Food Abneesh Roy +91 22 6620 3141
[email protected]
Harsh Mehta +91 22 4063 5543
[email protected]
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 in food 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 1
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Food
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Edelweiss Securities Limited
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.
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Edelweiss Securities Limited
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 4
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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
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Edelweiss Securities Limited
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 6
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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.
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Edelweiss Securities Limited
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. 8
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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).
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10
393
204
1,028
162
4,270
190
ITC
Jubiliant Foodworks
Marico
Nestle
Pantaloons Retail
2,664
GSK Consumer
Hindustan Unilever
98
Dabur
Price (INR)
217
96
614
65
7,738
2,161
42
1,750
Shares O/S (mn nos)
41,249
409,920
99,468
66,820
1,578,552
849,273
112,036
171,467
Mkt cap (INR mn)
HOLD
HOLD
BUY
REDUCE
BUY
BUY
BUY
BUY
Reco
FY09 FY10 FY11 FY12E FY13E
CY09 CY10 CY11E CY12E CY13E
FY10 FY11 FY12E FY13E FY14E
FY10 FY11 FY12E FY13E FY14E
FY10 FY11 FY12E FY13E FY14E
FY10 FY11 FY12E FY13E FY14E
CY09 CY10 CY11E CY12E CY13E
FY10 FY11 FY12E FY13E FY14E
63,417 89,261 110,123 123,045 143,988
51,294 62,547 74,908 91,172 110,414
26,608 31,283 40,365 45,996 54,650
4,239 6,781 10,194 14,088 18,804
276,247 320,782 370,587 420,293 483,878
177,643 196,910 226,246 258,264 292,293
19,772 23,685 27,707 32,732 38,597
34,143 41,045 51,414 59,961 70,060
Revenue
6,684 8,191 9,600 10,779 12,829
10,345 12,497 15,528 19,247 23,537
3,751 4,098 4,824 5,887 7,050
666 1,196 1,869 2,589 3,486
63,243 74,077 86,040 98,502 112,939
25,759 23,771 30,142 35,004 41,142
3,623 4,365 5,101 6,050 7,113
6,470 7,625 8,729 10,449 12,576
1,405 2,302 1,897 1,222 1,526
7,196 8,554 9,616 11,772 14,228
2,317 2,865 3,191 3,972 4,822
330 717 988 1,397 1,954
41,684 50,179 60,237 69,303 80,423
21,566 22,961 26,864 30,252 35,458
2,328 2,999 3,552 4,241 5,011
5,032 5,686 6,244 7,594 9,387
EBITDA Net profit
Financials (INR mn)
7.4 11.8 8.7 5.6 7.0
74.6 88.7 99.7 122.1 147.6
3.8 4.7 5.2 6.5 7.8
5.3 11.0 15.6 22.0 29.9
5.5 6.6 7.9 9.0 10.5
9.7 10.5 12.4 14.0 16.4
55.4 71.3 84.5 100.8 119.2
2.9 3.3 3.6 4.3 5.4
EPS (INR)
25.6 40.8 23.4 11.7 17.0
18.6 21.9 19.8 21.7 21.1
11.4 17.6 29.0 14.0 18.8
51.0 59.9 50.3 38.2 33.5
11.4 16.4 15.5 13.4 15.1
(13.3) 10.8 14.9 14.2 13.2
24.8 19.8 17.0 18.1 17.9
20.9 20.2 25.3 16.6 16.8
Revenue
45.1 22.6 17.2 12.3 19.0
19.8 20.8 24.3 24.0 22.3
23.4 9.2 17.7 22.1 19.7
97.3 79.6 175.2 114.7 108.4
11.0 17.1 16.2 14.5 14.7
(3.9) (7.7) 26.8 16.1 17.5
32.1 20.5 16.9 18.6 17.6
33.5 17.9 14.5 19.7 20.4
EBITDA
Net profit
11.5 73.0 (22.0) (35.6) 24.9
27.5 18.9 12.4 22.4 20.9
22.8 23.7 11.4 24.5 21.4
358.7 114.7 41.9 41.2 35.9
5.6 20.4 19.9 15.0 16.0
(13.9) 6.5 17.0 12.6 17.2
23.6 28.8 18.5 19.4 18.2
28.6 13.0 9.8 21.6 23.6
Growth (%)
(6.6) 59.7 (25.9) (35.6) 24.9
27.5 18.9 12.4 22.4 20.9
22.7 22.4 11.6 24.5 21.4
320.0 108.4 41.9 41.2 35.9
5.1 20.4 18.5 15.0 16.0
6.3 8.7 18.1 12.9 17.2
23.6 28.8 18.5 19.4 18.2
16.9 12.7 9.8 21.6 23.6
EPS
10.9 9.7 11.9 11.3 10.1
39.5 32.6 26.4 21.4 17.5
27.0 25.4 21.1 16.8 13.6
98.1 55.0 35.0 25.0 18.2
23.4 19.9 17.5 15.2 13.1
32.0 34.8 26.9 22.9 19.2
28.7 23.4 19.8 16.3 13.5
25.8 22.8 19.5 15.9 12.9
EV / EBITDA (x)
25.7 16.1 21.7 33.8 27.0
57.2 48.1 42.8 35.0 28.9
42.6 34.8 31.2 25.1 20.6
195.5 93.8 66.1 46.8 34.4
37.1 30.8 26.0 22.6 19.5
40.7 37.4 31.7 28.1 24.0
48.1 37.4 31.5 26.4 22.4
34.0 30.1 27.4 22.6 18.3
1.4 1.4 1.3 1.3 1.2
70.8 48.1 36.0 27.5 21.4
15.1 10.8 8.4 6.6 5.2
55.6 35.1 23.6 16.3 11.5
10.7 9.4 8.8 7.9 7.0
32.0 31.5 24.3 19.5 15.8
12.4 11.7 9.8 8.2 6.8
18.2 12.3 9.7 7.7 6.2
P/E (x) P/B (x)
Valuations
10.0 9.6 8.2 7.0 7.7
206.0 195.5 148.9 129.5 118.1
36.6 26.5 24.5 26.6 27.8
36.6 60.8 70.0 69.8 70.4
38.6 58.0 58.6 59.1 59.0
126.9 143.0 144.6 118.4 104.2
38.3 42.6 44.0 43.8 43.3
75.6 48.2 35.9 37.2 38.5
10.5 9.2 8.7 8.8 8.9
20.2 20.0 20.7 21.1 21.3
14.1 13.1 12.0 12.8 12.9
15.7 17.6 18.3 18.4 18.5
22.9 23.1 23.2 23.4 23.3
14.5 12.1 13.3 13.6 14.1
18.3 18.4 18.4 18.5 18.4
19.0 18.6 17.0 17.4 18.0
ROCE EBITDA (%) margins (%)
Company
AT A GLANCE
Food
Edelweiss Securities Limited
Tata Chemicals*
352
255
120
Britannia Industries* 486
Shares O/S (mn nos)
24
Price (INR)
429
Agro Tech Foods*
Company
AT A GLANCE ‐ (contd.)
Reco
89,760 Not rated
58,320 Not rated
10,296 Not rated
Mkt cap (INR mn)
11 FY10 FY11 FY12E FY13E FY14E
FY10 FY11 FY12E FY13E FY14E
FY10 FY11 FY12E FY13E FY14E
EBITDA Net profit
EPS (INR) Revenue
EBITDA
Growth (%)
Net profit EPS
EV / EBITDA (x) P/E (x) P/B (x)
Valuations
ROCE EBITDA (%) margins (%)
95,438 110,602 127,260 134,978 132,866
37,729 46,052 53,643 63,503 74,164 18,374 18,368 22,419 23,846 23,802
1,629 2,349 3,102 3,897 4,659 8,693 8,562 8,824 9,653 10,128
1,032 1,343 1,851 2,369 3,027 30.8 26.0 35.0 38.6 40.2
9.0 11.0 15.5 19.8 25.3 (22.1) 15.9 15.1 6.1 (1.6)
10.3 22.1 16.5 18.4 16.8 (1.4) (0.0) 22.1 6.4 (0.2)
(31.6) 44.2 32.0 25.7 19.5 (10.4) (1.5) 3.1 9.4 4.9
(31.9) 30.2 37.8 28.0 27.8 (15.4) (15.7) 34.5 10.3 4.2
(31.9) 30.2 40.5 28.3 27.7 6.4 7.0 6.6 6.2 6.2
37.2 25.4 22.2 17.7 14.8
11.4 13.5 10.7 9.7 9.3
56.2 43.2 34.3 26.8 20.9
19.3 16.6 17.6 17.7 17.9
4.3 5.1 5.8 6.1 6.3
* Bloomberg estimates
14.0 13.4 7.6 7.6 8.3
17.5 19.2 18.0 22.6 N.A.
Source: Edelweiss research
Price as on 09th Feb 2012
1.8 1.6 1.5 1.3 1.2
20.5 17.8 12.3 9.7 7.6
6,496 225 245 10.0 (16.0) 45.4 49.4 17.8 42.5 42.6 6.9 13.9 3.5 7,187 275 318 13.0 10.6 22.1 (42.8) 29.6 34.8 32.8 5.9 13.9 3.8 N.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. N.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. N.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.
