16,210 17,639 Liabil ities 4,669 7,141 7,554 8,775 10,204Provisions 4,533 7,435 7,435 7,435 7,435Working capital 1,855 3,950 6,515 9,982 14,575 Misc expenditure 27 1,010 1,010 1,010 1,010Uses of funds 11,291 24,651 27,843 31,832 36,882 BV (INR) 5.4 8.0 10.1 12.7 15.9

Free cash flow (INR mn)Year to March FY10 FY11 FY12E FY13E FY14ENet profit 5,032 5,686 6,244 7,594 9,387 Add: Non cash charge 697 931 1,452 1,483 1,521 Depreciation 503 624 844 928 993 Others 194 307 608 555 528 Gross cash flow 5,729 6,616 7,696 9,077 10,908 Less:Changes in WC (127) 2,708 (992) 419 505Cash from operations 5,857 3,908 8,687 8,658 10,403 Less: Capex 1,865 9,480 1,470 1,450 1,450Free cash flow 3,991 (5,572) 7,217 7,208 8,953

Cash flow metricYear to March FY10 FY11 FY12E FY13E FY14EOperating cash flow 5,857 3,908 8,687 8,658 10,403Financing cash flow (2,740) 6,086 (3,660) (4,159) (4,866)Investing cash flow (1,037) (11,114) (1,470) (1,450) (1,450)Change in cash 2,080 (1,119) 3,557 3,049 4,087Capex (1,865) (9,480) (1,470) (1,450) (1,450) Dividends paid (2,031) (2,328) (2,556) (3,109) (3,843)


Food

RatiosYear to March FY10 FY11 FY12E FY13E FY14EROAE (%) 57.6 51.2 42.3 40.3 39.4ROACE (%) 75.6 48.2 35.9 37.2 38.5Debtor days 16 21 21 21 21Inventory days 43 51 51 51 50Payable days 61 64 65 65 65Cash conversion cycle (days) (2) 8 7 7 7Current ratio 1.2 1.3 1.4 1.6 1.8 Debt/EBITDA 0.3 1.4 1.1 0.9 0.7 Debt/Equity 0.2 0.8 0.6 0.4 0.3 Adjusted debt/equity 0.2 0.8 0.6 0.4 0.3 Interest coverage (x) 29.5 23.1 13.0 17.3 22.1

Operating ratiosYear to March FY10 FY11 FY12E FY13E FY14ETotal asset turnover 3.1 2.3 2.0 2.0 2.0 Fixed asset turnover 6.0 3.8 3.4 3.8 4.3 Equity turnover 3.9 3.5 3.3 3.0 2.8

Du pont analysisYear to March FY10 FY11 FY12E FY13E FY14ENP margin (%) 14.7 13.9 12.1 12.7 13.4 Total assets turnover 3.1 2.3 2.0 2.0 2.0 Leverage multiplier 1.3 1.6 1.8 1.6 1.4 ROAE (%) 57.8 51.2 42.3 40.3 39.4

Valuation parametersYear to March FY10 FY11 FY12E FY13E FY14EDiluted EPS (INR) 2.9 3.3 3.6 4.3 5.4 Y‐o‐Y growth (%) 16.9 12.7 9.8 21.6 23.6 CEPS (INR) 3.2 3.6 4.1 4.9 6.0 Diluted P/E (x) 34.1 30.2 27.5 22.6 18.3 Price/BV (x) 18.2 12.3 9.7 7.7 6.2 EV/Sales (x) 4.9 4.3 3.3 2.8 2.3 EV/EBITDA (x) 25.9 22.9 19.5 16.0 12.9 Dividend yield (%) 1.0 1.2 1.3 1.6 1.9


Food

GSK Consumer’s (GSK) strong brand equity in under‐penetrated and high‐ growth health food drinks (HFD) category renders it a lucrative play in the consumer goods space. Its sustained dominance in the segment amidst intense competition is primarily due to undivided focus on product line, continuous innovation and expansion of distribution network. We are cautiously optimistic about GSK’s strategy of venturing into other fast growing food and beverages categories. However, key risk/concern could be its inability to meaningfully scale up new segments like noodles and oats. Maintain ‘BUY’.

Brand Horlicks undisputed leader in malted health milk segment GSK is the undisputed dominant player in the fast‐growing under‐penetrated domestic malted health drink segment (~70% market share) with Horlicks, Boost, Maltova and Viva. Its key brands Horlicks and Boost have posted impressive double digit sales growth (~20% CAGR) over the past five years. New Horlicks variants, riding high on the brand, have also found favour with consumers (contributes ~20% to Horlicks’s top line).

Innovating and reinvigorating offerings to capture consumer pie The company, leveraging its strong brand equity, has ventured into biscuits, noodles, and oats in line with its strategy of developing products in the health and wellness segment. It is also expanding distribution in North & West where the presence of GSK is limited and provides a huge growth opportunity (North & West contributes ~15% to sales and likely to reach 20%‐25% in the next 4 years. Auxiliary income from the OTC segment is expected to be robust on the back of new launches.

Outlook and valuations: Upbeat; maintain ‘BUY’ Continued dominance in MFD, firm demand across most categories, calibrated price hikes and new launches are long‐term positives. Also, waning of food inflation is likely to benefit the company. We maintain ‘BUY/ Sector Performer’.


GSK CONSUMER Growth DNA

COMPANY PROFILE


Absolute Rating BUY

Rating Relative to Sector Performer



MARKET DATA (R: GLSM. BO, B: SKB IN)

CMP : INR 2,644

Target Price : INR 2,900

52‐week range (INR) : 2,700 / 1,972

Share in issue (mn) : 42.1


Avg. Daily Vol. BSE/NSE (‘000) : 19.1


* Promoters pledged shares : NIL (% of share in issue)



1 month 3.9 11.0 2.0

3 months 1.3 3.1 (2.1)

12 months 26.4 3.0 30.8

EDELWEISS 4D RATING

FinancialsYear to December CY10 CY11 CY12E CY13ERevenues (INR mn) 23,061 26,855 31,795 37,567Rev. growth (%) 20.0 16.5 18.4 18.2EBITDA (INR mn) 4,365 5,101 6,050 7,113Net profit (INR mn) 2,999 3,552 4,241 5,011Shares outstanding (mn) 42 42 42 42Diluted EPS (INR) 71.3 84.5 100.8 119.2EPS growth (%) 28.8 18.5 19.4 18.2Diluted P/E (x) 37.1 31.3 26.2 22.2EV/EBITDA (x) 23.2 19.6 16.2 13.4ROAE (%) 32.8 34.6 34.3 33.8


February 9, 2012

Promoters*43.2%


FIIs15.1%

Others24.9%


Food

Financial Statements Income statement (INR mn)Year to December CY09 CY10 CY11 CY12E CY13ENet revenues 19,215 23,061 26,855 31,795 37,567Other operating income 557 624 852 937 1,031Total Operating income 19,772 23,685 27,707 32,732 38,597Cost of materials 7,140 8,649 10,227 11,977 14,109Gross profit 12,632 15,036 17,479 20,756 24,488Employee costs 2,007 2,297 2,584 3,100 3,663Advertisement & sales costs 2,675 3,706 4,373 5,246 6,198Others 4,327 4,668 5,421 6,359 7,513EBITDA 3,623 4,365 5,101 6,050 7,113Depreciation 420 397 460 521 589EBIT 3,203 3,968 4,642 5,530 6,524Other income 376 576 796 837 994EBIT incl. other income 3,579 4,544 5,437 6,367 7,518Net interest & Finance charges 41 26 35 36 38PBT 3,539 4,518 5,403 6,330 7,480Provision for taxation 1,211 1,520 1,851 2,089 2,468Core PAT 2,328 2,999 3,552 4,241 5,011Profit after tax after Min. Int. & Associate 2,328 2,999 3,552 4,241 5,011Equity shares outstanding (mn) 42 42 42 42 42EPS (INR) basic 55.4 71.3 84.5 100.8 119.2 Diluted shares (mn) 42 42 42 42 42EPS (INR) fully diluted 55.4 71.3 84.5 100.8 119.2 CEPS (INR) 36.6 44.6 51.4 63.6 74.5 DPS 18 50 34 40 48Dividend payout ratio (%) 33 70 40 40 40

Common size metrics (%)Year to December CY09 CY10 CY11 CY12E CY13ECost of materials 36.1 36.5 36.9 36.6 36.6Employee costs 10.2 9.7 9.3 9.5 9.5Advertising & sales costs 13.5 15.6 15.8 16.0 16.1Other general expenditure 21.9 19.7 19.6 19.4 19.5Depreciation 2.1 1.7 1.7 1.6 1.5Net interest expenditure 0.2 0.1 0.1 0.1 0.1EBITDA margin 18.3 18.4 18.4 18.5 18.4EBIT margin 16.2 16.8 16.8 16.9 16.9Net profit margin 11.8 12.7 12.8 13.0 13.0

Growth metrics (%)Year to December CY09 CY10 CY11 CY12E CY13ERevenues 24.6 20.0 16.5 18.4 18.2EBITDA 32.1 20.5 16.9 18.6 17.6PBT 23.9 27.7 19.6 17.2 18.2Net profit 23.6 28.8 18.5 19.4 18.2EPS 23.6 28.8 18.5 19.4 18.2


Food

Balance sheet (INR mn)As on 31st December CY09 CY10 CY11E CY12E CY13EShare capital 421 421 421 421 421Reserves 8,630 9,180 11,070 13,326 15,992Shareholders' funds 9,051 9,600 11,490 13,746 16,412 Sources of funds 9,051 9,600 11,490 13,746 16,412 Gross block 5,585 5,990 7,090 8,090 8,990Less depreciation 3,640 3,967 4,427 4,948 5,537Net fixed assets 1,945 2,023 2,663 3,142 3,453 Capital work in progress 378 1,083 983 883 663Investments 0 0 0 0 0Current assets 11,729 14,231 15,831 18,609 22,246 Inventories 2,660 3,120 3,358 3,967 4,677Sundry debtors 314 505 469 547 636Cash and bank balance 8,198 9,761 11,158 13,249 16,088Other Current Asset 220 344 344 344 344Loans and advances 338 501 501 501 501Current l iabil ities 5,111 8,004 8,254 9,155 10,217 Liabil ities 3,753 4,704 4,954 5,854 6,916Provisions 1,358 3,300 3,300 3,300 3,300Working capital 6,618 6,227 7,577 9,454 12,029 Misc expenditure 110 267 267 267 267Uses of funds 9,051 9,600 11,490 13,746 16,412 BV (INR) 215 228 273 327 390

Free cash flow (INR mn)Year to December CY09 CY10 CY11E CY12E CY13ENet profit 2,328 2,999 3,552 4,241 5,011 Add: Non cash charge (96) (201) 494 557 627 Depreciation 420 397 460 521 589 Others (517) (598) 35 36 38 Gross cash flow 2,231 2,798 4,047 4,798 5,639 Less:Changes in WC 1,481 299 48 214 263Cash from operations 3,712 3,097 4,094 5,012 5,902 Less: Capex 409 1,110 1,000 900 680Free cash flow 3,303 1,986 3,094 4,112 5,222

Cash flow metricYear to December CY09 CY10 CY11E CY12E CY13EOperating cash flow 4,002 3,262 4,094 5,012 5,902Financing cash flow (296) (905) (1,697) (2,021) (2,384)Investing cash flow (216) (1,110) (1,000) (900) (680)Change in cash 3,491 1,247 1,397 2,091 2,839Capex (409) (1,110) (1,000) (900) (680) Dividends paid (886) (2,452) (1,662) (1,985) (2,345)


Food

RatiosYear to December CY09 CY10 CY11E CY12E CY13EROAE (%) 28.1 32.8 34.6 34.3 33.8ROACE (%) 38.3 42.6 44.0 43.8 43.3Debtor days 7 6 6 6 6Inventory days 52 46 46 46 45Payable days 71 80 80 80 80Cash conversion cycle (days) (12) (28) (28) (28) (29)Current ratio 2.3 1.8 1.9 2.0 2.2

Operating ratiosYear to December CY09 CY10 CY11E CY12E CY13ETotal asset turnover 2.4 2.5 2.6 2.6 2.6 Fixed asset turnover 9.5 11.6 11.5 11.0 11.4 Equity turnover 2.3 2.5 2.5 2.5 2.5

Du pont analysisYear to December CY09 CY10 CY11E CY12E CY13ENP margin (%) 11.8 12.7 12.8 13.0 13.0 Total assets turnover 2.4 2.5 2.6 2.6 2.6 Leverage multiplier 1.0 1.0 1.0 1.0 1.0 ROAE (%) 28.1 32.8 34.6 34.3 33.8

Valuation parametersYear to December CY09 CY10 CY11E CY12E CY13EDiluted EPS (INR) 55.4 71.3 84.5 100.8 119.2 Y‐o‐Y growth (%) 23.6 28.8 18.5 19.4 18.2 CEPS (INR) 36.6 44.6 51.4 63.6 74.5 Diluted P/E (x) 47.8 37.1 31.3 26.2 22.2 Price/BV (x) 12.3 11.6 9.7 8.1 6.8 EV/Sales (x) 5.4 4.4 3.7 3.1 2.5 EV/EBITDA (x) 28.4 23.2 19.6 16.2 13.4 Dividend yield (%) 0.7 1.9 1.3 1.5 1.8


Food

Hindustan Unilever’s (HUL) beverages, foods, and ice creams business accounts for ~18% of sales while parent Unilever derives ~50% sales from the same. Management intends to expand its foothold in the fast‐growing food category. We are enthused by HUL’s continued focus on differentiated offerings and presence across price points in the food segment. We believe the company will enhance focus on new product launches and market share gain in existing categories. Maintain ‘BUY’.

Foods: Key to future growth Growth in HUL’s soaps & detergents has been sluggish due to high penetration and competitive intensity. In contrast, the company’s food business (includes packaged foods, beverages, ice creams, etc.) grew at 16% in FY11 and contributed 18% to the company’s revenue. As per Mr. Paul Polman, Chief Executive Officer, Unilever, in order to double turnover, food business in India will have to grow at a much faster clip, indicating the company’s increased focus on the category.

Revitalising old products, launching new offerings to enhance share As part of its strategy to focus on the fast‐growing foods business, HUL has introduced Kissan creamy spread, Kissan Nutrismart and fruit juice. Also, its ice‐cream portfolio is being revitalized with exotic launches to grab the premium segment. Knorr, Unilever’s largest brand, has met the company’s internal benchmark. Knorr’s soups, sauces and cooking aids have also performed well. It has tied up with the Future Group in the breads segment. Further, to gain direct interface with end consumers to boost brand HUL has opened Bru World Cafe outlets and Swirl Parlors (~130).

Outlook and valuations: Bright; maintain ‘BUY’ The company will focus on judicious price hikes, enhancing market share and product innovation to counter competition. We maintain ‘BUY’ recommendation. On relative return basis, the stock is rated ‘Sector Outperformer’.


HINDUSTAN UNILEVERRevitalising growth

COMPANY UPDATE


Absolute Rating BUY


Risk Rating Relative to Sector Low


MARKET DATA (R: HLL. BO, B: HUVR IN)

CMP : INR 393


52‐week range (INR) : 420 / 264


M cap (INR bn/USD mn) : 849 / 17,019






1 month (2.0) 11.0 2.0

3 months (1.4) 3.1 (2.1)

12 months 43.8 3.0 30.8

EDELWEISS 4D RATING

FinancialsYear to March FY11 FY11 FY13E FY14ERevenues (INR mn) 196,910 226,246 258,264 292,293Rev. growth (%) 10.8 14.9 14.2 13.2EBITDA (INR mn) 23,771 30,142 35,004 41,142Net profit (INR mn) 22,961 26,864 30,252 35,458Shares outstanding (mn) 2,180 2,161 2,161 2,161Diluted EPS (INR) 9.8 12.0 14.0 16.4EPS growth (%) 1.7 22.3 16.5 17.2Diluted P/E (x) 40.0 32.7 28.1 24.0EV/EBITDA (x) 34.8 26.9 22.9 19.2ROAE (%) 79.8 83.6 77.2 73.0


February 9, 2012

Promoters*52.5%


FIIs18.7%

Others17.4%


Food

Financial Statements Income statement (INR mn)Year to March FY10 FY11 FY12E FY13E FY14ENet revenues 177,643 196,910 226,246 258,264 292,293Cost of materials 90,115 102,386 120,990 134,805 151,040Gross profit 87,528 94,524 105,256 123,459 141,253Employee costs 9,709 10,102 11,765 14,205 16,076Advertisement & sales costs 24,230 27,965 26,584 32,283 36,537Others 27,829 32,687 36,765 41,968 47,498EBITDA 25,759 23,771 30,142 35,004 41,142Depreciation 1,919 2,293 2,366 2,627 2,888EBIT 23,840 21,478 27,776 32,377 38,255Other income 3,440 5,893 5,951 6,915 7,799EBIT incl. other income 27,279 27,371 33,728 39,292 46,053Net interest & Finance charges 75 10 4 4 4PBT 27,205 27,361 33,724 39,288 46,049Provision for taxation 6,153 5,919 7,756 9,036 10,591Core PAT 21,052 21,442 25,967 30,252 35,458Extraordinary items (net of tax) 594 1,624 897 0 0Minority interest (80) (106) 0 0 0Profit after tax after Minority Interest & Associate 21,566 22,961 26,864 30,252 35,458Equity shares outstanding (mn) 2,180 2,180 2,161 2,161 2,161EPS (INR) basic 9.7 9.8 12.0 14.0 16.4 Diluted shares (mn) 2,180 2,183 2,161 2,161 2,161EPS (INR) fully diluted 9.7 9.8 12.0 14.0 16.4 CEPS (INR) 10.5 10.9 13.1 15.2 17.7 DPS 6.5 6.5 7.6 8.6 10.1Dividend payout ratio (%) 65.7 61.4 61.4 61.4 61.4

Common size metrics (%)Year to March FY10 FY11 FY12E FY13E FY14ECost of materials 50.7 52.0 53.5 52.2 51.7Employee costs 5.5 5.1 5.2 5.5 5.5Advertising & sales costs 13.6 14.2 11.8 12.5 12.5Other general expenditure 15.7 16.6 16.3 16.3 16.3Depreciation 1.1 1.2 1.0 1.0 1.0EBITDA margin 14.5 12.1 13.3 13.6 14.1EBIT margin 13.4 10.9 12.3 12.5 13.1Net profit margin 11.9 10.9 11.5 11.7 12.1

Growth metrics (%)Year to March FY10 FY11 FY12E FY13E FY14ERevenues 48.0 10.8 14.9 14.2 13.2EBITDA 41.4 (7.7) 26.8 16.1 17.5PBT 40.9 0.6 23.3 16.5 17.2Net profit 40.8 1.9 21.1 16.5 17.2EPS 40.7 1.7 22.3 16.5 17.2


Food

Balance sheet (INR mn)As on 31st March FY10 FY11 FY12E FY13E FY14EShare capital 2,182 2,160 2,160 2,160 2,160Reserves 24,508 24,934 32,587 41,205 51,306Minority 105 146 146 146 146Shareholders' funds 26,794 27,239 34,892 43,510 53,611 Secured loans 105 0 25 25 25Unsecured loans 4 27 1 1 1Borrowings 108 27 27 27 27Sources of funds 26,902 27,266 34,919 43,537 53,638 Gross block 36,672 38,541 43,041 47,541 52,041Less depreciation 14,529 16,307 18,673 21,300 24,188Net fixed assets 22,144 22,235 24,369 26,242 27,854 Capital work in progress 2,800 2,997 3,100 3,300 3,500Investments 12,244 11,885 11,885 11,885 11,885Deferred tax asset ‐ NET 2,482 2,070 2,070 2,070 2,070Current assets 55,393 63,169 72,178 87,829 105,486 Inventories 22,264 28,738 29,238 33,305 37,613Sundry debtors 6,917 9,549 9,397 10,656 11,981Cash and bank balance 20,124 17,873 26,533 36,858 48,882Other Current Asset 193 378 378 378 378Loans and advances 5,895 6,632 6,632 6,632 6,632Current l iabil ities 68,160 75,089 78,682 87,789 97,156 Liabil ities 53,522 61,730 65,323 74,430 83,797Provisions 14,638 13,359 13,359 13,359 13,359Working capital (12,767) (11,920) (6,505) 40 8,329 Uses of funds 26,902 27,266 34,919 43,537 53,638 BV (INR) 12 12 16 20 25

Free cash flow (INR mn)Year to March FY10 FY11 FY12E FY13E FY14ENet profit 21,566 22,961 26,864 30,252 35,458 Add: Non cash charge 1,480 785 1,473 2,631 2,892 Depreciation 1,919 2,293 2,366 2,627 2,888 Others (440) (1,508) (893) 4 4 Gross cash flow 23,046 23,745 28,337 32,883 38,350 Less:Changes in WC (12,428) 898 (3,141) (3,581) (3,535)Cash from operations 35,474 22,848 31,478 36,464 41,885 Less: Capex 7,081 1,869 4,500 4,500 4,500Free cash flow 28,392.6 20,978.6 26,978.1 31,963.5 37,384.6

Cash flow metricYear to March FY10 FY11 FY12E FY13E FY14EOperating cash flow 35,474 22,848 31,478 36,464 41,885Financing cash flow (20,872) (16,512) (18,318) (21,638) (25,361)Investing cash flow (16,449) (1,509) (4,500) (4,500) (4,500)Change in cash (1,847) 4,827 8,660 10,326 12,024Capex (7,081) (1,869) (4,500) (4,500) (4,500) Dividends paid (16,564) (16,420) (19,211) (21,634) (25,357)


Food

RatiosYear to March FY10 FY11 FY12E FY13E FY14EROAE (%) 140.1 79.8 83.6 77.2 73.0ROACE (%) 219.9 143.0 144.6 118.4 104.2Debtor days 13 15 15 15 15Inventory days 49 47 47 47 47Payable days 116 121 122 122 122Cash conversion cycle (days) (54) (59) (59) (60) (60)Current ratio 0.8 0.8 0.9 1.0 1.1 Interest coverage (x) 319.1 2,126.5 6,961.5 8,114.5 9,587.6





Food

ITC has been one of the best consumer companies in terms of creation of new brands and successful entry in new categories. The company is extremely aggressive in promoting products, indicating its seriousness and focus on the food segment. We are enthused by ITC’s extensive distribution reach and increasing focus on the premium end, which has superior margins. Maintain ‘BUY’.

Packaged food: The next big opportunity ITC is present across segments (biscuits, staples, salty snacks, confectionary, etc). Overall foods segment has broken even and contributes ~10% to net sales. Consumer business leverages on skills of agri sourcing, ITC Welcomgroup’s specialist cuisine & bakery, consumer distribution synergies and ITC R&D Centre, Bengaluru.

More successes than failure; wide distribution chain gives an edge Key successes: Salty snacks (Bingo is No.2 player), confectionaries (Candyman and Minto are market leaders), biscuits (Sunfeast is No. 3 player), staples (Aashirwad has more than 50% market share). ITC has been able to achieve this by the right product mix, aggressive ad budgets, and innovative distribution strategy. We are enthused with the performance of noodles, although Nestle has upstaged ITC in pasta. It plans to enter milk, chewing gum and many more segments over the coming years. Most segments are facing intense competition from various local players and MNCs. However, due to low penetration (~4‐5%) and urbanization, packaged foods can prove to be the next growth driver for ITC. Also, the company can leverage its cigarette business distribution chain to get an edge over competitors.

Outlook and valuations: Positive; maintain ‘BUY’ We are confident of ITC’s pricing power and inelastic nature of cigarette demand. Also, we are extremely positive on its consumer business with the foods business already having broken even. We reiterate ‘BUY/Sector Outperformer’.

Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.

