AGRI BUSINESS – ENTRY STRATEGY FOR DAIRY BUSINESS

METHODOLOGY

SECONDARY RESEARCHNDDB, NABARD, PWC Reports, EBSCO,EMERALD

1

ANALYSIS & RECOMMENDATIONSBUILDING SUPPLY CHAIN, DISTRIBUTION, PRODUCT PORTFOLIO

4

QUESTIONNAIRE2 BRAND PERCEPTION, CONSUMPTION PATTERNS

PRIMARY RESEARCH 3IN-DEPTH INTERVIEWSQUESTIONNAIRESSITE VISITS:MR. SANJAY MISHRA, DIRECTOR, PARAG INDUSTRIESMR. ATUL AMIN, VP, SAMARPAN FABRICATORS PVT. LTDMR. AMIT THAKUR, MANAGER, AMUL DAIRYGOWARDHAN DAIRY, MANCHARAMUL PLANT, MANCHARKATRAJ MILK, PUNE

DAIRY SECTOR OVERVIEW

India's dairy sector expected to

be worth US$100 bn by 2015

Estimated shortage of 40 million tonnes of

milk by 2020

Unorganized sector accounts for nearly

85%

IMPEDIMENTS TO GROWTH• Poor sanitary standards, inconsistent quality of processed milk / milk products• Perishability of milk • Lower milk yield of Milch animals • Logistics of procurement • Problematic distribution

Susceptible to high Adulteration

Price elasticity of demand for milk:

• Rural Areas -2.9• Urban Areas -2.7

Income elasticity of demand for milk:

• Rural Areas 1.36• Urban Areas 1.07

1950-51

1973-74

1984-85

1994-95

2004-05

2005-06

2006-07

2007-08

2008-2009

2009-10

2009-11

0

20

40

60

80

100

120

140

0

50

100

150

200

250

300

INDIA'S MILK PRODUCTION AND PER CAPITA MILK AVAILABILTY

Milk Production(Million Tonnes)Per Capita Milk Availability(Grams/Day)

1990-91 2011-12

Milk production growing at a CAGR of 4.7%Consumer demand growing at CAGR of 7%

OPPORTUNITIES• Large domestic Captive Market• Value addition: phenomenal scope for innovations• Estimated shortage of 40 million tonne of milk by 2020 **(Source: NDDB) 2011 • Integration with other Mahindra services

TRENDS FACTORS

DAIRY INPUTS

MILK

MILK PRODUCTIONMILK COLLECTION,

STORAGE AND TRANSPORT

MARKETING & DISTRIBUTION CONSUMER

MONEY

Analyzing Indian Organized Dairy Sector Supply Chain, we define the Key Success Factors at every

Step.

DAIRY ORGANIZED SECTOR SUPPLY CHAIN

REVENUE

DAIRY EXTENSION SERVICES IN INDIA – A PLETHORA OF OPPORTUNITIES

DAIRY EXTENSION SERVICES IN INDIA

MARKET SIZE – $ 54 Million GAPS IDENTIFIED-• Strong need for Door Step Dairy Extension at Affordable Price • Local Network and Know How will be critical

ISSUES• Unregulated market• Lack of Infrastructure

• Season Specific and Volatile Prices• Lack of Awareness

• Lack of Regulation• Dearth of Animal Heath Workers

OPPORTUNITIES • Door to Door Health Services• Absence of Private Players

• Import High Quality Semen• Information System to track

calves

• Huge Latent Demand• UMMB and BPF – New Concepts

in Feeding

COMPETITIVE LANDSCAPE

• Drug Market is Competitive• Healthcare is Govt. Controlled

• Govt. Run Dairy Farms• NGO’s and Co-operatives

• Co-operatives provide feed• Unattractive for Private Players

CATTLE BREEDING HEALTHCARE MANAGEMENT CATTLE FEED

RECOMMENDATION – ENTRY INTO DAIRY EXTENSION SERVICES TO DEVELOP DAIRY PRESENCE

Mahindra SamriddhiHEALTH CARE MANAGEMENT

CATTLE FEED

BREEDINGSECOND HAND EQUIPMENT• Provide Bovine Semen to Local

farmers to lead to production• Provide In-House Breeding

Center Facilities• Use Samriddhi as a platform to

enable imports of bovine semen for farm use

• Each Samriddhi Center to have one trained animal worker and on call veterinary doctor

• To provide On-Door cattle health services to farmers

• Record management for all cattle through centralized database

• Cattle feed provided by co-operatives perceived to be lower quality

• UMMB licks and Protein Bypass Protein Feed still in nascent stages of adoption

• Right pricing, awareness and availability are KSF’s

• Price differential between New & Second hand equipment can be as high as 50-60% for end user

• Primarily as a support service to ‘Milk Agents’

Launch “Shweta Sagar” – a Dairy Extension initiative across the 155 Samriddhi Centers

Build Awareness amongst Farmers by adopting few model villages and informational campaign

Provide low cost Cattle Feed and Breeding Services at Samriddhi Centers

Healthcare management initiatives to be focused on convenience. Provide on door services with data management.