Revenue
Financials (INR mn)
Food
Edelweiss Securities Limited
Food Fig. 1: Competitive analysis of listed players in F&B category Company
Brand salience Intensity of competition
Product mix
Distribution
Appetite for ad spend
Innovation
Past
Food as %
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
12
Edelweiss Securities Limited
Food Table 1: Major food companies in India (as per FY11) Player Dabur
Key brands Dabur Chyawanprash, Hajmola, Real, Active, Burrst, Glucose D, Hommade, Lemoneez, Capsico, Honey
Segment health, beverages, cooking aids
Category Revenue INR bn (food) chyawanprash, digestives, fruit juice, energy drinks, tomato puree, coconut 6.8 milk, lemonade, cooking paste‐garlic tomato puree, honey, mustard oil, rose syrup
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 Nestle
Saffola Gold, Arise, Oats, Salt Plus Nescafe, Maggi, Kit Kat, Munch, Milkybar, Polo, Everyday, Milkmaid, Neslac, Actiplus, Bhuna Jeera, Nestle Milk, Noodletz
Staples, breakfast cereals dairy, beverages, ready to cook, ready to eat, chocolates, confectionery
Edible oils, rice, oats, flour, salt coffee, tea, chocolates, confectionery, milk, milk whiteners, malted foods, ghee, dahi, condensed milk, baby food, noodles, pasta, ketchup, spices, ready to cook‐soup
5.0 62.6
PepsiCo
Pepsi, 7UP, Gatorade, Nimbooz, Slice, Tropicana, beverages, chips, salty snacks Aquafina, Lays, Kurkure, Laher Namkeen, Quaker Oats, Aliva, Uncle Chips
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, bakery, chips, salty snacks, Digestive Marie, Melody, Mango Bite, Poppins, confectionery Monaco Smart Chips, Fulltoss
Biscuits, digestive biscuits, cookies, confectionery, snacks, chips
59.8
Parle Agro
Frooti, LMN, Appy, Saint, Grappo, Bailley, Hippo, beverages, snacks, Buttercup confectionery Amul Milk, Amul Cheese, Amul Ghee, Amul Kool, dairy products, chocolates, Amul Mast Dahi, Sagar, Amul Ghee, Amulya, desserts Nutramul, Amul Shrikhand, Mithai Mate, Fundoo Horlicks, Boost, Maltova, Viva, Foodles, beverages, noodles, bakery, Lucozade, Gopika Ghee dairy products Sundrop, Act II, Healthy World, Crystal, 10 min Staples, ready to cook Yummeals
lemonade, fruit juice, chips, snacks, bottled water, confectionery sweets
N.A.
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
malted food drinks, health drinks, instant noodles, biscuits, ghee
23.1
Amul
GSK consumer Agro Tech Foods
Coca Cola
Zydus Wellness Unibic
beverages Coca Cola, Thums Up, Sprite, Maaza, Minuit Maid Pulpy Orange, Minuit Maid Nimbu Fresh, Minuit Maid Juice, Nestea, Kinley, Burn, Georgia Gold Sugar Free, Nutralite sugar substitutes, butter alternatives Anzac Cookies, Jamz, Oatmeal Digestive, Kiss bakery
Edible oil, Popcorn, healthy cooking oil, chocolate pudding, butter alternatives, peanut butter, frozen food; ready to cook‐green peas Carbonated drinks, bottled water, lemonade, fruit juices, powdered drinks, health drinks, tea, coffee, energy drinks
sugar substitutes, butter alternatives
7.2
N.A.
2.9
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
Hershey's
Maha Lacto, Jumpin, Godrej Cooklite Oil
confectionery, beverages, staples
confectionery, fruit drink, edible oil
N.A. 3.6
Source: Edelweiss research
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Edelweiss Securities Limited
Food Table 2: Food segments – Key data points Current Proj. 5 size year Proj. 10 (INR 5 year value 10 year year value bn) CAGR (%) (INR bn) CAGR (%) (INR bn) 25 12.0 44 10.0 65
Segment Packaged Salt
Wheat Flour
1,000
8.0
1,469
6.0
1,791
Rice
1,000
7.0
1,403
6.0
1,791
Spices
400
8.0
588
6.0
716
Edible Oil
900
7.0
1,262
6.0
1,612
Healthy cooking oils
10
16.0
21
14.0
37
Noodle
18
20.0
45
17.0
87
Pasta
1
25.0
3
28.0
12
Oats
1.5
28.0
5
25.0
14
Cornflakes
5
25.0
15
23.0
40
120
20.0
299
18.0
628
Companies Tata Chemicals ITC Marico ITC Shakti Bhog HUL Pillsbury LT foods ltd Kohinoor Foods Lakshmi Energy KRBL Marico MDH MTR Foods Everest Spices DS Group KS Oils Agro Tech Cargill Adani Wilmar Ruchi Soya Marico Agro Tech
Brands Tata Salt Aashirvaad Salt Saffola Salt Aashirvaad Shaktibhog Annapurna Pillsbury Daawat Kohinoor Royal Brilliance India Gate Saffola MDH MTR Everest Catch Kalash, Double Sher, KS Gold Sundrop Nature Fresh, Gemini Fortune, Kings Oil, Fryola Nutrela, Mahakosh, Ruchi Gold Saffola Sundrop
Nestle HUL GSK ITC Nissin Foods Nestle ITC HUL Future Group Bambino Agro
Maggi Knorr Foodles Sunfeast Yipee Top Ramen Maggi Nutrilicious Pazzta Sunfeast Pasta Knorr soupy pasta Tasty Treat Bambino Pasta
PepsiCo Bagrry Marico Kellogg's Britannia Kellogg's Mohan Meakin Future Group Haldiram ConAgra Pepsico Venkatraman ITC
Quaker Bagrry's Oats Saffola Oats Heart to Heart Healthy Start Kellogg's Mohan Tasty Treat Haldiram David Kurkure, Lehar Namkeen Peppy Bingo
Instant Food
Breakfast cereal
Salty Snacks
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Food Proj. 5 Current Proj. 10 year size (INR 5 year value 10 year year value bn) CAGR (%) (INR bn) CAGR (%) (INR bn) 30 22.0 81 20.0 186
Segment Chips
Ready to eat Ready to cook
4 15
18.0 25.0
9 46
20.0 28.0
25 177
Ketchup
5
18.0
11
16.0
22
Pickles
17
15.0
34
13.0
58
Biscuit
126
15.0
253
13.0
428
Confectionery
41
16.0
86
14.0
152
Chocolate
25
20.0
62
18.0
131
milk
1,610
8.0
2,366
6.0
2,883
whiteners
123
17.0
270
15.0
498
Ghee yogurt
426 245
8.0 20.0
626 610
6.0 18.0
763 1,282
butter
228
10.0
367
8.0
492
cheese
10
15.0
20
14.0
37
ice cream
35
18.0
80
16.0
154
Other
300
14.0
578
12.0
932
Companies PepsiCo Balaji Wafers ITC Haldiram Parle Products Prakash Snacks MTR ITC Future group Agro tech Nestle HUL Heinz Desai Brothers CavinKare Parle Products Britannia ITC Perfetti van Melle ITC Candico Parle Products Cadbury Nestle Cadbury Nestle
Brands Lays, Uncle Chips Balaji namkeen Bingo Haldiram Parle's Wafers Yellow Diamond MTR Kitchens of India Tasty Treat Sundrop 10min Yummeals Maggi Kissan Heinz Ketchup Mother's Recipe Ruchi Pickles, Chinni's Pickles Parle G, Parle Marie, Hide & Seek Tiger, Good Day, 50‐50 Sunfeast Alpenliebe, Center Shock, Happydent White Mint‐O Loco Poco Poppins, Mango Bite Eclairs Eclairs Dairy Milk, Perk, Gems, 5‐Star Kit Kat, Munch, Milkybar
Amul Paras Dairy Mother Dairy Nestle Amul Nestle Amul Amul Nestle Britannia Gowardhan Danone India Amul Britannia Amul Britannia Gowardhan Amul HUL Vadilal Group Mother Dairy Hatsun Agro Products Amul Mother dairy
Amul Taaza Paras Mother Dairy Nestle Milk Amulya Everyday Amul Ghee Amul Masti Dahi Nestle Dahi Daily Fresh Dahi Go Dahi Danone Creamy Amul Butter Milkman Butter Amul Cheese Cheese Slice Go Cheese Amul Ice Cream Kwality Walls Vadilal Mother Dairy Arun Amul Mother Dairy
Indian dairy industry
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Food Proj. 5 Current Proj. 10 year size (INR 5 year value 10 year year value bn) CAGR (%) (INR bn) CAGR (%) (INR bn) 430 18.0 984 16.0 1,897
Segment Restaurant
Companies Dominos Pizza Hut McDonalds KFC
Brands Dominos Pizza Hut McDonalds KFC
Non Veg Foods Meat
300
9.0
462
7.0
590
Eggs
150
8.0
220
6.0
269
Chyawanprash
5
12.0
9
10.0
13
Butter Alternatives
3
25.0
9
22.0
22
Sugar Substitutes
1.1
20.0
3
18.0
6
Baby Food Energy Drinks
15
15.0
30
13.0
51
powdered
6
18.0
14
15.0
24
RTD Health Drinks
1.5 1.5
20.0 20.0
4 4
18.0 18.0
8 8
Healthy snack foods
2
25.0
6
20.0
12
Digestive Biscuits market
1
25.0
3
22.0
7
Malted Food Drinks
24
15.0
48
12.0
75
100% Fruit Juice
5
22.0
14
20.0
31
Carbonated Drinks
60
12.0
106
10.0
156
16
Venkateswara Hatcher Venky's Chicken Suguna Poultry Suguna Chicken Godrej Agrovet Real Good Raja Farms Peggs Dream Farm Farm Fresh eggs Dabur Dabur Chyawanprash Emami Himani Sona Chandi Zydus Wellness Nutralite Amul Delicious Table Margarine Zydus Wellness Sugar Free Wipro Sweet & Healthy Merisant Equal Boots Sweetex Alembic Zero Cook & Bake Nestle Lactogen, Cerelac, Nestum Heinz Dabur Red bull Amul HUL GSK PepsiCo PepsiCo United Biscuits Britannia United Biscuits GSK Cadbury Heinz Dabur PepsiCo Parle Agro HUL Coca‐Cola PepsiCo
Glucon D Glucose D Red bull Stamina Kissan Fruit Juice and Soya Lucozade Gatorade Aliva McVitie's Nutrichoice McVitie's Horlicks Bournvita Complan Real Tropicana Saint Kissan Coca cola, Sprite, Fanta Pepsi, 7 UP, Mirinda
Edelweiss Securities Limited
Food Proj. 5 Current Proj. 10 year size (INR 5 year value 10 year year value bn) CAGR (%) (INR bn) CAGR (%) (INR bn) 4.5 15.0 9 12.0 14
Segment Powdered drinks
Lemonades
1
20.0
2
18.0
5
Coffee
30
11.0
51
9.0
71
Instant coffee 8
25.0
24
20.0
50
Tea
75
12.0
132
10.0
195
Packaged drinking water
30
23.0
84
20.0
186
Natural mineral water
2
20.0
5
18.0
10
Companies Pioma Industries Kraft Foods Coca‐Cola PepsiCo Coca‐Cola Parle Agro Nestle HUL Nestle HUL Tata Global Beverages HUL Parle Bisleri PepsiCo Coca‐Cola Mount Everest Mineral Water Aava
Brands Rasna Tang Fanta Fun Times Nimbooz Nimbu Fresh LMN Nescafe Bru Nescafe Bru Tata Tea, Tetley Brooke Bond, Taj Mahal, Lipton Bisleri Aquafina Kinley Himalayan Aava
Source: Edelweiss research
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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.
