India's Food Processing Industry

Sectoral Risk Outlook Food Processing
October 2012
Dun & Bradstreet Information Services India Private Limited.
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Sectoral Risk Outlook
TABLE OF CONTENTS
EXPLANATION OF RISK SCORE ............................................ 3 EXECUTIVE SUMMARY .................................................... 4 PRODUCT PROFILE ...................................................... 5 MACRO ECONOMIC ANALYSIS .............................................. 6 Macro Economic Growth ...................................................................................................... 6 Quarterly Performance .......................................................................................................... 8 Interest Rate Risk ................................................................................................................ 10 Debt-equity Ratio ................................................................................................................. 12 Interest Coverage Ratio ...................................................................................................... 12 Foreign Exchange Fluctuations ......................................................................................... 14 GOVERNMENTGOVERNMENT REGULATIONS .................................... 15 DEMAND SUPPLY DYNAMICS .............................................. 17 Historical Growth................................................................................................................. 17 Growth Drivers..................................................................................................................... 18 Export Import Scenario ....................................................................................................... 20 Projections ........................................................................................................................... 24 COMPETITIVE SCENARIO ................................................ 25 Nature of Industry................................................................................................................ 25 FINANCIAL RISK ...................................................... 26 Profitability........................................................................................................................... 26 Key Ratios ............................................................................................................................ 27
EXPLANATION OF RISK SCORE

Industry Risk Score reflects the effect that the various factors have on the business prospects and operating environment of the industry over the next 12 months. The risk score arrived at is an aggregate of the individual scores assigned to the relevant industry parameters identified. The selected parameters are Government regulations, demand supply dynamics, competitive scenario, macro-economic variables, resource risk and profitability and cost structure. The scores given to individual parameters reflect the extent of positive/ negative impact on the business operating environment. The industry risk scores have been graded on an 8 point scale with 1 indicating low risk and 8 indicating high risk.
Industry Risk Score - 4

Favorable Factors (+) Change in consumption pattern favoring processed foods, increase in distribution reach and innovative marketing strategies Favorable Government initiatives like National Mission on Food Processing and Vision 2015 D&Bs assessment of the industry risk score is based on assessment of the sector specific risk factors and a sectors relative standing amongst other sectors within D&Bs portfolio of industries. Unfavorable Factors (-) Lack of adequate supply chain infrastructure like warehouses and cold storage has resulted in high degree of product wastage.
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EXECUTIVE SUMMARY
Food processing sector accounts for ~32% of total food market in the country. Food processing sector contributes to ~6% of the countrys GDP, ~13% of total exports and ~6% of total industrial investments. The sector employs close to 13 million people directly and 35 million people indirectly. Favorable Government policies like National Mission on Food Processing, Vision 2015, setting up of Mega Food Parks, various incentives to set up 100% export orient units and tax emeption extended to these export oriented units have helped the development of food processing sector. Food processing sector in the country is estimated to be worth ~INR 3277.6 Bn. The sector grew by a CAGR of ~8.8% during the period FY 2008-12. Change in consumption pattern because of the change in population mix and increase in disposable income, increase in rural demand due to better distribution reach and innovative marketing strategies and supportive Government policies have helped in the growth of the sector. Approximately ~INR 11.5 Bn worth of new investments were announced in the food and beverage segment during the first half of FY 2013. With this, the total investments outstanding in the sector reached ~INR 670 Bn. Food processing sector is highly fragmented with a large number of players being concentrated in the unorganized segment. Organised market accounts for ~25% of and SSI sector accounts for ~33% of the market. Food processing sector in the country is expected to grow by a CAGR of ~7.4% during the period FY 2012-15 to reach ~INR 4,063.5 Bn. BY FY 2015, the contribution of the sector to the overall GDP is expected to reach ~6.5%.
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PRODUCT PROFILE
Food processing involves transformation of raw food ingredients into food or various forms of food. It includes any type of value addition to agricultural / horticultural / animal products so as to increase the shelf life of the product. Food processing sector accounts for ~32% of total food market in the country.Food processing sector contributes to ~6% of the countrys GDP, ~13% of total exports and ~6% of total industrial investments. The sector employs close to 13 million people directly and 35 million people indirectly. As per the NIC (National Industrial Classification), food processing sector broadly covers Production. Processing and Preservation of Meat, Fish, Fruits, Vegetables, Oils and Fats Manufacturing of Dairy Products Manufacture of Grain Mill Products, Starches and Starch products and prepared animal feeds. Manufacture of Beverages.
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MACRO ECONOMIC ANALYSIS

