Contents of this Note :

Key Takeaways from the Report -- Industry Perspective Page 3-4

Key Takeaways from the Report -- Company Perspective Page 4-5

Industry -- Key Facts & Figures Page 6-11

Marketsize, Value / Volume Breakup, YoY Growth - 2009-2013

( Sweet & Savoury Snacks, Western Snacks )

Key Players of the Segment

( 27 Players Contributing 95 % of the Segment Sales )

Extruded Snacks

( Projected Value/Volume Growth 2014-2018 )

Marketshare of Key Brands Extruded Snacks

( Kurkure, Bingo, Yellow Diamond, CRAX, Cheetos, TakaTak, Peppy, Piknik )

Assessment of Competition Page 12-19

Pepsico Marketshare Trend -- 2004-2013

Haldiram Marketshare Trend -- 2004-2013

Financial Profile of Nine Companies Constituting 71 % of Segment Sales

( Pepsico, Haldiram, Balaji Wafers, ITC, Bikaji Foods, Bikanervala,Prataap Snacks, Apricot Foods, DFM Foods )

Key Things to Note

( Haldiram & Bikaji Segmentwise Sales Breakup, 3 Years' CAGR in Sales, EBITDA Margins, PE-deal Valuations in the Segment )

Assessment of Competition specific to DFM Foods Page 20-21

CRAX Brand Key Marketshare Figures( Sweet & Savoury Snacks, Western Snacks, Extruded Snacks, Corn-Based Extruded Snacks )

Prataap Snacks the Key Competitor( Aggressive Marketing, Distribution Edge, Backed by Sequoia Capital )

Conclusion Page 22-22

Page Intentionally Left Blank

Introduction :

In continuation with our initial brief note on 'DFM Foods Ltd' dated 10th February 2014, we present here a detailed 'Industry & Competition Analysis' for the same company. This report is the result of an extensive on and off the field work done by our team over the span of last two months across each geography so asto remain as exhaustive as possible, and, while presenting the facts & figures, we have tried to remain as unbiased as possible in our analysis.

Key Takeaways from the Report Industry Perspective :

'Indian Branded Sweet & Savoury Snacks' segment has grown at a CAGR of 26.2 % over 2008-2013 (in value terms) to become the third fastest growing segment of Indian Packaged Food Industry.

The segment is categorised into 'Western Snacks' and 'Traditional Snacks' which together give it a ( 2013 ) market size of ` 110.68 bn. 'Western Snacks' comprises of Chips/Crisps & Extruded Snacks (like Rings, Puffs, etc.) whereas 'Traditional Snacks' comprises of Namkeens, Bhujia, Papad, Khakhra, Nuts, Sweets, etc.

Only Twenty Seven organised players contribute to 95 % of the segment sales with Nine Players controlling ~71 % of the marketshare. These Nine players include :

Pepsico, Haldiram, Balaji Wafers, ITC, Bikaji Foods,

Bikanervala, Prataap Snacks, DFM Foods & Apricot Foods.

[ Note :- Financial Profile of each of these nine companies is included in this report ]

Extruded Snacks as a category stands out amongst all other categories having registered highest volume growth over 2008-2013 ( CAGR = 21.9 % ) and its projected 16.9 % ( CAGR ) volume growth over 2013-2018 which is again highest in the segment.

Only Six companies control 82 % of the Extruded Snacks market. Pepsico is the leader in the space whereas Prataap Snacks, DFM Foods and Haldiram are noteworthy marketshare gainers over last ten years.

Opportunity is huge ahead of every serious player in Indian Branded Sweet & Savoury Snacks segment because of the fact that Indians are natural snacks' consumers, and entire 124 crore Indian public is served by only Twenty Seven major branded savoury snacks players atpresent. Rural markets are still unpenetrated and lower price points ( ` 2, ` 5 & ` 10 ) prevalent in the segment could drive aggressive sales in rural India.

Competition is likely to intensify going forward as more of the organised business groups enter into this space ( recent entry of Tobacco major Gopal Corporation is a case in point ) to grab their share of opportunity as also existing players make a dent in peers' stronghold by offering similar products with superior distribution and marketing reach.