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
Chart 1: Spending levels in key states (monthly per capita expenditure) 2,321
1,647
1,574
1,238
1,649
1,835
Rural
Kerala
Punjab
Haryana
Chattisgarh
Andhra
899
784
UP
780
1,510
2,413 2,109
1,234
Bihar
(Avg MPCE (INR))
2,238
Urban
Source: Edelweiss research
0.0
20.0
40.0
60.0
Urban
Rural
80.0
FY00 FY10
(% share of durables)
FY00
Chart 3: Share of durables
FY10
(% share of food)
Chart 2: Share of food
0.0
2.0 Urban
4.0
6.0
8.0
Rural Source: Edelweiss research
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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 % Change in Volume % Change in Value 2009 2010 2009 2010 Total FMCG Market 8.1 8.2 13.7 13 Foods 9.7 8.7 13.1 17 Non‐Foods 5.2 7.4 14.3 8.8 Source: The Nielsen Company, Edelweiss research
All India (Urban+Rural)
Food has clearly outperformed non‐food
Table 4: Performance of essential food categories All India (Urban+Rural) Baby Foods Milk Foods Milk Powders Packaged Atta Packaged Rice
Packaged food growing faster than the other categories
% Change in Volume % Change in Value 2009 2010 2009 2010 7.2 1.5 12.9 10.9 9.4 1.3 18.4 12.3 11.2 2.1 17.6 12.3 7.1 0.7 11.1 22.9 49.2 19.7 45.5 31.7 Source: The Nielsen Company, Edelweiss research
Table 5: Performance of impulse food categories All India (Urban+Rural) Biscuits Namkeens (Salty Snacks) Chocolates
% Change in Volume 2009 2010 6.3 10.1 18.7 27.7 2 21.8
% Change in Value 2009 13.7 18.4 13.9
2010 17.3 29.9 26.1
Source: The Nielsen Company, Edelweiss research
Table 6: Performance of non‐food categories All India (Urban+Rural) Washing powder Shampoo Toilet Soap Hair Conditioner Hair Dye Liquid Soap
% Change in Volume 2009 2010 7.6 13 7.8 9.3 3.8 5.4 31.6 36.4 27.8 20.5 37.5 46.4
% Change in Value 2009 20.7 10.7 10.3 33.3 21.3 34.7
2010 5.5 12.5 6.6 37.2 21 48.7
Source: The Nielsen Company, Edelweiss research
Table 7: Performance of various categories Food Category Salty snacks Refined edible oil Vermicelli & noodles Chocolate Confectionary‐eclairs
2 year value CAGR (2009‐11) 55 44 43 42 40 Source: The Nielsen Company, Edelweiss research
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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 %) 22.0 19.6
(%)
17.2 14.8 12.4 10.0 FY08
FY09 Food
FY10
FY11
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 Others 9%
Others 16%
Food 46% HPC 39%
Food 52%
HPC 38% Source: Edelweiss research
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.
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Food Chart 7: Ready meals average growth rate 30.0 24.0
(%)
18.0 12.0
Sales growth of ready meals highest in India from CY03 to CY08
6.0 0.0 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 25.0
(% growth rate)
20.0 15.0 10.0 5.0 0.0 CY08
CY09 HUL Foods
CY10
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.
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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.
Food constitutes about 36% of the consumer wallet
Fig. 2: Packaged Food driver Demographic profile ‐ Over 300mn people in the 25‐50 age bracket Rising urbanisation trend
Migration of population from one region to another
Increase in working women population
Entry of several organised players
Higher disposable income Low penetration and introduction of mass market products
Rising awareness in the public about health and wellness
Increase in stress levels and high pressure working environment
Source: Industry, Edelweiss research
The key drivers for growth can be divided into two main factors:
Improving Demographics The current per capita expenditure on food is 1/6th that of China and 1/16th that of US
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. 22
Edelweiss Securities Limited
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 100%
7
7
8
8
9
10
57
57
58
60
62
63
37
36
34
32
30
28
CY90
CY95
CY00
CY05
CY10
CY15E
80% 60% 40%
~63% of India’s population expected to be in the working population age group by CY15
20% 0%
60 years
Source: Mckinsey, Edelweiss research
Chart 10: Demographic dividend favours India more than China 70.0 56.0
(%)
42.0 28.0
India’s future in young hands… ~50% population’s age under 24 years
14.0 0.0 India
Indonesia
Europe
Age 24 and under
China
USA
Japan
Age 60 +
Source: Edelweiss research
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Edelweiss Securities Limited
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.
(% of total population)
Chart 11: % of working population 71.0 68.0 65.0 62.0 59.0
Brazil
China
India
CY40E
CY35E
CY30E
CY25E
CY20E
CY15E
CY10
CY05
CY00
56.0
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 100.0
(% of respondents)
Dependence on agri‐income is going down
80.0 60.0 40.0 20.0 0.0 CY00 Others Labour
CY10 Self‐employed in non‐agri Self‐employed in agri
Regular salary/wages
Source: Edelweiss survey, NSSO survey, MART Knowledge Center, MAX‐NCAER survey
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Food
64.0 48.0 32.0
Migration
Easy credit availability for activity
Govt. programmes/incenti ves
Increasing market demand
Low risk involvement
Need for more income generation
0.0
Declining profitability in previous occup.
16.0
Increasing resources in village
(% of respondents)
Chart 13: Push and pull factors behind the shift in occupation 80.0
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 IT companies continue hiring to fuel the service sector's growth engine
TCS Infosys
60,000 45,000 Source: Company, Edelweiss research
Table 9: Campus offers for FY12 TCS Infosys Patni
25
37,000 26,000 3,000 Source: Company, Edelweiss research
Edelweiss Securities Limited
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 25.0 20.0
(%)
15.0 10.0
India to surpass China in terms of working population by 2025
5.0 0.0 CY00
CY05
Brazil
CY10
CY15E China
CY20E
CY25E India
CY30E
CY35E
CY40E
Russia Source: Edelweiss research
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Food Chart 15: Urban population in mn ‐ India 700 560
(mn)
420 280 140 0 CY91
CY01
CY08
CY30E
Chart 16: Five states are likely to be more than 50% urbanised Urbanization rate CY30E
Urbanization rate CY08 Tamil Nadu Maharashtra Punjab West Bengal Andhra Pradesh Jharkhand Chhattisgarh Orissa Bihar
12
31 29 28 28 25 25 24 24 21 18
37 36
44 44
53
Tamil Nadu Maharashtra Punjab West Bengal Andhra Pradesh Jharkhand Chhattisgarh Orissa
32 31 33
45 40 41 46
58 57 52
67 66
40 26 24 20 17 (% of total population)
Bihar 9 (% of total population) Source: India Urbanization Econometric Model, McKinsey Global Institute analysis, Edelweiss research
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Food Chart 17: Cities will account for nearly 70% of India's GDP by 2030 100.0 80.0
46
54
58
69
(%)
60.0 40.0 20.0
54
46
42
31
0.0 CY90
CY01
CY08
Rural
CY30E
Urban
Source: India Urbanization Econometric Model, McKinsey, Edelweiss research
Chart 18: India will drive a near fourfold increase in average national income 250
(INR '000)
200 150 100 50 0
CY90 Rural
CY00
CY10 All India
CY20E
CY30E 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
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Edelweiss Securities Limited
Food Chart 19: 80% of the population eats out at least once a month Not gone to eat out 20%
More than 12 times 13%
Once 10%
10 to 12 times 14%
2 to 3 times 25%
7 to 9 times 11%
Have gone to eat out 80%
4 to 6 times 27%
Source: Edelweiss research 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
Indian women to be the most hard pressed for time
Per capita income grew at a CAGR of ~14% between 2001 and 2010
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Food Chart 20: Rising affluence levels
80.0 60.0 40.0 20.0 0.0 Global (>1000) Seekers (200‐500) Deprived (0.05% market share. Management believes introduction of GST will benefit Britannia as it will ensure a level playing field.
