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SUMMER PROJECT REPORT BASMATI RICE INDUSTRY Made by: Anil Kumar Singh MBA 1 st Sem. TABLE OF CONTENTS
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company profile of basmati rice

Apr 16, 2015

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Page 1: company profile of basmati rice

SUMMER PROJECT REPORT

BASMATI RICE INDUSTRY

Made by:Anil Kumar Singh

MBA 1st Sem.

TABLE OF CONTENTS

Sno. Particulars Page no.

Page 2: company profile of basmati rice

1 Global rice industry

2 International trade of rice

3 Indian rice industry

4 Basmati rice patent

5 Basmati rice industry

6 How is Basmati rice produced?

7 Industry drivers

8 Supply side of Basmati rice

9 Positives for the industry

10 Research Methodology

11 SWOT analysis

12 New markets

13 Future outlook of the industry

14 REI Agro

15 Kohinoor Foods

16 KRBL

17 LT Foods

18 Analysis

19 Limitation

20 Conclusion

21 Bibliography

22 Questionnaire

Page 3: company profile of basmati rice

Global Rice industry

Global paddy production over the 2009 season has been lifted by nearly 10 million tonnes

to 678 million tones (454 mn/t on milled basis), the second highest production on record.

World rice production is expected to increase by 4% to 710 million tons (474 mn/t on

milled basis) in 2010 (Source: FAO).

0

100

200

300

400

500

600

700

2005 2006 2007 2008 2009

Mn Tonnes

China India Indonesia Bangladesh Vietnam Others

Global Rice Price

Global rice price have increased at a CAGR of 16% from $173/t in 2001 to $570/t in

2009. The major reasons behind increase in global rice price during 2007 to 2009 were:

1. Temporary export bans and restriction implemented by several major and mid-level

rice exporters,

2. Weather related problem in specific growing areas,

3. A sharp decline in the value of dollar in fall 2007 and winter 2008,

4. A shift of fund into commodities from stocks and real estate in 2007 and early 2008

that added to price volatility and may have temporarily boosted price.

Page 4: company profile of basmati rice

World Rice Price (US$/t)

0

100

200

300

400

500

600

700

2001 2002 2003 2004 2005 2006 2007 2008 2009(Jan-July)

International Trade of rice

The current forecast for international rice trade in the calendar year 2010, at 31.2 million

tonnes, points to a 2.7 percent, or 800 000 tonnes, increase from the 2009 estimate and

much higher than forecast last June. The revision reflects larger import requirements by

those countries that faced important crop losses in recent months. If confirmed, trade next

year would be the second largest after 2007.

Source: FAO

Much of the expected growth is expected to be driven by larger imports by Asian

countries, which are foreseen to reach 14.8 million tonnes on aggregate, almost 7 percent

more than last year. Part of the increase would stem from increased purchases by Near

East Asian countries, in particular Iraq, Saudi Arabia and the United Arab Emirates,

Page 5: company profile of basmati rice

while rice flows into the Islamic Republic of Iran may be depressed by large domestic

availabilities and a recent increase in the basmati rice tariff. Among countries in the Far

East, imports by Bangladesh, Nepal and especially the Philippines are forecast to rise to

offset recent losses from natural disasters.

Indian Rice Industry

Rice is one of the most important food crop of India and 2nd of the world. It feeds more

than 50 % of the world population. Agriculture is the main source of income for families

in India. Farms cover over half the land and almost 1/3rd is used to grow the two major

grains i.e. Rice and Wheat. India is the second leading producer of rice in the entire

world, preceded only by China. Current production of Rice in India is 87.5 mn tones. In

2010, the total area under rice in India was 43mn hectares. Rice Production has increased

at a CAGR of 2.9% from 71mn tones in 2003 to 87.5mn tones in 2010. It is expected to

grow at 99mn/t in 2011(Source: USDA). With an ever increasing population, demand of

rice has been increasing in the country. Thereafter, various efforts such as use of High

Yielding Varieties of rice, Hybrid rice, System of Rice Intensification (SRI) method,

responsive to high dose of fertilizers coupled with improved package of practices have

been made to increase the production & productivity in the country through various

centrally sponsored schemes

Page 6: company profile of basmati rice

Rice production & yield trend

87.699

.2

96.7

93.4

91.8

83.1

88.5

71.8

2013221422022131210319842078

1744

0

20

40

60

80

100

120

2003 2004 2005 2006 2007 2008 2009 2010

0

500

1000

1500

2000

2500

Rice production ( Mn. Tonnes) Rice yield (Kg/hectare)

Basmati Rice

The name Basmati comes from the Hindi language, meaning 'Queen of Fragrance'.

Basmati Rice has been grown in the foothills of the Himalayas for thousands of years. Its

perfume, nutlike flavour and aroma can be attributed to the fact that the grain is aged to

decrease its moisture content. When cooked, it swells only lengthwise, resulting in long

slender grains that are dry, separate and fluffy. Due to the high amount of starch clinging

to the rice grains, Basmati rice should always be washed before being cooked. Basmati

rice is known as the queen of rice. It is long grained, non glutinous and particularly good

for formal rice cooking. Basmati Rice is a simple grain yet throughout history it has been

on royal menus of various cultures as the main dish.

The Basmati Rice Patent

Basmati rice was developed by Indian farmers over hundreds of years, but in September

1997 a Texas-based company, RiceTec Inc., won a controversial US patent for a cross-

breed with American long-grain rice. This company was granted a patent to call the

aromatic rice grown outside India `Basmati'. RiceTec was granted the patent on the basis

of aroma, elongation of the grain on cooking and chalkiness. Many have felt that the

patent should not be granted since basmati is Indian property. India contested the patent

for Basmati rice acquired by Rice Tec Inc, which had been challenged by the Agriculture

Page 7: company profile of basmati rice

and Processed Food Products Export Development Authority (APEDA). The US Patent

and Trademarks office accepted the petition and had re-examined its legitimacy.

Contrary to misinformation in some sections of the media, India did not lose the Basmati

Patent Challenge. India has actually won and not lost the Basmati patent battle. In its

original patent on 'Basmati rice lines and grains' - granted by the USPTO on September 2,

1997 - Rice Tec had made as many as 20 claims. Extensive documentation was submitted

to establish that the various Basmati varieties cultivated over the centuries in the

subcontinent contained all the 'novel' grain attributes mentioned in the patent. As a result

of a worldwide citizen campaign against RiceTec Basmati patents, on Aug 14th 2001 the

U.S. Patent and Trademark Office struck down large sections of the Basmati patent. In

other words, the withdrawal of the grain-specific claims ensured that Rice Tec would not

be able to block the country's Basmati rice export to US; it could, however, produce

'similar or superior grains' outside India.

Basmati rice industry

As mentioned above India and Pakistan are the only producers of Basmati rice in the

world. The total production in the year 2009-10 was around 4 million metric tones (mmt)

of which India produced 75% and the rest 25% was produced by Pakistan. Out of the

production of 3 mmt in India, around 1.8 mmt was exported and 1.2 mmt was consumed

domestically.

Page 8: company profile of basmati rice

Trade in coarse rice is spread in several countries, mainly located in Asia, with first five

importers making 25% of overall rice trade in 2007. Basmati rice trade is rather

concentrated. In 2007, the first five clients of India had a share of 84.9% and those of

Pakistan 68.5% of respective Basmati export (India: 616.7 million USD; Pakistan: 556

million USD). India mainly exports Basmati to Saudi Arabia, European Union, Kuwait,

UAE and USA, whereas Pakistan does the same with UAE, Iran, Oman, European Union

and Yemen.

Basmati export (MMTPA)

Particulars 2003 2004 2005 2006 2007 2008 2009India  Quantity 0.71 0.77 1.16 1.17 1.05 1.18 1.56

Value (Mn $) 415.80 433.70 628.50 687.30 616.70 1079.10 1958.1

   Pakistan  Quantity 0.72 0.82 0.81 0.84 0.91 1.27  Value (Mn $) 267.7 308.4 439.2 479.6 556.3 1068.9  

Basmati trade is also concentrated by demand side. The first five importers made 44.5%

of overall market in 2007. Main importers are almost located in Middle East, although

European Union is the third importer.