Edelweiss Securities Limited

ITC

Innovation‐led growth

COMPANY UPDATE


Absolute Rating BUY




MARKET DATA (R: ITC. BO, B: ITC IN)

CMP : INR 204


52‐week range (INR) : 216 / 150


M cap (INR bn/USD mn) : 1,590 / 32,039






1 month (0.7) 11.0 2.0

3 months (3.9) 3.1 (2.1)

12 months 32.4 3.0 30.8

EDELWEISS 4D RATING

FinancialsYear to March FY11 FY12E FY13E FY14ERevenues (INR mn) 222,737 257,319 291,833 335,983Rev. growth (%) 16.4 15.5 13.4 15.1EBITDA (INR mn) 74,077 86,040 98,502 112,939Net profit (INR mn) 50,179 60,237 69,303 80,423Shares outstanding (mn) 7,570 7,738 7,738 7,738Diluted EPS (INR) 6.7 7.9 9.0 10.5EPS growth (%) 20.4 18.5 15.0 16.0Diluted P/E (x) 30.8 26.0 22.6 19.5

EV/EBITDA (x) 19.9 17.5 15.1 13.1ROAE (%) 33.2 35.7 37.2 38.6


February 9, 2012


FIIs16.3%

Others48.9%


Food

Financial Statements Income statement (INR mn)Year to March FY10 FY11 FY12E FY13E FY14EGross revenue 276,247 320,782 370,587 420,293 483,878Excise duties 84,888 98,046 113,269 128,461 147,895Net revenues 191,359 222,737 257,319 291,833 335,983Cost of materials 69,870 81,184 95,593 107,347 123,884Gross profit 121,489 141,553 161,726 184,486 212,099Manufacturing and operating expenses 38,137 43,691 49,148 55,448 63,837Employee costs 14,660 17,240 19,591 21,926 25,243Advertisement & sales costs 5,449 6,546 6,948 8,609 10,079EBITDA 63,243 74,077 86,040 98,502 112,939Depreciation 6,439 6,991 7,372 8,447 9,227EBIT 56,804 67,086 78,668 90,056 103,712Other income 6,303 7,765 10,942 12,837 15,552EBIT incl. other income 63,107 74,851 89,610 102,892 119,264PBT 62,459 74,349 89,125 102,526 118,968Provision for taxation 20,349 23,655 28,356 32,619 37,850Core PAT 42,110 50,694 60,769 69,907 81,118Minority interest (488) (611) (643) (730) (840)Associate 62 96 111 126 145Profit after tax after minority interest & associate 41,684 50,179 60,237 69,303 80,423Equity shares outstanding (mn) 7,570 7,570 7,738 7,738 7,738EPS (INR) basic 5.6 6.7 7.9 9.0 10.5Diluted shares (mn) 7,651 7,651 7,738 7,738 7,738EPS (INR) fully diluted 5.5 6.6 7.9 9.03 10.5 CEPS (INR) 6.4 7.6 8.8 10.1 11.7 DPS 5.5 4.5 5.1 5.4 6.2 Dividend payout ratio (%) 91.6 68.6 65.0 60.0 60.0

23%Common size metrics (%)Year to March FY10 FY11 FY12E FY13E FY14ECost of materials 36.5 36.4 37.1 36.8 36.9Employee costs 7.7 7.7 7.6 7.5 7.5Advertising & sales costs 2.8 2.9 2.7 3.0 3.0Other general expenditure 19.9 19.6 19.1 19.0 19.0Depreciation 3.4 3.1 2.9 2.9 2.7Net interest expenditure 0.3 0.2 0.2 0.1 0.1EBITDA margin 33.0 33.3 33.4 33.8 33.6EBIT margin 29.7 30.1 30.6 30.9 30.9Net profit margin 22.0 22.8 23.6 24.0 24.1

Growth metrics (%)Year to March FY10 FY11 FY12E FY13E FY14ERevenues 11.4 16.4 15.5 13.4 15.1EBITDA 11.0 17.1 16.2 14.5 14.7PBT 6.6 19.0 19.9 15.0 16.0Net profit 5.6 20.4 19.9 15.0 16.0EPS 5.1 20.4 18.5 15.0 16.0


Food

Balance sheet (INR mn)As on 31st March FY10 FY11 FY12E FY13E FY14EShare capital 3,818 7,738 7,738 7,738 7,738Reserves 140,765 156,882 171,603 192,567 216,895Shareholders' funds 144,583 164,621 179,341 200,305 224,633 Minority 1,264 1,408 2,051 2,781 3,621Secured loans 10 251 21 17 13Unsecured loans 1,098 995 1,025 829 633Borrowings 1,108 1,246 1,046 846 646Deferred tax l iabil ity 7,806 7,981 7,981 7,981 7,981Sources of funds 154,760 175,255 190,419 211,912 236,880 Gross block 129,927 139,935 154,935 169,935 184,935Less depreciation 42,128 48,440 55,811 64,258 73,484Net fixed assets 87,800 91,495 99,123 105,677 111,450 Capital work in progress 10,177 13,623 14,143 14,643 14,943Investments 50,005 48,678 48,678 48,678 48,678Current assets 90,016 109,625 118,426 139,159 166,531 Inventories 50,920 57,331 62,459 70,756 81,369Sundry debtors 10,100 11,017 12,127 13,674 15,651Cash and bank balance 13,486 24,269 26,831 37,720 52,503Other current asset 3,057 3,665 3,665 3,665 3,665Loans and advances 12,453 13,344 13,344 13,344 13,344Current l iabil ities 83,239 88,168 89,953 96,246 104,724 Liabil ities 37,371 46,683 48,468 54,762 63,239Provisions 45,868 41,485 41,485 41,485 41,485Working capital 6,777 21,458 28,473 42,913 61,807 Misc expenditure 2 1 1 1 1Uses of funds 154,760 175,255 190,419 211,912 236,880 BV (INR) 19 22 23 26 29

Free cash flow (INR mn)Year to March FY10 FY11 FY12E FY13E FY14ENet profit 41,684 50,179 60,237 69,303 80,423 Add: Non cash charge 7,513 8,008 8,390 9,416 10,218 Depreciation 6,439 6,991 7,372 8,447 9,227 Others 1,074 1,017 1,018 970 991 Gross cash flow 49,197 58,187 68,627 78,720 90,640 Less:Changes in WC 17 (1,984) 4,453 3,551 4,111Cash from operations 49,180 60,171 64,174 75,168 86,529 Less: Capex 14,421 10,007 15,521 15,500 15,300Free cash flow 34,758 50,164 48,654 59,668 71,229

Cash flow metricYear to March FY10 FY11 FY12E FY13E FY14EOperating cash flow 49,180 60,171 64,174 75,168 86,529Financing cash flow (45,940) (40,394) (46,091) (48,779) (56,446)Investing cash flow (39,356) (8,681) (15,521) (15,500) (15,300)Change in cash (36,115) 11,096 2,562 10,889 14,783Capex (14,421) (10,007) (15,521) (15,500) (15,300) Dividends paid (44,533) (40,030) (45,516) (48,339) (56,095)


Food

RatiosYear to March FY10 FY11 FY12E FY13E FY14EROAE (%) 25.5 33.2 35.7 37.2 38.6ROACE (%) 38.6 58.0 58.6 59.1 59.0Debtor days 17 17 17 17 17Inventory days 94 89 89 88 88Payable days 99 103 103 103 103Cash conversion cycle (days) 12 3 3 2 2Current ratio 1.1 1.2 1.3 1.4 1.6





Food

Jubiliant Foodworks (JFL) has established strong brand equity in the pizza space on back of specialized menu to suit Indian palate, continuous innovation, intense promotional activity and aggressive roll‐out strategy. It has well captured changing Indian demographics. Going forward it needs to watch out for budding competition from the likes of Pizza Hut, KFC and McDonalds. Currently our midcap team covers the company and they have ‘REDUCE’ rating on the stock.

Demographics play JFL is a play on changing Indian demographics which are increasingly getting skewed towards younger and working population with large proportion of women. In addition, the increased urbanization and higher disposable incomes are leading to need for quick service restaurants like Dominos and McDonalds.

High growth backed by strong brand The company runs 439 stores and plans to double store number in the next five years. This is leading to top line growth of about 47.5% CAGR and bottom line for about 109.5% for past three years due to margin expansion. Jubilant has created strong brand name in India with product and promotional innovation. With the “30 min” and the “Hungry Kya” campaign, the company has positioned pizza as a meal which can be delivered quickly. The brand value is further enhanced due to tie up with Dunkin’ Donuts (well known breakfast chain in the United States). It plans to open 25 to 30 Dunkin’ Donuts stores in three years.

Rising competitive intensity We expect competition to increase as other organised players (Pizza Hut, KFC, McDonalds) enhance their presence in tier 2 cities. We also believe due to the limited potential of number of stores in a small town, returns will be dilutive going forward.



JUBILANT FOODWORKSDunkin Donuts to help gain foothold

COMPANY UPDATE


Absolute Rating REDUCE

Investment Characteristics Growth

MARKET DATA (R: JUBI. BO, B: JUBI IN)

CMP : INR 1,028


52‐week range (INR) : 1,050 / 469


M cap (INR bn/USD mn) : 67 /1,345





Sensex Stock Stock over Sensex

1 month 10.0 18.2 8.2

3 months 3.8 39.8 36.0

12 months (2.4) 211.8 214.1

EDELWEISS RATING

FinancialsYear to March FY10 FY11 FY12E FY13ERevenue (INR mn) 4,239 6,781 10,194 14,088 Growth (%) 51.0 59.9 50.3 38.2 EBIDTA (INR mn) 666 1,196 1,869 2,589 Net profit (INR mn) 330 717 988 1,397 Share outstanding (mn) 64 65 65 65 EPS (INR) 5.3 11.0 15.6 22.0 EPS growth (%) 320.0 108.4 41.9 41.2 Diluted P/E (x) 195.5 93.8 66.1 46.8 ROAE (%) 47.6 46.9 43.5 42.0


February 9, 2012

Promoters*57.7%


FIIs35.9%

Others5.8%


Food

Financial Statements Income statement (INR mn)Year to March FY10 FY11 FY12E FY13E FY14EIncome from operations 4,239 6,781 10,194 14,088 18,804 Total operating expenses 3,573 5,584 8,325 11,499 15,317 Raw material 1,050 1,706 2,497 3,452 4,644 Employee costs 805 1,355 2,039 2,803 3,742 Manufacturing and other expenses 1,719 2,523 3,789 5,244 6,931 EBITDA 666 1,196 1,869 2,589 3,486 Depreciation and amortisation 243 293 388 497 624 EBIT 423 903 1,480 2,091 2,862 Interest 91 3 ‐ ‐ ‐ Total other income 4 22 24 34 54 Profit before tax 335 922 1,505 2,126 2,916 Provision for tax 1 204 487 688 962 Core Profit 334 717 1,018 1,437 1,954 Extraordinary income/(loss) (4) ‐ (30) (40) ‐ Profit after tax 330 717 988 1,397 1,954 Profit After Minority Interest 330 717 988 1,397 1,954 Shares outstanding (mn) 64 64 64 64 64 EPS (INR) basic 5.3 11.2 15.8 22.4 30.4 Diluted shares (mn) 64 65 65 65 65EPS (INR) diluted 5.3 11.0 15.6 22.0 29.9 Dividend per share (INR) ‐ ‐ 1.00 2.00 3.50 Dividend payout (%) ‐ ‐ 7.6 10.8 13.5

Common size metrics‐ as % of net revenuesYear to March FY10 FY11 FY12E FY13E FY14EOperating expenses 84.3 82.4 81.7 81.6 81.5 Raw materials 24.8 25.2 24.5 24.5 24.7 Employee costs 19.0 20.0 20.0 19.9 19.9 Manufacturing and other expenses 40.5 37.2 37.2 37.2 36.9 Depreciation and amortisation 5.7 4.3 3.8 3.5 3.3 Interest expenditure 2.2 0.1 0.0 ‐ ‐ EBITDA margins 15.7 17.6 18.3 18.4 18.5 Net profit margins 7.9 10.6 10.0 10.2 10.4

Growth metrics (%)Year to March FY10 FY11 FY12E FY13E FY14ERevenues 51.0 59.9 50.3 38.2 33.5 EBITDA 97.3 79.6 56.2 38.5 34.7 PBT 314.3 175.2 63.3 41.2 37.2 Core net profit 358.7 114.7 41.9 41.2 35.9 EPS 320.0 108.4 41.9 41.2 35.9


Food

Balance sheet (INR mn)As on 31st March FY10 FY11 FY12E FY13E FY14EEquity capital 648 645 645 645 645 Reserves & surplus 526 1,269 2,181 3,428 5,118 Shareholders funds 1,174 1,914 2,827 4,073 5,764 Secured loans 86 ‐ ‐ ‐ ‐ Sources of funds 1,260 1,914 2,827 4,073 5,764 Gross block 2,276 2,904 3,880 4,974 6,242 Depreciation 872 1,103 1,491 1,988 2,612 Net block 1,403 1,801 2,390 2,986 3,630 Capital work In progress 26 44 44 44 44 Investments 0 205 305 605 1,105 Inventories 71 142 160 221 294 Sundry debtors 29 45 70 96 129 Cash and bank balances 70 90 427 879 1,599 Loans and advances 362 698 826 1,001 1,213 Total current assets 533 984 1,491 2,205 3,243 Current l iabil ities 702 1,150 1,433 1,797 2,289 Total current l iabil ities & provisions 702 1,150 1,433 1,797 2,289 Net current assets (169) (167) 58 408 955 Deferred tax (net) ‐ 31 31 31 31 Uses of funds 1,260 1,914 2,827 4,073 5,764 Book value per share (BV) (INR) 18 29 44 63 89

Free cash flow (INR mn)Year to March FY10 FY11 FY12E FY13E FY14ENet profit 330 717 988 1,397 1,954 Depreciation 243 293 388 497 624 Others 59 14 (24) (34) (54) Gross cash flow 632 1,025 1,352 1,860 2,524 Less: Changes in working capital (157) (262) (112) (101) (174) Operating cash flow 789 1,288 1,464 1,962 2,698 Less: Capex 521 716 976 1,094 1,268 Free cash flow 269 571 488 868 1,429

Cash flow metricsYear to March FY10 FY11 FY12E FY13E FY14EOperating cash flow 789 1,288 1,464 1,962 2,698 Financing cash flow (229) (67) (75) (151) (264) Investing cash flow (523) (1,199) (1,052) (1,359) (1,714) Net cash flow 37 22 337 452 720 Capex (521) (716) (976) (1,094) (1,268)


Food

RatiosYear to March FY10 FY11 FY12E FY13E FY14EROAE (%) 47.6 46.9 43.5 42.0 40.0 ROACE (%) 36.6 60.8 70.0 69.8 70.4 Inventory (days) 6 7 7 6 6 Debtors (days) 2 2 2 2 2 Payable (days) 58 61 57 51 49 Cash conversion cycle (50) (52) (48) (43) (40) Current ratio 0.8 0.9 1.0 1.2 1.4 Debt/EBITDA 0.1 ‐ ‐ ‐ ‐ Interest cover (x) 4.6 264.0 Fixed assets turnover (x) 3.4 4.2 4.9 5.2 5.7 Total asset turnover (x) 3.7 4.3 4.3 4.1 3.8 Equity turnover(x) 6.0 4.4 4.3 4.1 3.8 Debt/Equity (x) 0.1 ‐ ‐ ‐ ‐ Adjusted debt/Equity 0.1 ‐ ‐ ‐ ‐


Valuation parametersYear to March FY10 FY11 FY12E FY13E FY14EDiluted EPS (INR) 5.3 11.0 15.6 22.0 29.9 Y‐o‐Y growth (%) 320.0 108.4 41.9 41.2 35.9 CEPS (INR) 9.1 15.7 21.9 30.1 40.1 Diluted P/E (x) 195.5 93.8 66.1 46.8 34.4 Price/BV(x) 55.6 35.1 23.6 16.3 11.5 EV/Sales (x) 15.4 9.7 6.4 4.6 3.4 EV/EBITDA (x) 98.1 55.0 35.0 25.0 18.2 EV/EBITDA (x)+1 yr forward 54.6 35.2 25.3 18.5 14.3 Dividend yield (%) ‐ ‐ 0.1 0.2 0.3


Food

Marico Industries (Marico), the market leader in healthy edible oil space, is a well established brand in the health and wellness space. Riding high on the popularity of its flagship brand Saffola, the company has extended into various food categories like salt, rice and oats. It expects packaged food to contribute 25% to Saffola, from the current 5%, over the next five years. We remain enthused by its undivided focus on growing consumer base and maintain ‘BUY’.

Market leader in edible oil; Saffola enjoys dominant market share Saffola, Marico’s flagship brand, dominates the cooking oil space with 52% market share. Being premium‐end refined edible oil it has higher pricing power and margins, (contributes 16% to total domestic revenue). The company, as expected, divested lower margin Sweekar brand. And, with more people getting health conscious, Saffola is expected to post robust growth in the edible oil segment.

Focus on health and wellness Saffola has, over the years, become well‐entrenched in the minds of consumers as a health and wellness brand. This led to the company extending this brand name to other offerings in the packaged foods category like oats and rice (Arise). Snacks (Zest), however, did not do well. It first started with Saffola low sodium salt and atta for diabetics, which did reasonably well. This was followed by Saffola Arise, a low calorie and low carbohydrate packaged rice brand and Saffola oats. So far, the response has been good and according to company sources there are a good number of instances of repeat purchases for Arise. Oats too has posted strong growth.

Outlook and valuations: Positive; maintain ‘BUY’ Marico is eyeing growth through low unit packs (LUPs), rural markets, focus on non‐coconut hair oil and new product initiatives in the food segment under Saffola. Kaya’s domestic business, we believe is an overhang in the near term. Hence, we maintain ‘BUY/SO’ recommendation on the stock.


MARICO INDUSTRIESPacking a healthy punch

COMPANY UPDATE


Absolute Rating BUY




MARKET DATA (R: MRCO. BO, B: MRCO IN)

CMP : INR 162


52‐week range (INR) : 172 / 112








1 month 7.8 11.0 2.0

3 months 8.6 3.1 (2.1)

12 months 42.6 3.0 30.8

EDELWEISS 4D RATING


February 9, 2012

FinancialsYear to March FY11 FY12E FY13E FY14ERevenues (INR mn) 31,283 40,365 45,996 54,650Rev. growth (%) 17.6 29.0 14.0 18.8EBITDA (INR mn) 4,098 4,824 5,887 7,050Net profit (INR mn) 2,865 3,191 3,972 4,822Shares outstanding (mn) 613 614 614 614Diluted EPS (INR) 4.7 5.2 6.5 7.8EPS growth (%) 22.4 11.6 24.5 21.4Diluted P/E (x) 34.7 31.1 25.0 20.6EV/EBITDA (x) 25.3 21.1 16.8 13.5ROAE (%) 30.3 30.5 29.6 28.3

Promoters*62.8%


FIIs25.8%

Others6.6%


Food

Financial Statements Income statement (INR mn)

Year to March FY10 FY11 FY12E FY13E FY14E

Mar09 Mar10 Mar11 Mar12 Mar13

Net revenues 26,608 31,283 40,365 45,996 54,650

Cost of materials 12,616 16,179 21,595 24,102 28,418

Gross profit 13,992 15,104 18,770 21,894 26,232

Employee costs 1,901 2,304 2,947 3,312 3,880

Advertisement & sales costs 3,511 3,460 4,440 5,106 6,148

Others 4,828 5,243 6,559 7,589 9,154

EBITDA 3,751 4,098 4,824 5,887 7,050

Depreciation 601 708 723 890 1,077

EBIT 3,151 3,390 4,101 4,998 5,972

Other income 183 279 378 441 497

EBIT incl. other income 3,333 3,669 4,478 5,439 6,469

Net interest & Finance charges 257 393 405 370 315

PBT 3,077 3,275 4,073 5,070 6,154

Provision for taxation 643 850 815 1,014 1,231

Core PAT 2,433 2,426 3,259 4,056 4,924

Extraordinary items (net of tax) (98) 489 0 0 0

Minority interest (19) (50) (67) (84) (102)

Profit after tax after Minority Interest & Associate 2,317 2,865 3,191 3,972 4,822

Equity shares outstanding (mn) 609 613 614 614 614

EPS (INR) basic 3.8 4.7 5.2 6.5 7.8

Diluted shares (mn) 609 615 614 614 614

EPS (INR) fully diluted 3.8 4.7 5.2 6.5 7.8

CEPS (INR) 5.0 5.1 6.5 8.0 9.8

DPS 1 1 1 1 1

Dividend payout ratio (%) 17.4 14.2 15.0 15.0 15.0

4.70 5.20 6.60 7.00

Common size metrics (%) -1% 0% -2% 12%


Cost of materials 47.4 51.7 53.5 52.4 52.0

Employee costs 7.1 7.4 7.3 7.2 7.1

Advertising & sales costs 13.2 11.1 11.0 11.1 11.3

Other general expenditure 18.1 16.8 16.3 16.5 16.8

Depreciation 2.3 2.3 1.8 1.9 2.0

Net interest expenditure 1.0 1.3 1.0 0.8 0.6

EBITDA margin 14.1 13.1 12.0 12.8 12.9

EBIT margin 11.8 10.8 10.2 10.9 10.9

Net profit margin 8.7 9.2 7.9 8.6 8.8

Growth metrics (%)


Revenues 11.4 17.6 29.0 14.0 18.8

EBITDA 23.4 9.2 17.7 22.1 19.7

PBT 25.7 6.5 24.4 24.5 21.4

Net profit 22.8 23.7 11.4 24.5 21.4

EPS 22.7 22.4 11.6 24.5 21.4


Food

Balance sheet (INR mn)

As on 31st March FY10 FY11 FY12E FY13E FY14E

Share capital 609 614 614 614 614

Reserves 5,930 8,540 11,174 14,453 18,433

Shareholders' funds 6,540 9,155 11,789 15,067 19,047

Minority 125 219 286 370 472

Secured loans 1,142 4,250 3,023 2,573 2,123

Unsecured loans 3,317 3,468 3,695 3,145 2,595

Borrowings 4,459 7,718 6,718 5,718 4,718

Deferred tax liability (616) (301) (301) (301) (301)

Sources of funds 10,507 16,791 18,492 20,854 23,936

Gross block 5,292 7,615 8,445 9,345 10,245

Less depreciation 2,424 3,366 4,088 4,978 6,055

Net fixed assets 2,868 4,250 4,357 4,367 4,190

Capital work in progress 1,129 646 620 600 575

Asset Held for disposal 0 2 2 2 2

Goodwill 850 3,976 3,976 3,976 3,976

Investments 827 890 890 890 890

Current assets 8,970 12,203 14,616 17,627 21,957

Inventories 4,448 6,011 6,737 7,664 9,091

Sundry debtors 1,507 1,880 2,174 2,464 2,913

Cash and bank balance 1,115 2,131 3,524 5,317 7,772

Loans and advances 1,900 2,181 2,181 2,181 2,181

Current liabilities 4,136 5,175 5,968 6,607 7,653

Liabilities 3,369 4,098 4,891 5,530 6,576

Provisions 768 1,077 1,077 1,077 1,077

Working capital 4,833 7,028 8,648 11,020 14,304

Uses of funds 10,507 16,791 18,492 20,854 23,936

BV (INR) 10.7 14.9 19.2 24.5 31.0

Free cash flow (INR mn)


Net profit 2,317 2,865 3,191 3,972 4,822

Add: Non cash charge 974 662 1,195 1,343 1,494

Depreciation 601 708 723 890 1,077

Others 374 (46) 473 453 416

Gross cash flow 3,291 3,527 4,387 5,315 6,316

Less:Changes in WC 867 1,207 227 578 830

Cash from operations 2,424 2,320 4,159 4,736 5,486

Less: Capex 723 2,323 804 880 875

Free cash flow 1,701 (3) 3,355 3,856 4,611

Cash flow metric


Operating cash flow 2,061 2,285 4,159 4,736 5,486

Financing cash flow 281 2,757 (1,962) (2,063) (2,156)

Investing cash flow (2,114) (4,045) (804) (880) (875)

Change in cash 229 997 1,393 1,793 2,454

Capex (723) (2,323) (804) (880) (875)

Dividends paid (470) (472) (557) (694) (842)


Food

Ratios


ROAE (%) 43.6 30.3 30.5 29.6 28.3

ROACE (%) 36.6 26.5 24.5 26.6 27.8

Debtor days 18 20 20 20 19

Inventory days 54 61 61 61 61

Payable days 49 50 50 50 50

Cash conversion cycle (days) 23 31 30 30 30

Current ratio 2.2 2.4 2.4 2.7 2.9

Debt/EBITDA 1.2 1.9 1.4 1.0 0.7

Debt/Equity 0.7 0.8 0.6 0.4 0.2

Adjusted debt/equity 0.7 0.8 0.6 0.4 0.2

Interest coverage (x) 12.3 8.6 10.1 13.5 19.0

Operating ratios


Total asset turnover 2.9 2.3 2.3 2.3 2.4

Fixed asset turnover 9.9 8.8 9.4 10.5 12.8

Equity turnover 4.8 4.0 3.9 3.4 3.2

Du pont analysis


NP margin (%) 9.1 7.6 7.9 8.6 8.8

Total assets turnover 2.9 2.3 2.3 2.3 2.4

Leverage multiplier 1.6 1.7 1.7 1.5 1.3

ROAE (%) 43.6 30.3 30.5 29.6 28.3



Food

Nestle is consistently posting robust growth in spite of rising food inflation and we believe the momentum will continue in coming quarters with increased focus on new product launches. We are extremely optimistic about its strategy in processed food to ‘bake a new cake’ rather than launching ‘me too’ products to get a small market share. We are enthused by Nestlé’s leadership in most categories it is present in, high pricing power, amd continuous focus on innovation. Maintain ‘HOLD’.

All segments in fine fettle; volume robust despite price hikes Nestle has posted robust growth with revenue CAGR of 20% in the past five years on back of phenomenal performance of its leading brands (Maggi noodles, Kitkat, Cerelac, Milkmaid, Nescafe) and success of new brands (Maggi pasta, Nesvita, Munch). Despite high food inflation, the company managed to report robust volume growth. Its strategy of ‘baking a larger cake’ is to expand categories and not just focus on market share. This is evident from huge success of pasta and new noodle variants. With packaged foods highly underpenetrated and launch of new innovative products and envious success record of the company we are optimistic on its potential.

Higher capex cycle to address capacity constraint The company is planning to significantly step up capex (INR20bn) over the next two‐three years. On cards is capex for brownfield projects at Karnataka (INR3.6bn) for noodles, Goa (INR5bn) for expansion in confectionary, Punjab (INR2bn) for chocolates, and Haryana (INR6bn) for greenfield expansion, Himachal Pradesh (INR4‐5bn) for chocolates and noodles greenfield project.

Outlook and valuations: Going strong; maintain ‘HOLD’ We are enthused by Nestlé’s plan for higher capex to meet the growing demand for its products and launch new products. The company has posted buoyant sales growth consistently in spite of high food inflation and it is the best play on packaged food. We maintain ‘HOLD/Sector Performer’ recommendation/rating.