Macro Economic Growth
Indias GDP has grown at a CAGR of ~7.86% over the period FY 2007-12 while Index of Industrial Production (IIP) grew at a CAGR of ~6.5% during the same period.
Macro Economic Indicator
15.5%
9.5%
12.9%
9.3% 6.7%
8.4%
8.4%
6.5%
8.23%
6.5%
5.28% 2.5% FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 3.2% FY 2012
5%
FY 2013E
GDP Growth Rate
IIP Growth Rate
Source:CSO; D&B Estimates
Interest rate hike, high inflation, higher fiscal deficit and the influence of external macro factors resulted in sharp decline in GDP to 6.48% in FY 2012 from the level of 8% plus GDP growth witnessed in previous two fiscal.
The countrys IIP growth figure also reflected a steep fall of over 5 percentage point to 3.2 % in FY 2012 as compared 8.23% registered during the previous fiscal.
As seen in below chart, the services sector has registered the maximum growth over the period FY 2007-12 followed by the industrial sector, while growth in the agriculture lags far behind.
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GDP (Factor Cost, Constant 2004-05 Prices) by Economic Activity

Agriculture (INR Bn)
7,287
7,091 10,212 6,551
Industry (INR Bn)

11,200 11,697 12,679
13,587
14,047
6,557
6,625
6,192
FY 2007
FY 2008
FY 2009
FY 2010
FY 2011
FY 2012
FY 2007
FY 2008
FY 2009
FY 2010
FY 2011
FY 2012
Services (INR Bn)

23,333 25,772 28,181 30,692
CAGR (FY 2007-12)

9.79% 6.58% 3.31%
19,240
21,216
FY 2007
FY 2008
FY 2009
FY 2010
FY 2011
FY 2012
Agriculture
Industry
Services
Source: Business Beacon
In FY 2012, services sectors contribution towards GDP stood at 59%, followed by industry (27%) and agriculture (14%). Also, the share of services in the GDP of our country is observed to be increasing, while that of agriculture is seen declining over the period FY 2007-12.
Contribution towards GDP by Key Economic Activity
54.0% 54.4%
56.1%
28.7%
28.7%
28.1%
28.1%
27.8%
17.4%
16.8%
15.8%
14.7%
14.5%
Agriculture
FY 2007 FY 2008
14.0%
Industry
FY 2009 FY 2010
27.0%
Services
FY 2011 FY 2012
Source: Business Beacon; D&B Research
The annual growth rate of services sector, industry and agriculture sector declined to 8.91%, 3.38% and 2.76% in FY 2012 as compared 9.35%, 7.16% and 7.03% respectively, registered in previous fiscal.
57.2%
57.7%
59.0%
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Quarterly Performance
As seen in below graphs, the overall economic activity witnessed a declining trend in all 4 quarters of FY2012 when compared with quarterly growth of FY 2011. Only exception to this trend was the 4% growth registered in agriculture sector in Q1 FY 2012 as against 3% growth registered in Q1 FY 2011.
In Q1 FY 2013, Indias Quarterly GDP growth grew by just 5.5% as compared to 8% GDP growth in the same quarter in previous fiscal. However, the GDP growth was marginally higher against the 5.3% in preceding quarter (Q4 FY 2012). Growth in the entire segment declined in Q1 FY 2013 from the year ago level.
In Q1 FY 2013, the GDP growth of agriculture, industry and services slowed down from 3.7%, 5.6% and 10% to 2.9%, 3.6% and 7%, respectively. In sequential preceding quarter, the GDP of agriculture, industry and services grew by 1.7%, 1.9% and 8%. Thus, growth in services sector slowed to 7% in Q1 FY 2013 from 8% in Q4 FY 2012 whereas GDP of agriculture and industry reported a higher growth in Q1 FY 2013 on sequential q-o-q basis.
Yearly Q-o-Q change in Sectoral GDP Compositon (%)