Global Rice

Basmati Rice Other Varieties

India (75%)

Pakistan (25%)

Mostly ExportsDomestic

(40%)Exports (60%)

Full Grain BrokenMiddle East

(75%)USA/UK

(10%)ROW (15%)

Page 9: company profile of basmati rice

Market Share in 2007-08 (% of total Export)

6%

10%

16%

46%

13%2%

3%

4%

Saudi Arabia UAE Kuwait United KindomYemen Republic USA Netherland Others

How is Basmati Rice produced?

The first and foremost step for the industry player to produce good quality Basmati rice is

to procure the best quality of paddy from the mandis. In India there are a total number of

220 mandis, which are highly diversified. Therefore the procurement skills of the

industry players play a significant role and make a vital difference among the

counterparts. There is a particular process by which paddy is purchased from the mandis.

It consists of the farmer’s (seller’s) commission agent (Kaccha aratya) and the company’s

(buyer’s) commission agent (Pakka aratya).

The company’s agent goes and buys paddy from the farmer’s agent. The company’s

agent needs to possess the required skills to determine whether the quality of paddy is

good or not. If he has a fair idea of the quality of paddy he will quote his price to the

farmer’s agent and the trade will take place. To develop good procurement skills one

needs a learning curve which comes through a lot of experience.

Farmer’sCommission agent

Kaccha aratya (Farmer’s agent)

Commission agent Pakka aratya

(Companies agent)

Trade Take place

Organized & Unorganized

players

Page 10: company profile of basmati rice

Maturing

The key ingredient to produce full grain Basmati rice is the maturing period of the rice.

To have good quality Basmati rice it needs to be properly matured. A good maturing

period is generally from 12-14 months. For maturing of the rice proper infrastructure and

maintenance is required throughout the maturing process. There are a number of risks

involved in the maturing process of Basmati rice.

The biggest challenge of maturing Basmati rice is the money involved in it. As the

companies are operating at very high inventory days of almost a year the working

capital needs of a company is very high. Therefore a lot of capital is required in this

business.

Besides the challenge of working capital there are a lot of risks associated with the

insects that can hamper Basmati rice when it is stored in the godowns for about a

year. Insects, rodents, mites and fungi cause considerable damage to stored rice.

There are a total of 18 species of insects that infest stored rice in India. Some of them

are lesser grain borer, rice weevil and rice moth.

To overcome the challenges in maturing Basmati rice one can go to the intermediaries

who keep the rice for a particular period of time. But it increases the cost of funding for

the company. This will also result in increase in the price of Basmati rice and lower

margins to the companies as the intermediaries would eat out the margins of the

companies.

Milling

The processing and milling of rice is another important aspect of producing good quality

Basmati rice. The process of milling involves De-husking and grading which are the most

critical processes.

De-husking

This is one of the most critical processes of Basmati rice production because it decides

the price and the length of the Basmati rice. The full grain Basmati rice commands the

Page 11: company profile of basmati rice

best price in the export and domestic market which is the ultimate focus of every

company.

Grading

When the paddy is processed we get various sizes of Basmati rice. Full grain, half grain,

three-fourth grain and so on. But the number of varieties of Basmati rice that we get from

the processing depends on the processing facilities used by the company. If the company

has a good processing facility it will get more varieties of rice, while if the company has a

sub standard processing facility the quality of rice will also be substandard.

One can also outsource the milling process but the disadvantage of it is the handling. But

then one does not have any control on the milling process. Moreover, the person to whom

one has outsourced might not have the facilities which grade rice in a number of different

varieties and this will result in less realization for the company.

Selling and Distribution

All the processes become irrelevant if the product does not reach the ultimate consumer.

Therefore like every business the distribution channels play a vital role in this business.

Different companies follow different types of distribution channels to reach their

customers.

REI Agro mainly supplies its products through wholesalers and its retail arm Six Ten

domestically. While on the other hand when we talk about the export market it supplies

its products through its owned brand and also through the brands of the companies

located in the foreign markets.

On the other hand the other companies such as Kohinoor Ltd., KRBL and LT Foods

supply their products through the branded route domestically as well as internationally.

Domestically they supply their products through kirana shops, wholesalers, retail chains

such as Reliance retail, Big Bazaar etc. These three companies are more into the branding

business as compared to REI Agro which is more into the private labeling segment.

Page 12: company profile of basmati rice

In this regard Kohinoor Ltd., KRBL and LT Foods have an advantage that they have an

established brand which commands higher price in the markets as compared to REI Agro.

But due to the higher working capital cost and higher procurement costs, the margins of

these three companies are lower as compared to REI Agro.

Basmati Rice Industry Drivers

Domestic Drivers

India is one of the fastest growing economies of the world. With the advantage of the

demographics, India is poised to become one of the developed economies in the next 2

decades.

The following are the reasons which will drive the growth of Basmati rice industry in

India:

Increasing affordability

India is the fifth largest country in purchasing power parity and the tenth largest in sheer

quantum terms. In year 2008-09 India’s per capita income was estimated to be more than

$653 and is expected to rise to $2000 by the year 2016-17 (Source CSO). The average

household disposable income would reach Rs 3, 18,869 by the year 2025 at a CAGR of

5.3% resulting in an increased demand for Basmati. The average Indian is earning higher

than ever before. The estimated cumulative liquid wealth of the Indian affluent class is

poised to grow at 50% over the next three years.

Rising consumerism

India is expected to graduate from the 12th largest in the year 2007 to world’s fifth largest

by the year 2025 among consumer markets. There is a subtle shift occurring in the Indian

spending habit. Expenditure in life style and premium goods, rather than spending on

necessities, is projected to account for 70% of all consumers spending by the year 2025.

(Source Mckinsey report) By 2020, urban consumers are likely to represent 37% of the

population and still account for 62% of consumption.

Page 13: company profile of basmati rice

Urban population in India, % of Total

10%

15%

20%

25%

30%

35%

40%

45%

1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040

Change in taste & preference

The rise in per capita income has also resulted in increase in the demand for Basmati rice.

This is because more people can now afford to buy Basmati rice. The domestic

consumption of Basmati rice has increased from 0.35mn/t in 2003 to 0.78mn/t in 2009 at

a CAGR of 14.3%. The expansion of retail stores and hyper markets has significantly

contributed to the increase in the demand for Basmati rice. The share of branded Basmati

rice in total basmati consumption has seen an exceptional rise. With the increase in the

standard of living, consumers are shifting towards packaged rice and becoming brand

selective. Some brands of Basmati rice which have become household names are

Kohinoor, Daawat, Lal Quila and Charminar etc. The branded rice category is expected

to grow significantly over the next few years.

Increasing availability

The production of Basmati rice has more than doubled from around 1 mn/t in 2003 to 2.3

mn/t in 2009 respectively. This will continue to grow as the demand from both domestic

and international markets is constantly increasing. Moreover, the farmers are increasing

the production of Basmati rice, because the production cost of Basmati rice is marginally

higher compared to production cost of non-Basmati rice. But the realization from

Basmati rice is higher compared to non-Basmati rice. Moreover, it is a premium variety

of rice, which generally sells at premium prices in the domestic as well as international

markets. Basmati rice paddy sells at around Rs 28-32 per kg, while the normal rice paddy

sells at around Rs 10-13 per kg. But there is a huge difference in the selling price of

Page 14: company profile of basmati rice

Basmati rice (average Rs.70-75/Kg) and normal rice (Average Rs.25-30/Kg), which is

forcing the farmers to increase the production of Basmati rice.