Key Takeaways from the Report Company Perspective :

CRAX Brand Key Marketshare Figures

Sweet & SavourySnacks Segment

Western Snacks Segment Extruded Snacks Segment Corn-based Extruded Snacks Segment

CRAX MarketShare( 2013 )

2.03 % 2.79 % 5.61 % 9.19 %

Source :- Exemplar Research, Channel Checks, Euromonitor International, Company Reports

DFM Foods Ltd. via its 'CRAX' brand is a key player in Extruded Snacks category of Indian Branded Sweet & Savoury Snacks segment.

Over last five years, company has gained significant marketshare of the category.

If we consider 3 Years' ( FY10-FY13 ) CAGR in Sales, then, DFM has outperformed industry as well as almost all of its peers quite handsomely :

3 Years' CAGR in Sales( 2010-2013 )

Sweet & Savoury Snacks

Segment

Pepsico Haldiram Balaji Wafers Bikaji Foods Bikanervala Prataap Snacks

DFM Foods

25.26 % 19.93 % 25.82 % 33.15 % 28.39 % 17.29 % 30.56 % 46.13 %

Its main product offerings ( CRAX Corn Rings ) are targeted towards children of age group 6-12 years --- an isolation strategy which has done wonders for the company so far.

If we take into consideration DFM's key product offerings and its target audience, then, key competitors for it are Pepsico, Haldiram ( Extruded Snacks ), ITC, Prataap Snacks & Venkataramana Food Specialities.

As per our analysis, Prataap Snacks ( via its brand YD Rings ), as a peer, poses an immediate threat to DFM Foods because of its almost similar marketing strategy, same target audience, identical product USP and low margin business model.

Prataap has recently ( in 2013 ) commenced its Rings manufacturing plant ( technology from American Extrusion ) and is going all out to make a dent into DFM's ( CRAX Corn Rings ) marketshare. Aggressive marketing strategy is adopted by Prataap by getting associated with popular children tv show 'Chhota Bheem' and Mr. Amitabh Bachchan starrer children-oriented supernatural movie 'Bhootnath Returns'.

Medium-term Revenue Growth is not under threat for DFM because of an aggressively expanding market size itself as also unsaturated nature of company's Western & Eastern Sales presence. However, for this to happen, company has to expand its manufacturing capacities intime, fill the many gaps prevalent in its distribution network as also design a wise consumer-pulling marketing strategy.

EBITDA margins of the company might not show a significant improvement considering the fact that all its peers ( except Balaji Wafers ) operate at a lower EBITDA margin as also likely intensification of the competition in the space.

Source :- Exemplar Research, Channel Checks, Company Reports, Rating Reports, Euromonitor International,

Kurkure 51.00%

Bingo 10.80%

Yellow Diamond 5.90%

CRAX 5.60%

Cheetos 1.70%

TakaTak 4.30%

Peppy 1.40%Piknik 1.30%

Others 18.00%

Extruded Snacks Key Brands Marketshare ( 2013 )

Kurkure Bingo Yellow Diamond CRAX CheetosTakaTak Peppy Piknik Others

Industry --- Key Facts & Figures :

'Packaged Food' segment is one of the fastest growing segment of Indian FMCG sector.

'Branded Sweet & Savoury Snacks' segment is the third fastest growing Indian Packaged Food segment. It has grown at a 5 Years' CAGR of 26.2 % over 2008-2013 ( in value terms ).

Indian Packaged Food Segment{ Fastest Growing FMCG Segment }

Sweet & Savoury Snacks Segment{ 3rd Fastest Growing Indian Packaged Food Segment }

2013 Market Size = ` 110.68 bn.

Western Snacks

` 69.44 bn.

Traditional Snacks

` 41.24 bn.

Chips / CrispsExtruded Snacks

Namkeens, Bhujia, Papad, Khakhra,Nuts, Sweets, etc.

Key Players :

Pepsico, ITC, Parle, Balaji Wafers,Prataap Snacks, DFM Foods, Venkataramana Food

Key Players :

Haldiram, Bikaji Foods, Bikanervala, Pepsico

Source :- Euromonitor International, IBEF, Exemplar Research

'Western Snacks' and 'Traditional Snacks' are the two broad categories under Branded Sweet & Savoury Snacks segment. Although, in volume terms, both the categories' contribution is almost equal ( 50.73 % v/s 49.27 % ), but, in value terms, Western Snacks dominate the space with 62.73 % share as at 2013.

