MOTHER DAIRY FRUIT AND VEGETABLE PVT.

LIMITED
Long-term Bank Facilities Short-term Bank Facilities CARE AA+ PR1+

Rating CARE has assigned a CARE AA+ [Double A Plus] rating to the Long-term Bank Facilities of Mother Dairy Fruit and Vegetable Private Ltd (MDFVL) amounting Rs.250.00 cr. This rating is applicable for facilities having tenure for more than one year. Facilities with this rating are considered to offer high safety for timely servicing of debt obligations. Such facilities carry very low credit risk. CARE assigns + or - signs to be shown after the assigned rating (wherever necessary) to indicate the relative position within the band covered by the rating symbol. Also, CARE has assigned a PR 1+ [PR One Plus] rating to the Short-term Bank Facilities of MDFVL amounting Rs.660.00 cr. This rating is applicable for facilities having tenure upto one year. Facilities with this rating would have strong capacity for timely payment of short-term debt obligations and carry lowest credit risk. The ratings are supported by strong parentage and comfort from National Dairy Development Board (NDDB) in the form of managerial and technical support. The ratings factor in the integrated nature of operations of MDFVL, established track record with wide product range, strong and established brand name and wide marketing and distribution network. However, these strengths are partially offset by the inherent low profitability margins of the business, seasonal requirement of credit resulting in relatively high utilization levels at the end of the financial year and competition from other established players and the unorganized sector. Going forward, prudent working capital and cash-flow management and any challenges in supply of raw material (including effect of fall in milk yield and supply chain issues) affecting business operations would remain the key rating sensitivities. Background MDFVL, a wholly-owned subsidiary of NDDB was incorporated in March 2000. NDDB provides implicit

comfort to MDFVL in the form of need-based technical and managerial support. The management vests with the Board of Directors comprising six directors and headed by Ms. Amrita Hirubhai Patel. Mr.Sanjeev Khanna is the Managing Director and Mr. Deepak Tikku is the Director in-charge of the company. The day-today operations are looked after by Mr. Harish Chandra Virmani, Chief Finance Officer. NDDB was set up in 1964 as a registered society under the Societies Act 1860 with the underlying objective of improving the prospects of the dairy sector in India, empowering milk producers across the villages and to promote other commodity-based cooperatives, agroallied industries and veterinary biologicals on nationwide basis. Later in 1987, NDDB was merged with the Indian Dairy Corporation through the NDDB Act 1987 to receive and monetize commodities from abroad. Initially, Mother Dairy, Delhi functioned as a division of NDDB for procurement, processing and marketing of milk, milk products, fruits and vegetables till it was hived off as a separate company viz MDFVL in April 2000. However, till FY06 its profile remained that of providing strategic and functional support to various group companies. Mother Dairy Food Processing Ltd (MDFPL) and Mother Dairy India Ltd (MDIL) were amalgamated w.e.f April 1, 2006 with MDFVL and Dhara Vegetable Oil and Foods Company Ltd (DOFCO) was amalgamated w.e.f April 1, 2007 with MDFVL. Subsequent to this MDFVLs operations comprise procurement, processing, manufacturing, marketing and distribution of milk and milk products. MDFVL markets its milk and dairy products (liquid milk, curd, ice creams, cheese, butter etc) under Mother Dairy brand, Safal range of fresh and frozen fruits & vegetables, fruit juices, pulp, concentrates and Dhara range of blended edible oils. MDFVL is an IS/ISO-9002, IS-15000 Hazard Analysis Critical Control Points (HACCP) and IS-14001 Environment Management System (EMS) certified organization.

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Operations MDFVLs line of operations comprises sourcing (procurement of milk, vegetables and fruits), quality testing, processing, packaging, marketing etc. The processing of milk and fresh fruits and vegetables is based on microprocessor technology and Individual Quick Freezing (IQF) technology, respectively. In addition, MDFVL also outsources production/ procurement of milk (Poly-pack milk) and dairy products and trades in fresh fruits and vegetable blended edible oil sourced from grower cooperatives, authorized vendors and unions. MDFVL purchases a significant part of its requirement of liquid milk from Dairy Cooperatives at the district level through its affiliated Dairy Cooperative Societies (DCS) in villages, twice a day and also through its own procurement network under New Generation Cooperatives. The milk is processed by the various district level plants and supplied daily to MDFVL at its different plants in and around Delhi and NCR in milk tankers. During winter months (November-February), the surplus milk is converted into white butter and skimmed milk powder and is stocked for consumption during the summer months. The peak stocking is in March and then it is gradually used up in the summer months (AprilOctober). Fresh Fruits & vegetables (F&V) are sourced from farmers/growers, associations/cooperatives, suppliers and the whole F&V operations are being carried out at MDFVPLs plant at Mangolpuri, New Delhi and Safal market, Bangalore. MDFVL has two 100% Export Oriented Units (EOUs) for fruit processing of 120 MT and 250 MT per day fruit handing capacity in Mumbai and Bangalore, respectively. Crude oil and oil seeds are procured from oilseeds grower cooperatives. Over the last two years, majority of sales has been on account of domestic sales of milk and dairy products accounting for over three-fourth of total sales turnover, balance being contributed by horticulture products, edible oil and exports of juices, fruit pulp and concentrates. Exports are primarily made to U.S.A, U.K, Middle East, Holland, Korea, Canada, Japan, Iran, Singapore, Germany and Russia by a dedicated marketing team based in Rotterdam, Netherlands.