Global market drivers

Basmati rice can only be produced by 2 countries in the world i.e. India and Pakistan. No

other country can produce Basmati rice as these 2 countries hold the patent to produce

Basmati rice. The following are the reasons which will drive the growth of Basmati rice

industry globally:

Increasing affordability

The Middle East accounts for 75% of exports of Basmati rice from India. Due to the

better quality of rice, aroma, flavor and taste there is a huge demand of Basmati rice

globally. Theses countries are developed and cash rich, therefore they are able to pay the

premium for Basmati rice over the non basmati rice. The realization on exports of

Basmati rice is more than the domestic sales, so it is incentive to export Basmati rice.

Moreover India and Pakistan enjoy a kind of monopoly in this business which further

helps them to command a greater price from the global market.

Supply side of Basmati rice

Increasing farmer awareness

Nowadays, with the help of the various social campaigns and advertisements from the

fertilizer and seed companies, farmers are shifting towards high yielding production

methods. Some of the techniques like High yielding variety (HYV) of seeds, hybrid rice

and various new methods such as system of rice intensification (SRI) are being used by

the farmers to produce high yielding rice. The production cost of Basmati rice is

marginally higher compared to non-Basmati rice. But there is a huge difference in the

selling price (average Rs.70-75/Kg) of Basmati rice and normal rice (Average Rs.25-

30/Kg), which is forcing the farmers to increase the production of Basmati rice. Due to

the awareness of the various production techniques farmers will make more profits by

Page 15: company profile of basmati rice

producing it. So a farmer is shifting his focus from the production of non-Basmati rice to

the production of Basmati rice.

Assured off take of Basmati rice

The demand for Basmati rice is constantly increasing in both domestic as well as

international markets. On YoY basis the exports of Basmati rice have increased

tremendously. It is evident from the fact that in the last 10 years the exports of Basmati

rice have never reduced. The export market of Basmati rice has increased tremendously

over the last few years. Similarly the domestic consumption is also increasing because

more and more people are shifting towards Basmati rice due to its quality, aroma, flavor

and taste. Players in both organized and unorganized market are increasing the

procurement of Basmati rice, as the demand in both domestic and international markets is

increasing. Indian basmati rice will shortly enter the kitchens in China and Mexico. At

present, basmati is exported to over 130 countries, and the government hopes to tap the

huge markets of China and Mexico in a couple of years. Therefore the farmers are

assured that whatever they will produce will be consumed either domestically or

internationally.

Positives for the Basmati industry 

The major paddy growing states of Punjab, Haryana and Uttar Pradesh, are likely to see

20-25 percent decline in non-basmati rice production this kharif season on account of

decrease in the crop sowing area due to low rain and shift towards basmati rice, an

Assocham survey said.

In 2008-09 - Basmati Rice Production 35 lacs Tons and In 2009 - There was 50 percent

increase in the basmati rice area in Punjab and Haryana, the study said. Moreover, it

was observed that a large proportion of cultivation area has been shifted from non-

basmati rice sowing to basmati rice sowing (PUSA 1121 variety of basmati rice) in

Punjab and Haryana.

Page 16: company profile of basmati rice

It is the inclusion of the PUSA 1121 variety in basmati rice category which gives better

returns as it yields about Rs 65,000 per acre against Rs 30,000-35,000 per acre that one

garners from the non-basmati varieties.

A tremendous demand for basmati rice in the international markets has seen the

country's basmati rice exports increased from about USD 470 million in 2000-2001 to

about USD 1900 million during 2008-09.

Owing to the government of India's decision to reduce the minimum export price

(MEP) of basmati rice, the country's basmati rice exports are expected to surge by a

whooping 33% during the season starting October. India's Food and Agriculture

Minister Sharad Pawar had announced lowering of MEP of basmati to $ 900 PMT

from the level of $ 1,100 PMT.

In the new season starting October, almost half of the 2.5 million tonnes labeled

basmati leaving India will reach Iran. When 50% of your eggs are in one basket, you

tend to watch it rather carefully. That is what Indian industry is doing.

Iran also pays top-notch prices for India’s Pusa Rice 1121. Who ever imagined that the

variety Pusa 1121, fetching around $200/t.

Saudi Arabia still buys up to 750,000 tonnes basmati from India, it is a tough bargainer.

Page 17: company profile of basmati rice

SWOT analysis of Indian Basmati Rice industry

PUSA 1121 – New addition to the Basmati rice family

Pusa 1121 is an evolved variety of Pusa Basmati rice developed by Indian scientists. This

variety of rice is known for its extra ordinary length and after cooking elongation. It has a

milder aroma, but scores equally, if not more, on other basmati traits. Having yield of

13.7 quintals per acre, it possesses extra long slender grains with good cooking quality

and it has longest cooked rice length among all the aromatic rice varieties. The length of

grain of Pusa 1121 rice can be as long as 9.5mm. The area under cultivation of Pusa 1121

is the maximum in the states of Punjab and Haryana. In the year 2009, an estimated one

million hectares was sown under Pusa-1121 in Punjab and Haryana alone – more than

twice the area in 2008. During 2009-10, the country exported around 2.6 mt of basmati

rice, of which 1.3 mt is believed to have been constituted by Pusa-1121. The export

realizations averaged $1,100 a tonne for parboiled and $ 1,400 for white rice, translating

Weaknesses

Lower net marginsdue to littledifferentiation

High workingcapital requirement, reducing return on capital

High dependenceon monsoons

High dependenceon Middle East

Opportunities

Consumer’sAbility and willingness to payfor better qualityproducts

Increaseddomesticconsumptionto drive due to favourabledemographics

Greater access to global markets

Threats

Emergence oflow cost substitutes by Pakistan exporters

Improvedperformance by Pakistan exports

Significant change in govt. policies could disrupt the business

Strengths

Our global dist. network consists ofboth exclusive andnon exclusivedistributors

Our portfolioconsists of all kinds of Basmati rice

Advanced surveytechnologies help us in optimizing our procurement process

Page 18: company profile of basmati rice

into revenues of over $ 1.5 billion from a single variety. Besides the 1.3 mt exports,

roughly 0.15 of Pusa-1121 was also consumed within the country. But that was still

insufficient in relation to the sheer size of the produce.

Most of the people related to the industry are talking about the ill effects on traditional

basmati rice due to higher production of Pusa 1121. Even the farmers are switching

towards Pusa 1121 because of its higher yields and lower cost. Industry is also expecting

the production of Pusa 1121 to be roughly around 1.6 mt by the year FY11. As Pusa 1121

had been accorded Basmati status by the centre and state government last year, the

overall basmati production (including Pusa) will increase in future. Currently the average

selling price of traditional basmati rice is around Rs 70-75 per kg which is higher

compared to average selling price of Pusa which is around Rs 45-50 per kg. Due to

higher production and supply in the market at a reasonable price domestic consumption

of Pusa will increase in the future from current level of 0.15 mt. So going ahead we might

see a pricing pressure in the branded segment which will affect the overall profitability of

the players like REI Agro, Kohinoor, KRBL and LT Foods. But we believe it will benefit

the industry in the long term.

New markets

State run Agricultural and Processed Food Products Export Development Authority

(APFPEDA) said that Mexico has contracted for the basmati rice and China is expected

to open a market for premium rice soon. Existing buyers are aiming to raise their

purchases. The South Asian nation is also aiming to push sales in relatively new markets

such as Japan and Australia. Currently, the United Arab Emirates, Saudi Arabia, Iran and

the U.K. are the top four buyers of the premium rice from India.

New markets

China Mexico

Japan Australia

Page 19: company profile of basmati rice

Future outlook of the industry

Exports of Basmati rice from India is likely to rise this year with production slated to

increase by at least 10 lakh tonne.

According to industry estimates, export of Basmati rice this fiscal is likely to touch 20

lakh tonne against 16-17 lakh tonne last fiscal. Export of Basmati rice from India has

been growing at a rate of 50-60%, according to estimates.

Production of Basmati rice in the country is likely to go up to 50 lakh tonne this year

from 40 lakh tonne last year, pulling down procurement price of the crop.