Chips/Crisps & Extruded Snacks (like puffs, rings, etc.) form 'Western Snacks' category whereas Namkeens, Bhujia, Papad, Khakhra, Nuts, Sweets, etc. form 'Traditional Snacks' category.

Indian Branded Sweet & Savoury Snacks Segment

( Value Growth YoY ) 2013 2012 2011 2010 2009

Sweet & Savoury Snacks Segment 24.94 % 23.92 % 26.99 % 30.63 % 24.93 %

Western Snacks 25.75 % 25.15 % 27.42 % 32.79 % 22.99 %

Traditional Snacks 23.42 % 21.90 % 26.35 % 27.07 % 28.06 %

Chips / Crisps 23.37 % 23.06 % 29.14 % 33.62 % 29.63 %

Extruded Snacks Segment 28.69 % 27.83 % 25.29 % 31.78 % 15.71 %

Source :- Euromonitor International, Exemplar Research

48.11%51.89%

Volume

Chips / Crisps

Extruded Snacks

Western Snacks

50.73% 49.27%

Volume

Western Snacks

Traditional & Other Snacks

54.21%45.79%

Value

Chips / Crisps

Extruded Snacks

62.73%

37.27%

Value

Western Snacks

Traditional & Other Snacks

Only Twenty Seven organised players constitute 95 % of the total Indian Branded Sweet & Savoury

Snacks segment sales with Nine players dominating the space with 71 % of the marketshare.

Pepsico leads the race with 35.1 % marketshare (2013) with Haldiram ( all family fractions' geographies combined ) standing second at 23.5 % marketshare. Pepsico is a clear leader in 'Western Snacks' space whereas Haldiram dominates the 'Traditional Snacks' space.

Each of the two major players have seen their marketshare gradually decline because of the emergence of other strong players like ITC, Balaji Wafers, Prataap Snacks, Bikaji Foods and DFM Foods.

Key Players in Indian Sweet & Savoury Snacks Segment( Note These Players together control 95 % marketshare of the segment )

Large Players( by FY13 Annual Sales )

` 500 cr. +

Pepsico

Balaji Wafers

Haldiram

ITC

Mid-Size Players( by FY13 Annual Sales )

` 200 500 cr.

Parle Products

Prataap Snacks

Bikaji Foods

Bikanervala

DFM Foods

Small Players( by FY13 Annual Sales )

` 100 200 cr.

Parle Agro

Cavinkare

Venkataramana Food Specialities

Agrotech Foods

Apricot Foods

Micro Players( by FY13 Annual Sales )

` 1 100 cr.

Perfetti Van Melle

Samrat Namkeen

Jabson Food

Euro India Fresh Foods

Atop Food Products

Zee Foodex

Chheda Specialities

SKB Food Products

Advance Tech Energy Edibles

Melar Healthcare

Priniti Foods

Krushi Corporation

Grove Ltd.

Source :- Onground Research, Channel Checks, Company Reports, Rating Reports, Exemplar Research, Euromonitor International,

'Extruded Snacks' as a category stands out amongst all other categories of Branded Sweet & Savoury Snacks segment not only because of the highest volume growth registered by it over last 5 years ( 2008-2013 CAGR = 21.9 % ) but also because of its projected volume growth over 2013-2018 at a CAGR of 16.9 % which is highest amongst the segment.

( Growth YoY ) 2014 2015 2016 2017 2018

Volume Growth :

Chips / Crisps( Volume Growth )

11.64 % 10.82 % 9.19 % 8.22 % 7.96 %

Extruded Snacks( Volume Growth )

19.54 % 17.92 % 16.42 % 15.49 % 15.10 %

Value Growth :

Chips / Crisps( factoring-in normal price increase

based on price trend till 2013 )

20.78 % 19.38 % 17.21 % 15.90 % 15.10 %

Extruded Snacks Segment( factoring-in normal price increase

based on price trend till 2013 )

26.57 % 24.54 % 22.62 % 21.31 % 20.65 %

Source :- Euromonitor International, Exemplar Research

Six companies dominate Extruded Snacks category by controlling 82 % market as at 2013. They include Pepsico, ITC, Prataap Snacks, DFM Foods, Haldiram & Vekataramana Food Specialities.

Pepsico is the leader with its Kurkure & Cheetos brands controlling 52.7 % marketshare ( 2013 ) of the category ; ITC, with its brand Bingo occupies second slot ( 10.8 % marketshare ) while Prataap, with its brand Yellow Diamond ( 5.9 % marketshare ) and DFM Foods with its brand CRAX ( 5.6 % marketshare ) occupying third and fourth position respectively.