Primary Aim is to build a comprehensive relationship with farmers over next 2 years

“Shweta Sagar”

KEY SUCCESS FACTORS

• Acquiring High Quality Bovine Semen from International Markets

• Developing Expertise & Research Capabilities in Cattle Breeding & Health Care initiatives

• Acquisition or Production of High Quality Cattle Feed

• Managing Information for “Shweta Sagar” Initiative

• Acquisition of Second Hand Dairy Equipment from Local and International Players

Milk adulteration and irregular supply source are the 2

major problem facing Indian dairy industry

Mr. Sanjay Misra, Director Parag Industries

DAIRY FARMING – a sustainable competitive advantage

MAHINDRA OWNED LARGE DAIRY FARMS

BENEFITS

• Ensure pure quality• Milk supply consistency• Cater to growing demand of organic milk• Shorter time to reach scale• Attached processing unit to produce dairy products *at a large scale• Offers high rate of return : 20-30% (Source: NABARAD)

• Area 20-25 acre• 500-2000 cows• Near to market0NCR, Mumbai, Hyderabad *etc.

SMALL DAIRY FARMS

• Area 100-500 acres • 5000 – 10000 cows • Located near milk-shed *areas of milk processing *plants

LARGE DAIRY FARMS

Due to serious quality concerns in milk

supply it is important to have control over

milk production

Mr. Amit Thakur, Manager Amul Dairy

Finances - Dairy Farming for 5k & 10 Cows

SMALL DAIRY FARM

S

LARGE DAIRY FARM

S

PRODUCTION & DISTRIBUTION

PACKAGED MILK

BUTTER

CURD

COTTAGE CHEESE (PANEER)

UHT MILK

TETRA PACK MILK

FLAVORED & FORTIFIED MILK

NUTROS MILK (FOR BABIES)

CHEESE

INDIAN SWEETS (PEDAS, SRIKHAND, ETC.)

GHEE

DISTRIBUTION CHANNELS

School Canteens

Super Marts

Mom & Me

Milk Parlors

DISTRIBUTION CHANNELS

Near by cities

Retail shops

Milk Parlors

Home Delivery

Focus on Specialty Products Use of imported Technological equipment

R&D - increasing shelf life of milk

Production and Infrastructure development Production Cost reduction State of art UHT & aseptic packaging capability

KEY SUCCESS FACTORS

Deliver fresh milk to near by markets, mostly metros

Strong relationships with farmers Encouraging Social Entrepreneurs Production and Infrastructure development

KEY SUCCESS FACTORS

MILK SOURCING

2-5 CATTLE

10+ CATTLE 50+ CATTLE

COOPERATIVES

CHILLING & BULK COOLING

AUTOMATIC MILK COLLECTION CENTERS

SHG

10,000 Lt CAPACITY

1,00,000 Lt CAPACITY

DISRUPTION: Eliminating Middle Man by SHG to provide more

value to the farmers for their milk

MILK PROCESSING UNITSr. No.

PARTICULARS 1,00,000 Litres 10,000 Litres

1 Land requirement 20 acres 2 acres

2 Milk handling capacity 1,00,000 litres/day 10,000 litres/day

5 Cost of the project Rs. 9,72,62,050 Rs. 1,11,66,700

6 Bank loan Rs. 7,29,46,538 Rs. 83,75,025

7 Margin money Rs. 2,43,15,513 Rs. 27,91,675

FINANCIALS

DSCR 131.16 76.96

N P V Rs. 8,27,45,379 Rs. 56,70,163

I R R 57.23% 40.03%

BCR 1.295 1.287

AUTOMATIC MILK COLLECTIN UNIT– 10,000 Ltr.