Faced with competition from the Super variety of rice from Pakistan, Indian Basmati

prices in the international market have also come down. The prices of Pusa 1121 this year

is between $1,100 and $1,300 per tonne. Super variety of Basmati, which tastes similar to

Pusa (a lower variety) from India, has a price of $1000 per tonne.

Last year, India exported 8 lakh tonne of Basmati rice to the country after which Iran

suddenly put restrictions on Indian exports on alleged presence of heavy metals in the

Indian crop.

Earlier, Iran used to buy rice from Thailand and Pakistan before shifting to the Indian

crop a few years ago after 1121 was introduced in the country.

Moreover India will get the advantage of its demographic changes. Presently the Basmati

rice consumption domestically is very low because of the premium prices. But with the

addition of the low price Pusa 1121 variety to the Basmati rice family the consumption of

Basmati rice will increase in the domestic market. As shown in the graph below the

maximum growth of population will take place in the age group of 15-64 i.e. the working

class. As the working population of the country will grow, changes are bound to occur in

the standard of living and taste and preferences of the people. Therefore, the demand for

Basmati rice is poised to increase in the next few years.

Page 20: company profile of basmati rice

Population in millons

0

200

400

600

800

1000

1200

1400

1600

2000 2005 2010 2015 2020 2025

Age 0-14 Age 15-64 Age 65+ All ages

REI Agro

Company background

REI Agro was established in the year 1994 by Mr. Sundip Jhunjhunwala. The company

was formed with a vision to consolidate the fragmented basmati rice industry. In a short

span of time it has risen to the position of an undisputed leadership in the industry. A

unique business model, out of the box approach of the management, and the goodwill of

the customers have enabled the company to consolidate on its leadership position. In the

beginning the company focused more on processing rice rather than the sale of branded

Page 21: company profile of basmati rice

basmati rice. But as the company has comfortably established itself in the industry it has

started sale of branded basmati rice as well. Lately the company has entered in wind

power generation as well with a total generation capacity of 46MW wind farms, located

in Rajasthan, Maharashtra, Tamil Nadu and Gujarat.

The company processes rice with the state of the art rice processing unit supplied by the

world leaders in food processing equipments. Today the company caters to the domestic

and international markets through its branded and indirect sales.

Brands

REI Agro offers a wide range of brands in Basamati rice. It offers various brands under 3

heads namely Premium, Midrange and Economy.

6Ten Retail

REI Agro launched 6Ten chain of retail outlets in the last quarter of the fiscal of 2006-07.

Currently 6Ten is operating 344 stores in the NCR, Chandigarh, Mohali, Panchkula,

Jalandhar, Ambala etc. Some part of domestic sales of Basmati rice is done by 6Ten

though it is a separate company from REI Agro.

Production and capacity utilization trend

REI has increased its processing capacity on YoY basis over the last few years with the

total processing capacity of 902280mn/t p.a. The capacity utilization of the company has

increased from 62.5 % in the year 2003 to 75 % in 2009. The production has also

increased from 194000mn/t to 430000mn/t in the same period. There was a fall in the

Brands

Premium

Kasauti

Mid-range

Mr. Miller, Hungama

Economy

Hansraj, Raindrop

Page 22: company profile of basmati rice

capacity utilization in the year 2007 due to substantial capacity ramp up during the year

but after that it has only increased and touched new highs.

Production and Capacity utilization trend

429.

9

397.

9

288

265.

6

230.

7

207194

7574.5

59.8

77.674.366.8

62.5

0

50

100150

200

250

300

350400

450

500

2003 2004 2005 2006 2007 2008 2009

0

10

20

30

40

50

60

70

80

90

Production (in 000 MT) Capacity utilization in %

Production of Basmati rice at REI

REI Agro processes Basmati rice to make it excel for the quality conscious market. The

production of Basmati rice goes through a series of processes:

Procurement of Paddy

The first and foremost step in producing good quality Basmati rice is the procurement of

the best quality of paddy. The quality of paddy will ultimately determine the premium it

will command. REI’s huge presence in 170 mandis out of 220 mandis in Northern India

gives the company first mover advantage and allows it to procure the best quality of

paddy for the production of Basmati rice. Due to the huge presence REI procures around

17% of the total basmati rice paddy produced in India.

Processing and maturing

There’s a common saying for Wine that “the older it is, the better it is” and therefore it

commands a premium price over the other wines. The same holds for Basmati rice as

well. At REI before starting with the processing of Rice, paddy is kept for around 18

months which is the longest ageing period of any company in the industry. The matured

paddy is then processed with the help of the state of the art facilities at the company.

Page 23: company profile of basmati rice

Utmost care is taken by the experts who make sure that each grain of rice produced

conforms to strict corporate policy.

Distribution and consumption

REI Agro has a huge network of distribution with around 500 distributors across the

country. The company also supplies to its subsidiary company Six Ten which is an

alternative vehicle to access the domestic customers. The sorting of rice is done at 6

different points which gives the company an advantage to offer Basmati rice at various

price-points with various varieties. This helps in increasing the revenues for the company.

Maturity period

02468

101214161820

2003 2004 2005 2006 2007 2008 2009 2010e

Agein

g (

month

s)

On YoY basis the company has increased its maturing period of the basmati rice by

holding more inventory than the previous period. This has helped the company in getting

a higher yield of the full grain rice from paddy. Due to the higher yield of the full grain

rice the margin and head rice yield of the company has substantially increased over the

last 5 years.The following is being represented by the EBITDA margins of the company

which have increased from 8% to 18% over the last 5 years. But higher maturing period

also increased the company’s financial leverage ratio.

Head Rice yield

As the company has increased its maturing period of rice to around 18 months it has

enabled to produce more of full grain rice, which will definitely command a premium

Page 24: company profile of basmati rice

over other rice. Over the last 7-8 years the company’s yield of head rice has increased

from 30% to around 54%. The other players in the industry are still operating at 40%

head rice which gives an enormous advantage to the company.

Head Rice yield

30 36 39 43 47 49 49 54

37 31 28 24 20 18 18 13

33 33 33 33 33 33 33 33

0

20

40

60

80

100

120

2003 2004 2005 2006 2007 2008 2009 2010 E

Head rice % Broken rice % Others %

Kohinoor Foods

Company background

Kohinoor Foods Ltd. embarked upon its journey in 1989. Since then it has been treating

every milestone achieved as a stepping stone to go past another one. Today, in India and

in over 60 countries, consumer's lives have been touched by not only some of the finest

basmati rice brands, but also a wide assortment of food products that includes Basmati

Rice, Ready to Eat products, Cook-in Sauces and Cooking Pastes to Spices, Seasonings

and Frozen Food. It’s a feat that Kohinoor Foods Ltd. pulled off by spreading the

authentic India flavour abroad.

To be a globally competitive organization, Kohinoor Foods Ltd. has strategic bases in

US, UK and the Middle East. The company has two 100% fully owned subsidiaries –

SOL Inc., operating  from New Jersey, USA that looks after the North American and

Canadian markets, and Indo European Food Limited, in the UK with headquarters in

London, that looks after the European markets. The joint-venture company Rich Rice

Page 25: company profile of basmati rice

Raisers Factory LLC operating from Dubai, UAE takes care of the markets in the Middle

East.

Even in India, Kohinoor Foods Ltd. has a wide-spread presence that boasts of an

extensive and unmatched distribution network with more than 200 thousand retail outlets,

100 super distributors and 600 stockists.

Brands

Kohinoor Foods Ltd. is more into the branded segment so it offers a wide range of brands

in Basmati rice. Some of the leading brands are as follows:

Production capacity

The rice factory at Murthal, Haryana is one of the largest in the country with an

unbelievable milling capacity – 50 metric tonnes per hour. Not only that, the plant is ISO

9001:2000, HACCP and BRC certified along with being EUFSA and USFDA compliant.