12.0% 10.0% 8.0% 6.0%
4.0%
2.0%
0.0%
Q1:FY 2011 Q2:FY 2011 Q3:FY 2011 Q4:FY 2011 Q1:FY 2012 Q2:FY 2012 Q3:FY 2012 Q4:FY 2012 Q1: FY 2013
GDP Growth
Agricuture
Industry Service
Services
Sources: Business Beacon
In Q1 FY2013, the Index of Industrial Production (IIP) reported a negative growth of 0.2% on y-o-y basis and of 6.7% decline as compared to preceding quarter i.e Q4 FY 2012
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12.0% 10.0% 8.0%

9.6%
Yearly Q-o-Q Growth Trend (%)

8.5% 7.6% 8.2%
8.6% 6.8% 7.9% 7.0%
9.2% 8.0% 6.7% 6.1% 5.3% 5.5%
6.0% 4.0% 2.0%
3.2%
1.2%
0.4%
-0.2%
0.0% -2.0%
Q1: FY 2011 Q2: FY 2011 Q3: FY 2011 Q4: FY 2011 Q1: FY 2012 Q2: FY 2012 Q3: FY 2012 Q4: FY 2012 Q1: FY 2013
GDP Growth
IIP Growth
Sources: Business Beacon
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Interest Rate Risk

International Interest Rate Movement
1.20% 1.00% 0.80% 0.60% 0.40% 0.20% 0.00%
Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12
Domestic Interest Rate Movement

5% 15% 4% 12% 3% 2% 10% 9%
9%
6% 3% 0%
Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12
8%
7% 6% 5% 4%
1%
0%
3M-LIBOR(LHS)
10-Yr US T-Bond (RHS)
3M-MIBOR(LHS)
10-Yr GOI Security Yield (RHS)
Source: RBI, US Treasury, D&B Research
Domestic interest rates have started firming up in 2010 amid prospects of economic revival after facing sharp decline in the previous one and half years.3M MIBOR has reflected an increasing trend since November 2009. During FY 2012, 3M Mumbai Inter Bank Offer Rate (MIBOR) remained in the range of 9.06%-11.06% which reflects expensive credit availability to corporates which have either delayed or stalled the capacity expansion activities and have pulled down the overall economic growth. In the midst of bleak economic outlook on domestic economy, investor have becomes risk averse. This is well captured by the increasing yield on 10 Yrs G-Sec since April 2009. During FY 2012, it remained in the range of 8.10-8.88%. The prevailing uncertainty in the global economic environment like crises in the euro zone, sustained weakness of the US economy, elevated commodity prices etc. have adversely impacted consumer confidence across the globe and have the potential to substantially lower the consumption demand, resulting in a slowdown. As a result, the industry players have been demanding the interest rate cut to revive the domestic economy which has been witnessing a decline in GDP growth in last four consecutive quarters of FY 2012 on y-o-y basis. To curb burgeoning inflation, RBI adopted the monetary policy tightening since February 2010. RBI kept on increasing the repo and reverse repo rate which saw last hike of 25 basis points each on 25th October 2011 to
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reach 8.5% and 7.5% respectively. On April 17th 2012, RBI slashed the repo rate (rate at which RBI lend money to commercial banks) and reverse repo by 50 basis point for the first time in three years even though the inflation rate remain elevated in order to boost sluggish economic growth. In a measure to contain the inflation RBI in its Monetary Policy Review in September 2012, kept both repo and reverse repo rate unchanged against expectation of the industry experts who were expecting a rate cut as a measure to prevent the decelerating economic growth.
Index (2004-05) = 100 170.0 165.0 160.0 155.0 150.0 145.0 140.0 135.0 130.0 125.0 120.0
Movement: Inflation, CRR & Repo Rate
17th April 2012; Repo Rate cut by 50 Basis point
16th September 2012; CRR rate cut to 4.5%
10.0% 9.5% 9.0% 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 4.0%
Aug-09
Aug-10
Aug-11
WPI (LHS)
CRR (RHS)
Repo Rate
Source: Office of the Economic Advisor; RBI
Also, the CRR which kept increasing in phases from 5% to 6%, during February to April 2010 and remained at same level thereafter was slashed by 50 basis point on Jan 24, 2012, further by 75 basis point on 9 March 2012 and 25 basis point on 16
th th
September 2012 inorder to
infuse the primary liquidity in banking system and supports the GDP growth. The CRR currently stands at 4.5%.
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Aug-12
Jun-09
Apr-10
Oct-09
Oct-10
Oct-11
Feb-12
Jun-10
Jun-11
Apr-09
Apr-11
Dec-09
Dec-10
Dec-11
Apr-12
Feb-10
Feb-11
Jun-12
Debt-equity Ratio
Debt-equity ratio fluctuated between the range of 0.70 1.00 during the five years FY 2008-12. All the large companies in the segment Britannia Industries, Ruchi Soya, KS Oils increased their debt over the period FY 2008-12. Increase in debt component was the primary reason for the growth in debt-equity ratio.
Debt-Equity Ratio
1.50
1.00 0.67 0.73
0.88 0.70
1.00
0.50
0.00
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012
Source: CMIE Prowess, Sample 18 companies
Interest Coverage Ratio