NESTLE Well baked

COMPANY UPDATE


Absolute Rating HOLD

Rating Relative to Sector Performer



MARKET DATA (R: NEST. BO, B: NEST IN)

CMP : INR 4,270

Target Price : INR 4,700

52‐week range (INR) : 4,549 / 3,160








1 month 4.5 11.0 2.0

3 months (2.5) 3.1 (2.1)

12 months 33.9 3.0 30.8

EDELWEISS 4D RATING


February 9, 2012

FinancialsYear to December CY10 CY11 CY12E CY13ERevenues (INR mn) 62,547 74,908 91,172 110,414 Rev. growth (%) 21.9 19.8 21.7 21.1 EBITDA (INR mn) 12,497 15,528 19,247 23,537 Net profit (INR mn) 8,554 9,616 11,772 14,228 Shares outstanding (mn) 96 96 96 96 Diluted EPS (INR) 88.7 99.7 122.1 147.6 EPS growth (%) 18.9 12.4 22.4 20.9 Diluted P/E (x) 48.1 42.8 35.0 28.9 EV/EBITDA (x) 32.6 26.4 21.4 17.5 ROAE (%) 119.1 96.1 89.0 83.0

Promoters*62.8%


FIIs10.9%

Others18.3%


Food

Financial Statements Income statement (INR mn)Year to December CY09 CY10 CY11 CY12E CY13ENet revenues 51,294 62,547 74,908 91,172 110,414Cost of materials 24,484 30,556 35,894 43,342 51,544Gross profit 26,810 31,992 39,015 47,830 58,869Employee costs 4,324 4,334 5,465 6,701 8,281Others 12,141 15,161 18,022 21,881 27,051EBITDA 10,345 12,497 15,528 19,247 23,537Depreciation 1,216 1,278 1,637 2,028 2,628EBIT 9,129 11,219 13,891 17,219 20,909Other income 378 427 509 555 619Provision for contingencies 323 184 469 469 469EBIT incl. other income 9,830 11,829 13,930 17,306 21,058Net interest & Finance charges 14 11 51 120 135PBT 9,816 11,818 13,879 17,186 20,923Provision for taxation 2,620 3,264 4,264 5,413 6,695Core PAT 7,196 8,554 9,616 11,772 14,228Profit after tax after Minority Interest & Associate 7,196 8,554 9,616 11,772 14,228Equity shares outstanding (mn) 96 96 96 96 96EPS (INR) basic 74.6 88.7 99.7 122.1 147.6 Diluted shares (mn) 96 96 96 96 96EPS (INR) fully diluted 74.6 88.7 99.7 122.1 147.6 CEPS (INR) 87.3 102.0 116.7 143.1 174.8 DPS 49 49 60 73 89Dividend payout ratio (%) 71 57 60 60 60

Common size metrics (%)Year to December CY09 CY10 CY11 CY12E CY13ECost of materials 47.7 48.9 47.9 47.5 46.7Employee costs 8.4 6.9 7.3 7.4 7.5Advertising & sales costs 0.0 0.0 0.0 0.0 0.0Other general expenditure 23.7 24.2 24.1 24.0 24.5Depreciation 2.4 2.0 2.2 2.2 2.4Net interest expenditure 0.0 0.0 0.1 0.1 0.1EBITDA margin 20.2 20.0 20.7 21.1 21.3EBIT margin 17.8 17.9 18.5 18.9 18.9Net profit margin 14.0 13.7 12.8 12.9 12.9

Growth metrics (%)Year to December CY09 CY10 CY11 CY12E CY13ERevenues 18.6 21.9 19.8 21.7 21.1EBITDA 19.8 20.8 24.3 24.0 22.3PBT 22.2 20.4 17.4 23.8 21.7Net profit 27.5 18.9 12.4 22.4 20.9EPS 27.5 18.9 12.4 22.4 20.9


Food

Balance sheet (INR mn)As on 31st December CY09 CY10 CY11E CY12E CY13EShare capital 964 964 964 964 964Reserves 4,848 7,590 10,484 14,028 18,310Shareholders' funds 5,813 8,554 11,448 14,992 19,274 Secured loans 0 0 450 675 900Unsecured loans 0 0 550 825 1,100Borrowings 0 0 1,000 1,500 2,000Deferred tax l iabil ity 320 333 333 333 333Sources of funds 6,133 8,887 12,781 16,825 21,607 Gross block 16,408 18,547 26,297 33,797 41,297Less depreciation 7,446 8,420 10,057 12,085 14,713Net fixed assets 8,962 10,127 16,240 21,712 26,584 Capital work in progress 796 3,489 2,500 1,500 1,000Investments 2,033 1,507 1,507 1,507 1,507Current assets 8,566 10,460 9,634 10,919 13,377 Inventories 4,987 5,760 6,415 7,783 9,395Sundry debtors 642 633 743 879 1,034Cash and bank balance 1,556 2,553 962 743 1,434Loans and advances 1,380 1,514 1,514 1,514 1,514Current l iabil ities 14,224 16,696 17,099 18,813 20,861 Liabil ities 5,876 7,617 8,020 9,734 11,781Provisions 8,348 9,079 9,079 9,079 9,079Working capital (5,658) (6,236) (7,466) (7,894) (7,483) Uses of funds 6,133 8,887 12,781 16,825 21,607 BV (INR) 60 89 119 155 200

Free cash flow (INR mn)Year to December CY09 CY10 CY11E CY12E CY13ENet profit 7,196 8,554 9,616 11,772 14,228 Add: Non cash charge 907 1,105 2,157 2,617 3,232 Depreciation 1,216 1,278 1,637 2,028 2,628 Others (309) (173) 520 589 604 Gross cash flow 8,103 9,659 11,773 14,389 17,460 Less:Changes in WC 15 (978) 362 (210) (280)Cash from operations 8,088 10,636 11,411 14,599 17,740 Less: Capex 2,064 4,832 6,761 6,500 7,000Free cash flow 6,024 5,804 4,650 8,099 10,740

Cash flow metricYear to December CY09 CY10 CY11E CY12E CY13EOperating cash flow 9,268 10,368 10,942 14,130 17,271Financing cash flow (5,413) (5,438) (5,772) (7,849) (9,580)Investing cash flow (2,552) (4,459) (6,761) (6,500) (7,000)Change in cash 1,303 471 (1,591) (219) 691Capex (2,064) (4,832) (6,761) (6,500) (7,000) Dividends paid (5,471) (5,448) (6,721) (8,229) (9,945)


Food

RatiosYear to December CY09 CY10 CY11E CY12E CY13EROAE (%) 136.5 119.1 96.1 89.0 83.0ROACE (%) 206.0 195.5 148.9 129.5 118.1Debtor days 4 4 4 4 3Inventory days 33 31 31 31 31Payable days 49 49 49 49 49Cash conversion cycle (days) (12) (14) (14) (15) (15)Current ratio 0.6 0.6 0.6 0.6 0.6

Operating ratiosYear to December CY09 CY10 CY11E CY12E CY13ETotal asset turnover 9.1 8.3 6.9 6.2 5.7 Fixed asset turnover 6.2 6.6 5.7 4.8 4.6 Equity turnover 9.7 8.7 7.5 6.9 6.4

Du pont analysisYear to December CY09 CY10 CY11E CY12E CY13ENP margin (%) 14.0 13.7 12.8 12.9 12.9 Total assets turnover 9.1 8.3 6.9 6.2 5.7 Leverage multiplier 1.1 1.0 1.1 1.1 1.1 ROAE (%) 136.5 119.1 96.1 89.0 83.0

Valuation parametersYear to December CY09 CY10 CY11E CY12E CY13EDiluted EPS (INR) 74.6 88.7 99.7 122.1 147.6 Y‐o‐Y growth (%) 27.5 18.9 12.4 22.4 20.9 CEPS (INR) 87.3 102.0 116.7 143.1 174.8 Diluted P/E (x) 57.2 48.1 42.8 35.0 28.9 Price/BV (x) 70.8 48.1 36.0 27.5 21.4 EV/Sales (x) 8.0 6.5 5.5 4.5 3.7 EV/EBITDA (x) 39.5 32.6 26.4 21.4 17.5 Dividend yield (%) 1.1 1.1 1.4 1.7 2.1


Food

Pantaloon Retail (PRIL), the largest retailer in the country, stands to benefit from the wide range of private labels under its umbrella which provide cheaper options to consumers fighting high inflationary pressure. The company plans to increase contribution from Food Bazaar to reduce the number of inventory days. Maintain ‘HOLD’.

Turning focus on foods due to high inventory turnover Contribution of Food Bazaar to total PRIL sales is set to increase from ~35% currently to ~50% in the next four‐five years. The company has increased focus on this category because of higher inventory turns (15‐18 turns) compared to fashion (2‐3 turns), negative working capital and best‐in‐class sales/sq ft (~INR14,000). This, in turn, will ensure sustained internal accruals and lower dependency on debt.

Presence across categories; private labels provide cheaper option PRIL has private label brands across categories with brand Fresh & Pure in dairy, Tasty Treat cereals, Golden Harvest spices, Ektaa and Punya edible oils. Also, the company has launched various homegrown recipes such as pav bhaji masala and lemon pickles. It is present in packaged food products under brands Ching’s Secret (Chinese cuisine), Smith & Jones (Continental cuisine), Mama Maria (Italian cuisine), Raji (Indian ready to cook) and Kaeng Thai (Thai cuisine). There is intense competition from national brands as well as MNCs in most segments. However, as private labels provide cheaper options we believe the food segment in PRIL can capitalize in the current high inflation environment. Also, modern trade currently contributes merely ~6% to total FMCG sales which going ahead will improve and directly benefit PRIL’s private labels.

Outlook and valuations: Positive; maintain ‘HOLD’ We are bullish on PRIL given its focus on calibrated profitable growth, robust expansion plans and sharp correction in stock price. The key risks are high debt level and delay in restructuring. We have ‘HOLD/Sector Underperformer’.


PANTALOON RETAILFood, the new focus

COMPANY UPDATE

India Equity Research | Retail

Absolute Rating HOLD

Rating Relative to Sector Underperformer

Risk Rating Relative to Sector High


MARKET DATA (R: PART. BO, B: PF IN)

CMP : INR 190


52‐week range (INR) : 364 / 125


M cap (INR bn/USD mn) : 39 / 794



* Promoters pledged shares : 29.6 (% of share in issue)


Stock Nifty EW Retail Index

1 month 29.1 11.0 8.7

3 months 1.5 3.1 (3.9)

12 months (20.3) 3.0 2.0

EDELWEISS 4D RATING


February 9, 2012

FinancialsYear to June FY10 FY11 FY12E FY13ERevenues (INR mn) 89,261 110,123 123,045 143,988Rev. growth (%) 40.8 23.4 11.7 17.0EBITDA (INR mn) 8,191 9,600 10,779 12,829Net profit (INR mn) 2,302 1,897 1,222 1,526Shares outstanding (mn) 206 217 217 217Diluted EPS (INR) 11.8 8.7 5.6 7.0EPS growth (%) 59.7 (25.9) (35.6) 24.9Diluted P/E (x) 14.9 20.1 31.2 25.0EV/EBITDA (x) 9.4 11.6 11.0 9.9ROAE (%) 9.0 6.3 3.8 4.6

* Nos represent core retail business (PRIL+ FVRL)

Promoters*59.7%


FIIs14.9%

Others6.0%


Food

Financial Statements Income statement (INR mn)Year to June FY09 FY10 FY11 FY12E FY13ENet revenues 63,417 89,261 110,123 123,045 143,988Cost of materials 44,300 63,549 79,010 87,239 101,872Gross profit 19,118 25,712 31,113 35,806 42,117Employee costs 2,743 3,940 4,883 5,340 6,393Advertisement & sales costs 1,142 2,126 2,485 2,707 3,168Electricity expenses 990 1,308 1,831 2,215 2,592Rent and lease expenses 5,066 6,315 7,474 9,351 10,799Others 2,493 3,833 4,840 5,414 6,335EBITDA 6,684 8,191 9,600 10,779 12,829Depreciation 1,401 2,123 2,675 3,395 4,182EBIT 5,283 6,068 6,925 7,384 8,647Other income 61 857 208 324 307EBIT incl. other income 5,344 6,925 7,133 7,708 8,955Net interest & Finance charges 3,182 3,913 4,288 5,885 6,677PBT 2,162 3,013 2,845 1,823 2,278Provision for taxation 757 582 948 602 752Core PAT 1,405 2,431 1,897 1,222 1,526Extraordinary items (net of tax) 0 (129) 0 0 0Profit after tax after Minority Interest & Associate 1,405 2,302 1,897 1,222 1,526Equity shares outstanding (mn) 190 206 217 217 217EPS (INR) basic 7.4 11.8 8.7 5.6 7.0 Diluted shares (mn) 190 206 217 217.1 217EPS (INR) fully diluted 7.4 11.8 8.7 5.6 7.0 CEPS (INR) 14.7 22.1 21.1 21.3 26.3 DPS 1 1 1 1 1Dividend payout ratio (%) 9.5 11.0 10.7 11.0 11.0

Common size metrics (%)Year to June FY09 FY10* FY11E* FY12E* FY13E*Cost of materials 69.9 71.2 71.7 70.9 70.8Employee costs 4.3 4.4 4.4 4.3 4.4Advertising & sales costs 1.8 2.4 2.3 2.2 2.2Rent and lease expenses 8.0 7.1 6.8 7.6 7.5Other general expenditure 3.9 4.3 4.4 4.4 4.4Depreciation 2.2 2.4 2.4 2.8 2.9Net interest expenditure 5.0 4.4 3.9 4.8 4.6EBITDA margin 10.5 9.2 8.7 8.8 8.9Net profit margin 2.2 2.7 1.7 1.0 1.1

Growth metrics (%)Year to June FY09 FY10 FY11 FY12E FY13ERevenues 25.6 40.8 23.4 11.7 17.0EBITDA 45.1 22.6 17.2 12.3 19.0PBT 10.5 39.4 (5.6) (35.9) 24.9Net profit 11.5 73.0 (22.0) (35.6) 24.9EPS (6.6) 59.7 (25.9) (35.6) 24.9


Food

Balance sheet (INR mn)As on 30th June FY09 FY10 FY11 FY12E FY13EShare capital 1,076 1,108 1,818 1,818 1,818Reserves 23,947 27,656 29,602 30,666 31,996Shareholders' funds 25,023 28,764 31,420 32,484 33,813 Minority 3,846 3,183 3,313 3,313 3,313Secured loans 32,860 32,571 55,397 37,558 41,608Unsecured loans 5,723 10,949 23,065 45,904 50,854Borrowings 38,583 43,520 78,461 83,461 92,461Deferred tax l iabil ity 40 1,102 1,555 1,555 1,555Sources of funds 67,491 76,569 114,749 120,813 131,143 Gross block 25,945 30,868 40,260 50,260 61,260Less depreciation 3,936 4,400 6,787 10,182 14,364Net fixed assets 22,009 26,468 33,473 40,079 46,897 Capital work in progress 4,297 3,044 3,446 3,000 2,750Investments 8,978 9,098 12,967 12,967 12,967Current assets 46,231 58,467 93,287 91,076 99,014 Inventories 21,913 24,912 36,791 37,082 43,354Sundry debtors 3,066 3,914 5,298 5,113 5,944Cash and bank balance 2,025 2,865 5,520 3,204 4,039Other current asset 122 157 402 402 402Loans and advances 19,106 26,620 45,275 45,275 45,275Current l iabil ities 14,049 20,508 28,424 26,309 30,485 Liabil ities 13,519 19,706 26,721 24,606 28,783Provisions 530 802 1,702 1,702 1,702Working capital 32,182 37,959 64,863 64,767 68,529 Misc expenditure 25 0 0 0 0Uses of funds 67,491 76,569 114,749 120,813 131,143 BV (INR) 131 140 145 150 156

Free cash flow (INR mn)Year to June FY09 FY10 FY11 FY12E FY13ENet profit 1,405 2,302 1,897 1,222 1,526 Add: Non cash charge 4,583 7,328 6,964 9,279 10,859 Depreciation 1,401 2,123 2,675 3,395 4,182 Others 3,182 5,205 4,288 5,885 6,677 Gross cash flow 5,988 9,630 8,860 10,501 12,385 Less: Changes in WC 2,405 (2,339) 6,248 2,221 2,926Cash from operations 3,583 11,969 2,612 8,280 9,459 Less: Capex 7,135 4,923 9,392 9,555 10,750Free cash flow (3,552) 7,046 (6,780) (1,274) (1,291)

Cash flow metricYear to June FY09 FY10 FY11 FY12E FY13EOperating cash flow (1,726) 2,512 (10,873) 8,280 9,459Financing cash flow 9,630 2,806 30,216 (1,042) 2,127Investing cash flow (9,532) (4,479) (16,687) (9,555) (10,750)Change in cash (1,628) 839 2,656 (2,316) 835Capex (7,135) (4,923) (9,392) (9,555) (10,750) Dividends paid (156) (296) (255) (157) (196)


Food

RatiosYear to June FY09 FY10 FY11 FY12E FY13EROAE (%) 5.9 9.0 6.3 3.8 4.6ROACE (%) 10.0 9.6 8.2 7.0 7.7Debtor days 17 14 15 15 15Inventory days 114 96 102 110 110Payable days 81 75 84 80 80Cash conversion cycle (days) 51 35 33 45 45Current ratio 3.3 2.9 3.3 3.5 3.2 Debt/EBITDA 5.8 5.3 8.2 7.7 7.2 Debt/Equity 1.5 1.5 2.5 2.6 2.7 Adjusted debt/equity 1.5 1.5 2.5 2.6 2.7 Interest coverage (x) 1.7 1.6 1.6 1.3 1.3

Operating ratiosYear to March FY09 FY10 FY11 FY12E FY13ETotal asset turnover 1.0 1.2 1.2 1.0 1.1 Fixed asset turnover 3.3 3.7 3.7 3.3 3.3 Equity turnover 2.7 3.3 3.7 3.9 4.3

Du pont analysisYear to March FY09 FY10 FY11 FY12E FY13ENP margin (%) 2.2 2.7 1.7 1.0 1.1 Total assets turnover 1.0 1.2 1.2 1.0 1.1 Leverage multiplier 2.6 2.7 3.2 3.7 3.8 ROAE (%) 5.9 9.0 6.3 3.8 4.6

Valuation parametersYear to June FY09 FY10 FY11 FY12E FY13EDiluted EPS (INR) 7.4 11.8 8.7 5.6 7.0 Y‐o‐Y growth (%) (6.6) 59.7 (25.9) (35.6) 24.9 CEPS (INR) 14.7 22.1 21.1 21.3 26.3 Diluted P/E (x) 23.8 14.9 20.1 31.2 25.0 Price/BV (x) 1.3 1.3 1.2 1.2 1.1 EV/Sales (x) 1.1 0.9 1.0 1.0 0.9 EV/EBITDA (x) 10.5 9.4 11.6 11.0 9.9 Dividend yield (%) 0.4 0.7 0.5 0.4 0.4


Food

Agro Tech Foods (ATF) has a strong presence in healthy edible oil business through its brand Sundrop. Also, the company is constantly focusing on high margin packaged food category (ACT II popcorn, peanut butter, chocolate pudding, convenience foods etc). Revenue share from foods has swollen from 2% in FY07 to 17% in FY11 and is likely to further catapult to 50% of sales over the long term. Also, due to its affiliation with ConAgra (bought ITC stake to become ATF’s majority owner) we expect the company to enter into newer categories that ConAgra is present in.

Margin improvement key focus As part of its long‐term margin improvement strategy, ATF also sold its Rath brand to Cargill. Currently, ATF’s gross and PAT margins, at 30.0% and 6.2%, respectively, are far low compared to peers, as it is highly dependent on the low‐margin refined oil business. However, the company intends to expand its packaged food business and launch new products with gross margins above 30% with an intent to expand gross margin to 40% over the long term.

Packaged foods to drive growth Of late, ATF is diversifying into high margin convenience/packaged foods. Its packaged food products like ACT II popcorn, peanut butter, chocolate pudding, etc., have gross margins exceeding 35%. Act II launched many India‐centric tastes for popcorns. It also launched ready‐to‐cook convenience foods. The company is, however, cautious of MNC competition and has a clear strategy of not going for “me too” products.

Parent provides product technology and R&D support ATF is an affiliate of ConAgra which provides the former technology and R&D support, using which it plans to introduce/test market one‐two new value‐added processed food products every year. The latter’s business strategy will be to customize ConAgra’s international products to suit Indian needs and launch them in the domestic market.



AGRO TECH FOODSWell oiled to make ACT stronger

COMPANY PROFILE


Absolute Rating Not Rated

MARKET DATA (R: AGRO. BO, B: ATFL IN)

CMP : INR 429

Target Price : Not Rated

52‐week range (INR) : 483 / 294


M cap (INR bn/USD mn) : 11 / 211






1 month 10.0 7.4 (2.6)

3 months 3.8 7.0 3.2

12 months (2.4) 44.7 47.1

EDELWEISS RATING

FinancialsYear to December FY08 FY09 FY10 FY11Revenues (INR mn) 10,084 7,736 6,496 7,187 Rev. growth (%) (2.9) (23.3) (16.0) 10.6 EBITDA (INR mn) 217 155 225 275 Net profit (INR mn) 163 208 245 318 Share outstanding (mn) 24 24 24 24 EPS (INR) 6.7 8.6 10.1 13.1 EPS growth (%) 2.7 28.3 17.8 29.6 Diluted P/E (x) 64.3 50.1 42.6 32.8EV/EBITDA (x) 44.6 66.4 42.5 34.8ROAE (%) 15.7 17.2 17.5 19.4


February 9, 2012

Promoters*51.8%


FIIs8.5%

Others37.2%


Food

Financial Statements Income statement (INR mn)Year to March FY07 FY08 FY09 FY10 FY11Income from operations 10,382 10,084 7,736 6,496 7,187 Direct costs 9,130 8,802 6,052 4,294 5,271 Employee costs 184 223 288 263 320 Other expenses 943 842 1,241 1,714 1,320 Total operating expenses 10,257 9,867 7,581 6,270 6,912 EBITDA 124 217 155 225 275 Depreciation and amortisation 22 24 24 30 46 EBIT 102 193 130 195 229 Interest expenses 28 13 5 4 1 Other income 121 33 111 140 69 Profit before tax 195 213 236 331 297 Provision for tax 34 51 68 80 153 Core profit 161 163 168 251 144 Extraordinary items 3 ‐ (40) 6 (174) Profit after tax 158 163 208 245 318 PAT after minority interest 158 163 208 245 318 Adjusted net profit 158 163 208 245 318 EPS (INR) diluted 6 7 9 10 13 Diluted equity shares (mn) 24.4 24.4 24.4 24.4 24.4 Tax rate (%) 17.4 23.8 28.7 24.1 51.6

Common size metrics‐ as % of net revenuesYear to March FY07 FY08 FY09 FY10 FY11Operating expenses 98.8 97.8 98.0 96.5 96.2 Depreciation and Amortization 0.2 0.2 0.3 0.5 0.6 Interest expenditure 0.3 0.1 0.1 0.1 0.0 EBITDA margins 1.2 2.2 2.0 3.5 3.8 Net profit margins 1.5 1.6 2.7 3.8 4.4

Growth metrics (%)Year to March FY07 FY08 FY09 FY10 FY11Revenues 8.8 (2.9) (23.3) (16.0) 10.6 EBITDA 459.2 74.6 (28.6) 45.4 22.1 PBT 1,050.7 9.5 10.7 40.2 (10.3) Net profit 476.8 1.0 3.5 49.4 (42.8) EPS 28.1 2.7 28.3 17.8 29.6


Food

Balance sheet (INR mn)As on 31st March FY07 FY08 FY09 FY10 FY11Equity capital 244 244 244 244 244 Reserves & surplus 713 875 1,055 1,264 1,532 Shareholders funds 956 1,119 1,299 1,507 1,776 Secured loans 124 113 ‐ ‐ ‐ Borrowings 124 113 ‐ ‐ ‐ Sources of funds 1,080 1,232 1,299 1,507 1,776 Gross block 544 566 589 602 698 Depreciation 213 228 221 192 202 Net block 331 337 368 410 496 Capital work in progress 2 2 7 124 185 Total fixed assets 333 339 375 534 681 Inventories 626 745 436 574 674 Sundry debtors 377 345 159 178 351 Cash and equivalents 155 165 877 890 448 Other current assets 269 298 235 279 513 Total current assets 1,427 1,552 1,707 1,921 1,986 Sundry creditors and others 723 686 745 896 855 Provisions 18 10 56 66 67 Total CL & provisions 741 697 801 962 922 Net current assets 686 856 907 959 1,063 Net deferred tax 60 36 17 14 32 Misc Expenses not written off 1 ‐ ‐ ‐ ‐ Uses of funds 1,080 1,232 1,299 1,507 1,776 Adjusted BV per share (INR) 39 46 53 62 73

Free cash flow (INR mn)Year to March FY07 FY08 FY09 FY10 FY11Net profit 158 163 208 245 318 Depreciation 22 24 24 30 46 Deferred tax 1 18 25 38 (18) Others 69 51 681 (121) (666)Gross cash flow 251 255 939 192 (320)Less:Changes in WC 214 170 51 53 104Operating cash flow 37 85 888 140 (424)Less: Capex 16 30 55 72 132Free cash flow 21 55 832 67 (556)


Food

Profitability & liquidity ratiosYear to March FY07 FY08 FY09 FY10 FY11ROAE (%) (on adjusted profits) 18.0 15.7 17.2 17.5 19.4 ROACE (%) 10.4 16.7 10.3 13.9 13.9 Inventory days 89 114 142 172 173 Debtors days 13 13 12 9 13 Payable days 31 29 43 70 61 Cash conversion cycle 71 98 111 111 126 Current ratio 1.9 2.2 2.1 2.0 2.2 Debt/EBITDA 1.0 0.5 ‐ ‐ ‐ Interest coverage 3.7 15.0 24.3 55.7 170.9 Fixed assets t/o (x) 31.1 30.2 21.9 16.7 15.9 Debt/equity 0.1 0.1 ‐ ‐ ‐

Valuations parametersYear to March FY07 FY08 FY09 FY10 FY11Diluted EPS (INR) 6.5 6.7 8.6 10.1 13.1 Y‐o‐Y growth (%) 28.1 2.7 28.3 17.8 29.6 CEPS 7.6 8.4 8.9 13.1 7.1 Diluted P/E (x) 66.0 64.3 50.1 42.6 32.8 Price/BV (x) 10.9 9.3 8.0 6.9 5.9 EV/Sales (x) 1.0 1.0 1.3 1.5 1.3 EV/EBITDA (X) 83.8 44.6 66.4 42.5 34.8


Food

Britannia Industries (Britannia), the biscuit market leader has diversified into other high growth potential segments—dairy, bakery and RTE. We are positive on entry into these untapped categories which may lead the company to the growth path. However, due to intense competition from MNCs, market dynamics need to be cautiously watched.

Market leader in biscuits Britannia is present across various price points and categories (glucose, marie, cream, salty) under brands Tiger, Bourbon, 50‐50, and Good day. The company recently launched Treat‐O in the premium category. It reported strong 20% plus sales growth for six consecutive quarters. The company is focusing on premium portfolio and has recently launched Nutrichoice Multigrain Thins and Nutrichoice Multigrain Roasty.

Non‐biscuits portfolio showing exuberance The company is diversifying away from highly penetrated category of biscuits as it is facing intense competition from local players and MNCs. Non‐biscuits portfolio including dairy, bread, cakes and rusk is growing at a faster clip and posted total sales of INR9bn in FY11. The company has reasonable presence in the dairy segment (dahi, milk, cheese, flavored milk, butter, ghee) and bakery products. Also, Britannia, keeping in view the health and wellness plank, has entered various snacking options which include diabetic‐friendly biscuits, breakfast cereals, Britannia Healthy Start, a delicious range of ready‐to‐cook breakfast mixes including pohas, upmas, oats and porridges. However, due to intense competition from MNCs in oats and entry into untested territory like upma/poha etc., it would be prudent to wait before coming to a final conclusion.

Irrational competition key concern Competitive intensity in biscuits from local players is high—~450 biscuit manufacturers, with 68 companies with >0.05% market share. Management believes introduction of GST will benefit Britannia as it will ensure a level playing field.