Fully automated through the entire chain of processing and final packaging, the factory

uses the world’s best technologies and equipment for churning out rice grains that can

only be described as impeccable.

365

Charminar

KohinoorSilver

KohinoorGold

KohinoorPlatinum

KohinoorSuper

Brands

Page 26: company profile of basmati rice

Also, the manufacturing facility has a strong scientific procurement system. The

company has contract farming to ensure consistency of agri produce and control on the

entire value chain of basmati. In addition to that, an able, technical team of procurement

personnel takes care of what is sourced for produce. The entire chain is documented to

the minutest detail ensuring 100% traceability as per international norms. 

Facts about the Rice Factory:

Area of about 36 acres with a production capacity of 1000 metric ton per day.

One of the largest storage capacities – 20,000 metric ton of rice; 50,000 metric ton of

paddy

5 milling lines with milling capacity of 6 metric ton per hour

Mechanical Dryers with paddy drying capacity of 1000 metric ton per day

Silos attached with dryers for safe storage of paddy (8 silos with 300 metric ton

capacity and 3 silos with 500 metric ton capacity)

Parboiling capacity of 500 metric ton per day

Semi-automated packing plant with imported metal detectors and check weigher

systems

Most versatile packaging offered, ranging from Jute & Cotton Bags to Laminate

Pouches, Pet Jars, Paper & Tyvek Bags to Non-Woven Fabric Bags

Paddy Procurement

Kohinoor Foods Limited does the procurement of paddy in a very scientific way, with a

lot of research work behind it. The company gives the farmers all the help they need in

bringing up their crop with good vigor and health. R&D teams regularly visit the farms

and advise the farmers with the status of their crop and remedies of diseases, if any. This

is done right from sowing to transplanting and harvesting of the crop.

Before the harvesting happens, Kohinoor Foods Limited draws samples from different

zones and tests them in the laboratory. They are tested under various parameters of the

company. The zones that conform to the quality standard norms of the company are

selected for the procurement of the paddy. The paddy is received and stored in controlled

atmosphere with tight pest control measures.

Page 27: company profile of basmati rice

Organic Basmati rice

Looking at the stressful life and heightened awareness of health among the consumers,

Kohinoor Foods Limited conducts contract farming for growing Organic Basmati Rice.

This is done in Dehradun, India – one of the places where Basmati Rice originated.   The

company procures Organic Basmati Rice by coming in direct contact with the farmers,

helping them in production and by using the required technology. The company’s

‘Organic Basmati Program’ is in collaboration with Uttarrakhand Government of India

under their ‘Organic Basmati Export Program’. 

Kohinoor Foods Limited has contracts with 8 big groups of farmers comprising a total of

1128 farmers. What started with a small area of about 110 hectare in 2005 is today

extended to around 750 hectare. The total area of farming Organic Basmati Rice is

intended to cross a target of 1200 hectares soon.

Page 28: company profile of basmati rice

KRBL

Company Background

India's first integrated rice company, they are also the world's largest Basmati rice

exporters and leaders in innovation across the value chain, from seed development and

multiplication (QSDIP program) to contact farming and marketing. KRBL is the largest

exporter of Basmati rice in India (Basmati sales account for 85% of KRBL's total

revenues) & its packaged Basmati products have gained a brand image of their own.

Today, the Company holds 11 % market share of the total Basmati exports from the

country and has strong presence internationally in markets like Saudi Arabia, Kuwait, US

& Middle East, which account for 80-85% of KRBL's total export revenues.

Energy Division

The Company has three power plants as shown above. In 2008-09, the Company's energy

division constituted 0.56% of the total revenues. The total divisional sales accounted for

Rs. 740 lacs.

Manufacturing Capacity

KRBL acquired an integrated rice processing plant at Dhuri (in the state of Punjab) in

FY06 at a cost of Rs. 1,580 lacs. With this acquisition, KRBL became the largest rice

miller in the world with a total capacity of 195 MT/hr, including 150 MT/hr capacities at

Dhuri & existing 45 MT/hr capacities at Ghaziabad. The plant also has rice bran oil

capacity of 42 MT/day. The Dhuri facility is expected to be a major catalyst for future

growth of KRBL. The facility also enjoys mandi tax exemption (4% tax exemption upto

August 2015) that could enable it to market its produce at a more competitive price. Also,

Energy Division

10.5 MW power plant in Punjab

3.5 MW plant in Ghaziabad

12.5 MW plant in Maharashtra

Page 29: company profile of basmati rice

most of the paddy requirement for this plant would be met by procuring it from Punjab,

thus leading to savings in the logistics cost.

The Ghaziabad plant is currently working on 90% capacity utilization. The Company is

in the process of commissioning a state-of-the-art packaging plant, with hands-free,

imported machines, at an investment of Rs. 1,500 lacs. Focusing on extensive health and

hygiene, the high-end packaging plant caters to the needs of modern retail in US, Europe.

Both the Ghaziabad and Dhuri units have world-class milling facilities that enable the

Company to produce quality rice and better head rice quantity. The Delhi-based Grading

plant separates milled rice (mixture of different sizes: whole grain, head rice and broken

rice).

Expansion plans

Going ahead, the Company plans to earmark investments to the tune of more than Rs.

7,500 lacs in capital assets during fiscal 2009-10, mainly in storage, packaging and

finishing of rice for exports.

Revenue Model

Value added products make a difference

KRBL has achieved significant success in deriving and marketing of by- products from

the milling of rice. KRBL is has also set up a husk fire power plant. The company will

Page 30: company profile of basmati rice

use husk to generate power at very low cost. Approximately 50 % power will be used for

internal consumption thus reducing the power cost substantially. The balance will be

sold. Ash from the process will be converted into amorphous silica used in cosmetics &

cement industry. All these activities will help the company to improve on its bottom line.

LT Foods

Company background

In 1965, Bhikiwind, in a little village in Amritsar (Punjab, India); Shri Raghunath Arora

started a small trading company which grew from being a commissioning agent to a

partnership firm by 1977, as Lalchand Tirathram Rice Mills. In 1978 Mr. V.K.Arora

joined the family business with his father, with a clear vision of taking his company to a

global level. In 1980, the company started exporting Premium Rice.

Simultaneously, the company decided to face the challenges in domestic markets by

setting up a modern, state-of-the-art rice factory in Sonepat, Haryana in 1984.

Unorganized players with inconsistent quality products were crowding the market. In this

scenario, Mr. V K Arora felt the need to promote branded and packaged products. In line

with this vision, the company started the business of milling, processing and marketing of

branded basmati rice and manufacturing of rice food products in the domestic and

overseas market.

Page 31: company profile of basmati rice

About the Company

The milling capacity of the capacity as on July, 2008 was 50 million tonne per hour. The

company exports Basmati rice to almost 40 countries worldwide. The exports contributed

around 48% to the total revenues of Rs. 695 crores in FY 2007-08. Exports are growing

at a CAGR of 15% over the last 4 years.

LT Foods is ranked among the top 10 food processing companies in Northern India. It

is ranked among the top 50 companies by Dun and Bradstreet 8th Edition of India’s

Top 500 companies 2007. Daawat is registered as one of the premium and top basmati

rice brands in the country.

It bought US based $20-million Kusha Inc. in Dec 2007, post which Daawat group’s

share in the US retail market increased from 7% to about 51%, making it the largest

basmati rice retailer in the country. First time in the Industry, an Indian rice player had

acquired a US Company.

In the last two years Country’s top line has grown by 20% while net profit has gone up

by 2.5 times

In 2007, LT Foods set up State-of-the-art plant set up in the Mandideep, Bhopal (MP)

for Parboiled Rice, which has huge demand in export markets.