Interest Coverage Ratio
15.00
10.00
9.28
8.71
9.66
6.97
5.00 6.00
0.00
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012
Source: CMIE Prowess, Sample 18 companies
Interest coverage ratio fluctuated between the period FY 2008-12. The ratio moved within the range of 6.00-9.28. The steep decline
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during the period FY 2010-11 was due to the 48% increase in debt of Ruchi Soya, which accounts for ~48% of total debt of companies considered in the sample size. Increase in debt by Ruchi Soya in FY 2011 was to augument its working capital needs.
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Foreign Exchange Fluctuations

Being a net exporter of processed food products, depreciation in rupee helps food processing exports increase their export revenue. During the major part of fiscal 2012, rupee was depreciating against dollar which helped in increasing the export earnings
Exchange Rate (INR per USD)
YTD FY'13 INR Depreciating
Inverse Scale 43.5 45.5
47.5
49.5 51.5 53.5 FY'11 INR Appreciating FY'12 INR Depreciating
55.5
57.5
01/Dec/10 01/Aug/10 01/Aug/11 01/Oct/10 01/Feb/11 01/Oct/11 01/Apr/10 01/Apr/11 01/Jun/10 01/Jun/11
~INR Touched Lowest against USD at 57.26 on 29th June, 2012
01/Dec/11
Source: Ministry of Finance, Government of India
Although the rupee has strengthened in August 2012, compared to low level that was prevailing during the first quarter of FY 13 it is still relatively lower than the rate that was prevailing during the FY 2010 and first two quarters of FY 2011.
Thus the exporters of food processing companies, still continues to enjoy the advantage of a weak currency.
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01/Aug/12
01/Feb/12
01/Apr/12
01/Jun/12
GOVERNMENTGOVERNMENT REGULATIONS
Government has permitted up to 100% FDI under automatic route in food infrastructure like food parks, cold chain and warehousing. Up to 100% FDI under automatic route is allowed in processing of agri products, milk and milk products and marine and meat products. Automatic Government approval is also provided for projects which involve technology transfer to the local partner. Various incentives are provided for companies to set up 100% Export Oriented Units. These units can retain up to 50% of the foreign exchange earnings in foreign currency accounts. Import duty on capital goods and raw materials for 100% EOUs are waived. In the case of new agro processing industries, 100% tax exemption is provided for the first 5 years, thereafter 25% exemption for the next 5 years. Between April 2000 and June 2012, FDI worth ~USD 1,456.2 million were made in the food processing sector. National Mission on Food Processing (NMFP) One of the main objectives of NMFP is the decentralization in the implementation of schemes in the sector, leading to greater involvement of State Government / Union territories. Approved by the cabinet committee in August 2012, NMFP is expected to be implemented along with State Government
cooperation from the current fiscal. Vision 2015 Ministry of food processing has come up with a vision document Vision 2015 to promote the growth of food processing sector in the country. By the end of plan period, the vision document aims to Treble the size of domestic food processing industry Raising the level of processing of perishable items from current level of 6% to 20% of total produce. Increasing the value addition in the sector from the current level of 20% to 35%.
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Enhancing Indias share in global food trade from 1.5% to 3.0%.
Mega Food Parks Government is expected to set up 30 food parks across the country to attract FDI. Till date, the Government has released ~USD 23 Mn to implement the Food Parks scheme. As per the data available with the ministry the Government has approved financial assistance for 56 food parks.
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DEMAND SUPPLY DYNAMICS Historical Growth