MDFVL markets more than 2.8 million litres of milk daily in Delhi, NCR and the surrounding areas of Western UP and Haryana, Mumbai and Hyderabad. It accounts for a market share of 66% in the branded sector in Delhi where it sells 2.6 million litres of milk daily. MDFVL is the market leader in the ice cream segment in Delhi and the NCR (approximately 62% market share and 14% market share of the domestic organized ice cream business) and has expanded its presence in other markets such as Jaipur, Ludhiana, Amritsar, Jalandhar, Chandigarh, Mohali, Lucknow, Kanpur, Mumbai and Kolkata etc. MDFVLs SAFAL brand markets fresh and frozen fruits and vegetables products through a chain of 400-plus own shops and more than 20,000 retail outlets across the country, supported by modern handling and processing facilities having handling capacity of 2,00,000 MT annually and having an IQF facility of around 75 MT per day at Mongolpuri, New Delhi. At present, SAFAL is the market leader in the frozen peas category with over 60% market share nationally. MDFVL capitalizes on its well-established sales and distribution network for its domestic sales comprising distribution network of over 2,00,000 retailers/distributors including 1375 exclusive outlets spread across Delhi, NCR, Western UP, Haryana, Mumbai and Hyderabad. Financials From FY07, MDFVL commenced its integrated commercial operations comprising procurement, processing, manufacturing, marketing of milk, dairy products and other products resulting in enhanced scale of operations and addition of value-added products in its product line. Total income of the company increased to Rs.2,776 cr and the company recorded cash profit of around Rs.30 cr during FY08 resulting from improved sales realizations for its products on account of strong domestic demand. MDFVL earned a non-operating income of around Rs.11.42 cr and Rs. 25.88 cr in FY07 and FY08, respectively, comprising interest income, revenue grants received from NDDB and rent received etc. Increase in equity capital as on March 31, 2008 was on account of amalgamation of Dhara Vegetable Oil and Foods Company Ltd (DOFCO) with MDFVL. The high overall gearing as at the end of FY07 and FY08 was on account of high utilization of short-term/working capital loan on account of commencement of integrated commercial operations of MDFVL.

CAREVIEW

Financial Results (Rs. cr) Y.E. / as on 31st March Working Results Gross sales Total income PBILDT Interest Depreciation PBT PAT (after deferred tax) Financial Position Equity share capital Net-worth Total capital employed Key Ratios Growth Growth in Total income (%) Growth in PAT Profitability PBILDT/Total operating income (%) PAT/Total income (%) ROCE (%) Average cost of borrowing (%) Solvency Overall gearing ratio (times) Interest coverage (times) Term debt/Gross cash accruals Liquidity Current ratio (times) Quick ratio (times) Turnover Average collection period (days) Average creditors (days) Average inventory days NM Not meaningful Liquidity position as indicated by current ratio was comfortable at 1.48 times as on March 31, 2008. The sales are mostly on cash basis thus debtor days are N.M. N.M. -0.36 -1.48 -5.74 6.68 4.07 -2.20 NM 1.19 0.56 1 9 26 26.58 NM 1.62 0.21 5.20 5.52 3.71 0.53 13.37 1.48 0.88 2 14 54 2007 2,178 2,193 (8) 14 23 (34) (33) 150 103 524 2008 2,723 2,776 45 40 24 7 6 250 273 1,284

low. Also, because of the seasonal nature of requirement for working capital during the winter months (OctoberFebruary), the utilization of short-term loan/cash-credit remains very high as at the end of each financial year. Industry Review India is the worlds largest milk producer with 104.9 million tonnes of milk production in 2008 (contributing 15% of the total global milk production) and per capita availability of 246 gms per day. This growth in milk production has been due to demand-side development and supply-side promotions in the form of increased demand for value-added products by consumers and extensive dairy development programs, respectively. Milk production, supply and marketing in India is highly decentralized. The co-operative sector played a critical role in channeling this milk production in the rural areas besides providing quality and value-added dairy products to the urban and semi-urban consumers resulting into economic prosperity for rural farmers. Major strengths of the Indian dairy industry include favorable demand outlook, low price elasticity, high flexibility in terms of product mix and abundant availability of raw milk. The major weaknesses of the dairy industry include perishable nature of the product, lack of control over milk yield from cattle, improper logistics and distribution along with the increasing competition from the unorganized sector. While new product innovations and the export markets present favorable opportunities to the sector, sale of milk in loose form from unorganized sector poses a major threat to the organized dairy sector. MDFVL maintains a leading position in milk and dairy products in the key markets on account of its established processing and manufacturing capacity, integrated nature of operations and wide distribution network. Increase in domestic demand for milk products and export potential for fruit pulp and other agro products augurs well for the prospects of the company. August 2009

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