Profit after Tax, INR Crores

0

5

10

15

20

25

30

35

2005 2006 2007 2008 2009

Indian Subsidiaries:-

Dawaat Foods (P) Limited

Page 32: company profile of basmati rice

The wholly owned subsidiary of LT Foods Ltd. (formerly known as LT Overseas Ltd.)

was set up with state of the art technology, milling unit in Mandideep, Bhopal, for

production of parboiled rice. Rice processed here caters to the institutions and

requirements of Middle East markets as well. The company has made an investment of

23.5 crores in this subsidiary.

Nature Bio Foods Limited

The company recognized that organic food is the future of the world and in the same

direction, company initiated steps few years back. For the same, the wholly owned

subsidiary of the company was incorporated to cater the need of organic market which is

approximately a market of 22 billion dollar world wide and growing with the peace of

10%.

Staple Distribution Company Ltd.

Looking at the potential and boom in retail business, Staple Distribution Company, a

wholly owned subsidiary of the company has been incorporated to play and establish

itself as a backend player for Modern retail.

LT International Limited

LT International Ltd., a subsidiary of the company is engaged in trading of varied

merchandise.

Overseas subsidiaries

Kusha Inc.

Kusha Inc. is the largest distribution company in U.S. with the brand name “Royal” and

the said company have been acquired in December 2007 by LTO North America Inc. - a

wholly owned subsidiary of LT Foods Limited. This acquisition has increased our market

share from 7% to 52% appx in U.S. market.

LT Foods North America Inc.

Page 33: company profile of basmati rice

LT Foods North America Inc., a wholly owned subsidiary has been formed in California,

to capture market share as well as to strengthen our presence in U.S.

Sona Global Limited & Nice International FZE

Middle East market has a potential and to capture market share and strengthen our

presence Sona Global Limited Dubai and its subsidiary Nice International FZE, Dubai

were formed and these are engaged in trading of rice and rice products in the Middle

East.

Value chain

The value chain of the Basmati rice industry is being summarized in the following

diagram. The Pucca Artiyas or the agents of the companies purchase raw paddy from the

farmers and keep it with themselves for 2 months. The stockists or the company if incase

the company is fully integrated like REI Agro keeps the paddy for 4 months before the

raw paddy is properly milled and graded. The milled rice is again kept by stockists for 4

months before it is disbursed to the distributors. Before distributing to the wholesalers

and exporters the distributor matures the rice for 2 more months. Finally fully matured

rice reaches the retailers who sell it to the ultimate consumers.

Since it is a very long value chain a player can enter and exit at any point. But the entry

or the exit of a player is very important as it will determine the margin and the working

capital requirements for that particular player. A company like REI Agro who is a fully

Page 34: company profile of basmati rice

integrated player from purchase of raw paddy to finally selling it to the ultimate

consumer will have a higher margin. It will also have the highest working capital

requirement in the industry as it will perform each and every function from procuring of

raw material to finally selling the finished product. As we can infer from the diagram the

money will be blocked for around 18 months, so the fully integrated player will have the

maximum requirement of working capital.

EBITDA margins

0%

5%

10%

15%

20%

LT Foods KRBL Kohinoor REI Agro

2007 2008 2009

As against this if a player wants to enter at a later stage he will have less requirement for

working capital. His margins would also shrink as the intermediaries would eat out the

margins for providing the relevant services of storage or maturing on behalf of him. That

is why players like LT Foods, KRBL and Kohinoor Foods who are more into the

branding segment have fewer margins as compared to REI Agro which is evident from

the graph given above. They focus more on brand building and rely on trading as well

because they are not fully integrated as REI Agro. This also means that the pressure of

working capital requirements is less on these companies.

Ultimately it’s the decision of the player to enter or exit at anytime as the value chain is

very long in case of this industry. But pros and cons are also associated with the timing of

the entry or exit by the company.

Page 35: company profile of basmati rice

ANALYSIS

Paddy purchase

REI Agro has an advantage over the others when it comes to procurement of paddy from

the mandis. It purchases paddy from 170 mandis out of 220 mandis of India which gives

him a first mover advantage. It buys almost 17% of the Basmati paddy produced in India.

Bulk purchase of paddy and prompt payment to the farmer’s agent by REI also allows

him to get a discount of 6-10% as compared to other players of the industry. Because of

the huge participation in the market i.e.17%, REI agro sets the price of paddy which

others follow.

Being a fully integrated player, REI Agro purchases the paddy directly from the mandis

through its agents and performs all the functions from milling to distribution on its own.

On the other hand the other players do not have the required skills, facilities, working

capital and infrastructure to produce all of the Basmati rice on their own so they also rely

a bit on trading of Basmati rice. These players purchase paddy in small quantities and

sometimes they purchase from REI Agro or other agents as well which drags down their

margin because of the higher cost of procurement.

Processing facility

REI Agro has an advantage as it has the best processing facility in the industry which has

a good grading process that enables it to get 6 varieties of rice, when compared to its

counterparts who get only 2-3 varieties of rice. Moreover the company also has the Ultra-

violet machine which removes the rice, which consists of the black spots and other

damages. This enables it to get greater realization as compared to other players. The

details of the Gross Block of the top players are given below which shows the amount

spent by companies on their processing facilities and other infrastructure. The following

chart clearly depicts that REI Agro has spent the maximum amount on building its

infrastructure and other facilities to get the better product with good quality, which gives

them the best realization and margin in the industry.

Page 36: company profile of basmati rice

Gross Block (in million Rs)

0

1000

2000

3000

4000

5000

2005 2006 2007 2008 2009

LT Foods KRBL Kohinoor REI Agro

Maturity period

Inventory days

0

50

100

150

200

250

300

350

400

2005 2006 2007 2008 2009

LT Food KRBL kohinoor REI agro

Among the industry players, REI Agro has the longest inventory days of 344 days

compared to industry average of around 266 days. Due to its backward integration of the

business from procurement to selling the product, company has all the facilities and

capacity, which requires the higher no. of days for maturing process. Other players are

not fully integrated, they either purchase paddy from the farmers & matured it till 240-

260 days or they outsource some of the paddy from the REI agro. Lesser no. of maturing

days affects the quality, size and realization of the basmati rice, which ultimately reflects

in the profitability and margin of the company. Hence, higher maturing days gives REI an

Page 37: company profile of basmati rice

edge over the others in terms of quality, quantity, size and realization, which resulting in

better margin compare to industry players.

Financials

Working capital to balance sheet ratio

65%

70%

75%

80%

85%

90%

2005 2006 2007 2008 2009

LT Foods KRBL Kohinoor REI Agro

Because of the higher inventory days, the requirement of working capital is huge in this

industry. REI Argo’s working capital to balance sheet ratio is 87% in 2009 which is

highest as compared to its peers which are averaging at around 79%. As the company is

fully integrated from procurement to selling, the working capital need for the company is

the maximum in the industry. On the other hand, other players of the industry outsource

some of their work to the intermediaries which reduces the working capital requirement

for them.

Similarly the debt-equity ratio of REI is 4.9 in the year 2009 as compared to other players

such as KRBL, Kohinoor and LT Foods which are at 1.43, 3.48 and 4.1 respectively.

Although the working capital to Balance sheet and debt equity ratio is very high of REI

Agro the margin of the company is also the highest in the industry. This is because it has

a very long maturity period with the help of which it produces the best quality rice in the

industry. Therefore, the price of rice produced by it commands premium over the rice of

others which ultimately helps in increasing the margin of the company.

Page 38: company profile of basmati rice

Return on equity

-10%

-5%

0%

5%

10%

15%

20%

25%

2005 2006 2007 2008 2009

LT Foods KRBL Kohinoor REI Agro

Return on capital employed

0%2%

4%6%

8%10%12%

14%16%

18%20%

2005 2006 2007 2008 2009

LT Foods KRBL Kohinoor REI Agro

The inventory days of the companies in the industry are very high due to which they

require huge working capital to run the business. As mentioned above, not all the players

are fully integrated as REI Agro, which has all the facilities from procurement to selling

in place. The company has the highest processing and maturing capacity compared to its

peers which requires huge capital. Due to higher working capital debt and huge capex,

interest and depreciation costs of REI Agro drags down the overall profitability of the

Business. While other players do not have all the facilities in place so they outsource

some of their work to the intermediaries which requires lesser working capital and capex.