If we talk of specific brands, then, over last five years ( 2008-2013 ), CRAX ( DFM Foods ), Yellow Diamond ( Prataap Snacks ) and TakaTak ( Haldiram ) have gained significant marketshare at the expense of Peppy & Piknik ( Venkataramana Food ) and other smaller players.

Extruded Snacks Marketshare Trend of Key Brands

2013 2012 2011 2010 2009

Kurkure & Cheetos( Pepsico )

52.7 % 55.2 % 53.8 % 49.2 % 52.9 %

Bingo( ITC )

10.8 % 10 % 11 % 11.9 % 11.5 %

Yellow Diamond( Prataap )

5.9 % 4.7 % 4.6 % 4.9 % 4.8 %

CRAX( DFM )

5.6 % 5.3 % 5.1 % 4.1 % 3.9 %

TakaTak( Haldiram )

4.3 % 4.3 % 4.2 % 3.8 % 3.3 %

Peppy & Piknik( Venkataramana )

2.7 % 3,3 % 4.0 % 4.8 % 6.0 %

Key driver for robust growth of Extruded Snacks segment has been lower price points ( ` 5 & ` 10 ) which, coupled with innovative promotional activities, have made the segment extremely popular, especially amongst school going children.

Consumption pattern suggests that Brand Loyalty is absent in this segment ; however, brand preference exists to a certain extent. Product Loyalty is completely absent because of which companies need to continuously innovate to offer more flavours as also engage consumers in varied ways.

'Taste' & 'Price Point' are the key determinants of purchase decision of consumers in the segment. For products targeted at children, 'Gift' (bundled with each product packet) is the third most important determinant of the purchase decision.

Source :- Exemplar Research, Channel Checks, Company Reports, Rating Reports, Euromonitor International,

Kurkure 51.00%

Bingo 10.80%

Yellow Diamond 5.90%

CRAX 5.60%

Cheetos 1.70%

TakaTak 4.30%

Peppy 1.40%Piknik 1.30%

Others 18.00%

Extruded Snacks Key Brands Marketshare ( 2013 )

Kurkure Bingo Yellow Diamond CRAX CheetosTakaTak Peppy Piknik Others

Assessment of Competition :

Pepsico with its brands Lay's & Uncle Chipps in Chips/Crisps segment (Western Snacks) , Kurkure & Cheetos in Extruded Snacks segment (Western Snacks) & Lehar in Traditional Snacks segment is a clear leader in Indian Branded Sweet & Savoury Snacks segment. However, if we observe its overall marketshare of the segment over last 10 years, then, it seems to have lost considerable ground :

Pepsico Marketshare Trendin Indian Branded Sweet & Savoury Snacks Segment

2013 2012 2011 2010 2009 2008 2007 2006 2005 2004

35.1 % 36.5 % 36.7 % 37.4 % 39.3 % 40.1 % 41.1 % 46.5 % 45.7 % 44.3 %

Source :- Euromonitor International, Exemplar Research

In contrast, Haldiram as a group has more or less maintained its marketshare to become the second largest player of Indian Branded Sweet & Savoury Snacks segment :

Haldiram Marketshare Trend ( all family fractions' geographies combined )in Indian Branded Sweet & Savoury Snacks Segment

2013 2012 2011 2010 2009 2008 2007 2006 2005 2004

23.5 % 23.7 % 24.1 % 24.1 % 24.2 % 23.0 % 21.5 % 20.8 % 21.3 % 21.4 %

Source :- Euromonitor International, Exemplar Research

It is worthwhile to note here one important fact regarding Haldiram --- although for calculation of marketshare figures, 'Haldiram' as a brand is considered, but, the rights for 'Haldiram' brand are clearly demarcated amongst different family fractions with each family fraction's respective company/ies handling manufacturing, sales and distribution of 'Haldiram' brand of products for the respective geography :

Geography Family Fraction Respective Companies

North India Manohar & Madhusudan Agarwal Haldiram Snacks Pvt. Ltd.Haldiram Manufacturing Co. Pvt. Ltd.

West & South India Shiv Kishan Agarwal Haldiram Foods International Pvt. Ltd.Komal Foods Pvt. Ltd.