Financials Year to March Net sales Rev. growth (%) EBITDA PAT Shares outstanding (mn) Diluted EPS (INR) EPS growth (%) Diluted P/E (x) EV/EBITDA (x) ROAE (%)
FY08 27,763 22.5 2,352 1,690 120 14.9 72.4 32.7 24.2 28.1
FY09 34,212 23.2 2,380 1,252 120 12.7 (14.6) 38.3 23.7 21.4
FY10 37,729 10.3 1,629 1,338 120 8.6 (31.9) 56.2 37.2 20.6
FY11 46,052 22.1 2,349 1,342 120 11.3 30.2 43.2 25.4 44.1
Sensex 1 month 10.0 3 months 3.8 12 months (2.4)
Stock 8.9 1.0 40.2
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, 151 Bloomberg EDEL , Thomson First Call, Reuters and Factset.
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Stock over Sensex (1.1) (2.8) 42.6
Food
Financial Statements Income statement Year to March Income from operations Direct costs Employee costs Advertising and promotion Other expenditure Total operating expenses EBITDA Depreciation and amortisation EBIT Interest expenses Other income Profit before tax Provision for tax Profit after tax Extraordinary items Profit after extraordinary items Minority Interest Share in profit of Associate Core profit EPS (INR) diluted Diluted equity shares (mn) Dividend payout (%) Tax rate (%)
FY07 22,663 14,540 793 ‐ 6,023 6,816 1,306 260 1,047 117 288 1,218 113 1,105 54 1,051 ‐ ‐ 1,051 9 120 39.9 9.3
FY08 27,763 16,929 1,263
FY09 34,212 21,191 1,587
FY10 37,729 24,115 1,645 3,010 7,219 9,054 7,331 8,481 10,641 11,986 2,352 2,380 1,629 394 659 582 1,959 1,721 1,046 186 326 235 334 387 582 2,107 1,782 1,394 416 530 56 1,690 1,252 1,338 (75) (180) 307 1,765 1,432 1,031 (9) (80) 1 0 2 2 1,774 1,515 1,032 15 13 9 120 120 120 28.4 73.8 67.5 19.8 29.7 4.0
(INR mn) FY11 46,052 30,254 1,802 3,352 8,295 13,449 2,349 649 1,700 478 649 1,871 529 1,342 ‐ 1,342 (1) 1 1,343 11 120 67.2 28.3
Common size metrics‐ as % of net revenues Year to March Operating expenses Depreciation and Amortization Interest expenditure EBITDA margins Net profit margins
FY07 30.1 1.1 0.5 5.8 4.6
FY08 30.5 1.4 0.7 8.5 6.4
FY09 31.1 1.9 1.0 7.0 4.4
FY10 31.8 1.5 0.6 4.3 2.7
FY11 29.2 1.4 1.0 5.1 2.9
Growth metrics (%) Year to March Revenues EBITDA PBT Net profit EPS
FY07 32.1 (32.9) (37.8) (25.7) (28.1)
FY08 22.5 80.1 72.9 68.8 72.4
FY09 23.2 1.2 (15.4) (14.6) (14.6)
FY10 10.3 (31.6) (21.8) (31.9) (31.9)
FY11 22.1 44.2 34.2 30.2 30.2
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Food Balance sheet As on 31st March Equity capital Reserves & surplus Shareholders funds Minority Interest Secured loans Unsecured loans Borrowings Sources of funds Gross block Depreciation Net block Capital work in progress Total fixed assets Investments Inventories Sundry debtors Cash and equivalents Other current assets Loans and Advances Total Current Assets Sundry creditors and others Provisions Total CL & provisions Net current assets Miscellaneous expenditure not written off Net deferred tax Uses of funds Adjusted BV per share (INR) Free cash flow Year to March Net profit Depreciation Deferred tax Others Gross cash flow Less:Changes in WC Operating cash flow Less: Capex Free cash flow
FY07 239 5,481 5,720 103 79 1,490 1,570 7,392 6,820 3,198 3,622 164 3,786 2,908 2,367 567 547 2 872 4,355 2,989 935 3,924 431 256 12 7,392 48
FY07 1,051 260 (29) 1,290 1,520 266 1,254 3,666 (2,412)
153
FY08 239 6,683 6,922 102 316 2,407 2,723 9,747 7,603 3,612 3,991 101 4,092 3,398 3,293 690 535 132 1,358 6,008 2,960 1,057 4,017 1,991 240 25 9,747 58
FY08 1,774 394 (12) (952) (571) (1,262) 691 782 (92)
(INR mn) FY11 239 3,021 3,260 21 4,333 1,855 6,188 9,469 10,546 5,498 5,048 134 5,183 3,885 3,470 810 769 121 2,129 7,299 4,586 2,253 6,839 459 ‐ (57) 9,469 27
FY09 239 6,975 7,214 37 645 2,058 2,703 9,954 9,216 4,511 4,705 63 4,768 3,773 2,887 740 688 137 1,655 6,107 3,348 1,517 4,865 1,242 270 (99) 9,954 60
FY10 239 2,589 2,828 22 5,205 1,364 6,570 9,419 10,105 5,112 4,993 102 5,095 3,664 3,042 733 427 134 1,977 6,313 3,840 1,874 5,714 599 ‐ 61 9,419 24
FY09 1,515 659 128 2,294 3,081 578 2,503 1,614 889
(INR mn) FY10 FY11 1,032 1,343 582 649 (160) 118 2,692 2,587 3,114 3,354 736 594 2,378 2,760 889 441 1,489 2,319
Edelweiss Securities Limited
Food Profitability & liquidity ratios Year to March ROAE (%) (on adjusted profits) ROACE (%) Inventory days Debtors days Payable days Cash conversion cycle Current ratio Debt/EBITDA Interest coverage Fixed assets t/o (x) Debt/equity
FY07 18.8 32.4 34 6 66 (25) 1.1 1.2 9.0 9.0 0.3
FY08 28.1 36.2 37 8 64 (19) 1.5 1.2 10.5 7.3 0.4
FY09 21.4 27.5 33 8 54 (14) 1.3 1.1 5.3 7.9 0.4
FY10 20.6 17.5 29 7 54 (19) 1.1 4.0 4.5 7.8 2.3
FY11 44.1 30.0 26 6 51 (19) 1.1 2.6 3.6 9.2 1.9
Valuations parameters Year to March Diluted EPS (INR) Y‐o‐Y growth (%) CEPS Diluted P/E (x) Price/BV (x) EV/Sales (x) EV/EBITDA (X)
FY07 8.6 (28.1) 10.7 56.4 10.2 2.5 43.0
FY08 14.9 72.4 18.0 32.7 8.4 2.0 24.2
FY09 12.7 (14.6) 19.3 38.3 8.0 1.6 23.7
FY10 8.6 (31.9) 12.2 56.2 20.5 1.6 37.2
FY11 11.3 30.2 17.7 43.2 17.8 1.3 25.4
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Food
TATA CHEMICALS
Leader in packaged salt
India Equity Research | Miscellaneous
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.
EDELWEISS 4D RATING Absolute Rating
Not Rated
MARKET DATA (R: TTCH. BO, B: TTCH IN) CMP : INR 352 Target Price : Not Rated 52‐week range (INR) : 392 / 287 Share in issue (mn) : 254.8 M cap (INR bn/USD mn) : 90 / 1,806 Avg. Daily Vol. BSE/NSE (‘000) : 366.7
SHARE HOLDING PATTERN (%)
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.
Others 24.3% Promoters* 31.2% FIIs 31.1%
MFs, FIs & Banks 13.4%
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.