Therefore, the other players have an edge over REI Agro which has better return ratios

which follows outsourcing business model.

Similarly when we talk about the advertising expenses of various companies REI Agro is

far behind its peers. It is not even visible if we look at the chart below. KRBL and

Kohinoor Foods are the ones that incur maximum expenditure on advertising and

promotion. This shows how REI Agro is different in terms of its business model when

compared to its peers. REI Agro is more into the volume and private labeling business

while the rest of the players are into the branded and packaging business. The brands of

the companies such as LT Foods, Kohinoor and KRBL have become household names.

Examples: Charminar, Daawat and India gate etc. The advertising expenses incurred by

Page 39: company profile of basmati rice

the companies show that exactly. While REI Argo’s brands such as Real Magic and

Kasauti are never heard by a common man.

Advertising expenses, INR million

0

50

100

150

200

250

2005 2006 2007 2008 2009

LT Foods KRBL Kohinoor REI Agro

The business of Basmati rice is such that a lot of debt is involved as a lot of capital gets

blocked in the maturity period of rice. Therefore, the Debt equity ratio of all the players is

relatively high. KRBL has the lowest Debt equity ratio among all the players because the

company is more into branding business. On the other hand in 2009 the ratio was highest

for REI Agro because it is more into the volume business in which everything from

production to distribution is done by the company itself.

Debt equity ratio

0.00

1.00

2.00

3.00

4.00

5.00

6.00

2005 2006 2007 2008 2009

LT Foods KRBL Kohinoor REI Agro

Financials of all the companies in the organized market

Page 40: company profile of basmati rice

KRBL 2005 2006 2007 2008 2009EBITDA 8.1% 11.4% 12.5% 14.4% 14.9%

EBIT 6.6% 9.8% 10.6% 12.0% 13.1%

PBT 5.1% 6.7% 6.3% 6.6% 7.0%

APAT 3.2% 4.4% 5.4% 5.5% 5.0%

RoE 10.0% 13.3% 15.9% 15.2% 15.6%

Debt- Equity ratio 1.8 1.9 1.6 2.1 1.4RoCE (EBIT on TCE) 7.1% 10.8% 12.8% 10.9% 17.2%

   

Days  

Inventory 220.4 190.1 232.4 305.8 219.2

Debtors 64.0 71.7 36.1 66.2 19.7

Creditors 31.1 14.4 72.1 69.5 40.3

L T Food 2005 2006 2007 2008 2009EBITDA 6.4% 7.8% 9.5% 11.6% 14.8%

EBIT 4.4% 5.7% 7.8% 9.5% 12.9%

PBT 1.8% 3.0% 4.3% 4.8% 3.4%

APAT 1.4% 2.8% 3.8% 4.2% 2.8%

RoE 9.8% 18.6% 17.5% 22.0% 17.0%

Debt- Equity ratio 3.93 3.67 2.43 3.87 4.09RoCE (EBIT on TCE) 6.3% 8.4% 10.8% 10.4% 15.4%

   

Days  

Inventory 175.9 166.2 169.5 242.4 217.7

Debtors 63.0 40.7 52.1 53.5 48.3

Creditors 199.0 178.7 189.2 226.2 214.2

Kohinoor Food 2005 2006 2007 2008 2009EBITDA 7.4% 8.1% 9.9% 10.6% 13.3%

EBIT 6.1% 6.4% 7.9% 8.6% 11.6%

PBT 4.1% 4.4% 4.8% 0.7%  

APAT 3.0% 3.1% 3.4% 0.7% 6.0%

RoE 15.8% 15.3% 15.7% 3.4%  

Debt- Equity ratio 3.0 3.6 3.8 4.1 3.4RoCE (EBIT on TCE) 8.0% 7.3% 7.7% 8.1% 9.5%

Days  

Inventory 205.3 219.8 247.3 259.5 284

Debtors 34.3 37.7 52.4 61.7 57

Creditors 33.2 32.2 42.1 34.7 34

REI Agro 2005 2006 2007 2008 2009EBITDA 10% 16% 18% 18% 18%

EBIT 10% 15% 17% 16% 17%

PBT 6% 11% 10% 7% 4%

APAT 4% 7% 8% 6% 2%

RoE 20% 20% 20% 19% 10%

Debt- Equity ratio 2.70 2.31 2.79 4.02 4.94RoCE (EBIT on TCE) 12% 12% 10% 11% 12%

   

Days  

Inventory 222 227 312 331 344

Debtors 63 91 153 79 88

Creditors 86 22 23 33 45

Conclusion

Page 41: company profile of basmati rice

Basically there are 2 types of models which are followed by the companies in this

industry. One is the fully integrated which is followed by REI Agro in which each and

every thing from procurement to selling is done by REI itself. This model is more of a

volume driven which is followed by REI Agro. The other model is followed by rest of

the 3 companies whereby these companies produce less and also rely a bit on trading.

Moreover these companies focus mainly on brand building and selling.

The benefits to REI Agro are as follows:

Being a fully integrated player REI Agro has the best processing facility and therefore

it commands better margins because it does not have to pay anything to the

intermediaries unlike its peers.

It also gets discount on purchase of paddy as it makes bulk purchases as compared to

other 3 players.

Being the largest producer of Basmati rice it also has the advantage of economies of

scale.

It also has its own retail chain in the form of 6TEN through which it sells its products

directly to the customers and thereby eliminating the costs incurred on the

intermediaries.

It has the longest maturing period among the industry with the help of which it makes

good quality rice which commands premium over its competitors.

The company can also benefit in case of an economic downturn as it is a volume player

and not a branded segment player.

The ill effects of the following Business model are as follows:

Being a volume player the company cannot command a premium price unlike a

branded segment player who can easily command premium from its customers.

The requirement of debt and working capital is immense as a lot of money gets blocked

during the maturity period.

A company needs a very strong balance sheet to follow this kind of model.

Page 42: company profile of basmati rice

The company cannot establish rapport with its customers as it is not following the

branded segment model.

The other business model is followed by 3 companies namely KRBL, Kohinoor and LT

Foods. The players in this model focus more on brand building and selling. The benefits

of this model are as follows:

The players following this model are into the branded segment and can therefore

command premium price from the customers.

The retail industry is all set to grow at a rate of 9% every year which will ultimately

benefit these players.

A customer when buys a brand and is satisfied makes repeat purchases. This leads to

brand loyalty which ultimately benefits the company.

These companies are also known by the customers as these companies repeatedly

advertise themselves which leads to brand recognition by the customers.

The ill effects of the following Business model are as follows:

The following companies do not have their own distribution network and have to rely

on suppliers and distributors and thereby reducing the margins.

As these companies also rely on a bit of trading as the production is less, the margins

are further reduced due to the intermediaries present in the value chain.

These companies are more likely to lose out incase of economic downturn as they will

have to reduce premium prices charged through their respective brands.

Therefore both the business models have their pros and cons and it is ultimately the

decision of the player to follow whichever business model he likes.