East India Prabhu Shankar Agarwal Haldiram Bhujiawala Ltd.

In this report, for assessing financial and segmental positioning of 'Haldiram', figures of all the above-mentioned five companies are taken as one single consolidated entity.

All the other players in the segment command a marketshare in single digits ; however, their relative growth over the years is noteworthy and exceptional which suggests :

an expanding overall marketsize,gradual shift towards organised from unorganised, &also explains the marketshare-loss suffered by the leader of the segment (Pepsico).

Key players that have gained significant marketshare over last ten years include ITC, Balaji Wafers, Prataap Snacks, DFM Foods, Bikaji Foods, Parle & Apricot Foods.

Let's now assess the financial profile of nine companies which together control 71 % marketshare of Indian Branded Sweet & Savoury Snacks segment. Here we will look at :

Actual Revenue & YoY Revenue Growth for each fiscal over FY10-FY13,

3 Years' CAGR in Sales (Revenue) achieved by each player, and

EBITDA & PAT Margins 4 Years' Average as well as of FY13.

Comapnies covered are :Pepsico,

Haldiram (all family fractions' gepgraphies combined),

Balaji Wafers,

ITC,

Bikaji Foods,

Bikanervala,

Prataap Snacks,

Apricot Foods,

DFM Foods.

FY13 FY12 FY11 FY10

Pepsico[ Snacks ]

YoY Growth

( Actual Revenue )

14.13 %

( 2546.81 cr. )23.94 %

( 2231.46 cr. )21.92 %

( 1800.33 cr. )

N.A.

( 1476.54 cr. )

Haldiram[ All Geographies Combined ]

YoY Growth

( Actual Revenue )

22.36 %

( 2936.48 cr. )29.29 %

( 2399.74 cr. )25.89 %

( 1856.01 cr. )25.88 %

( 1474.29 cr. )

Balaji Wafers

YoY Growth

( Actual Revenue )

28.19 %

( 913.58 cr. )31.36 %

( 712.67 cr. )40.18 %

( 542.53 cr. )

N.A.

( 387.01 cr. )

ITC

YoY Growth

( Actual Revenue )

N.A.

( 500 cr. )

N.A. N.A. N.A.

Bikaji Foods

YoY Growth

( Actual Revenue )

32.54 %

( 325.50 cr. )31.38 %

( 245.57 cr. )21.53 %

( 186.91 cr. )33.91 %

( 153.79 cr. )

Bikanervala

YoY Growth

( Actual Revenue )

25.23 %

( 350.25 cr. )24.93 %

( 279.68 cr. )3.13 %

( 223.86 cr. )

N.A.

( 217.05 cr. )

Prataap Snacks

YoY Growth

( Actual Revenue )

33.41 %

( 343.80 cr. )35.93 %

( 257.69 cr. )22.72 %

( 189.57 cr. )54.16 %

( 154.47 cr. )

Apricot Foods

YoY Growth

( Actual Revenue )

36.04 %

( 107.81 cr. )

N.A.

( 79.25 cr. )

N.A. N.A.

DFM Foods

YoY Growth

( Actual Revenue )

32.94 %

( 225.24 cr. )41.37 %

( 169.42 cr. )66.02 %

( 119.84 cr. )35.34 %

( 72.18 cr. )

3 Years' CAGR in Sales( 2010-2013 )

Sweet & Savoury Snacks

Segment

Pepsico Haldiram Balaji Wafers Bikaji Foods Bikanervala Prataap Snacks

DFM Foods

25.26 % 19.93 % 25.82 % 33.15 % 28.39 % 17.29 % 30.56 % 46.13 %

Source :- Company Reports, Rating Reports, Exemplar Research

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3 Years' CAGR

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

50.00%

25.26%

19.93%

25.82%

33.15%

28.39%

17.29%

30.56%

46.13%

Industry Pepsico Haldiram Balaji Bikaji Bikanervala Prataap DFM

4 Years' Average FY13

Pepsico[ Snacks ]

EBIT Margin

PAT Margin

4.52 %

N.A.

2.93 %

N.A.

Haldiram[ All Geographies Combined ]

EBIDTA Margin

PAT Margin

10.61 %

5.79 %

10.03 %

5.36 %

Balaji Wafers

EBITDA Margin

PAT Margin

18.55 %

12.07 %19.45 %

12.41 %

ITC

EBITDA Margin

PAT Margin

N.A.