Food processing sector in the country is estimated to be worth ~INR 3,277.6 Bn. The sector grew by a CAGR of ~8.8% during the period FY 2008-12. This growth have been fuelled by increase in consumption from both rural and urban segment, increasing share of processed food in total food intake and improvement in distribution network which ensured better accessibility to consumers.
Indian Food Processing Sector (INR Bn)

3078.2
2704.6 2338.0 3277.6
2495.2
FY 2008
FY 2009
FY 2010
FY 2011
FY 2012
Source: Ministry of Food Processing
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Growth Drivers
Consumption habits prevalent in the country are witnessing a shift as a result of change in population mix and increase in disposable income. A youth centric population tends to prefer value added processed food over unprocessed food due to increased product and health awareness. Increase in disposable income on this population mix because of better access to jobs has helped in increasing the affordability of processed foods. The growth in consumption of dairy products like cheese, meat products like sausages and bakery products like biscuits and breads is a testimony to this trend. To cater to the low income consumers, major food processing companies introduced lower priced small sized packs. This helped increase the affordability, particularly among rural consumers where the affordability is relatively low. This strategic initiative by the players in the segment fueled the growth of the sector. Current generation of consumers have a better access to processed foods when compared with the previous generations due to better distribution reach. In urban areas, the spread of organized retail format stores have helped in increasing the distribution. In rural areas, realizing the increasing income levels, companies have increased their investments in setting up large distribution networks, thereby assuring better accessibility to processed foods in rural areas. Various tax incentives and policy initiatives taken by the Government to increase its share in global food trade have encouraged entrepreneurs to set up food processing units. Combined with the increasing demand for processed foods from both developing market, the number of export oriented food processing units have gone up. Improvement in food products procurement due to spread of practices like contract farming and special initiatives ensuring better price for farmers (by eliminating middle men in procurement) have in turn reduced the wastage of food products available for processing.
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These initiatives have helped in increasing the supply of processed foods.
Factors affecting the growth of the sector

Inspite of the increased presence of private players and dedicated efforts of Government, the country lacks the necessary supply chain infrastructure required to streamline the processes starting from product procurement to sales of processed food. The supply chain components in the sector include procurement mechanism, warehouses for storage, cold storage chains to preserve perishable goods and transportation to processing centers. As per the planning commission, approximately 35% of total food products produced in the country is wasted annually due to the
underdeveloped supply chain infrastructure.
Crop wise wastage accumulated in the country Crop Wastage as a percentage of total produce 3.9 6.0% 4.3 6.1% 5.8 18.0% 6.0% 0.8% 2.9% 2.3% 3.7%
Cereals Puses Fruits & Vegetables Oil Seeds Milk Fisheries Meat Poultry
Source: Study by Central Institute of Post-Harvest Engineering and Technology
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Export Import Scenario

India is a net exporter of processed food products. During the 11 months of FY 2012, the country exported ~INR 730 Bn worth of processed food as against ~INR 493 Bn worth of imports. During the period FY 2007-11, exports increased by a CAGR of ~18.1% to reach ~INR 475.6 Bn, while imports increased by a CAGR of ~20% to reach ~INR 384.4 Bn.
Import-Export
730.1
475.6 365.7 244.4
400.3
354.8 380.8 384.4
493.7
185.7
168.7
205.2
FY 2007
FY 2008
FY 2009
Imports
FY 2010
Exports
FY 2011
11M FY 2012
Source: India Trade
Indonesia is the largest exporter of processed food into India and accounts for ~47.6% of the total annual import bill. Major imports from Indonesia include Coffee and tea, Oil seeds and vegetable fats and oils.
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Origin of Imports to India
Rest of the World 17.8% Brazil 7.0% Ukraine 7.1% Malaysia 9.7% Argentina 10.8%
Indonesia 47.6%
Source: India Trade
Exports from India are fragmented, with no country accounting for more than ~10% of total exports. UAE followed by Saudi Arabia are the two largest importers of processed foods from India.
Export Destinations
UAE 10.1%
Saudi Arabia 8.0% USA 5.9% Iran 5.5%
Rest of the World 65.7%
Malaysia 4.9%
Source: India Trade
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Capital Expenditure
Approximately ~INR 11.5 Bn worth of new investments was announced in the food and beverage segment during the first half of FY 2013. With this, the total investments outstanding in the sector reached ~INR 670 Bn. Fifty three new investment projects were announced during H1 FY 2013, taking the total number of projects outstanding to 438.
Food & Beverage -Capital Expenditure (INR Bn)