Particulars REI Agro LT Foods Kohinoor KRBL

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Fully integrated √ × × ×

Premium price × √ √ √

Branding/Advertisement low high high high

Working capital requirements

high low low low

EBITDA margins high low low low

Financial cost high low low low

Maturity period high low low low

Varieties of Rice produced

5-6 2-3 2-3 2-3

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Bibliography

http://www.articlesbase.com/business-opportunities-articles/a-market-study-of-indian-

basmati-rice-import-and-opportunities-1233358.html

http://www.thaindian.com/newsportal/business/indian-basmati-set-to-enter-china-

mexico_10066425.html

http://www.thehindubusinessline.com/2009/03/23/stories/2009032350250400.htm

http://www.thehindu.com/2009/01/03/stories/2009010351690300.htm

http://www.ltoverseas.com/InvestorRelations/analyst_coverage.aspx

http://www.ltoverseas.com/InvestorRelations/analyst_coverage.aspx

http://www.eurosa.in/index.php?option=com_content&task=view&id=77&Itemid=107

http://business.rediff.com/report/2009/may/12/rice-production-seen-at-record-99-point-

37-mt-in-08-09.htm

http://www.no-patents-on-seeds.org/index.php?

option=com_content&task=view&id=74&Itemid=42

http://www.thehindubusinessline.com/2007/12/28/stories/2007122850980700.htm

http://www.environmentportal.in/node/249077

www.moneycontrol.com/company-facts/ ltfoods /history/LTF

www.ltoverseas.com/AboutUs/CorporateProfile.aspx

Page 45: company profile of basmati rice

RESEARCH METHODOLOGYFor any fmcg company to have efficient distribution channel needs to have satisfied

intermediaries, so that they hold with company products and provide them to end user.

Thus I selected my research objective as:

RESEARCH OBJECTIVES

Research Objectives are as under:

To identify the Marketing Strategy of Basmati Rice.

To know the Consumer Behavior towards product.

To identify the area of service in which company needs to Improve?

To help the Company in designing proper strategies for rural area.

To know the price of the product.

To know the positioning of Basmati Rice in the market.

To know the promotional Strategies.

To know the advertising strategies

research design

Purpose of study: - Descriptive

The study focuses on the satisfaction level for different products. As well as on other

parameter's such as Commission, Delivery mechanism, Sales Force, Credit Period. etc.

Degree of research question crystallization: - Exploratory study

As per my objective of the research, the research questions would try to find out the

current situation in the market regarding the satisfaction level. Moreover, the hypothesis

is not pre-defined here, but it would be define during the study. Here research problem

is also general.

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Method of data collection: - Interrogation & Personal Interview

Based on my initial observation, I have prepared a questionnaire to collect the response

from retailers and whole sellers as primary data. Versatility of the questionnaire will help

to cover almost all related factors impacting the satisfaction of the target sample.

Interrogation takes less time than observation and gives information that is more

purposeful

Research environment: Field study.

Survey is the main part of the study and primary data collection. So that the study will be

carried out in field, I have gone to the market and interviewing retailer's and

Wholeseller's in the area of Sagar.

DATA COLLECTION & DESIGN

Data source: Primary source

To satisfy the objective of the research it is necessary to get the response from the

respondents, which act as primary source of data. I have collected Primary data by

personally surveying Retailer's & Wholeseller's in the sampling area specified.

Approach: Interview (Personal Contact)

Instrument: Questionnaire

Questionnaires Designing:

It is the most crucial part of any market research. I have taken a due care in designing

the Questionnaire for my research. I have meet more than 50 retailers during my

training period in order to learn the Order taking Mechanism, POP Displays,

Competitive Products, Retailers Attitude towards sales force etc. Even from Area

Sales Manager I identified various Parameters to be listed in my questionnaire's have

taken utmost care in deciding right question, correct sequence, what should be

wording of each & layout of questionnaire as a whole.

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Type of Questionnaire: Structured Non Disguised

I have arranged the questions in a specific order to get the facts and the interviewer be

asked to response strictly in accordance with a pre-arranged order. The objective of

the survey was disclosed every time before getting the response from the respondent .

Type of Question: Close Ended

Number of questions: 40

SAMPLING PLAN

Sampling Area :Sagar

Sample Population : Customer’s, Retailer's and wholesalers of Sagar Area.

Sample Size : 40

Method Of Data Collection : Questionnaire

Sampling technique : Convenience Sampling

LIMITATIONS

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Limited Time available for interviewing the respondent. As a result of this

it was not possible to gather full information about the respondent.

Some time the problem which I face is language problem for which I have

to make them understood.

The time constraint face in my project might have affected the

comprehensive of its findings.

Some time the retailers & customer do not respond rightly to the

questionnaire.

Sample size was very small as compare to the population of Sagar city.

People did not give full response and they are bias in some personal

questions.

QUESTIONNAIRE

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Name : ----------------------------------------------

Address: ----------------------------------------------

Contact No. : ----------------------------------------------

Q.1 Which Rice Brand do you use?

(a) LT Foods (b) KRBL c) Kohinoor (d) REI Agro

Q.2 You purchase the above brand because of the?

(a) Price (b) Quality (c) Packaging (d) Others

Q3. You buy the Basmati Rice on basis of ?

(a) On you’re one (b) Advised buy the friends (c) Advertisement

(d) Demonstration of the Product

Q4. Taste of this Rice is?

(a) Excellent (b) Good c) Better (d) Same as other

Q5. What is view about packaging?

(a) Highly Satisfactory (b) Satisfactory (c) Not Satisfactory

Q6. Do you get any, Discount or other schemes while purchasing the

products?--------------------------------------------------------------------------------------------

Q7. Are you aware of any sales promotion schemes?---------------------------------

Q8. Why are you using this Brand?

(a) Cheap (b) Tasty (c) Brand Image (d) All

Q9. Offer your suggestion to the dealer?

-------------------------------------------------------------------------------------------

Date: Signature

Thanks for your Co-operation

Page 50: company profile of basmati rice

CERTIFICATE

DATE: __________

The project report titled “MARKETING

STRATEGIES OF INDIA GATE BASMATI RICE” in

Sagar City Prepared by ANIL KUMAR SINGH

(MBA 1ST Sem), under the guidance and

supervision of MISS. NEHA DUBEY (Lecturer of

MBA Deptt., SVNIT) for the partial fulfillment of the

degree of Master of Business Administration is

satisfactory in respect of :-

Comments By Supervisor Head of Deptt. Examiner

1. Contents and presentation of the subject matter2. Language3. Embodies the original work of the candidate.4. Submission within due date

Signature of Examiner Signature of Supervisor

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Signature of H.O.D.

DECLARATION BY CANDIDATE

I declare that the project report on

“MARKETING STRATEGIES OF INDIA GATE

BASMATI RICE” , in Sagar City is my own work,

conduct under the supervision of of MISS. NEHA

DUBEY (Lecturer of MBA Deptt., SVNIT)

affiliated by Dr. Hari Singh Gour University, Sagar

(M.P.).

To the best of my knowledge the report does not

contain any work which has been submitted for the

award of any degree, anywhere.

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Signature of the Candidate

ACKNOWLEDGMENT

I would like to pay my sincere thanks to Dr. Pramesh

Gautam Head of the MBA Dept., SVNIT. Sagar

for providing me the opportunity of doing the project

report.

I would to express my deep sense of gratitude to

Miss. Neha Dubey, Lecturer for her valuable

guidance, advises, Cooperation & Constant

encouragement during the project preparation. She is

very supporting and without her help I would not have

completed my project report successfully.

I express my heartful thanks to Miss. Preeti Shukla,

Mr. Ashish Tiwari & Mr. Chaitanya Kaushikya and to

ANIL KUMAR DUBEYMBA 1st SEM.

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the staff of SVNIT, Parents and friends for their kind

support and suggestion.

I am very thankful to retailer and customer whom I

had approached for collection of necessary data and

who give their valuable time and comments, which

were the inputs for my survey.

Date:

Place:

Anil Kumar

Singh

MBA 1ST Sem.

PREFACE

The project report has an objective to get the MBA student

familiar with real life business situation and gives an

opportunity to the student of understand the theoretical

concepts of marketing and finance in practical way.

In today’s world “Consumer is the King” consumer test and

preference go alone way in the actual sales of the product.

Every research work has to deal with various people in

Page 54: company profile of basmati rice

concern organization and each of them have their own

opinion and thinking about various topics.

The main aim of the survey report was to determine the

Marketing Strategies of India Gate Basmati Rice in Sagar

City.

I tried my best to express the report through satisfactional

representation, graphs, pie diagrams etc. and it helped me to

enhance my knowledge I am extremely happy to place

before our esteemed teachers.