Financials Year to March Net revenues (INR mn) Revenue growth (%) EBITDA (INR mn) Core profit (INR mn) Share outstanding (mn) EPS (INR) EPS growth (%) P/E (x) EV/EBITDA (x) ROAE (%)
FY08 60,232 3.7 10,410 4,755 234 20.3 (13.6) 17.3 11.5 15.1
FY09 122,577 103.5 18,634 9,705 236 36.4 79.6 9.6 6.8 20.2
FY10 95,438 (22.1) 18,374 8,693 244 30.8 (15.4) 11.4 6.4 15.8
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FY11 110,602 15.9 18,368 8,562 255 26.0 (15.7) 13.5 7.0 13.1
* Promoters pledged shares (% of share in issue)
:
NIL
PRICE PERFORMANCE (%) Sensex 1 month 10.0 3 months 3.8 12 months (2.4)
Stock 9.6 14.2 15.5
Abneesh Roy +91 22 6620 3141
[email protected]
Harsh Mehta +91 22 4063 5543
[email protected]
February 9, 2012 Edelweiss Securities Limited Edelweiss Securities Limited
Stock over Sensex (0.4) 10.4 17.9
Food
Financial Statements Income statement Year to March Net revenues Raw material costs Gross profit Employee expenses Other expenses Operating expenses Total expenditure EBITDA Depreciation & amortisation EBIT Interest expense Other income Profit before tax Provision for tax Core profit Extraordinary/ Prior period items Profit after tax Minority interest Profit after minority interest Equity shares outstanding (mn) EPS (INR) basic Diluted shares (mn) EPS (INR) diluted CEPS DPS Dividend payout (%)
FY07 58,096 23,606 34,490 3,519 20,904 24,424 48,030 10,067 2,739 7,328 824 953 7,457 2,401 5,056 24 5,080 ‐ 5,080 215 23.5 215 23.5 36.5 8.0 33.8
FY08 60,232 22,970 37,261 4,809 22,043 26,852 49,822 10,410 3,138 7,271 1,365 964 6,870 2,115 4,755 4,889 9,644 ‐ 9,644 234 20.3 234 20.3 32.8 9.0 20.8
FY09 122,577 60,694 61,882 8,672 34,577 43,249 103,943 18,634 4,226 14,407 3,953 826 11,280 1,575 9,705 (2,107) 7,598 1,117 6,481 235 36.5 236 36.4 49.3 9.0 38.1
FY10 95,438 34,407 61,031 7,462 35,195 42,656 77,064 18,374 4,468 13,907 3,932 811 10,786 2,093 8,693 (1,457) 7,236 1,177 6,059 243 30.9 244 30.8 47.1 9.0 60.2
(INR mn) FY11 110,602 44,523 66,079 8,465 39,247 47,711 92,234 18,368 4,511 13,857 3,508 962 11,311 2,749 8,562 (101) 8,461 1,926 6,535 255 26.0 255 26.0 42.8 10.0 60.0
Common size metrics (% net revenues) Year to March Cost of goods sold Operating expenses EBITDA margins Depreciation & amortisation Interest Net profit margin
FY07 40.6 42.0 17.3 4.7 1.4 8.7
FY08 38.1 44.6 17.3 5.2 2.3 7.9
FY09 49.5 35.3 15.2 3.4 3.2 7.9
FY10 36.1 44.7 19.3 4.7 4.1 9.1
FY11 40.3 43.1 16.6 4.1 3.2 7.7
Growth metrics (%) Year to March Revenues EBITDA PBT Net profit EPS
FY07 44.0 33.9 24.2 18.0 18.0
FY08 3.7 3.4 (7.9) (6.0) (13.6)
FY09 103.5 79.0 64.2 104.1 79.6
FY10 (22.1) (1.4) (4.4) (10.4) (15.4)
FY11 15.9 (0.0) 4.9 (1.5) (15.7)
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Food Balance sheet As on 31st March Total equity capital Reserves & surplus Shareholder's equity Secured loans Unsecured loans Total debt Deferred tax liability (net) Deferred capital grant Minority interest Sources of funds Gross fixed assets Accumulated depreciation Net fixed assets Capital work in progress Total fixed assets Investments Inventories Accounts receivable Cash and cash equivalents Loans and advances Current assets Current liabilities Provisions Current liabilities & provisions Net current assets Goodwill Foreign currency translation difference Uses of funds Book value per share (INR)
FY07 2,152 23,567 25,718 8,621 10,021 18,642 2,337 211 ‐ 46,908 57,823 29,558 28,264 2,296 30,561 7,753 6,352 9,665 1,545 2,582 20,143 11,485 7,733 19,217 926 7,632 ‐ 46,908 120
FY08 2,341 34,844 37,185 6,432 41,635 48,067 2,695 148 423 88,517 63,268 32,216 31,052 2,660 33,712 4,174 9,302 11,999 6,767 6,200 34,269 19,336 10,800 30,136 4,133 46,492 ‐ 88,517 159
FY09 2,352 45,346 47,698 8,413 54,425 62,838 125 90 1,522 112,273 70,148 37,303 32,845 4,740 37,585 8,698 12,761 16,358 9,899 5,554 44,571 24,994 12,173 37,167 7,404 56,213 2,374 112,273 203
FY10 2,433 44,731 47,164 18,389 31,549 49,937 139 43 3,501 100,784 74,722 41,597 33,125 5,184 38,310 5,576 9,587 11,111 11,589 5,373 37,660 21,021 13,067 34,088 3,572 53,247 79 100,784 194
(INR mn) FY11 2,548 51,969 54,516 26,568 30,430 56,997 45 ‐ 4,065 115,623 87,282 49,468 37,814 7,091 44,905 4,479 11,456 13,654 13,450 7,819 46,379 23,263 13,201 36,464 9,915 56,324 ‐ 115,623 214
Free cash flow Year to March Net profit Add: Depreciation Add: Interest and other non‐cash items Gross cash flow Less: Changes in working capital Operating cash flow Less: Capex Free cash flow
FY07 5,080 2,739 (267) 7,552 1,599 9,151 5,204 3,948
FY08 9,644 3,138 (4,792) 7,991 816 8,806 2,445 6,361
FY09 6,481 4,226 6,413 17,121 (6,842) 10,279 7,331 2,947
FY10 6,059 4,468 5,796 16,323 3,522 19,845 5,885 13,960
FY11 6,535 4,511 2,834 13,880 (4,286) 9,594 5,932 3,663
Cash flow metrics Year to March Operating cash flow Financing cash flow Investing cash flow Net cash flow Capex Dividends paid
FY07 9,151 (2,300) (6,536) 316 (5,204) (1,716)
FY08 8,806 29,542 (33,467) 4,881 (2,445) (2,010)
FY09 10,279 (916) (6,849) 2,514 (7,331) (2,472)
FY10 19,845 (14,027) (4,377) 1,441 (5,885) (3,645)
FY11 9,594 3,610 (12,033) 1,172 (5,932) (3,918)
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Food Profitability ratios Year to March ROACE (%) ROAE (%) ROA (%) Current ratio Receivables (days) Inventory (days) Payables (days) Cash conversion cycle (days) Debt‐equity (x) Debt/EBITDA Adjusted debt/Equity Long term debt / Capital employed (%) Total debt / Capital employed (%) Interest coverage (x)
FY07 19.1 21.2 11.2 1.0 54 103 155 2 0.7 1.9 0.7 39.7 85.7 8.9
FY08 11.8 15.1 7.0 1.1 66 124 245 (55) 1.3 4.6 1.3 54.3 91.4 5.3
FY09 15.3 20.2 9.7 1.2 42 66 133 (25) 1.3 3.4 1.3 56.0 89.2 3.6
FY10 14.0 15.8 8.2 1.1 53 119 244 (73) 1.1 2.7 1.1 49.5 83.5 3.5
FY11 13.4 13.1 7.9 1.3 41 86 182 (54) 1.0 3.1 1.0 49.3 80.9 3.9
Operating ratios (x) Year to March Total asset turnover Fixed asset turnover Equity turnover
FY07 1.3 2.3 2.4
FY08 0.9 2.0 1.9
FY09 1.2 3.8 2.9
FY10 0.9 2.9 2.0
FY11 1.0 3.1 2.2
Du pont analysis Year to March NP margin (%) Total assets turnover Leverage multiplier ROAE (%)
FY07 8.7 1.3 1.9 21.2
FY08 7.9 0.9 2.2 15.1
FY09 7.0 1.2 2.4 20.2
FY10 7.9 0.9 2.2 15.8
FY11 6.0 1.0 2.1 13.1
Valuation parameters Year to March Diluted EPS (INR) Y‐o‐Y growth (%) CEPS (INR) Diluted P/E (x) P/BV (x) EV/Sales (x) EV/EBITDA (x) Dividend yield(%)
FY07 23.5 18.0 36.5 15.0 2.9 1.5 8.4 2.3
FY08 20.3 (13.6) 32.8 17.3 2.2 2.0 11.5 2.6
FY09 36.4 79.6 49.3 9.6 1.7 1.0 6.8 2.6
FY10 30.8 (15.4) 47.1 11.4 1.8 1.2 6.4 2.6
FY11 26.0 (15.7) 42.8 13.5 1.6 1.2 7.0 2.8
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Food
UNLISTED COMPANIES
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Food
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COMPANY PROFILE
Food
AMUL The White Revolution persists India Equity Research | 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. Edelweiss Research is also available on www.edelresearch.com, 161 Bloomberg EDEL , Thomson First Call, Reuters and Factset.
Abneesh Roy +91 22 6620 3141
[email protected]
Harsh Mehta +91 22 4063 5543
[email protected]
February 9, 2012 Edelweiss Securities Limited Edelweiss Securities Limited
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
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COMPANY PROFILE
7.
Food
BAGRRY’S INDIA
Wholesome growth India Equity Research | Food
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.
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, 163 Bloomberg EDEL , Thomson First Call, Reuters and Factset.
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Food Matrix 1.
Penetration levels‐ Low
2.
Brand salience‐ Medium
3.
Challenge from MNC/regional competition‐ High
4.
Product mix‐ Low
5.
Distribution reach‐ Low
6.
Appetite for ad budget‐ Low
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COMPANY PROFILE
Food
BISLERI
Natural born leader India Equity Research | 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.
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, 165 Bloomberg EDEL , Thomson First Call, Reuters and Factset.
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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
2.
Brand salience‐ High
3.
Challenge from MNC/regional competition‐ Medium
4.
Product mix‐ Low
5.
Distribution reach‐ High
6.
Appetite for ad budget‐ High
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Food
BLUE FOODS Growing appetite India Equity Research | 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.
Abneesh Roy +91 22 6620 3141
[email protected]
Harsh Mehta +91 22 4063 5543
[email protected]
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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 Spaghetti kitchen Copper chimney
Category Italian cuisine North Indian cuisine
Gelato Italiano
Ice‐creams
China town by Noodle Bar The Coffee Bean and Tea Leaf Bombay Blue Food Talk Penne Spoon
Chinese cuisine Coffee shop Multi‐cuisine Multi cuisine food‐court Italian cuisine Multi cuisine food‐court
Regions Gurgaon, Delhi, Kolkata, Mumbai Bangalore, Mumbai Thane, Gaziabad, Delhi, Gurgaon, Noida, Pune, Hyderabad, Mumbai, Kolkata, Bangalore Mumbai, Hyderabad Mumbai, Delhi, Kolkata, Hyderabad Mumbai, Bangalore, Hyderabad Kolkata, Delhi Mumbai 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.
Matrix 1.
Penetration levels‐ Low
2.
Brand ‘salience’‐ Medium
3.
Challenge from MNC/regional competition‐ High
4.
Product mix‐ High
5.
Distribution reach‐ Low
6.