S.No. PARTICULARS AMOUNT

1 Investment cost a Cost of Unit (Rs.) 1,27,000b Margin Money @ 25% 31,750c Bank loan (Rs.) 95,250

FINANCIALSBCR @ 15% DF 1.463IRR 34.83%NPV Rs. 55,727Average DSCR 1.645

DAIRY FARMING ECONOMICS10 CATTLE 1000 CATTLE

PROJECT COST

Capital cost 3,55,500 18,52,90,000 Recurring cost 1,37,600 7,88,00,000 Total cost 4,93,100 26,40,90,000 Margin (15%) 73,965 3,96,13,500 Bank Loan 4,19,135 22,44,76,500

FINANCIALSNPV 65715 4,93,07,306 B.C. Ratio 1.07 1.11I.R.R. (%) 28.59% 32.29%Average DSCR 1.425 1.203

PROJECT COST FOR BULK COOLING UNITS.No. PARTICULARS 2000 LITRES 5000 LITRES

1 Cost of Bulk Milk Cooler 6,80,000 18,00,000 2 Installation & Commissioning 20,000 30,000 3 Total cost 7,00,000 18,30,000 4 Margin Money (25%) 1,75,000 4,57,500 5 Bank loan (75%) 5,25,000 13,72,500

FINANCIALS 2000 Lt. CAPACITY 5000 Lt. CAPACITYBCR 1.197 1.35IRR 32.95% 43.56%NPV Rs. 3,35,845 Rs. 17,37,085Average DSCR 1.672 1.865

10,000 Lt Capacity

1,00,000 Lt Capacity

CHILLING & BULK COOLING

AUTOMATIC MILK COLLECTION CENTERS

ECONOMICS

10+ CATTLECOOPERATIVE

S

NPV & IRR - good growth.DSCR & BC Ratios - less

risk.

NPV & IRR - good growth.DSCR & BC Ratios - less

risk.

Automatic Milk Collection Stations

Bulk Milk Cooling Units (BMCUs)

Milk Processing for - 1lac & 10K Litres

CUSTOMER SEGMENTATION

GLOBAL STRIVER ASPIRER DEPRIVED

AVG. HOUSEHOLD INCOME(IN LAKHS/YEAR)

10L+ 5L-10L 2L-5L <2L

MAJOR INFLUENCERS GYM TRAINERS, DIETICIANS,

CONTRACTOR, PAINTER, FRIENDS AND FAMILY

NEIGHBORS, LOCAL VENDOR, LOCAL DAIRY MILKMAN, NEIGHBORS

IMPORTANT BUYING FACTORS

HEALTH, PREMIUM QUALITY, HYGIENE, PACKAGING HEALTH, QUALITY, HYGIENE HYGIENE, COMFORT, BRAND PRICE

PRODUCTS USEDYOGURTS, REDUCED SALT

BUTTER, CHEESE SPREADS,PROBIOTIC MILK PRODUCTS, PREMIUM COTTAGE CHEESE

PACKAGED MILK, FLAVORED MILK, CHEESE SLICES /

SPREAD, PROCESSED CHEESE, PACKED COTTAGE CHEESE

MILK FROM BOOTH OR MILKMAN, PACKED MILK,

BUTTER/GHEE, CURD

MILK FROM BOOTH OR MILKMAN, HOMEMADE

CURD/GHEE

BENEFIT SOUGHT LOW FAT, PREMIUMNESS, STATUS NUTRITION NUTRITION, VALUE FOR

MONEYMORE CREAM, MORE

HEALTH

PURCHASE FROM DELIVERED TO HOME, SERVANTS FAMILY SELF, MILKMAN MILKMAN DELIVERS IT

PRODUCT PORTFOLIO

MAHINDRA FARM FRESH MILKSTRAIGHT FROM THE FARM. TO YOUR DOORSTEP.PURE.RICH.CREAMY

*From Mahindra’s Dairy Farm*Untouched by human hand*100% Pure, 100% Fresh*Delivered at your doorstep

A Range of Premium Cheese Products

INSIGHT: Premium Dairy Products segment is largely Untapped WHAT: Establish Mahindra as the leader in this segment WHY: Build Brand Equity. Build Trust. Establish Brand HOW: INTRODUCING FARM FRESH – a premium range of dairy products HEALTH. DELIVERED AT YOUR DOORSTEP.

1

Money is not an issue where the health of my family is concerned.

Give me quality and I’m a customer for life

There is no such thing as FRESH milk.

What we get is the price we pay for convenience

2

YOGURT WITH ADD-ONS – GRANOLA, FRUIT MIXES FLAVORED MILK / LASSI - FORTIFIED WITH NUTRIENTS

WHO: Female Students, Working Professionals WHAT: A complete range of Dairy Products for the Health Conscious Ideal for snacks, Alternative to ColasWHERE: Educational Institutions, Corporate Offices, Gyms WHY: Brand Mahindra is non-existent in the consideration set of Buyers Success in this segment - Trickle down effect Purchase influencers at home

I rarely get enough time to have lunch. Yogurt saves the day more often than not.