BRITANNIA INDUSTRIESBiscuit king

COMPANY PROFILE



MARKET DATA (R: BRIT. BO, B: BRIT IN)

CMP : INR 486


52‐week range (INR) : 501 / 324


M cap (INR bn/USD mn) : 58 /1,170






1 month 10.0 8.9 (1.1)

3 months 3.8 1.0 (2.8)

12 months (2.4) 40.2 42.6

EDELWEISS RATING

FinancialsYear to March FY08 FY09 FY10 FY11Net sales 27,763 34,212 37,729 46,052 Rev. growth (%) 22.5 23.2 10.3 22.1 EBITDA 2,352 2,380 1,629 2,349 PAT 1,690 1,252 1,338 1,342 Shares outstanding (mn) 120 120 120 120 Diluted EPS (INR) 14.9 12.7 8.6 11.3 EPS growth (%) 72.4 (14.6) (31.9) 30.2 Diluted P/E (x) 32.7 38.3 56.2 43.2 EV/EBITDA (x) 24.2 23.7 37.2 25.4 ROAE (%) 28.1 21.4 20.6 44.1


February 9, 2012

Promoters*51.0%


FIIs17.3%

Others19.1%


Food

Financial Statements Income statement (INR mn)Year to March FY07 FY08 FY09 FY10 FY11Income from operations 22,663 27,763 34,212 37,729 46,052 Direct costs 14,540 16,929 21,191 24,115 30,254 Employee costs 793 1,263 1,587 1,645 1,802 Advertising and promotion ‐ 3,010 3,352 Other expenditure 6,023 7,219 9,054 7,331 8,295 Total operating expenses 6,816 8,481 10,641 11,986 13,449 EBITDA 1,306 2,352 2,380 1,629 2,349 Depreciation and amortisation 260 394 659 582 649 EBIT 1,047 1,959 1,721 1,046 1,700 Interest expenses 117 186 326 235 478 Other income 288 334 387 582 649 Profit before tax 1,218 2,107 1,782 1,394 1,871 Provision for tax 113 416 530 56 529 Profit after tax 1,105 1,690 1,252 1,338 1,342 Extraordinary items 54 (75) (180) 307 ‐ Profit after extraordinary items 1,051 1,765 1,432 1,031 1,342 Minority Interest ‐ (9) (80) 1 (1) Share in profit of Associate ‐ 0 2 2 1 Core profit 1,051 1,774 1,515 1,032 1,343 EPS (INR) diluted 9 15 13 9 11 Diluted equity shares (mn) 120 120 120 120 120 Dividend payout (%) 39.9 28.4 73.8 67.5 67.2 Tax rate (%) 9.3 19.8 29.7 4.0 28.3

Common size metrics‐ as % of net revenuesYear to March FY07 FY08 FY09 FY10 FY11Operating expenses 30.1 30.5 31.1 31.8 29.2 Depreciation and Amortization 1.1 1.4 1.9 1.5 1.4 Interest expenditure 0.5 0.7 1.0 0.6 1.0 EBITDA margins 5.8 8.5 7.0 4.3 5.1 Net profit margins 4.6 6.4 4.4 2.7 2.9

Growth metrics (%)Year to March FY07 FY08 FY09 FY10 FY11Revenues 32.1 22.5 23.2 10.3 22.1 EBITDA (32.9) 80.1 1.2 (31.6) 44.2 PBT (37.8) 72.9 (15.4) (21.8) 34.2 Net profit (25.7) 68.8 (14.6) (31.9) 30.2 EPS (28.1) 72.4 (14.6) (31.9) 30.2


Food

Balance sheet (INR mn)As on 31st March FY07 FY08 FY09 FY10 FY11Equity capital 239 239 239 239 239 Reserves & surplus 5,481 6,683 6,975 2,589 3,021 Shareholders funds 5,720 6,922 7,214 2,828 3,260 Minority Interest 103 102 37 22 21 Secured loans 79 316 645 5,205 4,333 Unsecured loans 1,490 2,407 2,058 1,364 1,855 Borrowings 1,570 2,723 2,703 6,570 6,188 Sources of funds 7,392 9,747 9,954 9,419 9,469 Gross block 6,820 7,603 9,216 10,105 10,546 Depreciation 3,198 3,612 4,511 5,112 5,498 Net block 3,622 3,991 4,705 4,993 5,048 Capital work in progress 164 101 63 102 134 Total fixed assets 3,786 4,092 4,768 5,095 5,183 Investments 2,908 3,398 3,773 3,664 3,885 Inventories 2,367 3,293 2,887 3,042 3,470 Sundry debtors 567 690 740 733 810 Cash and equivalents 547 535 688 427 769 Other current assets 2 132 137 134 121 Loans and Advances 872 1,358 1,655 1,977 2,129 Total Current Assets 4,355 6,008 6,107 6,313 7,299 Sundry creditors and others 2,989 2,960 3,348 3,840 4,586 Provisions 935 1,057 1,517 1,874 2,253 Total CL & provisions 3,924 4,017 4,865 5,714 6,839 Net current assets 431 1,991 1,242 599 459 Miscellaneous expenditure not written off 256 240 270 ‐ ‐ Net deferred tax 12 25 (99) 61 (57) Uses of funds 7,392 9,747 9,954 9,419 9,469 Adjusted BV per share (INR) 48 58 60 24 27

Free cash flow (INR mn)Year to March FY07 FY08 FY09 FY10 FY11Net profit 1,051 1,774 1,515 1,032 1,343 Depreciation 260 394 659 582 649 Deferred tax (29) (12) 128 (160) 118 Others 1,290 (952) 2,294 2,692 2,587 Gross cash flow 1,520 (571) 3,081 3,114 3,354 Less:Changes in WC 266 (1,262) 578 736 594 Operating cash flow 1,254 691 2,503 2,378 2,760 Less: Capex 3,666 782 1,614 889 441 Free cash flow (2,412) (92) 889 1,489 2,319


Food

Profitability & liquidity ratiosYear to March FY07 FY08 FY09 FY10 FY11ROAE (%) (on adjusted profits) 18.8 28.1 21.4 20.6 44.1 ROACE (%) 32.4 36.2 27.5 17.5 30.0 Inventory days 34 37 33 29 26 Debtors days 6 8 8 7 6 Payable days 66 64 54 54 51 Cash conversion cycle (25) (19) (14) (19) (19) Current ratio 1.1 1.5 1.3 1.1 1.1 Debt/EBITDA 1.2 1.2 1.1 4.0 2.6 Interest coverage 9.0 10.5 5.3 4.5 3.6 Fixed assets t/o (x) 9.0 7.3 7.9 7.8 9.2 Debt/equity 0.3 0.4 0.4 2.3 1.9

Valuations parametersYear to March FY07 FY08 FY09 FY10 FY11Diluted EPS (INR) 8.6 14.9 12.7 8.6 11.3 Y‐o‐Y growth (%) (28.1) 72.4 (14.6) (31.9) 30.2 CEPS 10.7 18.0 19.3 12.2 17.7 Diluted P/E (x) 56.4 32.7 38.3 56.2 43.2 Price/BV (x) 10.2 8.4 8.0 20.5 17.8 EV/Sales (x) 2.5 2.0 1.6 1.6 1.3 EV/EBITDA (X) 43.0 24.2 23.7 37.2 25.4


Food

Tata Chemicals’ sustained dominance in the packaged salt category (62% market share) despite stiff competition from Annapurna salt (HUL) and Saffola salt (Marico) speaks volumes of the company’s brand equity. We are bullish on its entry into packaged dal category as it will benefit from existing wide distribution network of traditional kirana stores and large format food malls. Overall, the company’s food category looks good from a long‐term perspective.

Well placed in packaged salt The company is a pioneer and market leader in the Indian branded iodized salt segment through its pioneering brand Tata Salt. The company is market leader with 62% market share in packaged salt. It acquired 100% stake in British Salt (in Dec 2010) for GBP93mn to provide for the raw material requirement of BMGL. Also, through the acquisition of British Salt, Tata Chemicals has secured long‐term brine supply and also opportunity to expand into UK's food segment.

Launched water purifier; backed by innovation Tata Chemicals launched "Tata Swach", a water purifier that does not require electricity. At the same time it, is user friendly and affordable targeted at all segments and classes from villages to middle class urban homes. It was initially launched in Maharashtra and Karnataka, but is now available in 12 states. The company targets to sell about 1mn units annually by FY12.

New launches to leverage established distribution network Under 'i‐shakti Dals', Tata Chemicals launched four varieties of pulses i.e., chana, moong, tur and urad in various SKUs. The company plans to leverage its existing wide distribution network of traditional kirana stores and large format food malls to market the dals.


TATA CHEMICALS Leader in packaged salt

COMPANY PROFILE

India Equity Research | Miscellaneous


MARKET DATA (R: TTCH. BO, B: TTCH IN)

CMP : INR 352


52‐week range (INR) : 392 / 287








1 month 10.0 9.6 (0.4)

3 months 3.8 14.2 10.4

12 months (2.4) 15.5 17.9

EDELWEISS 4D RATING

FinancialsYear to March FY08 FY09 FY10 FY11Net revenues (INR mn) 60,232 122,577 95,438 110,602 Revenue growth (%) 3.7 103.5 (22.1) 15.9 EBITDA (INR mn) 10,410 18,634 18,374 18,368 Core profit (INR mn) 4,755 9,705 8,693 8,562 Share outstanding (mn) 234 236 244 255 EPS (INR) 20.3 36.4 30.8 26.0 EPS growth (%) (13.6) 79.6 (15.4) (15.7) P/E (x) 17.3 9.6 11.4 13.5 EV/EBITDA (x) 11.5 6.8 6.4 7.0 ROAE (%) 15.1 20.2 15.8 13.1


February 9, 2012

Promoters*31.2%


FIIs31.1%

Others24.3%


Food

Financial Statements Income statement (INR mn)Year to March FY07 FY08 FY09 FY10 FY11Net revenues 58,096 60,232 122,577 95,438 110,602 Raw material costs 23,606 22,970 60,694 34,407 44,523 Gross profit 34,490 37,261 61,882 61,031 66,079 Employee expenses 3,519 4,809 8,672 7,462 8,465 Other expenses 20,904 22,043 34,577 35,195 39,247 Operating expenses 24,424 26,852 43,249 42,656 47,711 Total expenditure 48,030 49,822 103,943 77,064 92,234 EBITDA 10,067 10,410 18,634 18,374 18,368 Depreciation & amortisation 2,739 3,138 4,226 4,468 4,511 EBIT 7,328 7,271 14,407 13,907 13,857 Interest expense 824 1,365 3,953 3,932 3,508 Other income 953 964 826 811 962 Profit before tax 7,457 6,870 11,280 10,786 11,311 Provision for tax 2,401 2,115 1,575 2,093 2,749 Core profit 5,056 4,755 9,705 8,693 8,562 Extraordinary/ Prior period items 24 4,889 (2,107) (1,457) (101) Profit after tax 5,080 9,644 7,598 7,236 8,461 Minority interest ‐ ‐ 1,117 1,177 1,926 Profit after minority interest 5,080 9,644 6,481 6,059 6,535 Equity shares outstanding (mn) 215 234 235 243 255 EPS (INR) basic 23.5 20.3 36.5 30.9 26.0 Diluted shares (mn) 215 234 236 244 255 EPS (INR) diluted 23.5 20.3 36.4 30.8 26.0 CEPS 36.5 32.8 49.3 47.1 42.8 DPS 8.0 9.0 9.0 9.0 10.0 Dividend payout (%) 33.8 20.8 38.1 60.2 60.0

Common size metrics (% net revenues)Year to March FY07 FY08 FY09 FY10 FY11Cost of goods sold 40.6 38.1 49.5 36.1 40.3 Operating expenses 42.0 44.6 35.3 44.7 43.1 EBITDA margins 17.3 17.3 15.2 19.3 16.6 Depreciation & amortisation 4.7 5.2 3.4 4.7 4.1 Interest 1.4 2.3 3.2 4.1 3.2 Net profit margin 8.7 7.9 7.9 9.1 7.7

Growth metrics (%)Year to March FY07 FY08 FY09 FY10 FY11Revenues 44.0 3.7 103.5 (22.1) 15.9 EBITDA 33.9 3.4 79.0 (1.4) (0.0) PBT 24.2 (7.9) 64.2 (4.4) 4.9 Net profit 18.0 (6.0) 104.1 (10.4) (1.5) EPS 18.0 (13.6) 79.6 (15.4) (15.7)


Food

Balance sheet (INR mn)As on 31st March FY07 FY08 FY09 FY10 FY11Total equity capital 2,152 2,341 2,352 2,433 2,548 Reserves & surplus 23,567 34,844 45,346 44,731 51,969 Shareholder's equity 25,718 37,185 47,698 47,164 54,516 Secured loans 8,621 6,432 8,413 18,389 26,568 Unsecured loans 10,021 41,635 54,425 31,549 30,430 Total debt 18,642 48,067 62,838 49,937 56,997 Deferred tax l iabil ity (net) 2,337 2,695 125 139 45 Deferred capital grant 211 148 90 43 ‐ Minority interest ‐ 423 1,522 3,501 4,065 Sources of funds 46,908 88,517 112,273 100,784 115,623 Gross fixed assets 57,823 63,268 70,148 74,722 87,282 Accumulated depreciation 29,558 32,216 37,303 41,597 49,468 Net fixed assets 28,264 31,052 32,845 33,125 37,814 Capital work in progress 2,296 2,660 4,740 5,184 7,091 Total fixed assets 30,561 33,712 37,585 38,310 44,905 Investments 7,753 4,174 8,698 5,576 4,479 Inventories 6,352 9,302 12,761 9,587 11,456 Accounts receivable 9,665 11,999 16,358 11,111 13,654 Cash and cash equivalents 1,545 6,767 9,899 11,589 13,450 Loans and advances 2,582 6,200 5,554 5,373 7,819 Current assets 20,143 34,269 44,571 37,660 46,379 Current l iabil ities 11,485 19,336 24,994 21,021 23,263 Provisions 7,733 10,800 12,173 13,067 13,201 Current l iabil ities & provisions 19,217 30,136 37,167 34,088 36,464 Net current assets 926 4,133 7,404 3,572 9,915 Goodwill 7,632 46,492 56,213 53,247 56,324 Foreign currency translation difference ‐ ‐ 2,374 79 ‐ Uses of funds 46,908 88,517 112,273 100,784 115,623 Book value per share (INR) 120 159 203 194 214

Free cash flow Year to March FY07 FY08 FY09 FY10 FY11Net profit 5,080 9,644 6,481 6,059 6,535 Add: Depreciation 2,739 3,138 4,226 4,468 4,511 Add: Interest and other non‐cash items (267) (4,792) 6,413 5,796 2,834 Gross cash flow 7,552 7,991 17,121 16,323 13,880 Less: Changes in working capital 1,599 816 (6,842) 3,522 (4,286) Operating cash flow 9,151 8,806 10,279 19,845 9,594 Less: Capex 5,204 2,445 7,331 5,885 5,932 Free cash flow 3,948 6,361 2,947 13,960 3,663

Cash flow metricsYear to March FY07 FY08 FY09 FY10 FY11Operating cash flow 9,151 8,806 10,279 19,845 9,594 Financing cash flow (2,300) 29,542 (916) (14,027) 3,610 Investing cash flow (6,536) (33,467) (6,849) (4,377) (12,033) Net cash flow 316 4,881 2,514 1,441 1,172 Capex (5,204) (2,445) (7,331) (5,885) (5,932) Dividends paid (1,716) (2,010) (2,472) (3,645) (3,918)


Food

Profitability ratiosYear to March FY07 FY08 FY09 FY10 FY11ROACE (%) 19.1 11.8 15.3 14.0 13.4 ROAE (%) 21.2 15.1 20.2 15.8 13.1 ROA (%) 11.2 7.0 9.7 8.2 7.9 Current ratio 1.0 1.1 1.2 1.1 1.3 Receivables (days) 54 66 42 53 41 Inventory (days) 103 124 66 119 86 Payables (days) 155 245 133 244 182 Cash conversion cycle (days) 2 (55) (25) (73) (54) Debt‐equity (x) 0.7 1.3 1.3 1.1 1.0 Debt/EBITDA 1.9 4.6 3.4 2.7 3.1 Adjusted debt/Equity 0.7 1.3 1.3 1.1 1.0 Long term debt / Capital employed (%) 39.7 54.3 56.0 49.5 49.3 Total debt / Capital employed (%) 85.7 91.4 89.2 83.5 80.9 Interest coverage (x) 8.9 5.3 3.6 3.5 3.9

Operating ratios (x)Year to March FY07 FY08 FY09 FY10 FY11Total asset turnover 1.3 0.9 1.2 0.9 1.0 Fixed asset turnover 2.3 2.0 3.8 2.9 3.1 Equity turnover 2.4 1.9 2.9 2.0 2.2

Du pont analysisYear to March FY07 FY08 FY09 FY10 FY11NP margin (%) 8.7 7.9 7.0 7.9 6.0 Total assets turnover 1.3 0.9 1.2 0.9 1.0 Leverage multiplier 1.9 2.2 2.4 2.2 2.1 ROAE (%) 21.2 15.1 20.2 15.8 13.1

Valuation parametersYear to March FY07 FY08 FY09 FY10 FY11Diluted EPS (INR) 23.5 20.3 36.4 30.8 26.0 Y‐o‐Y growth (%) 18.0 (13.6) 79.6 (15.4) (15.7) CEPS (INR) 36.5 32.8 49.3 47.1 42.8 Diluted P/E (x) 15.0 17.3 9.6 11.4 13.5 P/BV (x) 2.9 2.2 1.7 1.8 1.6 EV/Sales (x) 1.5 2.0 1.0 1.2 1.2 EV/EBITDA (x) 8.4 11.5 6.8 6.4 7.0 Dividend yield(%) 2.3 2.6 2.6 2.6 2.8


Food

UUNNLLIISSTTEEDD CCOOMMPPAANNIIEESS


Food

THIS PAGE IS INTENTIONALLY LEFT BLANK


Food

Our View Amul is well placed in terms of distribution reach, brand recall, product range and raw material sourcing in the dairy category. Being market leader in most categories it is present in, the company is in an enviable position to enjoy exponential growth of the food segment. By expanding its rural reach and increased focus on health and wellness Amul is set to achieve its target of three‐fold increase in top line by 2020.

About Company/Promoter The Gujarat Cooperative Milk Marketing Federation, Anand (GCMMF), is the largest food products marketing organisation of India. It is the apex organization of the Dairy Cooperatives of Gujarat. It is an institution created by milk producers to primarily safeguard their interest economically, socially as well as democratically. In the case of GCMMF, the surplus is ploughed back to farmers through district unions as well as village societies.

Amul is the largest food brand in India and world's largest pouched milk brand with an annual turnover of INR97.74bn in FY11. Besides India, Amul has entered overseas markets such as Mauritius, UAE, US, Bangladesh, Australia, China, Singapore, Hong Kong and a few South African countries. Though its efforts to enter the Japanese market in 1994 did not succeed, it has now laid out fresh plans to re‐enter the market. Other potential markets being considered include Sri Lanka.

The company enjoys ~90% market share in butter and 45% market share in dairy whitener. It also enjoys 26% share in the INR400bn packaged milk market and has emerged the largest milk selling brand in all major metro markets of Delhi, Mumbai, Kolkata and Ahmedabad. Out of the total average of 9.3mn litres of milk procured daily, GCMMF sells 3.4mn litres outside Gujarat.

Amul recently launched two QSRs in Ahmedabad offering a wide range of delectables like sandwiches, dosa, burgers, pav bhaji. They also house a cafe selling wide range of dairy products. Amul plans to take its count to 10 by FY12 end.

Products Amul Butter, Amul Milk Powder, Amul Ghee, Amulspray, Amul Cheese, Amul Chocolates, Amul Shrikhand, Amul Ice Cream, Nutramul, Amul Milk and Amulya have made Amul a leading food brand in India. After probiotic ice‐cream, the company launched an all natural probiotic vitamins fortified flavoured yogurt under the brand Flaavyo. With the launch of Amul Flaavyo, the company hopes to transform the consumption habits of Indian households to a tasty, healthy and nutritional option in the form of probiotic yogurt, which can be consumed either at the breakfast table or as health dessert or on the go.


AMUL The White Revolution persists

COMPANY PROFILE



February 9, 2012


Food

Product success/failures Attempts to get into pizza did not yield the desired results. However, as per management, Amul Pizzas were never introduced as a food category. Through pizza, the company wanted to sell mozzarella cheese.

Branding Amul has never spent more than 1% on brand building, unlike other consumer companies which spend 6‐15%. As per management, the company cannot do so because product costing gets affected and the value‐for‐money proposition is lost. However, Amul’s billboard ads (OOH) are extremely thought provoking and have become a rage. Amul seems to have got the taste of global events. After having sponsored Netherlands' cricket team in the ICC Cricket World Cup 2011, the "Taste of India' was also the official partner of Switzerland‐headquartered Sauber F1 team at the inaugural Indian Grand Prix.

Competition It competes with HUL’s Kwality Walls in ice cream, NDDB's Mother Dairy in ice cream, liquid milk, dahi and butter, Britannia and Nestle in dahi and Britannia and Gowardhan in cheese.

Distribution Currently, Amul has 3,200 distributors compared to Parag’s 60 and Britannia’s 700.

Regional Presence/ Stronghold Pan India.

Future Plans GMCCF is targeting INR300bn sales by 2020, a three‐fold jump from the current ~INR100bn. There is lot of scope in the dairy industry considering the company is handling only 3% of India’s total organised milk production. By 2020, the company plans to procure 20 mn litres of milk every day, up from the current 9.2 mn litres. By expanding its rural reach, GCMMF expects to clock 20% growth in non‐milk categories which have an annual turnover of INR55bn. In a strategic move aimed at grabbing a larger share of the growing demand for milk in the country, Amul’s parent GCMMF has gone beyond its Gujarat boundary and procured milk from other states as well. Over the past few months, GCMMF has procured 7‐8% of milk from Maharashtra, West Bengal, Bihar, Haryana and Rajasthan. Amul to double its retail outlets pan‐India: It will double its retail outlets pan‐India from 5,000 to 10,000 by 2012.

Matrix 1. Penetration levels‐ High

2. Brand salience‐ High

3. Challenge from MNC/regional competition‐ High

4. Product mix‐ High

5. Distribution reach‐ High

6. Appetite for ad budget‐ Low


Food

7.

Our View Time pressure, growing health consciousness, increasing number of nuclear families, and the growth of modern trade are all making health food category popular. Also, with growing awareness in smaller cities too, Baggry’s India (Baggry’s) is well placed in this category of food.

About Company/Promoter Bagrrys was set up in 1986 and began manufacturing and distributing high fibre health foods in 1991 under brands Wheatex and Oatex. About four years later, the company introduced its own muesli and granola bars under the umbrella brand Bagrry's. Since then, Bagrry’s has been one of the leading brands of health foods in India. The company manufactures and markets a wide range of high‐fibre breakfast cereals and health foods which are wholesome and nutritious. It supplies to leading companies such as GSK, Britannia, Cookieman Foods, Herbalife International, HUL and ITC. IN FY10, the company posted revenue of INR450mn and PAT of INR110mn. Oat products contribute 60% to the company’s top line.

Category Oats, muesli, cornflakes, barn.

Products White Oats, Chewy Oats, Crunchy Muesli, SoHealthy Muesli, Barn Added Cornflakes, Oat Barn.

Branding The company actively markets its products through TV ads and print media.

Competition Kellogg, PepsiCo, GSK, Nestle, Dr Oetker, Marico, Britannia, ITC and MTR Foods.

Distribution Products are available in more than 130 cities and towns across India and neighboring countries like Nepal and Bhutan.

Future Plans The firm's expansion plans include a third greenfield plant in Ghaziabad for INR150mn, which is expected to start production by early 2012, and is likely to double the production of oats and muesli. Its existing plants are in Delhi and Himachal Pradesh. Baggry’s is evaluating proposals to acquire smaller brands in the ethnic foods space.


BAGRRY’S INDIA Wholesome growth

COMPANY PROFILE



February 9, 2012


Food

Matrix 1. Penetration levels‐ Low

2. Brand salience‐ Medium


4. Product mix‐ Low

5. Distribution reach‐ Low



Food

Our View The growing number of cases of water borne disease, rising water pollution, increasing urbanization, scarcity of pure and safe water etc., has made the bottled water business lucrative. Thus, by increasing focus on safety coupled with entering the niche market of natural mountain water, we believe Bisleri is well positioned to maintain its market leader position.

About Company/Promoter Bisleri was originally an Italian company created by Felice Bisleri, who first brought the idea of selling bottled water in India. Bisleri then was introduced in Mumbai in glass bottles in two varieties bubbly & still in 1965. Parle bought over Bisleri (India) in 1969 and started bottling water in glass bottles under the brand name Bisleri. Later, in early 1980’s, Parle switched over to PVC non‐returnable bottles and finally advanced to PET containers. In 1993, the group sold its carbonated drink brands like Thums Up, Gold Spot and Limca to Coca‐Cola for INR4,000mn. In 2003, Bisleri announced its venture to Europe. The company launched Vedica Natural Mountain water in 2010.

Currently, brand Bisleri has become a household name and is so popular in India that it is used as generic name for bottled water.

Category Packaged drinking water, natural mineral water, soda.

Products Bisleri Mineral Water, Bisleri Soda, Vedica Natural Mountain Water.

Branding Bisleri has generally marketed its products through TV ads. Recently, it has rolled out a new ad campaign that carries the message 'Stay Protected'. The campaign marks the first time the brand has taken to animation in its communication. In January 2010, Bisleri embraced a new look by introducing a celebration pack. The idea was to position it as a brand for all occasions, as one that could connect with consumers at all points in time. Back in 2008, the brand, in the face of competition, claimed its position as 'the original mountain water', with a film that touched upon spirituality. It carried the tagline 'The sweet taste of purity'. Years back, it had conveyed the message 'Play Safe' through a naughty and suggestive campaign. The current film marks a completely different way of stating a similar message.


BISLERI Natural born leader

COMPANY PROFILE



February 9, 2012


Food

Competition Bisleri faces competition from Coca‐Cola’s Kinley, Pepsi’s Aquafina and Parle Agro’s Bailley; but dominates the mineral water category with a market share of ~60%.

Regional Presence/ Stronghold The company has 17 owned plants, 33 co‐packers, 11 franchisees and a wide distribution and retail network pan‐India. Bisleri currently reaches 200,000 outlets within the country.