Appetite for ad budget‐ Low
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Food
CADBURY/ KRAFT Krafting the success ladder India Equity Research | 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.
Regional Presence/ Stronghold Pan India.
Abneesh Roy +91 22 6620 3141
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Harsh Mehta +91 22 4063 5543
[email protected]
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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.
Matrix 1.
Penetration levels‐ Medium
2.
Brand ‘salience’‐ High
3.
Challenge from MNC/regional competition‐ Medium
4.
Product mix‐ High
5.
Distribution reach‐ High
6.
Appetite for ad budget‐ High
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CALORIE CARE Bet on health and wellness India Equity Research | Food
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).
Abneesh Roy +91 22 6620 3141
[email protected]
Harsh Mehta +91 22 4063 5543
[email protected]
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Food Matrix 1.
Penetration levels‐ Low
2.
Brand ‘salience’‐ Low
3.
Challenge from MNC/regional competition‐ Low
4.
Product mix‐ Medium
5.
Distribution reach‐ Low
6.
Appetite for ad budget‐ Low
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CAPITAL FOODS Frozen delight India Equity Research | 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.
Abneesh Roy +91 22 6620 3141
[email protected]
Harsh Mehta +91 22 4063 5543
[email protected]
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Food Matrix 1.
Penetration levels‐ Medium
2.
Brand salience‐ Medium
3.
Challenge from MNC/regional competition‐ High
4.
Product mix‐ Medium
5.
Distribution reach‐ Medium
6.
Appetite for ad budget‐ Medium
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Food
COCA‐COLA INDIA Focus on rural to propel sales India Equity Research | 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.
Regional Presence/ Stronghold
Abneesh Roy +91 22 6620 3141
[email protected]
Harsh Mehta +91 22 4063 5543
[email protected]
Pan India. February 9, 2012 Edelweiss Research is also available on www.edelresearch.com, 175 Bloomberg EDEL , Thomson First Call, Reuters and Factset.
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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.
Matrix 1.
Penetration levels‐ High
2.
Brand ‘salience’‐ High
3.
Challenge from MNC/regional competition‐ High
4.
Product mix‐ Medium
5.
Distribution reach‐ High
6.
Appetite for ad budget‐ High
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CREMICA Creme de la creme India Equity Research | 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.
Abneesh Roy +91 22 6620 3141
[email protected]
Harsh Mehta +91 22 4063 5543
[email protected]
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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
2.
Brand salience‐ Medium
3.
Challenge from MNC/regional competition‐ High
4.
Product mix‐ High
5.
Distribution reach‐ Medium
6.
Appetite for ad budget‐ Medium
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Food
DANONE Bet on health India Equity Research | 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
Abneesh Roy
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.
+91 22 6620 3141
[email protected]
+91 22 4063 5543
[email protected]
Harsh Mehta
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Food Regional Presence/Stronghold Mumbai, Hyderabad, Bengaluru and Pune.
Future Plans Plans to launch other products from parent’s stable.
Matrix 1.
Penetration levels‐ Low
2.
Brand ‘salience’‐ Low
3.
Challenge from MNC/regional competition‐ High
4.
Product mix‐ Low
5.
Distribution reach‐ Low
6.
Appetite for ad budget‐ Medium
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Food
DR. OETKER Food retailing to help build momentum India Equity Research | 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.
Abneesh Roy +91 22 6620 3141
[email protected]
Harsh Mehta +91 22 4063 5543
[email protected]
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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.
Matrix 1.
Penetration levels‐ Low
2.
Brand ‘salience’‐ Medium
3.
Challenge from MNC/regional competition‐ High
4.
Product mix‐ Medium
5.
Distribution reach‐ Low
6.
Appetite for ad budget‐ Low
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Food
DS GROUP (CATCH MASALA) Well placed to catch the spice India Equity Research | 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.
Abneesh Roy +91 22 6620 3141
[email protected]
Harsh Mehta +91 22 4063 5543
[email protected]
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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.
Matrix 1.
Penetration levels‐ Medium
2.
Brand ‘salience’‐ Medium
3.
Challenge from MNC/regional competition‐ Low
4.
Product mix‐ Medium
5.
Distribution reach‐ High
6.
Appetite for ad budget‐ High
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EVEREST SPICES Spice king India Equity Research | 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.
Abneesh Roy +91 22 6620 3141
[email protected]
Harsh Mehta +91 22 4063 5543
[email protected]
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Food Matrix 1.
Penetration levels‐ Medium
2.
Brand salience‐ High
3.
Challenge from MNC/regional competition‐ Low
4.
Product mix‐ Low
5.
Distribution reach‐ High
6.
Appetite for ad budget‐ Medium
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HALDIRAM’S
Food
Going beyond ethnic snack foods India Equity Research | 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.
Abneesh Roy +91 22 6620 3141
[email protected]
Harsh Mehta +91 22 4063 5543
[email protected]
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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.
Matrix 1.
Penetration levels‐ Medium
2.
Brand ‘salience’‐ Medium
3.
Challenge from MNC/regional competition‐ Medium
4.
Product Mix‐ Medium
5.
Distribution reach‐ Medium
6.
Appetite for ad budget‐ Low
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Food
JSM CORPORATION Niche palate India Equity Research | 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.
Abneesh Roy +91 22 6620 3141
[email protected]
Harsh Mehta +91 22 4063 5543
[email protected]
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Food
Matrix 1.
Penetration levels‐ Low
2.
Brand salience‐ Medium
3.
Challenge from MNC/regional competition‐ High
4.
Product mix‐ Medium
5.
Distribution reach‐ Low
6.
Appetite for ad budget‐ Low
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JUMBO KING Giving vada pav a national flavour India Equity Research | 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.
Abneesh Roy +91 22 6620 3141
[email protected]
Harsh Mehta +91 22 4063 5543
[email protected]
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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
3.
Challenge from MNC/regional competition‐ High
4.
Product mix‐ Low
5.
Distribution reach‐ Medium in Mumbai
6.
Appetite for ad budget‐ Medium
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KFC INDIA Yummy delight India Equity Research | 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.
Abneesh Roy
Regional Presence/ Stronghold
+91 22 6620 3141
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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.
Harsh Mehta +91 22 4063 5543
[email protected]
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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 1.
Penetration levels‐ Low
2.
Brand salience‐ Medium
3.
Challenge from MNC/regional competition‐ High
4.
Product mix‐ Medium
5.
Distribution reach‐ Low
6.
Appetite for ad budget‐ High
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LITTLE ITALY Bringing Italy to India India Equity Research | 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).
Matrix 1.
Penetration levels‐ Low
2.
Brand ‘salience’‐ Medium
3.
Challenge from MNC/regional competition‐ High
4.
Product mix‐ High (in Italian cuisine)
5.
Distribution reach‐ Low
6.
Appetite for ad budget‐ Low
Abneesh Roy +91 22 6620 3141
[email protected]
Harsh Mehta +91 22 4063 5543
[email protected]
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McDONALD’S Replicating global success India Equity Research | 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.
Abneesh Roy +91 22 6620 3141
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Harsh Mehta +91 22 4063 5543
[email protected]
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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.
Matrix 1.
Penetration levels‐ Low
2.
Brand ‘salience’‐ High
3.
Challenge from MNC/regional competition‐ High
4.
Product mix‐ Medium
5.
Distribution reach‐ Medium
6.
Appetite for ad budget‐ High
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MIRAH GROUP Tingling taste buds India Equity Research | 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. Abneesh Roy +91 22 6620 3141
[email protected]
Harsh Mehta +91 22 4063 5543
[email protected]
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Food Matrix 1.
Penetration levels‐ Low
2.
Brand salience‐ Medium
3.
Challenge from MNC/regional competition‐ High
4.
Product mix‐ High
5.
Distribution reach‐ Medium
6.
Appetite for ad budget‐ Medium
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Food
MOTHER DAIRY Diversification to help fight competition India Equity Research | 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.
Abneesh Roy +91 22 6620 3141
[email protected]
Harsh Mehta +91 22 4063 5543
[email protected]
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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
2.
Brand ‘salience’‐ High
3.
Challenge from regional competition‐ High
4.
Product mix‐ High
5.
Distribution reach‐ Medium
6.
Appetite for ad budget‐ Medium
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MTR FOODS Well placed to capture a big pie India Equity Research | 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.
Abneesh Roy +91 22 6620 3141
[email protected]
Harsh Mehta +91 22 4063 5543
[email protected]
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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.
Matrix 1.
Penetration levels‐ High
2.
Brand salience‐ High
3.
Challenge from MNC/regional competition‐ High
4.
Product Mix‐ Medium
5.
Distribution reach‐ Medium
6.
Appetite for ad budget‐ High
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PARAG MILK FOOD ‘Go’ for gold India Equity Research | 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.
Abneesh Roy +91 22 6620 3141
[email protected]
Harsh Mehta +91 22 4063 5543
[email protected]
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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.
Matrix 1. Penetration levels‐ Medium 2. Brand salience‐ Medium 3. Challenge from MNC/regional competition‐ High 4. Product mix‐ High 5. Distribution reach‐ Medium 6. Appetite for ad budget‐ Medium
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PARLE AGRO From juices to snacks India Equity Research | 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.
Abneesh Roy +91 22 6620 3141
[email protected]
Harsh Mehta +91 22 4063 5543
[email protected]
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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.
Matrix 1.
Penetration levels‐ Medium
2.
Brand salience‐ High
3.
Challenge from MNC/regional competition‐ High
4.
Product Mix‐ Medium
5.
Distribution reach‐ High
6.
Appetite for ad budget‐ Medium
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PARLE PRODUCTS Biscuit legend India Equity Research | 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.