N.A.

N.A.

N.A.

Bikaji Foods

EBITDA Margin

PAT Margin

7.39 %

3.71 %7.49 %

4.07 %

Bikanervala

EBITDA Margin

PAT Margin

8.33 %

4.02 %8.53 %

4.26 %

Prataap Snacks

EBITDA Margin

PAT Margin

8.83 %

4.63 %

7.99 %

3.72 %

Apricot Foods

EBITDA Margin

PAT Margin

9.51 % *

5.13 % *

8.95 %

4.90 %

DFM Foods

EBITDA Margin

PAT Margin

11.94 %

5.42 %

10.58 %

2.80 %

* 2 Years' Average

Source :- Company Reports, Rating Reports, Exemplar Research

Key things to note from above :

Haldiram's revenue figures optically seem higher than Pepsico because, they include sales from other sources like Dairy items, Milk, Ghee, Syrups, Squashes, Dry-Fruits as well as Restaurant sales which are not part of 'Sweet & Savoury Snacks' sales. To cite here an example, given below is the segmentwise sales breakup of Haldiram for FY13 :

Haldiram Segmentwise Sales Breakup( FY13 )

Segment FY13 Revenue

Savoury Snacks ` 1879 cr.

Sweets ` 602 cr.

Others ` 455 cr.

Total ` 2936 cr.

Source :- Approximate Breakup Data derived from Company Reports, Rating Reports

If we go further down into the breakup of 'Savoury Snacks' segment sales, then, Haldiram's dominance in 'Traditional Snacks' segment becomes evident :

Pepsico Haldiram Balaji Wafers Bikaji Bikanervala Prataap Apricot DFM Foods

0.00%1.00%2.00%3.00%4.00%5.00%6.00%7.00%8.00%9.00%

10.00%11.00%12.00%13.00%14.00%15.00%16.00%17.00%18.00%19.00%20.00%

2.93%

10.03%

19.45%

7.49%8.53%

7.99%8.95%

10.58%

5.36%

12.41%

4.07% 4.26% 3.72%

4.90%

2.80%

FY13 EBITDA Margin FY13 PAT Margin

Haldiram Savoury Snacks Sales Breakup( FY13 )

Sub-Segment FY13 Revenue

Western Snacks ` 191 cr.

Traditional Snacks ` 1688 cr.

Total ` 1879 cr.

Source :- Approximate Breakup Data derived from Company Reports, Rating Reports

This is in sharp contrast to Pepsico which derives majority of its sales from 'Western Snacks' segment.

Similarly, Bikaji & Bikanervala revenue figures also include sales from other sources, albeit to a smaller extent ; a segmentwise breakup of Bikaji's FY13 revenue is provided below for reference :

Bikaji Segmentwise Sales Breakup( FY13 )

Segment FY13 Revenue

Savoury Snacks ` 280 cr.

Sweets ` 33 cr.

Others ` 12.50 cr.

Total ` 325.50 cr.

Source :- Approximate Breakup Data derived from Company Reports, Rating Reports

Balaji Wafers has emerged as the strongest player over last 5 years by growing aggressively and eating into Pepsico & ITC's marketshares. Balaji atpresent commands 8.3 % marketshare in the segment and has a very sound financial profile which could enable it to continue to outperform peers in future too. Balaji operates at highest EBITDA & PAT margins amongst the peers.

Prataap Snacks with its 'Yellow Diamond' brand and DFM Foods with its 'CRAX' brand have also made a dent in Pepsico's marketshare by growing ahead of it over last five years. Prataap commands 3.1 % marketshare while DFM commands 2.03 % marketshare as at 2013.

DFM Foods has registered highest 3 Years' CAGR in Sales over FY10-FY13. It has outperformed all the peers quite handsomely.

EBITDA margins of DFM are at par with Haldiram & just second best to Balaji Wafers which is a very satisfying thing. Its important to note here that Haldiram's major sales come from Namkeens & Sweets ( 78 % as at FY13 ) and Chips & Extruded Snacks forms only a small portion of its sales ( 6.5 % of FY13 Sales ). Similarly, Balaji Wafers' major Sales contributors are Chips (Wafers) & Namkeens. Its only Pepsico & Prataap which have major contributions coming from Extruded Snacks.