Future Plans Bisleri is gearing up to enter retail trade with its Bisleri Shoppes, which have already been test‐launched in Bengaluru. It plans to open 500 Bisleri Shoppes which would get launched pan‐India with almost 100 in Mumbai alone. These would be run by franchises. Also, the company is looking at entering Middle East countries and is considering setting up more manufacturing facilities outside India to cater to the overseas market.

Matrix 1. Penetration levels‐ Medium


3. Challenge from MNC/regional competition‐ Medium



6. Appetite for ad budget‐ High


Food

Our View We believe lifestyle changes and demography provide immense growth opportunities in dining in India. With foreign cuisine gaining popularity among urban dwellers, the presence of Blue Foods across categories spanning a variety of cuisines infuses us with confidence in a promising future for the array of well known restaurants it has under its belt.

About Company/Promoter Blue Foods was incorporated in September 2000 and is one of the early movers in the largely unorganized Indian restaurant sector. It commenced operations in Mumbai and then established a scalable national presence. Blue Foods dominates more than 250000 sq ft of the fine‐dining business with its lead brands Spaghetti kitchen, Copper Chimney, Gelato Italiano, China town by Noodle Bar, The Coffee Bean and Tea Leaf, Bombay Blue, Food Talk, Penne, and Spoon.

Branding The brand has successful alliances with leading conglomerates like Shoppers Stop, DLF, Unitech and the Future Group.

Price Blue Foods caters to a diverse mix of customers through a wide range of offerings with price points ranging from ‘value‐for‐money’ to more expensive ‘fine‐dining’ options.

Competition Its various brands face competition from diverse brands in their respective categories. However, due to brand recognition they stand out and continue to be popular.


BLUE FOODS Growing appetite

COMPANY PROFILE



February 9, 2012


Food

Regional Presence/ Stronghold Blue Foods operates through more than 100 outlets across India and serves more than 1mn customers per month.

Table 49: Presence across categories Brand Category RegionsSpaghetti kitchen Italian cuisine Gurgaon, Delhi, Kolkata, MumbaiCopper chimney North Indian cuisine Bangalore, Mumbai

Gelato Italiano Ice‐creamsThane, Gaziabad, Delhi, Gurgaon, Noida, Pune, Hyderabad, Mumbai, Kolkata, Bangalore

China town by Noodle Bar Chinese cuisine Mumbai, HyderabadThe Coffee Bean and Tea Leaf Coffee shop Mumbai, Delhi, Kolkata, HyderabadBombay Blue Multi‐cuisine Mumbai, Bangalore, HyderabadFood Talk Multi cuisine food‐court Kolkata, DelhiPenne Italian cuisine Mumbai Spoon Multi cuisine food‐court Mumbai, Bangalore, Delhi

Future Plans The company’s expansion map has an aggressive strategic roll out plan, which aims to initiate many more restaurants, Gelato parlors and food courts across India in the next 12–18 months.


2. Brand ‘salience’‐ Medium






Food

Our View Cadbury India (Cadbury) is one of the finest food companies of India. It has strong brand equity, distribution and product range. Also, with Kraft’s product range now available, we expect it to make strong gains in non‐chocolate segments. Sales have surged ~40% YoY between January and September 2011 while CY10 growth was 30% YoY. Much of these sales are coming from its flagship legacy brands such as Cadbury Dairy Milk, which grew 39% in 2010 and 40% in 9mCY11. Kraft’s own brands Oreo and Tang will be new drivers. Beverages, too, are clearly becoming a strategic bet with Bournvita getting relaunched. Currently, Kraft is present in four out of its five key categories barring coffee. It plans to focus on the biscuits, chocolates, gum and candy categories in India.

About Company/Promoter Cadbury is a fully owned subsidy of Kraft Foods. The combination of Kraft Foods and Cadbury creates a global powerhouse in snacks, confectionery and quick meals. With annual revenue of approximately USD50bn, the combined company is the world's second largest food company, making delicious products for billions of consumers in more than 160 countries. For Cadbury, which owns brands such as Cadbury's Dairy Milk and Bournville, India has proved to be one of its most resilient markets. The INR20bn Cadbury's massive distribution network of an estimated 1.2mn will throw up a sea of opportunities.

Category Chocolates, biscuits, health drink, chewing gum.

Products Cadbury Dairy Milk, Bournvita, 5 Star, Perk, Bournville, Silk, Celebrations, Halls, Éclairs, Tang and Oreo.

Branding Cadbury is well known brand and is synonymous with chocolate in India. The company during the Cricket World Cup aggressively invested in Oreo launch.

Competition GSK Consumer, Nestle, Britannia, ITC, Parle, Perfetti.

Distribution Cadbury's massive distribution network of ~1.2mn.



CADBURY/ KRAFT Krafting the success ladder

COMPANY PROFILE



February 9, 2012


Food

Future Plans Cadbury (subsidiary of Kraft Foods) entered into the biscuits segment through launch of Oreo brand from the global portfolio of its parent. The company will use its wide distribution network to market and sell the product to garner higher share of fast growing premium biscuit market. Our channel checks indicate that Oreo has done well. The company can launch more products from Kraft’s stable in India.


2. Brand ‘salience’‐ High






Food


CALORIE CARE Bet on health and wellness

COMPANY PROFILE


Our View We are optimistic about the need based business model of calorie‐counted meal delivery based on consultation with dietician. Key challenge, we believe, is scalability.

About Company/Promoter Calorie Care is India’s first ever calorie‐counted meal delivery service. It delivers freshly cooked, calorie‐counted meals that help one stick to a regular, healthy eating habit. It delivers customized meals for individuals and also provides healthy catering options to corporate offices. A dedicated team of chefs and dieticians have created a large collection of calorie counted recipes spanning Indian, European and Oriental cuisines to ensure that meals are not just healthy, but also tasty and delightful in their variety.

Category Tiffins/ Healthy meals.

Branding Calorie Care entered into a joint venture with Sterling Biotech, a company launching ‘healthy malls’. It also runs health food cafes at select gyms in Mumbai. Both these activities, however, yield more in terms of visibility and brand awareness than any substantial revenues.

Competition Home cooked food, restaurants.

Regional Presence/ Stronghold Mumbai.

Future Plans Getting into strategic partnership. So far, business has grown purely by word of mouth. However, now it needs advertising, a sales force to market it and all the muscle a large organisation can provide to take it to the next level. Expand to other regions (Delhi, Bengaluru).


February 9, 2012


Food

Matrix

1. Penetration levels‐ Low

2. Brand ‘salience’‐ Low

3. Challenge from MNC/regional competition‐ Low

4. Product mix‐ Medium




Food

Our View We are upbeat about Capital Foods being able to make a strong presence in the frozen food market on the back of strong publicity and huge potential in the segment.

About Company/Promoter Capital Foods manufactures processed foods. It markets its products under three brands—Ching’s Secret, Smith & Jones and Swad. Future Ventures India holds 43.76% of its equity share capital while the balance is held by the promoter Mr. Ajay Gupta. The company’s manufacturing facilities are located at Nasik, Kandla and Vapi. It also has a strong international tie up to distribute products among the Indian diaspora. The company earns majority of the revenue from exports.

Category Instant noodles, spices, sauces, ketchup, frozen food, ready‐to‐eat, ready‐to‐cook.

Products Ching’s Secret, Smith & Jones, Kaeng Thai, "Swad" frozen snacks including North Indian cuisine, South Indian cuisine, vegetables, fruits and snacks.

Branding The company focuses on TV advertisement and print media to promote its products. Back in 2010, Nestle sent a legal notice to Capital Foods over an ad spoof.

Competition The company faces high competition from food majors like Nestle, Heinz, Agro Tech food, Mc Cain, MTR, etc.

Regional Presence/ Stronghold Products cater to the higher‐end category and are popular in tier I cities.

Future Plans The company is setting up a mega food park at Tumkur in Karnataka. Work on the first phase of the food park has already started. In the next three years, the company will be entering a whole new range of categories like beverages, spices and a range of frozen foods. It will also enter four more overseas markets soon. In addition, the company also has new facilities coming up at Vapi (Gujarat) and in Andhra Pradesh. Revenues for FY12 expected to be INR2,700mn and likely to jump sharply in FY13 after commissioning the second production line of instant noodles.



CAPITAL FOODS Frozen delight

COMPANY PROFILE



February 9, 2012


Food





5. Distribution reach‐ Medium

6. Appetite for ad budget‐ Medium


Food

Our View Coca‐Cola India (Coke) has enjoyed 20 successive quarters of growth in India, despite price hikes, competition and unfavourable weather conditions. Presence in beverages, bottled water and strong parentage provides the company with competitive edge. We are positive on the company due to its extremely strong brand recall and focus on expansion in rural India, evident from launch of powdered drink 'Fanta Fun Taste'.

About Company/Promoter Coca‐Cola, the corporation nourishing the global community with the world’s largest selling soft drink concentrates since 1886, returned to India in 1993 after a 16‐year hiatus, giving a new thumbs up to the Indian soft drink market. In the same year, the company took over ownership of the nation’s top soft‐drink brand and bottling network. Indian operations comprise 50 bottling operations, 25 owned by the company and another 25 by franchisees. Besides, a network of 21 contract packers manufactures a range of products for the company.

Category Carbonated beverages, packaged water, fruit juice, coffee.

Products Coca‐Cola, Thums Up, Sprite, Fanta, Limca, Minute Maid Pulpy Orange, Maaza, Kinley, Georgia. Coca‐Cola India has entered the dairy segment by launching a mango and milk based drink Maaza Milky Delite (test marketing in Kolkata).

Product success/failures It pulled the plug on its Sunfill brand in powder drink six years ago as it failed to compete with Rasna which is still the market leader at an extremely low price point of INR5.

Branding Coke invests in sports properties to promote healthy, active lifestyles. The company also invests in passions such as movies and music. Coke launched Coke Studio for music activation. It will continue to look at different properties to promote brands. The company primarily relies on star packed ad campaigns.

Competition Pepsi, Parle Agro, CCD.



COCA‐COLA INDIAFocus on rural to propel sales

COMPANY PROFILE



February 9, 2012


Food

Future Plans In the past one year, Coke has made several launches in the non‐carbonated segment — energy drink Burn, fruit‐based drinks Minute Maid Nimbu Fresh, Minute Maid Apple and Minute Maid Mixed Fruit, and milk‐based mango drink Maaza Milky Delite. In November 2010, it had launched ready‐to‐drink iced tea under the Nestea brand (joint venture between Coca‐Cola and Nestle to sell and distribute ready‐to‐drink iced tea to be dissolved in India and some other markets soon). Coca‐Cola India is clearly looking to grow the contribution from non‐carbonated drinks, where PepsiCo is also building significant presence. The company is re‐entering the INR4.5bn branded powdered ready‐to‐drink market after it pulled the plug on its Sunfill brand six years ago. Interestingly, the global beverage maker has chosen the INR5 price point to make a comeback to the space dominated by home‐grown brand Rasna. The company will hitch a ride on its orange soft drink brand, Fanta, for its return. It, however, plans to test market the product before going pan‐India.








Food

Our View The Cremica Group has established itself as a food products conglomerate and is fast becoming a household name in India. Being a well recognised brand in North India with its well established retail network and manufacturing capabilities coupled with an enormous client base, we believe Cremica is well placed in the growing food space.

About Company/Promoter Incorporated in 1978 as a small enterprise by Mrs. Bector three decades ago as 50:50 joint venture with the Quaker Oats Company of USA (Quaker Oats Company withdrew from the JV in FY00), Cremica Group is into manufacturing and sales of value added processed foods with an annual sales figure of INR4,000mn in FY11 (expected to be INR7,000mn for FY12), growing at 30% per annum. It sells its products in export markets and in domestic market to institutional and retail customers. Major customers include McDonalds, Big Bazaar, Spencer, Sodexho, Taj Group, Jet Airways, Indian Airlines, Barista, Café Coffee Day, Pizza Hut, Domino's and Papa John’s. The company also exports its products to Australia, US, Korea, and Uganda. As of March 2011, promoter family had 78% stake and balance 22% was held by a financial investor.

Category Cremica manufactures high quality biscuits, ketch up, mayonnaise, bread, ice cream, salad dressing, ready‐to‐cook, ready‐to‐eat, snacks, and confectioneries.

Products Cremica Salties, Orange Cream, Deit Marie, Cremica Tomato Ketchup, Vegetarian Mayonnaise, Suji Rusk, Soft Serve Mix, Cremica Matar Paneer, Rozana Masala, Moong Dal snacks.

Branding Resorts to television advertisement, print media, hoardings on roads and railway stations.

Competition Nestle, HUL, Britannia, Heinz and Dr. Oetker.

Distribution Distribution network consists of more than 20 depots with 1,400 plus distributors across the country.

Regional Presence/ Stronghold Cremica largely marks its presence in North India. The company hopes to spread its wings in other parts of the country.



CREMICA Creme de la creme

COMPANY PROFILE



February 9, 2012


Food

Future Plans Cremica is planning to launch an initial public offer in 2012 through which it plans to expand in the ready‐to‐eat market in the country by enhancing capacity. It projects biscuit sales to grow ~18‐20% YoY in FY13 and condiments sales to grow 25‐26% YoY.

Matrix

1. Penetration levels‐ Medium







Food

Our View Danone is a new entrant in the dairy category. It faces stiff competition from co‐operatives like Amul which corner the lion’s share of the market with a grassroot level distribution system. On the other hand are national players like Britannia and Nestle which have a strong customer connect. However, Danone can acquire or enter into JV to offset the disadvantage. Also, the company is banking on its product innovation to make an impact with conscious effort to launch products under the health and nutrition label. We are positive on the value‐added dairy product market in India and like Danone’s focus on differentiated products and wellness plank.

About Company/Promoter Danone is a Fortune 500 company and one of the most successful healthy food companies in the world. With 160 plants and ~80,000 employees, the company has presence in all five continents and over 120 countries. In 2009, it recorded EUR15bn in sales. It enjoys leadership in four businesses—fresh dairy products, water, baby nutrition and medical nutrition. Danone, which is already present in fortified plain and flavoured yogurts in India, recently launched Cremix yogurt at the premium end and Fundooz at the mass end with a view to straddle the pyramid.

Category presence The packaged yogurt market in India is ~60,000 tonnes and growing at a healthy 15‐20% annually.

Products Danone flavoured yogurts (Strawberry, Mango and Vanilla) and plain dahi.

Branding Danone has drawn up a marketing communication campaign that includes sampling sessions, outdoor, print advertising and TV commercials to be aired across leading channels of Pune and Mumbai. It is repositioning packaged yogurt as a standalone breakfast option or health dessert.

Competition Dahi by Amul (Masti), Nestle, Britannia, Gowardhan (Go) in addition to local biggie Chitale Dairy. Of course one can buy dahi loose from the local store, but quality could be an issue.


DANONE

Bet on health

COMPANY PROFILE



February 9, 2012


Food

Regional Presence/Stronghold Mumbai, Hyderabad, Bengaluru and Pune.

Future Plans Plans to launch other products from parent’s stable.








Food

Our View The Indian breakfast market has evolved considerably in the past few years. Traditional breakfast options are slowly moving towards the weekend menu. Indians in big cities have a good appetite for foreign food whether it is Italian or Mexican or any other world cuisine. With food retailing ballooning into a significant and profitable sector, we are positive on Dr. Oetker.

About Company/Promoter The company was founded by Dr. August Oetker in 1891. The Oetker Group is one of Germany’s largest fully privately owned diversified industrial groups with a turnover of EUR7.7bn and 23,000 employees and with a substantial interest in the food sector (EUR1.9bn) with about 300 different products. Other business sectors of the group include beer, banking, logistics, wines and spirits. In India, Dr. Oetker has launched baking mixes, dessert mixes and frozen pizza. In December 2008, it completed the acquisition of Delhi‐based Fun Foods for INR1.1bn (USD2.2mn). Fun Foods manufactures packaged food products including mayonnaise and sandwich spreads. It operates manufacturing facilities in Rajasthan and Uttarakhand and distributes its products throughout India.

Category presence Mayonnaise, different cuisine sauces, syrups, peanut butter, breakfast‐ cornflakes, oats, RTC cakes.

Products Fun Food Classic mayonnaise, Vitalis muesli, Fun Food chocolate dessert topping, Fun Food eggless cake mix.

Branding The company reaches out to the target audience by regularly participating in exhibits and fairs in metro cities. Recently, Dr. Oetker Vitalis muesli was launched by renowned Bollywood actor Giselli Monteiro along with Mr. Oliver Mirza, Managing Director. Post the launch of Vitalis Crunchy Muesli, Dr. Oetker has started a print advertising campaign in Delhi‐NCR, being one of the most developed markets in India.

Competition Kellogg’s, Bagry’s India, Hershey’s, Pillsbury.


DR. OETKER

Food retailing to help build momentum

COMPANY PROFILE



February 9, 2012


Food

Regional Presence/ stronghold Present in supermarkets in major cities.

Future Plans The Dr. Oetker Group aims to achieve sales of INR1.75bn (currently INR830mn) of its Indian unit by 2015 and will launch products in new categories to achieve that target. These may include frozen food, beer (Radeberger) and wine (Furst von Metternich, Adam Henkell). It is also planning to expand its production capacity and will open a new manufacturing plant in Rajasthan by 2013 and try to boost its overall distribution network. Dr. Oetker is now scouting for food companies down South. It is typically looking at small, family‐owned companies making non‐Indian foodstuffs in categories such as spreads, sauces, dessert powders or even breakfast cereals such as muesli, and do not export their offerings.








Food

Our View We are optimistic about the huge opportunity cooking aids and spices provide. DS Group’s Catch is a well known brand in spices. Cashflows from tobacco and mouth refreshment businesses will enable the company to further invest in new products and promotions, raising our confidence on its prospects.

About Company/Promoter The Dharampal Satyapal Group (DS Group) is ~INR18.6bn diversified conglomerate credited with several innovations over the past eight decades. It has further consolidated its position in the past five years through successful venture into diversified sectors like F&B, packaging, hospitality, rubber thread and other businesses. Some of the popular brands owned by the Group today are Catch spring water, Catch flavoured water, Catch ready‐to‐eat snacks, Catch spices, Pass Pass, Rajnigandha (a non tobacco pan masala), Baba, and Tulsi.

Category Snacks, spices, beverages, mouth fresheners, tobacco.

Products Catch spring water, Catch flavoured water, Catch ready‐to‐eat snacks, Catch spices, Pass Pass, Rajnigandha, Baba, Tulsi.

Branding Juhi Chawla endorses Catch Masala. The company is focused on below‐the‐line activities and is promoting Catch at five‐star hotels, top‐notch caterers and restaurants.

Competition MDH, MTR, Everest, Eastern condiments, Cookme, ITC.

Regional Presence/ Stronghold Widespread national reach across 28 states, 1.6 mn outlets.

Future Plans Food is to be a major vertical for the DS Group in the next five years. Catch will launch a line of blends, fresh grinds, sprinklers and seasoning spices to appeal to people from different cultures and regions.


DS GROUP (CATCH MASALA)Well placed to catch the spice

COMPANY PROFILE



February 9, 2012


Food

The strategy will be to make Catch a pan‐India player with more regional blends, launch fresh grinds to cater to urban tastes, expand the dealer network and upgrade production facilities. The company wants to extend the business to new categories with fruit juice being the likely category.








Food

Our View We are optimistic about the huge opportunity the spices market provides as the branded market is around 14% of the total market. Being India’s largest selling spice brand since the past 45 years, we believe Everest Spices (Everest) has positioned itself well to tap this growing market.

About Company/Promoter Everest is an Indian manufacturer, distributor and exporter of ground spices and spice mixtures under the brand Everest. It is India's largest spices brand for the past 45 years based in Mumbai and is promoted by Mr. Vadilal Shah. It is estimated to be used at ~20mn households. The brand has a distribution network of more than 400,000 outlets in more than 1,000 towns across India. As popular Indian cuisine is increasingly becoming the rage of overseas palates, Everest Masala is exported to countries like the US, Middle East, Singapore, Australia, New Zealand, East Africa and other countries. The company has won many prestigious awards including Superbrand (thrice—2003‐04, 2006‐07 and 2009‐10).

Category Spices, Herbal beauty care.

Products Exotic blended spices, pure ground spices, natural health care, table top sprinklers, herbal beauty care.

Branding The company focuses on use of TV ads and print media brand its products.

Competition MDH, MTR, Catch, Eastern Condiments, Cookme, ITC.

Regional Presence/ Stronghold Everest have a strong distribution network of more than 400,000 outlets in more than 1,000 towns across India, hence available pan India.

Future Plans The company will invest capital to expand presence in international markets.



EVEREST SPICES Spice king

COMPANY PROFILE



February 9, 2012


Food

Matrix 1. Penetration levels‐ Medium 2. Brand salience‐ High






Food

Our View

Haldiram offers a range of namkeens and mithais, besides a variety of packaged snacks as well as simple vegetarian meals which suits Indian tastes. It has major expansion plans drawn up for both domestic and international markets. Although it has only regional presence in India, the company is looking to expand in the coming years.

About Company/Promoter Haldiram’s was founded in 1937 by Mr. Shivkisan Agrawal, as retail sweets and namkeens shop in Bikaner (Rajasthan).

Today, Haldiram’s products in Delhi and the NCR are sold under the brand name of Haldiram, in Kolkata they are sold under the brand Haldiram Bhujiawala while products in the Nagpur region are sold under the brand Haldiram's Nagpur. These products do not compete with each another. Though they use the same Haldiram brand name, with different logo styles, all three firms trace their origins to Bikaner in Rajasthan.

Haldiram’s is a familiar sight on shelves across the US, UK and the Middle East. It occupies considerable shelf space at prominent supermarkets the world over. From traditional Indian sweets and savouries to the more international chips, cookies, nuts and sherbets, the company’s products are fast capturing people’s imagination, making it possible to aim for deep penetration in the Middle East, East Europe and parts of North Africa.

Category Snacks, savouries, sweets, ready to eat.

Products Namkeens, sweets, chips, frozen foods, cookies, sherbets, minute khana, papads, pani puri, bhel puri, boletos, takatak, whoopies, royal temptations, Gujarati snacks, South Indian snacks.

Branding Haldirams has tied up with Profile Advertising, which designs attractive posters and brochures to facilitate the brand. Visual merchandising of showrooms and retail outlets is enhanced by displaying products on special racks. Through these strategies, Haldiram is posing a tough fight to its competitors which include not only Agarwals, Nathus and Bikanerwala, but also to international food chains.


HALDIRAM’S

Going beyond ethnic snack foods

COMPANY PROFILE



February 9, 2012


Food

Competition PepsiCo, ITC, Balaji Namkeen, Parle, Bikanerwala, Venkatramana Food Specialities , Conagra Foods, Prakash Snacks.

Regional Presence/ Stronghold Haldiram Manufacturing focuses on markets in the North with its base in the national capital. Haldiram Foods has its headquarters at Nagpur and caters to the West and the South, and Haldiram Bhujiawala has its hub at Kolkata and serves the East.

Future Plans It plans to have at least 3 restaurants in the overseas market by 2011 end. The company is scouting for properties in the UK, US, Canada, Fiji and Mauritius. By opening restaurants overseas, the company not only wants to tap the diaspora, but is also looking at catering to the growing demand for Indian food items among local population.




4. Product Mix‐ Medium




Food

Our View India is one of the fastest‐growing branded restaurant markets in the world and the food segment and casual dining is one of the highest growth industries in the country. As consumption is low and consumers continuously upgrading from street food and fast food to the affordable casual dining restaurant segment, we believe there is immense potential in this segment for expansion and players like JSM Corporation stand to gain.

About Company/Promoter Established in 2004, JSM Corporation was a partnership between noted restaurateurs Jay Singh and Sanjay Mahtani. The group is engaged in the business of setting up and operating restaurants, bars and food courts across India. They have the exclusive master franchisee for Hard Rock Café, California Pizza Kitchen and Trader Vic's all over the country. It operates 12 outlets across 4 brands—Hard Rock Café, California Pizza Kitchen, Pitstop and Shiro’s. Currently, it has an employee base of ~1,200+.

Category Quick service restaurant, pizza and café.

Branding JSM Corporation caters to a niche market. The company looks at cultural ways to promote its restaurants like music‐related events to promote the Hard Rock Café outlets.

Competition The company faces high competition from Pizza Hut and Dominos and from other quick service restaurants across India.

Regional Presence/ Stronghold Currently, JSM Corporation has few brand outlets; all of them in metros. As the company was established recently, the primary target market would remain metros in the coming few years as well.

Future Plans The group is planning to add another 5 more Hard Rock Café outlets in 2012. It is also looking to introduce another restaurant brand to Indian foodies: Trader Vic's, a Polynesian restaurant chain, and Mai Tai, a line of premium lounge bars. It will also expand its Asian restaurant cum lounge brand Shiro. The group will also expand to Sri Lanka.


JSM CORPORATIONNiche palate

COMPANY PROFILE



February 9, 2012


Food

Matrix

1. Penetration levels‐ Low 2. Brand salience‐ Medium






Food

Our View Vada Pav (popularly known as Indian burger) is a staple street food and has high popularity. We are upbeat about Jumboking Foods (Jumbo King) providing variety of vada pav in hygienic environment at economic prices.

About Company/Promoter Jumbo King was founded by an MBA couple Dheeraj and Reeta Gupta in 2001. They were inspired by western model and applied it to Indian food. Jumbo King believes that the common man has a right to get hygienic food at an affordable price. It has ~43 operational stores, majority in Mumbai and a few in Gujarat (Ahmedabad and Baroda). It serves 40,000 customers in a day across its stores.

Category presence Vada pav and beverages.

Product success/failures Jumbo King has four vada pav recipes, viz., Butter, Cheese, Grill and Brown Bread. Further, it adds flavours and offers about 16 varieties of vada pav. For instance, butter range offers Butter Jumbo King, Butter Grill Jumbo King, Butter Cholle Jumbo King and Butter Schezwan Jumbo King. Most of these experiments have done well in the market.

Branding Resorts to hoardings on roads and railway stations.

Competition Everyone in the foods and snacks business can be considered as competition which includes multinational chains, Udipi restaurants and also the low‐price Indian Railways catering service. However, McDonald’s comes closest in terms of the selling proposition ‐ vada pav being the Indian burger. But, the real competitor for Jumbo King currently is not McDonald’s, but vada pav stalls on the roadside.

Regional Presence/ Stronghold Jumbo King has 38 outlets in Mumbai and Thane (20 self‐owned and 18 franchises). This compared to 20,000 vada pav stalls is only about 2% market share of the business in Mumbai. It has strong penetration in Mumbai with outlets at almost all railway stations. The company claims to have registered 50% growth rate per year. It also has 5 outlets in Gujarat.


