Food & Beverage 2H10 Industry

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FOOD & BEVERAGE INDUSTRY

ISSUE 2H 2010

ISI Analyticsthe Business research arm of ISI Emerging MarketsA Euromoney Institutional Investor Companywww.securities.com

India

IndustryRes

earch

ISIAnalyti

cs


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1. Industry Profile 1

1.1 Asia Pacific Overview1.2 India F & B Industry Overview

1.2.1 Dairy Segment1.2.2 Processed Fruits and Vegetables Segment

1.3 Selected Segments for Review

1.3.1 Branded Flour Industry1.3.2 Bread Industry1.3.3 Biscuit Industry1.3.4 Semi Processed/Cooked/Ready to Eat Food Industry1.3.5 Culinary Products and Snack Food Industry1.3.6 Confectionary Industry1.3.7 Milk and Dairy Products Industry1.3.8 Malted Food & Beverage Industry1.3.9 Tea Industry1.3.10 Alcohol Beverage Industry

1.4 Food and Beverages Policy Initiatives

2. Market Trends and Outlook

2.1 Decline in Tea Production2.2 Major Investments in the F&B Industry2.3 Foreign Trade2.4 Industry Outlook

13

3. Leading Players and Comparative Matrix3.1 Leading Players

3.1.1 Ruchi Soya Industries Ltd3.1.2 Nestle India Ltd3.1.3 Britannia Industries Ltd3.1.4 Tata Global Beverages Ltd3.1.5 Hatsun Agro Products Ltd

3.2 SWOT Analysis

15

Notes: 1 USD = 46.4300 INR

F & B


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4. Tables and Charts

F & B

Chart 1 : Global Share of Food and Beverage Products in 2008

Chart 2 : Contribution to Total Growth Value in Food and Beverage in 2008

Chart 3 : Industrial Production Index

Chart 4 : Production of Wheat Flour and Maida

Chart 5 : Production of Biscuits

Chart 6 : Production of Chocolate and Sugar Confectionary

Chart 7 : Production of Milk Powder

Chart 8 : Production of Malted Food

Chart 9 : Production of Tea

Chart 10 : Production of Alcoholic Beverages

Chart 11 : Ruchi Soya Break-Up of Revenue

Chart 12 : Nestle India Composition of Sales

Chart 13 : Britannia Performance Trends

Chart 14 : Britannia PAT, Cash Profit and EPS


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1. Industry Profile

Most Asia-Pacific economics slowedsignificantly in 2008 due to economicdownturn in the United States, rising energyand food prices, weaker exports andshrinking corporate investment. This led toconsequences such as rising unemployment,highly uncertain market conditions, drop inhousehold wealth and excess capacity inboth manufacturing and services sectors,which weighed down on consumer andinvestment spending and industrial activityacross Asia Pacific countries. However, theeconomic unrest in some Asia Pacificcountries showed signs of change in thesecond half of 2009, as governmentmonetary and fiscal stimulus packages tookeffect. The fall in oil and commodity pricestoo helped to ease inflationary pressures.

The effects of the global financial turmoilwere felt on all manufacturing sectors,including the food and beverage (F & B)

industry, albeit less affected than the others.Even before the crisis, the F & B industrywas already hit by escalating commodityprices which have eaten into manufacturersprofit margins. When the financial tsunamihit, firms raised prices to remain profitable,and now when raw materials and energyprices dropped, F & B manufacturers areunlikely to cut selling prices as they want afull restoration of profit margins in themedium term.

Currently, Asia Pacific accounts for 7% ofglobal F&B products. However, the regioncontributes 13% to the total growth of theglobal F&B industry (global F&B growth at6%). As a region with highly diverse cultures,language, consumption pattern, economicfreedom and laws, Asia Pacific continues tocapture the attention of international

companies, particularly with the limitedgrowth potential in North America andWestern European markets.

The food industry is a large and integral partof the economy in most countries in the AsiaPacific region, with each country havingdistinctive strengths in different segments.Three countries, namely China, Thailand andIndia are known as the rice bowl in theregion with their high production volume andhigh quality of rice. Australia is the mostdeveloped market in terms of processedmeat, wine and dairy, while the Philippineshas an abundant supply of fruits andvegetables. Japan on the other hand,remains the second largest food importerand has an impressive processed foodindustry which accounts for 11% of its GDPof all industries in the country.