DFM Foods' Scale of Operation (FY13) is smallest amongst all the companies mentioned (except Apricot Foods) with Pepsico & Haldiram at 2500+ cr. and Balaji at 913 cr. with ITC, Bikaji, Bikanervala and Prataap at 500 cr., 325.5 cr., 350.2 cr., and 343.8 cr. respectively.

Out of these nine companies, Prataap has got Sequoia backing (51 % stake), Bikaji recently got Lighthouse PE backing (12.5 % stake), DFM got Westbridge backing (24.90 % stake) and Balaji is in final talks with Capital International PE (15 % stake). Pepsico and ITC are capable conglomerate while Haldiram has each family fraction catering to respective region. Its only Bikanervala which is the weakest amongst the lot that is looking for a funding partner since last many years but has not got anyone yet.

Since four out of nine companies have got ( or about to get ) PE investors, its worthwhile to note here the valuations at which each respective PE-investment deal was stuck :

EV/Sales TTM EV/EBITDA TTM PE Deal Happened in Year

Prataap Snacks 1.05 15.47 2011

Bikaji Foods 2.27 30.29 2014

DFM Foods 1.41 13.32 2014

Balaji Wafers 4.37 22.50 Most Likely in 2014

Source :- Company Reports, Rating Reports, VCCircle Data, Company News, Media Articles, Exemplar Research

Assessing Competition specific to DFM Foods :

CRAX Brand Key Marketshare Figures

Sweet & SavourySnacks Segment

Western Snacks Segment

Extruded Snacks Segment

Corn-based Extruded Snacks Segment

CRAX MarketShare( 2013 )

2.03 % 2.79 % 5.61 % 9.19 %

Source :- Exemplar Research, Channel Checks, Euromonitor International, Company Reports

Since the company of our concern is DFM Foods, let's evaluate competitive scenario with that regards.

DFM Foods over last many years sustained and outpaced competition by adopting a sound strategy of targeting a specific age group and concentrating on marketing & distribution strategies circling around only that age group. Entire competition's products were targeted to all age groups ( with majorly being adults above 15 years of age ) while DFM targeted children with age group 6-12 years.

DFM was the first company to include 'Free Gift' with every CRAX Corn Rings pack of ` 5 and this isolation ( i.e., catering to only specific audience ) strategy enabled it to distinguish itself from competition as also sustain and grow amidst strong financial power of Pepsico & ITC.

Since last year or so ( 2013 ), competition has become intense with Pepsico introducing similar ( to CRAX ) product 'Corn Cups' targeted at children and Yellow Diamond ( Prataap Snacks ) introducing 'YD Rings' a replica of CRAX Corn Rings.

If we talk specifically for CRAX Corn Rings ( which contributes 84 % + to DFM's FY13 revenues ), then, Pepsico's 'Corn Cups' price point is higher while other players like ITC and Balaji cater to general audience rather than specific age group whereas Haldiram has a more diverse offering which is not in strict competition. Hence, the player which could threaten the market position of CRAX in real sense is Prataap Snacks and as per our analysis, it is this player which DFM will find it hard to compete with.

Prataap Snacks is taking on DFM Foods in-and-out by striking on every corner. It has introduced almost identical shaped product which is a replica of Crax Corn Rings and has offered it in almost every flavour in which CRAX is available ( except Pudina & Chatpata ).

In addition to offering similar product with similar flavours, what Prataap has done is it has targeted the same age group with same strategy of including 'Free Gift' with every pack. Prataap, in recent past, got associated with one of the most popular children tv show 'Chhota Bheem' and has introduced free gifts revolved around the main character of the show in its every YD Rings pack. In continuation with the same strategy, only recently, in April'2014, it got associated with Mr. Amitabh Bachchan starrer 'Bhootnath Returns' a supernatural comedy movie and launched YD Rings promos with the trailer of the movie.

On distribution front, DFM & Prataap are almost neck-to-neck if we consider regionwise-spread, but, if we go into detail and talk specific, then distribution reach of Prataap is almost double that of DFM ( Prataap reaching ~ 5 lakh retail outlets v/s DFM's reach of ~ 2.15 lakh outlets ). However, each company has its strength and weaknesses in each region, with DFM far stronger in North India while Prataap a clear leader in West India. Visibility and availability of Prataap's Yellow Diamond is far better in West India ( relative to CRAX ) while in North India, DFM's CRAX is slightly ahead than Prataap.