JUMBO KING

Giving vada pav a national flavour

COMPANY PROFILE



February 9, 2012


Food

Future Plans Jumbo King plans to take its outlet count to 100 across Mumbai in the next 2‐3 years. It plans to add a new recipe, Paneer Jumbo King, in the coming months.

Matrix 1. Penetration levels‐ High in Mumbai

2. Brand ‘salience’‐ High in Mumbai



5. Distribution reach‐ Medium in Mumbai



Food

Our View Putting behind violent protests against its entry in the mid‐1990s, KFC India (KFC) has thrived on the growing fascination for fast food among the Indian middle class. It has beaten Pizza Hut as the largest‐selling fast food chain of Yum! Restaurants in India due to an ambitious expansion strategy. We remain enthused on its growth trajectory.

About Company/Promoter Yum! Brands, based in Louisville, Ky., is the world's largest restaurant company in terms of system restaurants with nearly 38,000 restaurants in over 110 countries and territories and more than 1mn associates. Yum! is ranked No. 214 on the Fortune 500 List and generated more than USD11bn revenue in 2010. The company's brands KFC, Pizza Hut and Taco Bell areglobal leaders of the chicken, pizza and Mexican‐style food categories. KFC entered India in 1995 and has established its presence in 16 cities with close to 156 restaurants.

Category KFC specializes in chicken. Also serves beverages, burgers, rice meals, vegetarian snacks and desserts.

Products KFC entered India in 1995 and has been in midst of controversies since then. The regulatory authorities found that KFC's chickens did not adhere to the Prevention of Food Adulteration Act, 1954. Chickens contained nearly three times more monosodium glutamate (popularly known as MSG, a flavor enhancing ingredient) allowed by the Act. Since the late 1990s, it faced severe protests by People for Ethical Treatment of Animals (PETA), an animal rights protection organization. PETA accused KFC of cruelty towards chickens and released a video tape showing the ill‐treatment of birds in KFC's poultry farms.

Branding Uses electronic media and print to establish a strong brand.

Competition Faces major competition from McDonalds and lags behind in terms of popularity.

Regional Presence/ Stronghold KFC is aggressively present in metros (43% of its outlets in 4 metro cities). However, it is also increasing presence in Tier I & II cities.



KFC INDIA Yummy delight

COMPANY PROFILE



February 9, 2012


Food

Future Plans KFC plans to open 500 outlets in India by 2015 primarily in bigger cities in states of Maharashtra, Tamil Nadu, Orissa, Uttar Pradesh and Rajasthan. It has invested USD100mn till CY11 end. Plans are afoot to invest another USD120mn.

Matrix








Food

Our View We believe India’s increasing appetite for outside food and a rapid jump in the number of double‐income families provide immense growth opportunities in dining in the country. We are enthused by Little Italy’s superior and authentic Italian food quality and ambience.

About Company/Promoter Little Italy, erstwhile ‘La Pizzeria’, was started as a family business in Pune in 1988 by Mr. Raj Mehta. After establishing its stronghold in Pune, the brand was launched in Mumbai in 1995 and soon after spread elsewhere in the country. The brand currently serves more than 26 outlets across 17 major cities in India. The company’s USP is its unflinching quality and authenticity of Italian food at value for money.

Category Presence Italian cuisine.

Competition Little Italy faces competition from all players in the food and beverage sector, especially those serving Italian cuisine. Though its market penetration is low, Little Italy distinguishes itself by being a high‐end brand.

Regional Presence/ Stronghold The company has strong presence in the West, especially in Pune and Mumbai.

Future Plans The company will invest close to INR0.5bn in FY12 to open ~15‐20 restaurants at Nagpur, Nashik, New Delhi, NCR and Kochi and enter international markets of South‐East Asia, UK and Gulf with 4‐6 outlets. The outlets will be a mix of franchise and ownership model (50:50).




4. Product mix‐ High (in Italian cuisine)




LITTLE ITALY

Bringing Italy to India

COMPANY PROFILE



February 9, 2012


Food


Food

Our View Eating on the move/shorter meal times is leading to rise in more convenience foods. With at least one main meal (week‐day lunch) in urban centers likely to become more “convenience” driven, McDonald’s, with its strong brand recall, array of products, wide reach due to large number of outlets and affordable price menu is the best play in quick service restaurants.

About Company/Promoter McDonald’s is the world's leading food service retailer with more than 31,000 restaurants in 119 countries serving more than 50mn customers each day. In India, it is a joint‐venture company managed by two Indians. While Mr. Amit Jatia, MD, Hardcastle Restaurants, owns and spearheads McDonald’s in West & South India, in the North & East India it is owned and managed by Mr. Vikram Bakshi's Connaught Plaza Restaurants. McDonald’s India has a total of ~235 outlets across the country.

Category presence Burgers, wraps, fries, beverages, desserts, side orders.

Product success/failures McDonald's has developed a menu especially for India with vegetarian selections to suit Indian tastes and culture. In line with its respect for local culture, India is the first country in the world where McDonald's does not offer any beef or pork items. Also, in India, only vegetable oil is used as a cooking medium. These initiatives propelled McDonalds as the most favoured convenient food destination in India.

Branding The USP of McDonald's is quality, service, cleanliness & value for money which means it is focused on high quality products, served quickly in a clean environment at an affordable price. Its promotions are mainly through the electronic media.

Supply chain McDonald's India sources almost all its products from within the country. For this, it has developed local Indian businesses, which can supply it the highest quality products required for Indian operations. Fresh lettuce is sourced from Pune, Delhi, Nainital and Ooty; cheese from Dynamix Dairies, Baramati, Maharashtra; fresh buns from Mrs. Bector Foods, Phillaur, Punjab & Khopoli, Maharashtra; sauce from Mrs. Bector Foods, Phillaur, Punjab; chicken patties, vegetable patties, and veg.pizza McPuff from Vista Processed Foods, Taloja, Maharashtra. Dairy products are sourced from Amrit Food, Ghaziabad, UP. All suppliers are HACCP certified.


McDONALD’S

Replicating global success

COMPANY PROFILE



February 9, 2012


Food

Competition McDonald's competes with other US rivals such as Yum Brands and Dominos Pizza and local players like Jumboking Foods. However, it is the leader in serving burgers. Subway, famous for its fresh foot long sandwiches, considers McDonald’s its competitor, though it is less popular in the Indian market.

Regional Presence/ stronghold Delhi and Mumbai are the two biggest markets for the company in terms of sales, while Hyderabad and Bengaluru are also fast catching up.

Future Plans McDonald’s India plans to double its presence in the next three years from its current 235 restaurants. The franchisee will invest USD0.11bn in India over the next three to four years. Its joints in the South & West plan to invest INR5bn to double the network to 250 restaurants over the next three years. Mr. Vikram Bakshi, MD, McDonald’s India (North and East), said its goal is to double sales in the next three years.








Food

Our View Mirah Group, through Mirah Hospitality, has been able to create a good USP across its brands by positioning itself as a speciality chain of restaurants. We believe lifestyle changes and rising disposable incomes provide immense growth opportunity in dining in India.

About Company/Promoter Commenced in 1986, the Mirah Group is an INR15bn diversified business house present in hospitality, real estate development, travel, computer education, wind energy generation, textiles and international trading. It has a strong presence in the restaurants space through Rajdhani, Falafel Chain, Fine Dine, Manchester United Café, Café Mangii, Mad Over Donuts and Palette. Rajdhani chain currently has 52 outlets in 16 cities and also has presence in Dubai and Oman. Falafel Chain was acquired in Sept 2009 and is confined to Mumbai (9 outlets), though it is looking at new markets such as Bengaluru and Pune. Palette is Mirah Hospitality’s food court brand.

Category Dining, quick service restaurants, desserts, sports bar.

Products Through the various chain of restaurants, it offers various cuisines including Indian, Lebanese, Thai, etc.

Competition Major competition from quick service restaurants.

Regional Presence/ Stronghold Mirah Hospitality is primarily focused around Tier I cities. However, the company is eager to spread its presence to smaller cities as well.

Future Plans The company will invest INR1,000mn in 2012 to grow the F&B brands and look to acquire some more chains. It plans to open three more Manchester United Café Bars and take the count of the Rajdhani chain outlets to 60 by CY12 end.



MIRAH GROUP Tingling taste buds

COMPANY PROFILE



February 9, 2012


Food

Matrix








Food

Our View The Indian dairy industry is still in infancy with major contribution coming from milk. However, change in consumer preference (led by affluence, changing taste) to value added and convenient products provide immense opportunities for Mother Dairy. Mother Dairy, a well recognised brand in North India, with its established retail network and manufacturing capabilities is well placed to capture the growing value added dairy segment.

About Company/Promoter Mother Dairy is an USD1bn company set up in 1974 under the Operation Flood Programme. It is now a wholly owned company of the National Dairy Development Board (NDDB). An ISO certified company, it also has Certificate of Approval from Export Inspection Council of India. The company markets ~2.8mn liters of milk daily in the markets of Delhi, Haryana, Kolkata, Punjab, Rajasthan, Uttaranchal, Uttar Pradesh, Maharashtra, Andhra Pradesh, and Gujarat. It has ~14,000 retail outlets and 845 exclusive outlets.

Category Presence The company’s products include milk, ice creams, ghee, butter, cheese, dahi, lassi, flavoured milk, and dairy whitener. It also markets edible oils, fruits, vegetables and juices, and sells frozen vegetables. The INR 4,400‐crore dairy and vegetables company will soon move beyond peas, corn and mixed vegetables and offer a whole basket of frozen snacks, including buttered and salted corn cobs, cheese cutlets and French fries.

Branding The company has a corporate tagline ‘sehat ke saath’ which helps it connect with the psyche of the common man. It uses electronic and print media for branding. In the coming months, the company is planning to reconfigure its marketing setup by moving towards micro marketing, i.e., it plans to stock only relevant products in specific markets. Under an upcoming retail initiative, the company is planning 500 retail stores ‐ to be called 'Gaurav' outlets (small‐format retail stores). These will stock only Mother Dairy products.

Competition Its biggest competitor is the Gujarat Cooperative Milk Marketing Federation (GCMMF) that markets Amul. In CY10, Amul beat Mother Dairy in the branded packaged milk, Mother Dairy’s primary business.


MOTHER DAIRY

Diversification to help fight competition

COMPANY PROFILE



February 9, 2012


Food

Regional Presence/ Stronghold It offers its products in Delhi, Haryana, Kolkata, Punjab, Rajasthan, Uttaranchal, Uttar Pradesh, Maharashtra, Andhra Pradesh, and Gujarat. However, it is most popular in Delhi where it has 66% market share in the branded sector and sells 2.7mn liters of milk daily in the INR5bn milk market. While Delhi is its fortress, Mumbai is the attack market and Kolkata growth market.

Future Plans The company plans to open 100 additional stores in the national capital region (NCR) in the next one year. By FY15, it wants to almost double revenues and headcount to INR100bn and 9,000, respectively. Heavily focused on NCR (which contributes 75% to revenue), it hopes to expand to India's top 20‐30 cities with major focus on South and West and generate 35% revenues outside NCR.

Matrix 1. Penetration levels‐ High in NCR, moderate in other states


3. Challenge from regional competition‐ High





Food

Our View MTR Foods (MTR) is the market leader in the ready‐to‐cook segment and a strong brand in South India. Also, it exports a wide range of packaged and ready–to‐eat foods to countries with a large number of Indians. We are also enthused by its plan to enter the breakfast menu and snacks segment which we expect to grow faster in the next few years due to urbanization and rise in working women. MTR is well placed to capture a big pie of this market.

About Company/Promoter MTR is an Indian manufacturer of processed vegetarian food products such as ready meals, ready mixes, spices and condiments. The company’s domestic market is South India and is amongst the top five processed food manufacturers in the country. It manufactures, markets and exports a wide range of packaged foods to global markets that include US, UK, Australia, New Zealand, Malaysia, Singapore, UAE, Japan and Oman. MTR was bought over by Norwegian major Orkla in 2007. While spices remain the largest contributor (35%) to revenue of the INR2.5bn food major, the company is readying a new recipe to boost its instant mixes range that currently accounts for 25% of the company's revenue.

Category presence Wide portfolio including instant mixes, spices, ready‐to‐eat, ice cream, papads, pickles and beverages. Plans to expand to snacks and breakfast category.

Product success/failures After instant success in South India, its national launch endeavour met with initial failure as the products' taste faced acceptance problems in North and West India. While Indian kitchens are stocking ready‐to‐cook or instant mixes, the ready‐to‐eat category has a well‐defined, but extremely narrow customer segment—a vegetarian travelling abroad or in an emergency at home. “I'm not very optimistic that ready‐to‐eat will become a very large category in India. The Indian woman wants products that enable her and not replace her. That's a critical thing that food marketers in India need to understand,” explains Mr. Sanjay Sharma, CEO, MTR. MTR, in the dairy segment, had experimented with a number of flavours like almond, chocolate, thandai and cinnamon‐based milk before deciding to focus on almond flavoured milk. Essentially, every value‐added feature becomes crucial in the category as there are many local manufacturers in each region. The company’s use of saffron and almond flakes in its flavoured milk are some examples of value additions by companies in this segment which met with decent success.


MTR FOODS

Well placed to capture a big pie

COMPANY PROFILE



February 9, 2012


Food

Branding

Plans to double advertising spends in three‐four years. Currently, spends on an average 3‐4% of sales on media; plans to increase it to 7‐8%.

Competition ITC Foods, Britannia, Eastern Condiments, Catch Masala, among others.

Regional Presence/ Stronghold First, though MTR is a pan‐India brand, it is better known for South Indian spices and mixes such as sambar, rasam, puliyogare, bisibelebath and vaangi bhaat. MTR's spices already brew strong sales in Karnataka, where the brand is the leader with 40% share and in Andhra Pradesh, where it controls 15% of the market. The Indian branded spices market is estimated at INR55bn with close to 70 regional players in the organised segment.

Future Plans The company is looking at top 10 breakfasts, snacks, lunch options and will eventually be widening its offerings. MTR, which now has a turnover of INR2,500mn, plans to double its revenue by 2012 end. The company also plans to go national in terms of its communication, which till now has largely remained regional. MTR plans to become more active in promotion through the modern trade and focus more on institutional sales and launch pan‐India favourites such as poha, besan laddoo and jalebis and still remain an authentic Indian vegetarian food company.








Food

Our View We believe Gowardhan is creating a niche segment for its products within the highly competitive dairy market. Targeting both the consumers who prefer traditional taste as well as the ones who prefer the Western taste, the company is in a good position to enjoy the exponential growth of the foods segment.

About Company/Promoter Gowardhan, founded by Parag Milk Foods in 1992, is one of India's largest private dairies with an output capacity of 1mn liters per day. Located 60 km from Pune, the company owns the largest cow farm in India as well as Asia's largest cheese plant (with a capacity to process 40 tonnes of raw cheddar daily). With a turnover of about INR6,500mn, Parag Milk Foods has been selling milk and ghee since the mid‐90s.The company also has a national tie up with companies like Baskin Robins, Barista, Café Coffee Day etc. Gowardhan exports milk powder, butter and butter oil, anhydrous milk fats and ghee to 27 countries in the Middle East, South East Asia and Africa, and are soon going to include cheese in the export product mix.

Category The product portfolio includes milk powder, milk, ghee, cheese, butter, dahi and ready‐to‐cook mix.

Products Products are branded under the names of Gowardhan and Go. Gowardhan Mozzarella Cheese, Gowardhan Processed Cheese, Gowardhan Pizza Cheese, Go Shredded Cheese, Go Cheese, Gowardhan Milko, Gowardhan Dairy Whitener, Gowardhan Butter, Gowrdhan Premium Ghee, Gowardhan Trim Dahi, Gowardhan Chass, Gulab Jamun mix.

Branding Along with television commercials, the company is using the outdoor medium to amplify brand recall. Besides bus shelter outdoors, on ground activations are also being done by way of sampling at malls, multiplexes, hyper markets and traditional retail outlets. Go Cheese also had a print campaign running especially in Goa since Christmas is a big event there and cheese consumption picks up during that time of the year. With respect to the difference between branding Gowardhan and Go, management has explained that Gowardhan represents something which is more traditional and homemade, while Go represents products which are westernised, innovative and premium.



PARAG MILK FOOD‘Go’ for gold

COMPANY PROFILE



February 9, 2012


Food

Competition Besides national biggies Amul and Mother Dairy, it faces multinationals such as Nestle, Kraft and Danone.

Regional Presence/ Stronghold Gowardhan has a strong presence in West India, particularly in Mumbai and Pune. The company claims 40% share in Mumbai modern retail outlets for packaged cheese.

Future Plans Off late, quite a few private equity firms have shown interest to invest as much as USD100mn to buy a stake in this company. Top bracket PE firms Bain Capital, TPG and KKR have emerged as frontrunners to invest in the range of USD75mn‐100mn. The company intends to invest some of the proceeds to expand capacities for processing milk and into a backward integration project involving a cold chain.








Food

Our View Sheer dominance of Frooti in the fruit juice segment with ~70% market share gives Parle Agro (Parle) an edge over competitors. We like this company also because of its presence in the snacks segment and continuous innovation in the packaged fruit juice segment.

About Company/Promoter Parle commenced operations in 1984. Starting with only beverages and diversifying to include bottled water in 1993 and confectionery in 2007. Frooti was the first product to be launched by the company in 1985. It went on to become India’s favourite mango drink and still corners ~70% share. The company has brands like Frooti, Appy, Appy Fizz and packaged drinking water, Bailley. Parle was the first to introduce fruit drinks in tetra packaging, first to introduce apple nectar and also the first to introduce fruit drinks in PET bottles. As of now, beverages contribute 80% to the business. Confectionary is new and sales do not aggregate too much in value terms. Frooti is already available in international markets. The company exports Frooti to many countries including the US, Canada, UK, UAE, Australia, among others. The company is looking at expanding in international markets aggressively through franchise operations. The company also added Hippo snack to its portfolio.

Category Mineral water, confectionery and beverages businesses.

Products Frooti, Hippo, Mintrox, Appy, LMN, Bailley.

Product success/failures Appy has been around since 1986. It was launched in a white pack a year after Frooti’s debut. Then in 2002, it was relaunched in a black pack since the previous one did not do too well. LMN’s initial response has been muted.


PARLE AGRO

From juices to snacks

COMPANY PROFILE



February 9, 2012


Food

Branding Ever since Frooti adopted the ‘Why grow up' theme from its popular 'Mango Frooti, fresh and juicy' ad tune, the brand has been constantly reinventing itself and challenging its own creatives. This ad campaign in particular is refreshing not only for the brand but even for the category and is disruptive.

Competition PepsiCo, Coca‐Cola, ITC.

Distribution There are 4 mn outlets for bottled water and 1.5 mn beverage outlets in the country.

Regional Presence/ Stronghold Pan India

Future Plans The idea is to look at categories that others have not explored yet and do not exist in India. So, the company does not plan to introduce products in ‘me too’ categories.








Food

Our View We are positive on Parle Products (Parle) primarily on account of well known brand, strong distribution reach and its understanding of Indian consumers. The company faces strong competition from domestic players as well as MNCs in the snacks and biscuits segments. However, its relentless branding exercise, evident from increase in ad spending and investment in capex makes us confident of its focus on business. We like this company also because of its entry into the health and wellness snacks segment.

About Company/Promoter Parle has been India's largest manufacturer of biscuits and confectionery for almost 80 years. It is maker of the world's largest selling biscuit, Parle‐G, and a host of other popular brands. With a reach spanning even the remotest villages of India, the company has definitely come a long way since inception. Many Parle products—biscuits or confectioneries—are market leaders in their categories. It has a ~40% share of the total biscuit market and a 15% share of the total confectionary market in India. Parle‐G has 70% market share in India in the glucose biscuit category followed by Britannia, Tiger (17‐18%) and ITC's Sunfeast (8‐9%). The brand is estimated to be worth over INR 20 bn and contributes more than 50 % to the company's turnover. It is also popular across the world and is starting to sell in Western Europe and US as well. Apart from factories in Mumbai and Bengaluru, Parle has factories in Bahadurgarh, Haryana and Neemrana, Rajasthan. These are the largest biscuit and confectionery plants in the country. Additionally, Parle also has 10 manufacturing units and 75 manufacturing units on contract.

Category Biscuits, sweets/confectionery, snacks.

Products Parle‐G, Hide & Seek, Krackjack, Monaco, Parle Marie, Melody, Milano, Nice, Poppins, Mango Bite, Monaco Chips, Parle Wafers, Fulltoss.

Product success/failures Monaco smart chips.



PARLE PRODUCTS

Biscuit legend

COMPANY PROFILE



February 9, 2012


Food

Branding Advertising and sales promotion budget is about INR0.5bn to INR0.6bn per annum. Four years ago it was around INR0.2bn to INR0.25bn, but after the company roped in superstar Hrithik Roshan as brand ambassador the budget more than doubled. Later, the company signed Amir Khan and Darsheel Safary for brand Parle‐G because the character they played in Taare Zameen Par was similar to the message they wanted to convey through the brand, i.e., G for Genius. Other than these three stars, the company does not plan to sign anyone, at least at the moment.

Competition Britannia, ITC, PepsiCo, Surya Food & Agro (Priya Gold).

Distribution Parle Products has a reach of 3.3 mn distribution outlets.









Food

Our View Diverse product portfolio with presence in snacks, beverages, bottled water, breakfast cereals, together with strong parentage, provide PepsiCo with a competitive edge over peers. It is the market leader in fried snacks and its increased focus on fast growing wellness snacks segment makes us confident on the company’s potential. We are also positive due to its strong brand recall.

About Company/Promoter PepsiCo is one of the world’s largest food and beverage companies with revenues of nearly USD60bn. PepsiCo offers the world’s largest portfolio of billion dollar food and beverage brands, including 19 different product lines each generating more than USD1bn in annual retail sales. Besides its main business Frito‐Lay, Quaker, Pepsi‐Cola, Tropicana and Gatorade, the company makes hundreds of other nourishing, tasty foods and drinks that bring joy to consumers in more than 200 countries. PepsiCo established its business operations in India in 1989 and has invested more than USD1bn since then. It has a diverse range of products from Tasty Treats to Healthy Eats and has more than 36 bottling plants including 13 company and 23 franchise owned ones. It has 3 state‐of‐the‐art food plants in Punjab, Maharashtra and West Bengal. Foods contribute 33‐35% to the business and beverages the remaining. Non‐CSDs contribute as much as a third of the revenue from beverages with, Tropicana being one of the fastest growing juices in the country. Meanwhile, market leader Frito‐Lay India, with nearly 60% market share, mainly relies on star‐packed ad campaigns and consumer engagement modules to promote its flagship brand Lay’s to fight desi players in India.

Category Snacks, bottled water, carbonated beverage, non‐aerated beverages (JV with Tata Global Beverages), breakfast oats.

Products Pepsi, Frito Lays, Aliva, Quaker, Kurkure, Uncle Chips, Gatorde, Tropicana, Aquafina.

Product success/failures Iced Tea (Lipton): There’s a lot of latent potential however the product did not meet with desired success.



PEPSICO

Diverse portfolio to aid growth

COMPANY PROFILE



February 9, 2012


Food

Branding One of the biggest advertisers the company mainly relies on star‐packed ad campaigns.

Competition Coca‐Cola, ITC, Dabur, Kellogg’s.


Future Plans Of late, the company has increased its focus on low calorie and nutrition food. The company plans to intensify its presence in health food segment via Quaker Oats.








Food

Our View Perfetti Van Melle India (Perfetti) has succeeded in cracking the Indian confectionary market and retaining leadership on account of its strong branding and innovative product line. We are extremely positive on its understanding of the Indian market, entry into fast growing snacks category and brand salience.

About Company/Promoter Perfetti has annual sales of INR12bn and is a fully owned subsidiary of the global conglomerate Perfetti Van Melle, headquartered in Lainate, Italy. The company today enjoys close to 30% market share and is a leading player in the Indian confectionery industry. Perfetti Van Melle entered the Indian market in 1994 by offering its first brand Center Fresh, followed by Big Babol and Alpenliebe in 1995. The other brands like Chlormint, Mentos, Fruittella, Cofitos, Happydent and Marbles followed subsequently. Perfetti enjoys a huge brand recall among its consumers and has more than 15 brands under its umbrella. India contributes ~6‐7% to the parent’s global turnover. The sugar confectionery firm recently entered the packaged chips and snacks market.

Category Confectionary, snacks.

Products Center Fresh, Big Babol, Happydent White, Chlormint, Alpenliebe, Mentos and Stop Not.

Branding Perfetti brands have launched several innovative ad campaigns like Happydent White, Chlormint, Alpenliebe, and Mentos which have won several awards for the company. The company spent close to a fifth of its turnover on advertising, the highest so far by any confectionery company. The company went into a head‐on fight with small local players by having localized ideas and advertising taglines in local languages for all its brands.

Competition Cadbury, Mars (Wrigleys), Lotte, Parle, ITC, and Nestle.



PERFETTI VAN MELLE Confectionary king

COMPANY PROFILE



February 9, 2012


Food

Distribution

Distributed across 2.8 mn outlets.


Future Plans Develop more products for Indian market which will be subsequently taken to global market Try to reduce dependence on 50 paise products. Increase rural presence.








Food

Our View The word ‘pizza’ is now etched in the vocabulary of urban youth and Pizza Hut well linked with teens who consider eating out as get‐together with friends. With its continuously innovating Indianised menu, vibrant staff and ambience and attractive combo offers, Pizza Hut appeals well and with its shift from quick‐service restaurants to fine‐dine. We remain enthused on its growth trajectory.

About Company/Promoter Pizza Hut entered India in 1996 and opened its first restaurant in Bangalore. Since then it has captured a significant share of the pizza market and currently has 191 outlets. Yum! Brands, Inc., based in Louisville, Ky., is the world's largest restaurant company in terms of system restaurants with nearly 38,000 restaurants in over 110 countries and territories and more than 1 mn associates. Yum! is ranked #214 on the Fortune 500 List and generated more than USD11bn in revenue in 2010. The company's brands ‐ KFC, Pizza Hut, and Taco Bell – are the global leaders of the chicken, pizza and Mexican‐style food categories, respectively. In 2010, the company recorded 17% EPS growth and maintained ROIC of 20%+.

Category presence Pizzas with side dishes including pastas, buffalo wings, breadsticks and garlic bread.