Small snacks are more

suited to my routine,

soft drinks I’m trying to

quit though

BABY FOODS – LEVERAGING

“Baby food gets spoiled easily, I travel

a lot and availability is a constant issue”

3

WHY?• One of the fastest growing segments• Unique match with Retail Format• Synergy with business unit• Leverages the mom&me brand

WHAT?• Tetra packs ensure Freshness• Longer shelf life, Quality control• Dairy Products in Mom&Me Retail

+

Acquisition of Dairy Inputs and Equipment from Local & International Markets

Developing Local know How & Strong Relationship with Farmers and Rural Entrepreneurs

Developing Research and Development Capabilities across Dairy Value Chain

Optimizing Supply Chain effectively to increase customer value as well as reduce costs

Identification of Customer Preferences across the value chain to create value added products

CRITICAL COMPETENCIES STRATEGIC RELATIONSHIPS

Mahindra Samriddhi

Indian Dairy Players

Dairy Association e.g. NDRI, NDDB

International Dairy Players

Mahindra Automotive

Mahindra Finance

NGO’s

ORGANIC STRATEGIES• Launch of Shweta Sagar – Dairy Extension Services

through Samriddhi• Dairy Farming through Small

Farms – “Self Help Groups” encouraged by Mahindra

Finance• Partnership with existing

research Insitutions

INORGANIC STRATEGIES

• Acquisition of Small Indian Dairy Cooperatives across

India eg. Sterling Agro Industries

• Joint Ventures with Large International Dairy Players like

Fonterra of Newzeland

KEY COMPETENCIES TO BE ACQUIRED ACROSS THE DAIRY VALUE CHAIN

ROADMAP TO SUCCESS0-2 YEARS 2-4 YEARS 4-5 YEARS

• Partnerships with multinationals (e.g. Fonterra , Falio)• Acquisition of dairy firms like Sterling Agro Industries which is looking for buyers• Build key partnerships across supply and distribution chain

• Research and Development to increase the milk life period

•

• Strategic takeovers for a country wide reach

• Number of Processing Plants – 1•Chilling and collection units required (2000 capacity) - 25•Chilling and collection units required (5000 capacity) - 10•Processing - 10,000•Total Milk Processed by Mahindra per day – 99,000 ltr.•Market Share in litters/day – 4.95%

• ‘Shweta Sagar’ movement to encourage milk production in villages

• Establish another high tech dairy farm

• Number of Processing Plants – 4•Chilling and collection units required (2000 capacity) - 40•Chilling and collection units required (5000 capacity) - 13•Processing - 10,000•Total Milk Processed by Mahindra per day – 4,71,769 ltr.•Market Share in litters/day – 20.38%

• Number of Processing Plants – 3•Chilling and collection units required (2000 capacity) - 35•Chilling and collection units required (5000 capacity) - 13•Processing - 10,000•Total Milk Processed by Mahindra per day – 3,59,000 ltr.•Market Share in litters/day – 16.32%

CASH FLOWS

1 2 3 4 5 6 7

Self Owned Big Plants

-78871257.0666667 -33589224.4333333 19322606.35 73159248.0333334 206909247.583333 217680222.083333 220821398.433333

Small Private Plants

18067500 27823950 39351015 62524390.5 76953096 96191370 96191370

Net Cash Flows -60803757.0666667 -5765274.43333333 58673621.35 135683638.533333 283862343.583333 313871592.083333 317012768.433333

-75,000,000

-25,000,000

25,000,000

75,000,000

125,000,000

175,000,000

225,000,000

275,000,000

325,000,000

Cash Flows

Rupe

es

Final Growth Projections & Cash Flows

SAMRIDDHI – BRINGING THE NEXT WHITE REVOLUTION

Social Entrepreneurship

“ Shweta Sagar “ An Initiative for

Productivity

Efficiency Across Value Chain

Mahindra RISE

Integration with Existing Business

MAHINDRA DAIRY BUSINESS

Relationship Building

Localized FocusDairy Extension Services

Equipments

Fresh Milk

“ Delivering Farm Tech Prosperity”

VISION

“ Self Help Group“ Enabling Rural

Prosperity

“ Farm Fresh & Nutros“ Bringing Freshness to every

Door

Health Care Services

Convenience

Health & Wellness

Reduced Cost Liability

Distribution Services

EXECUTIVE SUMMARY – BRINGING IT ALL TOGETHER

THANK YOU…