250 200 150 433.4 800 700 568.6 490.0 567.9 654.3
669.9
600
500 400
100
134.62
300 200
135.98
235.16
116.95
121.18
11.50
50 0
100 0
FY 2008
FY 2009
FY 2010
FY 2011
FY 2012
H1 FY 2013
New Investments (LHS)
Outstanding Investment (RHS)
Source: CMIE Capex
Few of the projects announced in the segment COMPANY PROJECT Orissa Food Processing Unit Project INVESTMENT (~INR MN) 5,000
Nestle India Ltd.
Gujarat Corpn. Ltd.
Agro
Inds.
Patan Integrated Agro Food Park Project Dhulagarh Snacks Plant Expansion Project Harohalli Manufacturing Project Noodles Unit
4,000
Pepsico India Holdings Pvt. Ltd. Indo Nissin Foods Ltd.
2,000
1,600
I T C Ltd.
Barasat Noodles Plant
1,500
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Expansion Project Raja Udyog Pvt. Ltd. Maner Project Anmol Biscuits Ltd. Khurda Project
Source: CMIE Capex
Biscuit
Plant
1,000
Biscuit
Plant
810
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Projections
Food processing sector in the country is expected to grow by a CAGR of ~7.4% during the period FY 2012-15 to reach ~INR 4063.5 Bn. BY FY 2015, the contribution of the sector to the overall GDP is expected to reach ~6.5%.
Indian Food Processing Sector - Forecast (INR Bn)

4063.5 3277.6 3498.5 3748.2
FY 2012
FY 2013
FY 2014
FY 2015
Source: Industry Sources, D&B Research
Supportive Government policies like National Mission on Food Processing (NMFP) and Vision Plan 2015 will help the growth in the sector.
NMFP which is aimed at decentralizing policy decisions concerning the sector will help in reducing the time taken to execute projects conceived in the sector.
Vision Plan 2015 is expected to provide a conductive environment required to set up food processing units.
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COMPETITIVE SCENARIO Nature of Industry

Food processing sector is highly fragmented with a large number of players being concentrated in the unorganized segment. Organised market accounts for ~25% and SSI sector accounts for ~33% of the market.
Market Structure - Food Processing Industry
Organised 25%
Unorganised 42%
SSIs 33%
Source: Ministry of Food Processing Industries
Dominance of SSIs in the segment was in part because of the protectionist policy adopted by the Government. Few segments of food processing sectors like bread, bakery and confectionary were reserved for small scale sector till 1991 (from 1977 onwards). This policy gave an impetus to the growth of SSIs. Although the sector was de licensed in 1991, manufacturing of few products like Bread, Pickles & Chutneys still remained in the list of products reserved for manufacturing in the SSI sector. Major Food Processing Companies in the Country
MNCs
Indian Companies
Nestle,
Pepsi,
Kelloggs,
Conagro,
ITC, Dabur, Britannia, Parle, Amul, Venkys, Haldiram,
Perfetti, Heinz, Nissin
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FINANCIAL RISK Profitability