Product success/failures Pizza Hut played its cards right from the start. Within three years of its 1996 launch, Pizza Hut opened its first vegetarian restaurant in Ahmedabad, Gujarat, a state with a large Jain population. Not only did the outlet serve no meat, it also offered a selection of Jain toppings. There are now three all‐vegetarian restaurants in India, the only such Pizza Hut outlets in the world. There are other signs of "Indianization": Three years ago, Pizza Hut launched the "Great Indian Treat" product range, its first completely localized menu. Even now, the menu includes a mix of Indian and international ingredients and tastes. This helped Pizza Hut to bolster its market share.



PIZZA HUT

Set to brawl competition

COMPANY PROFILE



February 9, 2012


Food

Branding Pizza Hut uses various marketing channels like TV commercials, social networking sites, print, outdoor and radio. The company has appointed Hungama Digital Media Entertainment to strengthen its social media presence. Pizza Hut has partnered with E4 to produce its first channel‐exclusive television adverts in February 2011 to target younger population. The pizza industry is famous for introducing new products to spark short‐term sales and Pizza Hut leads in such innovations. Many customer service initiatives have been uniquely developed for India and have been greatly instrumental in building an emotional bond with the customer. For instance the crewmembers at Pizza Hut break into a Boogie at restaurants in Delhi and Mumbai and do the Bhangra in Chandigarh and Amritsar. Also, a bell hangs at each Pizza Hut restaurant, which is rung by customers who, as they leave, wish to thank the servers for yet another memorable visit.

Distribution Pizza Hut uses three different methods of selling its products directly to the market: delivery, to dine‐in and online ordering.

Competition Domino's Pizza, operated by Delhi‐based Jubilant FoodWorks, Pizza Hut’s biggest competitor, has some 439 stores at the moment. Yum! is also bracing up for the challenge. It plans to invest INR4.5bn in the next five years to increase the number of stores.

Regional Presence/ Stronghold Pizza Hut has 27% market share in the Indian pizza market and boasts of 70000 footfalls per day across the country. It has deeper presence in the North on basis of the number of outlets.

Future Plans Pizza Hut Delivery (PHD), (which focuses on home delivery to confront its rival Dominos), is some 40 in number currently. The gameplan, according to officials at Yum!, is to increase the number of stores rapidly under PHD. The quick‐service restaurants, currently 120, will also be increased over time. By 2015, Yum! hopes to have a larger footprint in India than its global peers, with 500 KFCs against McDonald’s planned total of 410 stores, 400 Pizza Huts and close to 100 Taco Bells. By then, it hopes to be in 65 Indian cities that have a population of at least 1mn, from 35 today.

Matrix 1. Penetration levels‐ Medium 2. Brand ‘salience’‐ High 3. Challenge from MNC/regional competition‐ Medium 4. Product mix‐ High 5. Distribution reach‐ Medium 6. Appetite for ad budget‐ Medium


Food

Our View Rasna, the largest and the oldest player in the powdered ready‐to‐drink market in the country, is sprucing up distribution. The company faces severe competition from multinational players such as Kraft Foods India, Coca‐Cola, and PepsiCo. However, we are optimistic about the low‐cost powder drink segment and, therefore, are positive on the company.

About Company/Promoter It is India's largest instant drink maker. Ahmedabad‐headquartered Rasna, which has ~90% share in the organised concentrated drink market in the country, has reported a turnover of INR3.25bn in FY10. In mid‐2010, Rasna launched its Fruit Plus series and went the 'natural' way by incorporating fruit extracts in its product. As per the company, most other brands, like Tang, are synthetic while Rasna is the only one with natural ingredients. The past two years have been good for the company in terms of sales growth.

Category presence Powder drink, fruit syrups, milkshake mix, energy sports drink, iced tea, ready to eat/ready to cook.

Products Rasna.

Branding The company is actively promoting and advertising its Rasna brand via TV commercial, outdoor, celebrity promotion and merchandising. However, compared with earlier years, the ads seem less visible.

Competition It faces competition from global brands such as Tang and Indian brands such as Kissan, Glucovita, Mapro etc.

Distribution 1.8 mn retail outlet in the country.



RASNA

Powdered drink veteran

COMPANY PROFILE



February 9, 2012


Food

Future Plans Rasna will introduce a second brand for the first time to enter the premium beverage segment and expand its health beverage portfolio as it expects the premium segment to drive growth in future. Rasna chairman & managing director, Piruz Khambatta, feels that even though the mass market will reign for the next three‐five years, future growth will come from the premium segment. Hence, the need to have foothold in the premium market. This would require a new brand since Rasna has recall mainly in the mass segment. Future Group, Rasna plan mega Food Park near Ahmedabad.




4. Product Mix‐ Low




Food

Our View Subway India is aggressively increasing its presence in the country. It has worked closely with local chefs to ensure a good balance of vegetarian and non vegetarian food on its menu. To match the Indian consumer's palate for strong, bold flavors, Subway restaurants in India offer a wide array of popular local and international favourites. It has positioned itself on the health (‘less than 6 grams of fat‘) plank, an interesting strategy, given its arch‐rivals perceived vulnerability on this score. Globally, Subway has surpassed McDonald's to become the largest restaurant chain. We expect Subway India to be as aggressive in the country.

About Company/Promoter With more than 34,000 outlets in 95 countries, Subway is the world's largest sandwich franchise. Headquartered in Milford, Connecticut, the Subway chain was co‐founded by Fred DeLuca and Dr. Peter Buck in 1965. Subway Systems India opened its very first restaurant in 2001 in New Delhi and has swiftly grown its operations to 223 operating restaurants in 27 cities across India. The Subway chain in India and around the world is 100% franchisee owned and operated. Subway restaurant's in India serve no beef or pork products and have an expanded selection of vegetarian choices. Popular sandwiches, both local and international favourites, include Veggie Patty, Paneer Tikka, Aloo Patty, Chicken Meatball Marinara, Roasted Chicken, Chicken Teriyaki, Turkey, and Tuna.

Category presence Sandwiches, salads, cookies.

Products Sandwiches like paneer tikka, veg shammi, alloo patty, chicken tandoori, along with international flavors like Italian BMT, Subway Club, Turkey ,Tuna etc.

Branding The brand’s mainly used print advertising promoting its Sub of the Day. It has also appointed a creative agency and has had modest spends to date. Apart from this, Subway has focused on a multi‐media approach involving TV, social media and mobile marketing in order to create top‐of‐the‐mind slotting for its restaurants.



SUBWAY

Playing well on urbanisation

COMPANY PROFILE



February 9, 2012


Food

Competition Though there is no competition for the brand in the sandwich space, the brand contends with fast‐food services such as McDonald’s, KFC, Pizza Hut and Domino’s.

Regional Presence/ Stronghold Subway has a strong presence only in the metros and big cities in India. They plan to expand its reach even to smaller cities even though the concept may not be accepted by the people.

Future Plans The company's goal is to have 530 stores open by 2015 from its current store count of 223. They would be set in places where people work, study and shop. They would focus not only in metro cities but also places such as Chandigarh, Hyderabad, Pune and Ahmedabad.








Food

Our View We believe increasing awareness of health and hygiene among people and higher disposable incomes of middle class in India has resulted in higher consumption of branded fruit juices. Thus, Tunip has identified its target market as ‘young urban professionals’ where convenient foods category is in demand by this working class.

About Company/Promoter Established in 1994, Tunip Agro produces and markets fruit juices. Bennett Coleman & Co acquired 11.68% for around INR667mn (UDS1.4mn) in May 2010. The company has been making conscious investment in creating market for fruit juices, helping it successfully establish brand ONJUS in the market. The company has 3 warehouses at Mumbai, Delhi and Kerala, and 16 super stockist in different parts of India, with a manufacturing facility in Sri Lanka. The company’s net sales increased 30% YoY in FY10 to INR399.1mn.

Category 100% fruit pulp Juice, ready to drink milk‐based thandai.

Products Onjus Orange, Onjus Apple, Onjus Punch, Onjus Mango, Onjus Guava and thandai.

Branding The company has been engaged in various marketing activities like ‘Buy 1 Get 1 Free’ or ‘Buy 2 Get 1 Free.’

Competition The company faces stiff competition in the fruit drink category from companies like Dabur, PepsiCo, HUL and Parle Agro.

Distribution The company has an efficient sales team that ensures nationwide distribution of the ONJUS brand. Its products are available in all the reputed chains of supermarkets and also at small general and provisional stores.

Regional Presence/ stronghold The company has a strong presence in North India, with 45% of its sales coming from this region, followed by West (30%), South (20%) and East (5%).


TUNIP AGRO Juicy story

COMPANY PROFILE



February 9, 2012


Food

Future Plans The company filed DRHP with SEBI in July 2010. They aim at funding their expansion plans through the IPO.

Matrix

1. Penetration levels‐ Medium







Food

Our View UNIBIC India, a recent entrant in the INR126bn biscuit segment with premium cookies, may face stiff competition from national players (Parle, Britannia) and other unorganised regional players. However, its expertise and unmatched focus on the premium end reinforces our confidence on its growth prospects. On account of consistent and superior quality of products, we believe Unibic can capture a niche space for itself.

About Company/Promoter A subsidiary of UNIBIC Australia, UNIBIC India, has its factory and infrastructure in Bengaluru with state‐of‐the‐art machines from Italy. It is the first company to be set up with “wire cutting” technology, the only method available to make a real cookie. UNIBIC makes cookies for PepsiCo's Quaker, Future Group's Tasty Treat, Cafe Coffee Day and also exports to Australian retailers. The company holds ~7‐8% of the premium cookie market and aims to achieve 10% market share over the next 12‐18 months. UNIBIC India is not profitable yet, but aims at revenue of ~INR1bn in the next 12‐18 months.

Category presence Cookies.

Products Anzac Cookies, Bradman Chocolate Chip Cookies, Jamz, Cashew Butter Cookies, Chocolate, and Cookies.

Competition Kraft's Oreo cookies, United Biscuits' McVitie's and Britannia.

Regional Presence/ stronghold Metro focused (will not fight at the bottom end of the market).



UNIBIC

Innovation leads the story

COMPANY PROFILE



February 9, 2012


Food

Future Plans The Indian arm of Australian cookie maker Unibic is scouting for a partner, either strategic or financial, to stoke its growth ambitions in the country, says Unibic Biscuits India MD Nikhil Sen . Bangalore‐based Unibic now targets revenues of USD100mn in India in 4‐5 years. Unibic Biscuits India, the country's only wire cut cookie major, has developed chyawanprash fortified cookies, Chyawanprash Cookies, in an effort to grab a share of the market in the health and wellness space.








Food

Our View We are optimistic about the huge opportunity in the Indian poultry industry. There is vast scope of improvement in per capita consumption, which is much lower than National Institute of Nutrition recommended 180 eggs and 11kg of poultry meat. Venky is well established in poultry market and its entry into RTC have enthused us. Also the company is ramping up production of broiler chicken, while rising prices have fueled better growth.

About Company/Promoter Venky`s (India) formerly known as Western Hatcheries was incorporated in 1976 as a private limited company, mainly to produce day‐old layer and broiler chicks for the dense poultry markets of North India. The company was founded by Dr. B V Rao. The company`s principal activities are to own and operate chicken and broiler breeding farms. Their portfolio include animal health products, pellet feeds, processed, and further processed chicken products, solvent oil extraction, SPF eggs, nutritional health products for humans, and pet food & health care products. The company operates through three business segments, namely poultry and poultry products, animal health products and oilseed. Their major business segment is poultry and poultry products, which consists of production and sale of day‐old broiler and layer chicks, specific pathogen free eggs, processed chicken products and poultry feed. They have manufacturing facilities for manufacturing nutritional health products for humans, and pet food and healthcare products. They are also involved in solvent oil extraction.

Category presence Processed chicken, poultry products, eggs, biscuits, flour, RTC, frozen foods.

Products Venky’s chicken, Venky’s Xpres, Venky’s Atta, Venky’s Biscuits, a range of RTC products.

Branding The company has acquired the English Premier League football club, Blackburn Rovers for GBP23mn. They have given contract to many of their players on the clause that the player would have to make himself available for advertisement & promotional work for the club and the company. Recently, 10 players came together for an advertisement of chicken meant for the Indian market.

Competition Godrej Tyson Foods, Suguna, Aarambaug, Amrit group. Also, the company faces competition from the unorganized sector in the Processed Chicken segment.


VENKY’S INDIA

Bet on frozen non‐veg market

COMPANY PROFILE



February 9, 2012


Food

Regional Presence/ Sstronghold The company has a strong presence in supermarkets and retail stores in all major cities in India.

Future Plans The company is planning to expand its presence in 25 new countries through offering feed, health and hygiene services at the doorstep of farmers in South‐East Asia, the Middle East and Latin America. The company is also planning to establish a poultry diagnostic laboratory with all the latest diagnostics facilities in South Vietnam to provide free diagnostic and technical services to the Vietnamese poultry farmers. In the non‐poultry sector, the company is looking at setting up a floating fish feed plant in Vietnam. The company has decided to start plants in Philippines, Bangladesh and Switzerland. They have strong sales network and customer base and are planning to introduce new products in those markets.








Food

Annexure ‐ I

History of eating habits in India The food consumption pattern in India varies extensively across regions, influenced predominantly by culture, religion and climatic conditions. Food preparation practices have been an integral part of the Indian society which is characterized by an emphasis on eating fresh homemade food. Several reasons have contributed to these eating habits.

Existence of joint family structure A joint family is defined as several generations of extended family living under one roof. This arrangement is still common in India because of the lack of affordability, social bindings, upbringing of children and other reasons. The protocol of such family arrangements was that the male members were assumed to have a professional life while the food preparation and household work were left to housewives. Fig .1: Typical joint family arrangement


Emphasis on home‐made fresh food Specific food habits and religious constraints lay emphasis on home‐made food. In some sections of the Indian society, the practice of consuming onion less food can be observed because of respective religious beliefs. Also, the practice of consuming vegetarian food by a major part of the population can be traced back to be an outcome of the influence of Hindu culture. The influence of religion and a culture of festivals is another important aspect of Indian tradition with respect to food consumption as every festival is primarily associated with some special dish. Additionally, the regional diversity of food cuisines can be substantiated from the fact that Idli and Dosa are preferred in the South, fish and rice in West Bengal and Eastern states and dishes like Dhokla in Western states like Gujarat. Achar (pickle), chutni and papad are also considered an important part of the meal, all of which were prepared at home by housewives. Emphasis on homemade food is evident from the prevalence of ‘Chakki kaa atta’ (wheat flour prepared from traditional hand driven compact flour mill), with rotis being a prime component of lunch in Northern and Western part of India.


Food

Fig .2: Grinding with Chakki tool Fig .3: Modern flour mill machine


Accessibility of homemade food at work place With ~75% of the population living in Rural India till 1990s, accessibility of home‐made food at the work place was never an issue. Government jobs with comfortable lifestyle ensured that taking time out of home‐made food was a top priority. In the urban population, unique service industry concept, like the Dabbawala, emerged whose primary business was to collect fresh homemade food to offices. Fig. 4: Mumbai’s Dabbawala service

Lack of eating out opportunities Eating out requirement of Indians has been addressed by the unorganised sector like traditional Dhabas and roadside eateries comprising street stalls. Organised eating out, like restaurants, are less than 8% of the overall food services industry in India. With limited hygiene standards, these places have offered value meals. However, location of these Dhabas was mostly outside city as these were strategically located for consumers travelling intercity via roads. With in cities, street stalls were present, but mostly focused on providing mid‐meals snacks, rather than value for money meals.

Organised eating out a meager 8% of overall food services industry


Food

Fig.5 : Roadside eating joints

Source: Edelweiss research According to HVS International, Indian consumers spend ~2.4% of their food expenditure in hotels and restaurants (including on premises and take‐out sales) as compared to American consumers which spend ~46% of their food expenditure on away‐from‐home meals.

Social gatherings considered eating out opportunities The closed knit social fabric ensured that communal festivities like weddings, childbirth etc. were celebrated at a large level. This, in turn, presented enough eating out opportunities for Indian families. A typical Indian wedding would have around ~500‐700 guests, as compared to much smaller gathering in the western society. Fig.6 : Indian wedding meal


Lack of disposable income Most importantly, lack of disposable income has been a major factor to restrict Indian eating habits to home. We discuss it further in the coming sections.

Hotels and restaurants have a huge scope of growth in India


Food

Annexure II Food and food processing Food and food products constitute ~ 40% of urban household spend and 36% of blended (urban + rural) wallet spent (Source: Technopak). Chart 1: Discretionary spending gaining foothold in rural wallet

Food42%

Travel11%

Personal Care9%

Entertainment7%

Communication5%

Education6%

Healthcare6%

Apparel6%

Durables3%

Housing5%

Source: Technopak, Edelweiss research

Chart 2: Wallet share of blended wallet share

Savings & Investments

4%

Discretionary Expenditure

30%

Food & Grocery36%

Rent, Utilities & Education

20%

Feul, Transport &

Communication10%

Source: Technopak, Edelweiss research

Food Processing:

India, with a population of more than 1.2bn, is one of the largest consumer markets in the world. Food and beverages, the largest category in Indian consumer spending, is expected to remain so in the future.

Rural India shell out more on food than urban


Food

With agriculture at the core of Indian economy and more than two‐thirds of the population dependent on farming, a developed Food Processing sector can be a strong link between agriculture and the consumers. The government's high priority to the sector coupled with a growing consumption‐led demand is leading to a fast pace growth in the sector. Processed food in India is estimated to be ~44% of the total food Industry by 2011 i.e.~USD110bn. The level of processing in each segment is low relative to many other countries. In India, the level of processing for Fruits and Vegetables is 2.2% as compared to 65% in US, 23% in China and 78% in Philippines. In marine products, poultry and meat, the processing levels in India are 26%, 6% and 20% respectively whereas it is 60‐70% in developed countries. The benefits of a strong agriculture production base are getting lost due to lack of storage and processing infrastructure. The sad state can be seen from the fact that the post harvest losses of fruits and vegetables are as high as 35% (loss of INR500bn per annum). The Ministry of Food Processing in its Vision 2015 document has estimated the size of the processed food sector to grow three fold, processing level of perishable to increase from 6% to 20%, value addition to increase from 20% to 35% and India‘s share in global food trade to go up from 1.5% to 3%. Both the Central and state governments have launched various initiatives and schemes to invite private sector participation in this sector.

Table 1: Indian food industry: Key statistics 2002 ‐03 2006‐07 2010‐11* 2014‐15*

Food Industry size (USD bn) 175 200 250 300Food Processing Industry size (USD bn) 70 85 110 150% Food Processing Industry in total food industry (%) 40.0 43.0 44.0 50.0Size of organized sector in food processing industry (USD bn) 13 23 37 60% organized sector in food processing industry (%) 19.0 27.0 36.0 40.0

Source: Edelweiss research Present status, future prospects of Indian food processing industries

The food processing sector is highly fragmented industry, it comprises of the following sub‐segments: fruits and vegetables, milk and milk products, beer and alcoholic beverages, meat and poultry, marine products, grain processing, packaged or convenience food and packaged drinks. A huge number of entrepreneurs in this industry are small in terms of their production and operations, and are largely concentrated in the unorganized segment. This segment accounts for more than 70% of the output in terms of volume and 50% in terms of value. Though the organized sector seems comparatively small, it is growing at a much faster pace.


Food

Fig. 1: Processed foods categorized by consumer’s needs

101.0 mn

Annual Household Income

91.3 mn

10.9 mn

2.4 mn

1.2 mn

No. of Households Need from Processed Food

>INR 10.0 lacs

Lifestyle & AspirationCheese, Wine, Gourmet, Food, etc.

>INR 5.0‐10.0 lacs

>INR 2.0‐5.0 lacs

>INR 0.5‐2.0 lacs

>INR 0.5 lacs

Convenience & Time SavingRTE, RTC, Purses, etc.

Food Inflation ProtectionFrozen Fruits & Vegetables, Juices

Wholesome NutritionMilk, Juices, Meats, etc.

Basic NutritionFortified Atta, Iodized Salt, etc

1

2

3

4

5

Source: Technopack, Edelweiss research


Food

Annexure – III

Trend of ad spends Snapshot of ice cream & frozen dessert ads on TV

Key findings:

• Kwality Walls' Cornetto Truffle and Paddle Pop became top two brands with 17% and 15% share respectively.

• The top two advertisers contributed a whopping 74% share to the ad volumes in 2010

• Regional media enjoyed 69 % of the pie against national media that held 31%

• May and April witnessed maximum ad volumes from brands that advertised for ice cream and frozen dessert on TV, 37.5 % and 29.7 % share respectively

• January, February and November were the least advertised months, totaling to one % share

Chart 1: TV Ad volume comparison Chart 2: Monthly % Share of overall advertising in 2010

394

322

0

90

180

270

360

450

Jan‐Dec 2009 Jan‐Dec 2010

(Hrs)

Source:

Chart 1: Top 5 Advertisers in 2010 Chart 2: Monthly % Share of overall Rank Advertiser % Share1 Hindustan Unilever Ltd 64.02 Vadilal Enterprises 10.03 GCMMF (Amul) 9.04 Hatsun Agro Product Ltd 9.05 Induss Ice Cream 2.0

Source: AdEx India, Edelweiss research

Rank Brand % Share

1 Kwality Walls' Cornetto Truffle 17.0

2 Kwality Walls' Paddle Top 15.0

3 Kwality Walls' Sele Dutch Choconut 12.0

4 Vadilal Ice Cream 10.0

5 Kwality Walls' Cornetto 8.0

0.0

8.0

16.0

24.0

32.0

40.0

Janu

ary

February

March

April

May

June July

August

Septem

ber

Octob

er

Novem

ber

Decem

ber

(%)


Food

Overview of 'Namkins/Wafers(Chips)' advertising on TV

Key findings:

• 'Wafers' segment contributed for more than half of the overall advertising share of 'Namkins/Wafers(Chips)' category on TV during Jan‐Oct '10.

• 'PepsiCo' was the number one advertiser of 'Namkins/Wafers' category on TV between Jan‐Oct '10.

• 'Bingo Spicy Masala Remix' was the most advertised new brand of 'Namkins/Wafers(Chips)' category on TV during Jan‐Oct '10.

• Between Jan‐Oct '10, 'Namkins/Wafers(Chips)' category contributed for 5% of overall advertising share of the Food & Beverages sector on TV.

• TV Advertising of 'Wafers(Chips)' and 'Namkins' brands was in the ratio of 59:41 between Jan‐Oct '10.

• 'Pepsi Co India Holding(P) Ltd' with 45% share leads TV advertising of 'Namkins/Wafers(Chips)' category followed by 'ITC Ltd' and 'Agro Tech Foods Ltd' with 31% and 16% share respectively during Jan‐Oct '10.

• Top 5 advertisers contributed for 96% of overall ad share of 'Namkins/Wafers(Chips)' category on TV during Jan‐Oct '10.

• TV advertising of 'Namkins/Wafers (chips)' category declined by 1% during Jan‐Oct '10.

• Top 3 new brands of 'Namkins/Wafers(Chips)' category advertised on TV were 'Bingo Spicy Masala Mix', 'Lehar Kurkure Funjabi Kadhai' and 'Lays American Style & Cream Onion' during Jan‐Oct '10.

• 3 brands each out of top 10 belonged 'Pepsi Co India Holding (P) Ltd' and 'ITC Ltd'

• ''Andhra Pradesh', Tamil Nadu' and 'Karnataka' were the Top 3 states in advertising of 'Namkins/Wafers(Chips)' products on Regional Channels during Jan‐Oct '10.

Chart 3: Namkins 5% share of overall F&B TV ad Chart 4: TV ad declined 1% during Jan‐Oct '10

Namkin5%

Others95%


98.0

98.4

98.8

99.2

99.6

100.0

Jan‐Oct 2009 Jan‐Oct 2010

(Inde

x: Jan‐Oct 09 = 10

0)

Wafers is being aggressively marketed by companies


Food

Chart 5: Wafers accounted for 59% of overall ad Chart 6: Major advertising companies

Wafers/chips59%

Namkin41%


Table 3: New Brands advertised on TV during Jan‐Oct 10 Rank Top New Brands1 Bingo Spicy Masala Remix2 Lehar Kurkure Funjabi Kadhai3 Lays American Style & Cream Onion4 Hippo Munchies5 Bingo Juicy Tomato Ketchup6 Bingo Premium Salted Potato7 Lehar Kurkure Khicdi8 Real Namkin9 Real Falahari10 Mukharochak Chanachur


Chart 7: National & regional channels Chart 8: Share of states in regional channel

National61%

Regional39%


45

31

16

3

2

Pepsi Co

ITC

Agro Tech

Parle products

Flavour Foods

AP24%

Punjab13%

Assam3%

TN22%

Maharashtra11%

Karnataka8%

West Bengal10%

Others9%


Food

Snapshot of TV advertising by instant foods/meals

Key Findings:

• Maximum TV advertising of Noodles/Pasta under Instant Foods/Meals category during Jan‐Oct '10.

• HUL was the top advertiser of Instant Foods/Meals products on TV during Jan‐Oct '10.

• High advertising share of Instant Foods/Meals on regional channels during Jan‐Oct '10.

• Noodles/Pasta contributed the maximum. i.e. 76% of overall advertising of Instant Foods/Meals category on TV followed by Instant Mix and Instant soup mixes with 13 % and seven % share respectively during Jan‐Oct '10.

• Hindustan Unilever Ltd had the maximum share i.e. 37% of overall advertising of Instant Foods/Meals category on TV during Jan‐Oct '10.

• Nestle India Limited and GSK Consumer with 27 % and 13 % share occupied second and third position in the Top 5 list of advertisers of Instant Foods/Meals brands on TV during Jan‐Oct '10.

• Knorr Soupy Noodles, Maggi Thrillin curry and Maggi Multigrainz Noodles were the Top 3 new brand of Instant Foods/Meals category advertised on TV during Jan‐Oct '10.

• During Jan‐Oct '10, advertising of Instant Foods/Meals category on national and regional channels was in the ratio of 55:45.

• Top 3 states in advertising of Instant Foods/Meals category on regional channels were Tamil Nadu, Maharashtra, and Andhra Pradesh during Jan‐Oct '10.