Abneesh Roy +91 22 6620 3141
[email protected]
Harsh Mehta +91 22 4063 5543
[email protected]
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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.
Regional Presence/ Stronghold Pan India.
Matrix 1.
Penetration levels‐ High
2.
Brand salience‐ High
3.
Challenge from MNC/regional competition‐ High
4.
Product Mix‐ Medium
5.
Distribution reach‐ High
6.
Appetite for ad budget‐ Medium
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PEPSICO Diverse portfolio to aid growth India Equity Research | 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.
Abneesh Roy +91 22 6620 3141
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Harsh Mehta +91 22 4063 5543
[email protected]
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Food Branding One of the biggest advertisers the company mainly relies on star‐packed ad campaigns.
Competition Coca‐Cola, ITC, Dabur, Kellogg’s.
Regional Presence/ Stronghold
Pan India.
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.
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‐ High
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PERFETTI VAN MELLE Confectionary king India Equity Research | 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. Abneesh Roy +91 22 6620 3141
[email protected]
Harsh Mehta +91 22 4063 5543
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Food Distribution Distributed across 2.8 mn outlets.
Regional Presence/ Stronghold Pan India.
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.
Matrix 1.
Penetration levels‐ Medium
2.
Brand ‘salience’‐ High
3.
Challenge from MNC/regional competition‐ Medium
4.
Product mix‐ Medium
5.
Distribution reach‐ High
6.
Appetite for ad budget‐ High
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Food
PIZZA HUT Set to brawl competition India Equity Research | 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.
Abneesh Roy +91 22 6620 3141
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Harsh Mehta +91 22 4063 5543
[email protected]
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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. 2. 3. 4. 5. 6.
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Penetration levels‐ Medium Brand ‘salience’‐ High Challenge from MNC/regional competition‐ Medium Product mix‐ High Distribution reach‐ Medium Appetite for ad budget‐ Medium
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RASNA Powdered drink veteran India Equity Research | 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.
Regional Presence/ Stronghold
Abneesh Roy +91 22 6620 3141
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Pan India.
Harsh Mehta +91 22 4063 5543
[email protected]
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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.
Matrix 1.
Penetration levels‐ High
2.
Brand salience‐ High
3.
Challenge from MNC/regional competition‐ High
4.
Product Mix‐ Low
5.
Distribution reach‐ High
6.
Appetite for ad budget‐ Low
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SUBWAY Playing well on urbanisation India Equity Research | 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.
Abneesh Roy +91 22 6620 3141
[email protected]
Harsh Mehta +91 22 4063 5543
[email protected]
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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.
Matrix 1. Penetration levels‐ Low 2. Brand ‘salience’‐ Medium 3. Challenge from MNC/regional competition‐ Low 4. Product mix‐ Medium 5. Distribution reach‐ Low 6. Appetite for ad budget‐ Medium
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TUNIP AGRO Juicy story India Equity Research | 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%).
Abneesh Roy +91 22 6620 3141
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Harsh Mehta +91 22 4063 5543
[email protected]
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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
2.
Brand salience‐ Medium
3.
Challenge from MNC/regional competition‐ High
4.
Product mix‐ Low
5.
Distribution reach‐ Medium
6.
Appetite for ad budget‐ Low
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UNIBIC Innovation leads the story India Equity Research | 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).
Abneesh Roy +91 22 6620 3141
[email protected]
Harsh Mehta +91 22 4063 5543
[email protected]
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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.
Matrix 1.
Penetration levels‐ Low
2.
Brand ‘salience’‐ Low
3.
Challenge from MNC/regional competition‐ High
4.
Product mix‐ Low
5.
Distribution reach‐ Low
6.
Appetite for ad budget‐ Low
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VENKY’S INDIA Bet on frozen non‐veg market India Equity Research | 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.
Abneesh Roy
Competition
+91 22 6620 3141
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Godrej Tyson Foods, Suguna, Aarambaug, Amrit group. Also, the company faces competition from the unorganized sector in the Processed Chicken segment.
Harsh Mehta +91 22 4063 5543
[email protected]
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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.
Matrix 1. Penetration levels‐ Medium 2. Brand ‘salience’‐ Medium 3. Challenge from MNC/regional competition‐ Low 4. Product mix‐ High 5. Distribution reach‐ Medium 6. Appetite for ad budget‐ Medium
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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
Source: Edelweiss research
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. 227
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Food Fig .2: Grinding with Chakki tool
Fig .3: Modern flour mill machine
Source: Edelweiss research
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
Organised eating out a meager 8% of overall food services industry
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.
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Food Fig.5 : Roadside eating joints
Hotels and restaurants have a huge scope of growth in India
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
Source: Edelweiss research
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.
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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 Durables Housing 5% Apparel 3% 6% Healthcare 6% Education 6%
Food 42%
Communication 5% Entertainment 7% Personal Care 9%
Travel 11% Source: Technopak, Edelweiss research
Rural India shell out more on food than urban
Chart 2: Wallet share of blended wallet share Feul, Transport Savings & & Investments Communication 4% 10% Discretionary Expenditure 30%
Rent, Utilities & Education 20%
Food & Grocery 36%
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.
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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 Food Industry size (USD bn) Food Processing Industry size (USD bn) % Food Processing Industry in total food industry (%) Size of organized sector in food processing industry (USD bn) % organized sector in food processing industry (%)
2002 ‐03 175 70 40.0 13 19.0
2006‐07 200 85 43.0 23 27.0
2010‐11* 250 110 44.0 37 36.0
2014‐15* 300 150 50.0 60 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.
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Food Fig. 1: Processed foods categorized by consumer’s needs
1
>INR 10.0 lacs
2
>INR 5.0‐10.0 lacs
3
>INR 2.0‐5.0 lacs
4
>INR 0.5‐2.0 lacs
5
>INR 0.5 lacs
Lifestyle & Aspiration Cheese, Wine, Gourmet, Food, etc.
1.2 mn
Convenience & Time Saving RTE, RTC, Purses, etc.
2.4 mn
Food Inflation Protection Frozen Fruits & Vegetables, Juices
10.9 mn
Wholesome Nutrition Milk, Juices, Meats, etc.
91.3 mn
Basic Nutrition Fortified Atta, Iodized Salt, etc
101.0 mn
Annual Household Income
No. of Households
Need from Processed Food
Source: Technopack, Edelweiss research
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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 450 394
Chart 2: Monthly % Share of overall advertising in 2010 40.0
360
32.0
322
24.0
(Hrs)
(%)
270
16.0 180
8.0
90
December
October
August
July
June
May
April
November
Jan‐Dec 2010
September
Jan‐Dec 2009
March
0
February
January
0.0
Source:
Chart 1: Top 5 Advertisers in 2010 Rank 1 2 3 4 5
Chart 2: Monthly % Share of overall
Advertiser Hindustan Unilever Ltd Vadilal Enterprises GCMMF (Amul) Hatsun Agro Product Ltd Induss Ice Cream
% Share 64.0 10.0 9.0 9.0 2.0
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
Source: AdEx India, Edelweiss research
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Food Overview of 'Namkins/Wafers(Chips)' advertising on TV Key findings:
Wafers is being aggressively marketed by companies
•
'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 4: TV ad declined 1% during Jan‐Oct '10 100.0
(Index: Jan‐Oct 09 = 100)
Chart 3: Namkins 5% share of overall F&B TV ad Namkin 5%
99.6 99.2 98.8 98.4 98.0
Others 95%
Jan‐Oct 2009
Jan‐Oct 2010
Source: AdEx India, Edelweiss research
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Food Chart 5: Wafers accounted for 59% of overall ad
Chart 6: Major advertising companies Flavour Foods Parle products
Namkin 41%
Agro Tech
Wafers/chi ps 59%
2
3
16
ITC
31
Pepsi Co
45
Source: AdEx India, Edelweiss research
Table 3: New Brands advertised on TV during Jan‐Oct 10 Rank 1 2 3 4 5 6 7 8 9 10
Top New Brands Bingo Spicy Masala Remix Lehar Kurkure Funjabi Kadhai Lays American Style & Cream Onion Hippo Munchies Bingo Juicy Tomato Ketchup Bingo Premium Salted Potato Lehar Kurkure Khicdi Real Namkin Real Falahari Mukharochak Chanachur Source: AdEx India, Edelweiss research
Chart 7: National & regional channels
Chart 8: Share of states in regional channel West Others 9% AP Bengal 24% 10%
Regional 39%
Karnataka 8% Punjab 13%
Maharasht ra 11%
National 61%
Assam 3% TN 22%
Source: AdEx India, Edelweiss research
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Food Snapshot of TV advertising by instant foods/meals Key Findings:
HUL ad spends has been aggressive to face market leader Nestle
•
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.
(Index: Jan‐Oct 09 = 100)
Chart 9: TV Ad volume comparison 200
Chart 10: Ad for different categories Frozen foods Instant mix 3% Ready to 13% eat 1%
160 120
Instant Soup Mixes 7%
80 40 0 Jan‐Oct 2009
Jan‐Oct 2010
236
Noodles/P asta 76%
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Food Chart 11: Leading advertisers MTR Indo Nissin Foods Smithkline Beecham
Chart 4: Leading brands advertised Ranks 1 2 3 4 5
3
10
New Brands Knorr Soupy Noodles Maggi Thrillin Curry Maggi Multigrainz Noodles Maggi Tricky Tomato MTR Breakfast mixes
13
Nestle
27
HUL
37
Chart 12: National & regional channels
Chart 13: Share of states in regional channel Orissa 5%
Others 7% TN 25%
West Bengal 9% National 45% Regional 55%
Kerala 11%
Karnataka 12%
Maharasht ra 17% AP 14% Source: AdEx India, Edelweiss research
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.