What Prataap has done is, in whichever areas it is present, it has covered as many retail outlets as possible which gives it great visibility ( only second to Lay's & Kurkure ) in respective areas. In contrast, DFM has focussed on covering more areas which gives it relatively low visibility relative to Prataap, especially in Western India.

To give a brief background of Prataap Snacks, it is a company backed by PE player Sequoia Capital which invested in it in 2011 and has so far invested ~ ` 180 cr. in the company. As per sources, it holds ~51 % equity stake in the entity as at FY13. It is worthwhile to note here the growth attained by Prataap over last seven years :

( fig. In ` cr. ) FY13 FY12 FY11 FY10 FY09 FY08 FY07

Prataap 343.80 257.69 189.57 154.47 100.20 66.60 35.50

DFM Foods 225.24 169.42 119.84 72.18 53.33 31.66 23.88

Sequoia invested in the company in May'2011

Three things to note here is that :

first, DFM started focussing aggressively on its Snack Food segment only from FY09,

second, Prataap aggressively introduced Rings in the market only from FY13 as previously its main focus was competing with Lay's, Kurkure & Cheetos ( by introducing YD Chips, Chulbule & Puffs ),

third, as at FY13, Extruded Snacks segment contributes ` 199 cr. to Prataap's Revenues as against ` 194 cr. to DFM's Revenues.

Conclusion :

Opportunity is huge ahead of every serious player in Indian Branded Sweet & Savoury Snacks segment because of the fact that Indians are natural snacks' consumers, and entire 124 crore Indian public is served by only Twenty Seven major branded savoury snacks players atpresent. Rural markets are still unpenetrated and lower price points ( ` 2, ` 5 & ` 10 ) prevalent in the segment could drive aggressive sales in rural India.

Sweet & Savoury Snacks Food Industry in itself is likely to grow handsomely at a CAGR of 19.4 % over 2013-2018 with its sub-segments like Extruded Snacks likely to outperform industry growth rate by growing at a CAGR of 23.1 % over 2013-2018.

Shift towards organised from unorganised segment is projected to continue, albeit at a gradual pace.

These factors combined, offers immense opportunity for each of the organised player in the segment to grow aggressively as they have done in the past. However, competition is likely to intensify going forward as more of the organised business groups enter into this space ( recent entry of Tobacco major Gopal Corporation is a case in point ) to grab their share of opportunity as also existing players make a dent in peers' stronghold by offering similar products with superior distribution and marketing reach.

If we look at last four years, then DFM Foods has outperformed almost all its peers, including Prataap Snacks as far as revenue growth is concerned.

DFM Foods is unlikely to face strong threat in the medium term as far revenue growth is concerned, provided it can expand manufacturing capacities intime. However, EBITDA margins could remain under pressure until a new product success is met on the lines of CRAX Corn Rings. This is because, all the efforts towards any sort of significant improvement in EBITDA margins will be met by cut-throat competition, especially from Prataap Snacks ( YD Rings ) which will put-in its every effort to fully utilise its Rings manufacturing plant which commenced operations in 2013.

DFM Foods definitely has a first mover advantage in the space and has a strong brand credibility amongst its target audience ( majorly in North India ). However, to counter Prataap's aggressive low margin model, DFM will need to innovate more on the product front and fill the many gaps prevalent in its distribution network as also design a wise consumer-pulling marketing strategy.

With a good PE player like Westbridge entering into DFM Foods by acquiring 24.90 % equity stake in it and promising an active involvement into formulating company's growth strategies by taking a board seat, DFM might be able to identify gaps more proactively and fill them with ease.

Disclaimer :

This Research Note should only be taken as a direction for further research and should, in no way, be construed as an advice to Buy/Sell concerned Company. While preparing this note, we have used all publicly available information as also information from other sources which are thought of as most reliable. However, although we have tried to be as genuine and as accurate as possible in publishing the data(s), still, reader of this note is advised to cross-check the information and we should not in any way be held liable for any incorrect information. Its safe to assume that we have the concerned company as part of our portfolio and so the views expressed in this note should be seen in that backdrop. The reader assumes the entire risk of any use made of this note and we should, in no way, be held liable for any loss arising out of the contents or action taken by the reader because of this note. This Research Note should not be interpreted as a recommendation of any kind but is only for the information purpose.