Chart 9: TV Ad volume comparison Chart 10: Ad for different categories

0

40

80

120

160

200


(Ind

ex: Jan

‐Oct 09 = 10

0)

Noodles/Pasta76%

Instant Soup Mixes7%

Ready to eat1%

Instant mix13%

Frozen foods3%

HUL ad spends has been aggressive to face market leader Nestle


Food

Chart 11: Leading advertisers Chart 4: Leading brands advertised

37

27

13

10

3

HUL

Nestle

Smithkline Beecham

Indo Nissin Foods

MTR

Chart 12: National & regional channels Chart 13: Share of states in regional channel

National45%

Regional55%


Overview of chocolates advertising on TV

Key Findings:

• Cadburys India Ltd rules in advertising of chocolates on TV during Jan‐Oct '10.

• Cadburys Perk Glucose was the top new brand of chocolates advertised on TV during Jan‐Oct '10.

• High share of chocolate advertising on national channels during Jan‐Oct '10.

• Cadburys India Ltd led chocolates advertising with 80% share on TV followed by Nestle India Ltd and Ferrero India Ltd with 15 % and three % share respectively during Jan‐Oct '10.

• Cadburys Perk Glucose, Cadburys Dairy Milk Silk and Nestle Bar One were the top three new chocolate brands advertised on TV during Jan‐Oct '10.

Ranks New Brands1 Knorr Soupy Noodles2 Maggi Thrillin Curry3 Maggi Multigrainz Noodles4 Maggi Tricky Tomato5 MTR Breakfast mixes

TN25%

Maharashtra17%

AP14%

Karnataka12%

Kerala11%

West Bengal9%

Orissa5%

Others7%


Food

• TV advertising of chocolates saw a growth during the period of August to October '10 since it is also the festive period.

• Advertising of chocolates on national and regional channels was in the ratio of 52:48 during Jan‐Oct '10.

Chart 14: TV ad volume comparison Chart 5: Most advertised chocolate company

0

32

64

96

128

160


(Ind

ex: Jan

‐Oct 09 = 10

0)


Chart 6: Most advertised brands Rank New Brands

1 Cadburys Perk Glucose

2 Cadburys Dairy Milk Silk

3 Nestle Bar One

4 Choki Choki Chocolate

5 Galaxy Chocolate Source: AdEx India, Edelweiss research

Chart 15: National & regional channels

National 52%

Regional48%


Rank Company

1 Cadburys India Ltd

2 Nestle India Ltd

3 Ferrero India Ltd

4 Smithkline Beecham

5 Inbisco India Pvt Ltd


Food

Snapshot of beverages sector on TV during Jan‐May '10

Key Findings:

• 'Aerated soft drink' category led 'beverages' sector advertising on TV during Jan‐May '10.

• 'Coca‐Cola India Ltd' was the top advertiser of 'beverages' sector on TV during Jan‐May '10.

• High advertising share of 'Minute Maid Nimbu Fresh' among the new brands of 'beverages' sector on TV during Jan‐May '10.

• 'Aerated soft drink' had the maximum share i.e. 52% of overall advertising share of 'beverages' sector on TV followed by 'milk beverages' and 'non aerated soft drink' with 29 % and 16 % share respectively during Jan‐May '10.

• Among the categories of 'beverages' sector, 'mineral water' was the top category to record maximum growth in its TV ad volumes followed by 'milk beverages' and 'non aerated soft drink' categories during Jan‐May '10 compared to Jan‐May '09.

• 'Coca‐Cola India Ltd' had the highest share i.e. 43% of 'Beverages' sector TV ad pie followed by 'Pepsi Co' and 'GSK Consumer' at second and third position with 22% and 15% share respectively during Jan‐May '10.

• 'Minute Maid Nimbu Fresh', 'Signature Natural Mineral Water' and 'Danone Choco Milk' were the top three new brands of 'beverages' sector on TV during Jan‐May '10.

• 55 % of 'beverages' sector advertising on regional channels and rest 45 % share was on national channels during Jan‐May '10.

• 'Tamil Nadu', 'Andhra Pradesh' and 'West Bengal' were the top three states in advertising of 'beverages' sector on regional channels during Jan‐May '10.

Chart 16: TV ad volume growth Chart 17: % share in TV ads

15,600

16,200

16,800

17,400

18,000

18,600

Jan‐Jun 2010 Jan‐Jun 2011

(Hrs)


Food & Beverages

86%

Others14%

Coca‐Cola leads with 17% share in advertisement


Food

Chart 7: Sector advertising Chart 8: Most advertised beverage company Category % share

Soft Drink Aerated 18.0

Milk Beverages 14.0

Chocolates 8.0

Biscuits 8.0

Soft Drink Non Aerated 8.0

Spices 4.0

Tea 4.0

Noodles/ Pasta 3.0

Chewing Gum/ Bubble Gum 3.0

Edible Oil 3.0 Source: AdEx India, Edelweiss research

Chart 9: Top 10 brands Chart 18: National vs. regional channels Rank Brands1 Sprite2 Complan3 Maaza4 Fanta5 Thums Up6 MDH Masala Range7 Limca8 Horlicks9 Pepsi10 Cadbury's Bournvita Plus Plus

Source:


Company Share (%)

Coca Cola India Ltd 17.0

Cadburys 13.0

Smithknline Beecham 7.0

Pepsi Co 6.0

Brooke Bond Lipton 6.0

Perfetti Van Melle 4.0

Heinz 4.0

ITC 4.0

Nestle 3.0

Britannia 3.0

National42%

Regional58%


Food

Annexure – IV

Survey Findings Rising health consciousness to boost demand for nutritional products

Evolving lifestyle to create more avenues of growth

‘Many Indias’: emerging as a key theme driving the strategy of major players

Consumer flexibility to price hike will help mitigate inflationary pressure

Distribution network emerging as a key entry barrier

Categories placed on high growth path

Relative positioning of major players and their brands

Rising health consciousness to boost demand for nutritional products While making a purchase decision on packaged food products, 57% of the respondents were strongly sensitive to health consciousness with 37% being mildly sensitive. This result attests the thesis of rising health consciousness levels and points towards the opportunity in this segment. Major Consumer companies have been increasingly positioning their products in the food segment with a health and nutrition proposition. Consumer players in this segment have been aggressively launching products in categories like multi‐grain noodles and biscuits, health drinks and pulp based fruit juices. The action happening in the industry clearly points towards the potential of healthy and nutritional products. Chart 1: Consumer sensitivity to following factors while purchasing packaged food

0.0

20.0

40.0

60.0

80.0

100.0

Quality

Health

Co

nsiousne

ss

Easy Availability

At Stores

Brand

Conven

ient

to Coo

k

Price

Prom

otional

Offfers

(%)

Strongly sensitive Mildly sensitive Indifferent


89% of the respondents were strongly sensitive to quality in their purchase of packaged food with 44% being brand conscious. 42.8% of the respondents were strongly sensitive to brand as well as quality which shows a strong correlation between brand and quality. i.e. branded products are largely perceived to be of good quality. In various categories major food companies face stiff competition from local manufacturers and food shops. A significant

Consumers look for quality and health in packaged food

Price plays a small role


Food

inclination towards brand consciousness points towards increasing acceptance of branded food products. The sensitiveness to brand and health are significantly correlated as 65% of the respondents who are strongly sensitive to brand are also strongly sensitive to health. There is high overlap in respondent’s sensitiveness to quality, brand and health with 28% being strongly sensitive to all these factors simultaneously. This, points towards the opportunity for established brands to come up with healthy and nutritional products.

Fig. 1: Health, Quality and Brand‐ consumer’s preference

Chart 2: Response to quality consciousness

Mildly Sensitive10%

Indifferent1%

Strongly Sensitive to Quality as well as

brand

Strongly Sensitive89%


Health Conscious

Brand Conscious

Quality Conscious 28% respondents are

strongly sensitive to Health, Quality as well as Brand

89%

44% 57%


Food

Chart 3: Health consciousness on the rise

32%56%

30%

31%

(37%)(12%)

Soft Drinks Health Food Drinks Fruit Juices

Increased Remained same Decreased Source: Edelweiss research

Evolving lifestyle to create more avenues for growth With stricter work schedules and family structures moving towards nuclear, people are getting more to the convenience in cooking. 32% of the respondents were strongly sensitive to the convenience to cook factor. This is an indicator of the opportunity for processed food products that reduce the time to cook by avoiding intermediate processes like grinding and fermenting. It also points out towards the opportunity of ready‐to‐eat or ready‐to‐cook meals and convenience foods like noodles and pasta. Chart 4: Change in frequency of eating non homemade food over last 5 years

Increased Significantly

46%

Increased Marginally/Remained Same

37%

Decreased17%


The frequency of people eating non homemade food has largely increased. For 46% of the respondents, the increase has been significant and for 37% it has marginally increased. 17% of the respondents have decreased the frequency of eating outside food which was significantly higher than our hypothesis. The reason to this could be attributed to the

Eating out has increased mainly attributed to changing lifestyle


Food

consumers getting more health conscious and preferring freshly prepared homemade food over packaged. “Packaged food is a life style …. Natural and fresh food has always been my preference over packaged food.” “Always unpacked fresh food is preferred over packed food irrespective of the prices.” Edelweiss Employee, May25, 2011 16.2% of the females consume food not cooked at home at a frequency of more than 4 times a week. For males, the figure stands at 24.8%. This implies that the trend of eating outside is higher for the male population.

Chart 5: Frequency of eating food not cooked at home

less than once a week40%

2‐4 times a week38%

Female

Male

More than 4 times a week

22%


Chart 6: Taste tops the list while eating non‐homemade food

0.0

12.0

24.0

36.0

48.0

60.0

Taste Preferences

Social Gathe

ring

Driven By

Fam

ily

Kids Frien

ds

Easy

Availability

Lack Of Time

to Coo

k

Stress Buster

Do Not W

ant

to Coo

k

(%)


Relatively Higher proportion of males eating outside food

Consumers prefer taste to other factors


Food

Consuming the meals with a family get together or social gathering is an integral part of the Indian culture. Indian consumer primarily goes out to consume non homemade food as a means for social gathering or being driven by family and friends. For 47% respondents, the influence of social gathering is high in driving people to eat out. Indian consumer is highly sensitive to taste preferences and is driven to eat out of home for a change of taste or to please his/her palates. 57% respondents were strongly influenced by taste preferences in eating out of home. With the increasing time pressure and hectic work schedules, factors like lack of time cook, not willing to cook and eating out as a means of stress buster are gaining significance in driving people to consume less of homemade food. 20% of the respondents were highly influenced by lack of time to cook and unwillingness to cook to eat out of home. In addition to this, outside food and packaged food is an easily available alternative and people are less willing to spend time and effort on cooling food at home. 38% of the respondents were consuming outside food driven by its easy availability.

‘Many Indias’: Emerging as a key theme Indians are highly specific to their taste preferences and as pointed out by the survey study, 57% of the respondents were strongly driven by taste. The taste preferences vary significantly across cultures and geographies in India. 59% respondents highly preferred traditional regional food specialties while 29% highly preferred western and Chinese fast foods. Due to strong inclination towards traditional taste, Indianization of products has been one of the key focus areas, driving the success of western fast food players in India. Western fast food companies like McDonald’s, KFC and Subway have been launching their products with a blend of western preparation and traditional taste (e.g. Maharaja Mac, Aloo Tikki burger). Hence taste preferences of the Indian consumer are a major focus area of the players in this segment and a key driver of the strategy formulation for the food companies. Chart 7: % of respondents who highly prefer these foods

0.0

16.0

32.0

48.0

64.0

80.0

Traditional Indian Regional Western Fastfood Chinese Food

(%)


Traditional food still a preference over western


Food

Chart 8: % of respondents who regularly consume this product

0.0

16.0

32.0

48.0

64.0

80.0

Noo

dles Pasta

Soup

s

Tradition

al

Snacks

Table Re

lishe

s

Ready‐to‐eat

Indian

Meal

Ready‐to‐eat

Western Meal

Packaged

Atta

Spices

Bottled Water

(%)


Chart 9: Frequency of consuming noodles, pasta, soups

Regular 31%

Occasional 46%

Rare 16%

Do not consume7%


• 31% of the respondents are regular (at least once a week) consumers of Noodles/pasta

and soups. For a total of 77% of the respondents, the frequency of consumption is more than at least once a month. Only 7% of the respondents do not consume these products.

• Traditional snacks like namkeen and table relishes like pickle, jams and sauces form an integral part of regular consumption with 60% and 42% of the respondents regularly consuming these food products respectively.

• Ready‐to‐eat Indian meals (like rajma, halwa) and ready‐to‐eat western food products like frozen or canned food do not have much appeal to the Indian consumer as 38% and 49% of the consumers do not consume these products respectively. These products are meant for occasional usage and 27% and 29% of the respondents consumed these products once in six months respectively, which is an encouraging figure for the outlook of these categories.

Traditional snacks widely consumed but RTE/RTC has good potential ahead


Food

• 40% of the respondents are regular users of packaged Atta and spices. This is an indicator that the penetration level in these categories has increased in spite of stiff competition from unorganized sector (neighborhood store offering chakki ka atta).

• 43% of the respondents are regular consumers of bottled water. This indicates rising health consciousness among consumers.

Consumer flexibility to price hike will help mitigate inflationary pressure Consumers are predominantly mildly sensitive to price (65%). In the case of high inflation scenario, the players in this segment can afford to pass on some of the cost increase to the consumers without getting much hit on the sales front.

Distribution network emerging as a key entry barrier The consumer is also highly sensitive to easy availability of the products at the nearby stores as 53% of the respondents were strongly sensitive to the same.

High growth path: HFD, juice, biscuits, fast foods and noodles • 56% of the respondents have increased their consumption of health food drinks and

fruit juices over the past 5 years. The proportion of respondents who have increased the consumption in this category is highest among all the packaged food and beverages categories. This result again substantiates the rising health consciousness of the Indian consumer.

Chart 10: % of respondents who have increased their purchase over past 5 years

0.0

12.0

24.0

36.0

48.0

60.0

Health

(Fruit Juices)

Milk Produ

cts

Biscuits Chips

Chocolates

Pizza Bu

rger

Icecream

Breakfast Cereals

Packed

Indian

Snacks

Cooking Aids

Pack. Rice Atta Pu

lses

Noo

dles

Soft Drinks

Sauces

Pasta

Popcorn

Instant Sou

ps

Jams Jellies Spreads

Ready To

Coo

k Indian

Sales growth (%

)


Health, milk products and biscuits gaining momentum


Food

Table 1: Category‐wise change in consumption pattern Increased Remained same Decreased

Health (Fruit Juices) 56.0 30.7 11.6 Milk Products 51.2 31.8 14.6 Biscuits Chips 49.1 36.0 14.0 Chocolates 43.8 33.9 21.4 Pizza Burger 42.9 32.7 21.4 Icecream 39.9 39.0 19.3 Breakfast Cereals 39.0 31.0 28.3 Packed Indian Snacks 35.4 38.7 23.5 Cooking Aids 35.4 51.5 11.6 Pack. Rice Atta Pulses 34.2 38.1 25.6 Noodles 33.3 42.3 23.2 Soft Drinks 32.1 29.8 36.6 Sauces 31.3 45.2 20.5 Pasta 30.1 36.3 31.3 Popcorn 26.2 37.8 33.9 Instant Soups 24.1 34.8 37.5 Jams Jell ies Spreads 22.3 44.9 29.8 Ready To Cook Indian 13.4 42.6 41.1

Source: xxx • 37% of the respondents have reduced their consumption of soft drinks over the past 5

years. This indicates towards a trend of consumer preferences shifting from carbonated drinks to health drinks, fruit juices and malted food drinks.

• The consumption of milk products like butter, ghee and curd has seen an increase with 51% of the respondents mentioning an increase in this category. Milk products are an integral part of the diet of Indians. This result is an indicator that people have largely moved from homemade milk products to packaged products.

• In the category of biscuits, breakfast cereals (like cornflakes and oats), noodles and pasta, 49%, 39%, 33% and 30%of the respondents respectively have increased the purchase. Indian snack items saw an increase by 35% of the respondents.

• The outlook of fast food categories like pizza and burger also seems very positive as 43% of the respondents said to have increased the purchase over past 5 years.

• The purchase of chocolates and ice cream has increased for 44% and 40% of the respondents respectively.

• 34% of the respondents have increased the purchase of packaged Atta, rice and spices.

Soft drink consumption has largely declined


Food

Table 2: Relative positioning of major players and their brands (in %) Nestle Britannia ITC HUL Dabur Marico GSK CH Always prefer 61.3 53.0 19.3 24.4 28.0 29.8 22.3 Sometimes prefer 26.5 32.1 40.2 39.9 35.1 28.9 22.3 Indifferent 8.9 11.0 36.3 32.1 33.0 37.8 50.3


Chart 11: % of respondents who always prefer food products of following companies

‐

14.0

28.0

42.0

56.0

70.0

Nestle Britannia ITC HUL Dabur Marico GSK CH

(%)


Chart 12: % of respondents who find the products of these companies easily available

0.0

18.0

36.0

54.0

72.0

90.0


(%)



Food

Chart 13: % of respondents who find the A&P of these companies highly effective

0.0

8.0

16.0

24.0

32.0

40.0


(%)


• Food products of Nestle and Britannia are largely preferred with 61% and 53% of the

respondents being loyal to brands of these companies respectively.

• Around 85% of the respondents find the availability of Nestle and Britannia easy.

• 34% of the respondents find the effectiveness of advertisement and promotions initiatives of Nestle to be highly effective in driving their purchase.

Table 3: Category‐wise rankings Category

Rank1 Rank2Biscuits Parle BritanniaNoodles MaggiPasta Maggi SunfeastMilk Products Amul BritanniaHFD Bournvita HorlicksSoups Knorr MaggiIce Cream Kwality Wallspackaged Rice Kohinoor

Top Brands



Food

Table 4: Preferred brand in biscuits

Biscuits

Parle (Parle G, Krackjack, Hide n

Seek)

Britannia (Tiger, Treat, Goodday,

50‐50) ITC(Sunfeast) Priya GoldRank 1 47.0 ‐ 3.6 0.3 Rank 2 39.9 ‐ 8.3 1.8

Table 5: Preferred brand in noodles

Noodles Nestle (Maggi)Nissin Foods (Top

Ramen)GSK CH

(Foodles)HUL (Knorr

Soupy)Rank 1 88.7 1.8 0.9 1.5 Rank 2 8.9 33.9 7.1 19.6 Table 6: Preferred brand in packaged rice Pkg Rice Kohinoor Dawat Lal MahalRank 1 72.0 7.1 3.3 Rank 2 8.3 44.0 23.8 Table 7: Preferred brand in packaged milk

Milk Prod Amul Britannia Mother Dairy

Nestle (Everyday, Milkmaid)

Rank 1 72 10 7 5 Rank 2 15 34 15 25 Table 8: Preferred brand in HFD

HFD GSK CH (Horlicks) Heinz (Complan) GSK CH (Boost)Cadbury

(Bournvita)Rank 1 19.3 9.8 4.2 55.4 Rank 2 28.0 21.1 14.9 20.5 Table 9: Preferred brand in pasta Pasta Nestle (Maggi) ITC (Sunfeast) Bambino HUL (Knorr)Rank 1 55.4 12.8 10.1 4.2 Rank 2 18.2 22.3 10.1 24.7 Table 10: Preferred brand in soups

Nestle (Maggi) HUL (Knorr)Rank 1 40.2 45.8 Rank 2 40.5 36.9 Table 11: Preferred brand in ice‐cream

Kwality Walls Baskin Robins Dinshaw VadilalRank 1 42.3 39.3 2.1 7.7 Rank 2 37.5 20.2 6.3 22.9



Food

Survey Approach and Methodology

Objective of the survey An extensive survey was conducted to get a comprehensive view of the evolving food consumption pattern across India and understand the outlook of packaged food and beverages industry. The primary objectives of the survey are listed below:

a) To understand the evolving food consumption pattern: The study was focused towards understanding the shifting consumer preferences in the food and beverages industry. The survey tries to gauge the change in frequency of consuming non homemade food. Capturing the frequency of consuming products in specific categories like Noodles and Ready‐to‐eat meals was another focus area. Additionally, the survey was designed to understand if the consumer has shifted his preferences across various categories (e.g. shifting from plain noodles to multi grain noodles) over the past few years.

b) To get an insight of the key drivers of increasing demand: Another objective of the survey was to get a better perspective of the factors that drive the consumers towards consuming non homemade food. With the evolving lifestyle, stricter work schedules and changing family structures, there has been an increasing inclination towards convenience food products. The survey tries to gauge the extent to which the factors like taste preferences, social gatherings and time pressure drive consumers towards eating outside food.

c) To understand the sensitivity to factors impacting purchase decision: While making a purchase decision on packaged food, the consumer is influenced by various factors like brand consciousness and health and nutrition proposition of the product. The survey was designed to get an understanding on the extent to which these factors impact the purchase decision.

d) To identify the categories on high growth path: Another focus area of the survey was to identify the key growth segments of the industry. Various categories in the processed food and beverages industry are in different growth stages and penetration levels. The study focuses towards narrowing down to categories where the consumption has been increasing over the past few years and are placed on a high growth trajectory.

e) To identify the better positioned players: The study was also focused towards gaining an insight on the consumer preferences across brands and companies. The survey tries to gauge the reach of the food products across major Consumer companies and measure the effectiveness of advertisement and promotion initiatives on a comparative scale.

f) To gauge the effect of macroeconomic factors: The survey tries to look at the effect of macro‐economic factors like inflation and higher disposable incomes on the purchase of packaged food products.

Methodology and research design The study followed a combined approach of primary and secondary research. The findings of the secondary research gave a broad perspective of the consumption pattern and this understanding aided in the formulation and design of the questionnaire for the primary research.


Food

Secondary Research: Survey results and historical data were captured from following sources:

• ASSOCHAM, NSSO databases and surveys

• Internet/publications Primary Research: Primary research of the current study comprised of a quantitative approach through a food consumption pattern survey that was primarily floated online to capture the responses. A field study of the same survey was also conducted that comprised of face‐to‐face interviews of consumers at mom‐pop stores and hypermarkets. Hypothesis Formulation: Based on the objectives of the study and findings from the secondary research, an initial hypothesis was formulated. The survey results were then compared to the hypothesis to capture the actual trends and patterns of consumer purchase. Questionnaire specifications: Survey Questionnaire methodology was employed for the study. A structured questionnaire was formulated for the purpose of the study. Few questions were kept open ended to capture consumer insights.

The scaling technique used in preference and sensitivity related questions was primarily nominal. Rank ordering technique with ordinal scaling was used to gauge the comparative ranking of the brands. Sampling design:

• Sampling technique: Non‐probability Convenience sampling was used in the study. The respondents were primarily the employees of financial services industry in the Mumbai region. In addition to this, respondents with diverse profiles were interviewed in the field survey outside hypermarkets and mom‐pop stores and the results were integrated with the findings of the online survey.

• Sample Size: A total of 457 respondents participated in the survey. This includes 82 responses from the field survey, the rest being from the online survey.

• Respondent’s Profile:

• 33% of the respondents were females

• 17.3% of the respondents were below 25 years of age, 80% were between the age group 25‐45 and the rest were more than 45 years of age

• 89% of the respondents were from Mumbai, the rest being from Delhi, Chennai, Hyderabad and Kolkata.


Food

Chart 14: Gender profile Chart 15: Age profile

Male67%

Female33%


<25 years17%

25‐35 years67%

35‐45 years12%

>45 years4%


Food

Company Absolute

reco

Relative

reco

Relative

risk

Company Absolute

reco

Relative

reco

Relative

Risk

Asian Paints BUY SP M Colgate HOLD SU M

Dabur BUY SO M Emami BUY SP H

GlaxoSmithKline Consumer Healthcare BUY SP M Godrej Consumer BUY SO H

Hindustan Unilever BUY SO L ITC BUY SO L

Marico BUY SO M Nestle Ltd HOLD SP L

United Spirits HOLD SU H

RATING & INTERPRETATION

ABSOLUTE RATING

Ratings Expected absolute returns over 12 months

Buy More than 15%

Hold Between 15% and - 5%

Reduce Less than -5%

RELATIVE RETURNS RATING

Ratings Criteria

Sector Outperformer (SO) Stock return > 1.25 x Sector return

Sector Performer (SP) Stock return > 0.75 x Sector return

Stock return < 1.25 x Sector return

Sector Underperformer (SU) Stock return < 0.75 x Sector return

Sector return is market cap weighted average return for the coverage universe within the sector

RELATIVE RISK RATING

Ratings Criteria

Low (L) Bottom 1/3rd percentile in the sector

Medium (M) Middle 1/3rd percentile in the sector

High (H) Top 1/3rd percentile in the sector

Risk ratings are based on Edelweiss risk model

SECTOR RATING

Ratings Criteria

Overweight (OW) Sector return > 1.25 x Nifty return

Equalweight (EW) Sector return > 0.75 x Nifty return

Sector return < 1.25 x Nifty return

Underweight (UW) Sector return < 0.75 x Nifty return


Food

Buy

BuyBuy

150

350

550

750

950

1,150

Jul-0

8A

ug-0

8S

ep-0

8O

ct-0

8N

ov-0

8D

ec-0

8Ja

n-09

Feb-

09M

ar-0

9A

pr-0

9M

ay-0

9Ju

n-09

Jul-0

9

(INR

)

Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098. Board: (91‐22) 4009 4400, Email: [email protected]

Vikas Khemani Head Institutional Equities [email protected] +91 22 2286 4206

Nischal Maheshwari Co‐Head Institutional Equities & Head Research [email protected] +91 22 6623 3411

Coverage group(s) of stocks by primary analyst(s): Consumer Goods Asian Paints, Colgate, Dabur, Godrej Consumer , Emami, Hindustan Unilever, ITC, Marico, Nestle Ltd, GlaxoSmithKline Consumer Healthcare, United Spirits

Recent Research

15‐Feb‐12 Nestle Margin mantra;Result Update

4,412 Hold

15‐Feb‐12 Consumer Goods

Resilience continues; Sector Update

13‐Feb‐12 Emami Margin surge: a positive surprise; Result Update

376 Buy

Distribution of Ratings / Market Cap

Edelweiss Research Coverage Universe

Rating Distribution* 119 47 15 184* 3 stocks under review

Market Cap (INR) 111 57 16

> 50bn Between 10bn and 50 bn < 10bn

Date Company Title Price (INR) Recos

Buy Hold Reduce Total

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Rating Interpretation

Buy appreciate more than 15% over a 12‐month period

Hold appreciate up to 15% over a 12‐month period

Reduce depreciate more than 5% over a 12‐month period

Rating Expected to

food survey of india

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