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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.
(Index: Jan‐Oct 09 = 100)
Chart 14: TV ad volume comparison 160
Chart 5: Most advertised chocolate company
128 96
Rank
Company
1
Cadburys India Ltd
2
Nestle India Ltd
3
Ferrero India Ltd
4
Smithkline Beecham
5
Inbisco India Pvt Ltd
64 32 0 Jan‐Oct 2009
Jan‐Oct 2010
Source: AdEx India, Edelweiss research
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
Regional 48%
National 52%
Source: AdEx India, Edelweiss research
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Food Snapshot of beverages sector on TV during Jan‐May '10 Key Findings:
Coca‐Cola leads with 17% share in advertisement
•
'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 18,600
Chart 17: % share in TV ads Others 14%
18,000
(Hrs)
17,400 16,800 16,200 15,600 Jan‐Jun 2010
Jan‐Jun 2011
Food & Beverages 86% Source: AdEx India, Edelweiss research
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Food Chart 7: Sector advertising
Chart 8: Most advertised beverage company
Category
% share
Company
Share (%)
Soft Drink Aerated
18.0
Coca Cola India Ltd
17.0
Milk Beverages
14.0
Cadburys
13.0
Chocolates
8.0
Smithknline Beecham
7.0
Biscuits
8.0
Pepsi Co
6.0
Soft Drink Non Aerated
8.0
Brooke Bond Lipton
6.0
Spices
4.0
Perfetti Van Melle
4.0
Tea
4.0
Heinz
4.0
Noodles/ Pasta
3.0
ITC
4.0
Chewing Gum/ Bubble Gum
3.0
Nestle
3.0
Edible Oil
3.0
Britannia
Chart 9: Top 10 brands Rank 1 2 3 4 5 6 7 8 9 10
3.0 Source: AdEx India, Edelweiss research
Chart 18: National vs. regional channels
Brands Sprite Complan Maaza Fanta Thums Up MDH Masala Range Limca Horlicks Pepsi Cadbury's Bournvita Plus Plus
National 42% Regional 58%
Source: Source: AdEx India, Edelweiss research
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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 100.0 Consumers look for quality and health in packaged food (%)
80.0 60.0 40.0
Strongly sensitive
Mildly sensitive
Promotional Offfers
Price
Convenient to Cook
Brand
Easy Availability At Stores
Quality
0.0
Health Consiousness
20.0
Indifferent
Source: Edelweiss research
Price plays a small role
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
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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
89%
Quality Conscious
44%
28% respondents are strongly sensitive to Health, Quality as well as Brand
Health Conscious
Brand Conscious
57%
Chart 2: Response to quality consciousness Strongly Sensitive to Quality as well as brand
Indifferent 1% Strongly Sensitive 89%
Mildly Sensitive 10%
Source: Edelweiss research
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Food Chart 3: Health consciousness on the rise
31% 30% 56% 32% (12%) (37%)
Soft Drinks Increased
Health Food Drinks Fruit Juices 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 Decreased 17%
Eating out has increased mainly attributed to changing lifestyle Increased Significantly 46%
Increased Marginally/Rem ained Same 37% Source: Edelweiss research
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
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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 Relatively Higher proportion of males eating outside food
2‐4 times a week 38%
Male More than 4 times a week 22%
less than once a week 40%
Female
Source: Edelweiss research
48.0
(%)
36.0 24.0
Do Not Want to Cook
Stress Buster
Lack Of Time to Cook
Easy Availability
Driven By Family Kids Friends
0.0
Social Gathering
12.0
Taste Preferences
Consumers prefer taste to other factors
Chart 6: Taste tops the list while eating non‐homemade food 60.0
Source: Edelweiss research
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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
Chart 7: % of respondents who highly prefer these foods 80.0 64.0 48.0
(%)
Traditional food still a preference over western
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.
32.0 16.0 0.0 Traditional Indian Regional
Western Fastfood Chinese Food Source: Edelweiss research
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Food Chart 8: % of respondents who regularly consume this product 80.0 64.0
(%)
48.0
Traditional snacks widely consumed but RTE/RTC has good potential ahead
32.0
Bottled Water
Packaged Atta Spices
Ready‐to‐eat Western Meal
Ready‐to‐eat Indian Meal
Table Relishes
Traditional Snacks
0.0
Noodles Pasta Soups
16.0
Source: Edelweiss research
Chart 9: Frequency of consuming noodles, pasta, soups Do not consume 7% Rare 16%
Regular 31%
Occasional 46% Source: Edelweiss research
•
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.
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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.
36.0 24.0
Ready To Cook Indian
Jams Jellies Spreads
Instant Soups
Popcorn
Pasta
Sauces
Soft Drinks
Noodles
Pack. Rice Atta Pulses
Cooking Aids
Packed Indian Snacks
Breakfast Cereals
Icecream
Pizza Burger
Health (Fruit Juices)
0.0
Chocolates
12.0
Biscuits Chips
Health, milk products and biscuits gaining momentum
48.0
Milk Products
Sales growth (%)
Chart 10: % of respondents who have increased their purchase over past 5 years 60.0
Source: Edelweiss research
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Food
Soft drink consumption has largely declined
Table 1: Category‐wise change in consumption pattern Increased Remained same Health (Fruit Juices) 56.0 30.7 Milk Products 51.2 31.8 Biscuits Chips 49.1 36.0 Chocolates 43.8 33.9 Pizza Burger 42.9 32.7 Icecream 39.9 39.0 Breakfast Cereals 39.0 31.0 Packed Indian Snacks 35.4 38.7 Cooking Aids 35.4 51.5 Pack. Rice Atta Pulses 34.2 38.1 Noodles 33.3 42.3 Soft Drinks 32.1 29.8 Sauces 31.3 45.2 Pasta 30.1 36.3 Popcorn 26.2 37.8 Instant Soups 24.1 34.8 Jams Jellies Spreads 22.3 44.9 Ready To Cook Indian 13.4 42.6
Decreased 11.6 14.6 14.0 21.4 21.4 19.3 28.3 23.5 11.6 25.6 23.2 36.6 20.5 31.3 33.9 37.5 29.8 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.
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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 Source: Edelweiss research
Chart 11: % of respondents who always prefer food products of following companies 70.0 56.0
(%)
42.0 28.0 14.0 ‐ Nestle
Britannia
ITC
HUL
Dabur
Marico
GSK CH
Source: Edelweiss research
Chart 12: % of respondents who find the products of these companies easily available 90.0 72.0
(%)
54.0 36.0 18.0 0.0 Nestle
Britannia
ITC
HUL
Dabur
Marico
GSK CH
Source: Edelweiss research
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Food Chart 13: % of respondents who find the A&P of these companies highly effective 40.0 32.0
(%)
24.0 16.0 8.0 0.0 Nestle
Britannia
ITC
HUL
Dabur
Marico
GSK CH
Source: Edelweiss research
•
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 Biscuits Noodles Pasta Milk Products HFD Soups Ice Cream packaged Rice
Rank1 Parle Maggi Maggi Amul Bournvita Knorr Kwality Walls Kohinoor
Top Brands Rank2 Britannia Sunfeast Britannia Horlicks Maggi
Source: Edelweiss research
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Food Table 4: Preferred brand in biscuits
Biscuits Rank 1 Rank 2
Parle (Parle G, Krackjack, Hide n Seek) 47.0 39.9
Britannia (Tiger, Treat, Goodday, 50‐50) ITC(Sunfeast) Priya Gold ‐ 3.6 0.3 ‐ 8.3 1.8
Table 5: Preferred brand in noodles Noodles Rank 1 Rank 2
Nissin Foods (Top GSK CH HUL (Knorr Nestle (Maggi) Ramen) (Foodles) Soupy) 88.7 1.8 0.9 1.5 8.9 33.9 7.1 19.6
Table 6: Preferred brand in packaged rice Pkg Rice Kohinoor Dawat Lal Mahal Rank 1 72.0 7.1 3.3 Rank 2 8.3 44.0 23.8 Table 7: Preferred brand in packaged milk Nestle (Everyday, Milk Prod Amul Britannia Mother Dairy Milkmaid) Rank 1 72 10 7 5 Rank 2 15 34 15 25 Table 8: Preferred brand in HFD Cadbury HFD GSK CH (Horlicks) Heinz (Complan) GSK CH (Boost) (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) 40.2 40.5
Rank 1 Rank 2
HUL (Knorr) 45.8 36.9
Table 11: Preferred brand in ice‐cream Kwality Walls Baskin Robins Dinshaw Vadilal Rank 1 42.3 39.3 2.1 7.7 Rank 2 37.5 20.2 6.3 22.9 Source: Edelweiss research
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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.
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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:
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•
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.
Edelweiss Securities Limited
Food Chart 14: Gender profile
Chart 15: Age profile 35‐45 >45 years 4% years 12%
Female 33%
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
Underweight (UW)
Sector return < 0.75 x Nifty return
Sector return < 1.25 x Nifty return
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Food 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
Date
1,150
Company
(INR)
750
Buy
Price (INR)
15‐Feb‐12
Nestle
Margin mantra; Result Update
15‐Feb‐12
Consumer Goods
Resilience continues; Sector Update
13‐Feb‐12
Emami Buy Buy
Margin surge: a positive surprise; Result Update
950
Title
Recos
4,412
Hold
376
Buy
550 350
Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09
150 Distribution of Ratings / Market Cap
Rating Interpretation
Edelweiss Research Coverage Universe Buy
Hold
Reduce
Rating
Total
Expected to
Rating Distribution* * 3 stocks under review
119
> 50bn
Market Cap (INR)
111
47
15
184
Between 10bn and 50 bn
< 10bn
57
16
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
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