Raw Materials % 56.2% 52.5% 48.4% 51.2% 48.7% Power & Fuel % 2.0% 2.0% 1.9% 1.9% 1.8% Salaries & Wages % 3.2% 3.1% 3.2% 3.1% 2.8% SGA Expenses % 7.6% 7.5% 7.9% 7.7% 7.0% Interest Expense % 1.1% 1.2% 1.1% 1.5% 1.4% PBDIT Margin % 10.2% 10.3% 10.8% 9.2% 9.4% Net Margin % 5.1% 4.9% 5.6% 4.2% 3.6%
Year
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012
Source: CMIE Prowess, Sample 18 Companies
Raw material expense declined during FY 2008-09 on account of the decline in raw material expense of large companies in the sample segment.
Raw material expense of Ruchi Soya, which accounts for ~48% of total raw material expense in the sample declined by ~1.6% due to the decline in consumption of oil seeds.
During FY 2009-10, there was a drop in raw material margin from ~52.5% to 48.4%. This drop was due to the reduced consumption of soya flour and oil seeds by Ruchi Soya (which resulted in raw material expense borne by the company decline by ~5.4%)
SGA Expenses which includes marketing and distribution expense is the second largest operating expense in the segment. It accounted for ~7% of total sales during FY 2012.
Profitability margins dropped considerably during FY 2011 and FY 2012 owing to the decline in profitability of Ruchi Soya and K.S Oils.
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Key Ratios Number of companies (market leaders) considered in the sample set = 18 The ratios are averaged over the FY 2010, 2011, and 2012.
Ratios
Gross Margin Net Margin Current Ratio Quick Ratio Account Receivables Days Inventory Days Account Payable Days RONW ROA ROCE Long Debt-Equity Networth to Total Liabilities Interest Coverage Ratio Fixed Asset Turnover Asset Turnover WC turnover ratio Inventory Turnover Fixed Assets to Networth Sales to Capital Employed
Median Value
45.8% 4.3% 1.89 0.95 28 64 56 22.8% 15.9% 27.2% 0.89 31.1% 7.19 6.82 1.64 12.49 6.33 0.78 2.81
Source: CMIE Prowess
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India&#39;s Food Processing Industry

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India&#39;s Food Processing Industry

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Sectoral Risk Outlook Food Processing

Dun & Bradstreet Information Services India Private Limited.

Sectoral Risk Outlook

Sectoral Risk Outlook

EXPLANATION OF RISK SCORE

Industry Risk Score - 4

Sectoral Risk Outlook

Sectoral Risk Outlook

Sectoral Risk Outlook

MACRO ECONOMIC ANALYSIS

Macro Economic Indicator

5.28% 2.5% FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 3.2% FY 2012

GDP Growth Rate

IIP Growth Rate

Source:CSO; D&B Estimates

Sectoral Risk Outlook

GDP (Factor Cost, Constant 2004-05 Prices) by Economic Activity

Industry (INR Bn)

Services (INR Bn)

CAGR (FY 2007-12)

Source: Business Beacon

Source: Business Beacon; D&B Research

Sectoral Risk Outlook

Yearly Q-o-Q change in Sectoral GDP Compositon (%)

Sources: Business Beacon

Sectoral Risk Outlook

12.0% 10.0% 8.0%

Yearly Q-o-Q Growth Trend (%)

9.2% 8.0% 6.7% 6.1% 5.3% 5.5%

6.0% 4.0% 2.0%

Sources: Business Beacon

Sectoral Risk Outlook

Interest Rate Risk

Domestic Interest Rate Movement

10-Yr US T-Bond (RHS)

10-Yr GOI Security Yield (RHS)

Source: RBI, US Treasury, D&B Research

Sectoral Risk Outlook

Movement: Inflation, CRR & Repo Rate

17th April 2012; Repo Rate cut by 50 Basis point

16th September 2012; CRR rate cut to 4.5%

Source: Office of the Economic Advisor; RBI

September 2012 inorder to

Sectoral Risk Outlook

1.00 0.67 0.73

Source: CMIE Prowess, Sample 18 companies

Interest Coverage Ratio

Source: CMIE Prowess, Sample 18 companies

Sectoral Risk Outlook

Sectoral Risk Outlook

Foreign Exchange Fluctuations

Inverse Scale 43.5 45.5

~INR Touched Lowest against USD at 57.26 on 29th June, 2012

Source: Ministry of Finance, Government of India

Sectoral Risk Outlook

Sectoral Risk Outlook

Enhancing Indias share in global food trade from 1.5% to 3.0%.

Sectoral Risk Outlook

DEMAND SUPPLY DYNAMICS Historical Growth

Indian Food Processing Sector (INR Bn)

Source: Ministry of Food Processing

Sectoral Risk Outlook

Sectoral Risk Outlook

These initiatives have helped in increasing the supply of processed foods.

India's Food Processing Industry

India's Food Processing Industry