The regulatory environment in most Asia

Pacific F&B industries is continuouslyevolving, with policy makers responsible forfostering a competitive business environmentbut also ensuring safety for consumers. Mostregulatory developments are now aimed atinfluencing product development andconsumer choices.

Asia Pacific not only provides a basket ofopportunity for the F & B industry, but also isexpected to be one of the hottest regions forfood manufacturing in the coming years.

1.1 Asia Pacific Overview


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50%

30%

7%

10%3%

Europe

North America

Asia Pacific

Latin America

EEMEA

Chart 1: Global Share of Food and Beverage Products in 2008

Note: EEMEA = Eastern Europe, Middle East and Africa

Source: AC Nielson

Chart 2: Contribution to Total Growth Value in Food and Beverage in 2008

Note: EEMEA = Eastern Europe, Middle East and Africa

Source: AC Nielson

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38%

21%

13%

21%

7%

Europe

North America

Asia Pacific

Latin America

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The robust growth in domestic companies,along with a growing trend towardsoutsourcing by global F & B manufacturershave taken the Indian food industry to newheights in the recent years. According to theDepartment of Commerce, the Indianeconomy grew by 7.9% y-o-y in 3Q2009,spurred by improved farm production thatboosted food processing output. The overalleconomic growth too helped the F & Bindustry expand with products becomingmore affordable due to rising income,changing lifestyle and rapid populationgrowth.

India has a competitive advantage over othercountries with the availability of rawmaterials, low labor costs and governmentinitiatives. Most F & B manufacturers areseen intensifying advertisements andexpansion schemes to both retain andincrease market share in India. In addition,Indias thriving tourism sector has attractedgrowing numbers of foreign customers to thelocal F & B market and has thus offeredgreat opportunities for food processors in thecountry.

The industry had a turnover of USD72 billionin 2008, or equivalent to 21% of Indias GDP.The country has also become one of thepreferred outsourcing hubs for foodmanufacturing due to its low-cost skilledworkers. It employs more than 1.6 millionworkers, representing 20% of the totalmanufacturing industry workforce. AlthoughIndia has limited focus on exports, levelshave been expanding for the past few years.

Exports of processed foods in the first ninemonths of 2009 were valued at INR77.22billion (USD1.67 million), an increase of 19%from INR64.76 billion (USD1.39 million) inthe previous corresponding period.

To promote the industry, the IndianGovernment has given high priority and hasprovided numerous incentives, includingfinancial assistance to academic bodies,

industry associations and non-governmentorganizations to organize exhibitions andconference as well as undertake research.However, industry growth is faced withconstraints such as inefficient infrastructure,inefficient supply chain, seasonality of rawmaterials and cultural preference for freshfoods.

1.2.1 Dairy Segment

The Indian dairy industry witnessed asignificant increase in the sales of premiumand high quality value-added products in2009, despite higher milk prices and fiercecompetition. The large and emerging dairymarket is expected to lure in foreigninvestors to the country through partnershipsand acquisitions of incumbent localcompanies.

In India, the rising preference for westernfood products, greater product availability, aswell as rising income and more effectivemarketing strategies led to greater demandfor processed dairy products over the pastfew years.

According to the Ministry of Food ProcessingIndustries, dairy products rose by 5% to104.9 million tons in 2008, up from 99.9million tons a year ago. Product innovationremains the key growth driver, especially infunctional products, and should also helpimprove margins for the industry as a whole.

1.2.2 Processed Fruits and VegetablesSegment

India is the second largest producer of fruitsand vegetables in the world, but thecountrys ability to process them remainlimited, suggesting vast opportunities forboth investors and exporters. Every yeararound 108 million tons of fruit andvegetables are produced, with only 2% of itprocessed. However, there has been asteady increase in the production of ready-

1.2 India F & B Industry Overview

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to-serve beverage, fruit juices, frozen fruitsand processed mushroom and tomato juices.Value-added food products are essential for

the success in this segment and betterquality products will give India access tointernational markets.

1.3 Selected Segments for Review

0

100

200

300

400

500

600

700

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

199

3-94=

100

Industrial Production Index: Manufacturing

Manufacturing Food Products

Manufacturing Beverages, Tobacco and Related Products

Chart 3: Industrial Production Index

Source: CEIC

The Industrial Production Index (IPI) for themanufacturing sector (base year 1993-94 =100) for the year 2009 was 314.8(averaged). The IPI for manufactured foodproducts was lower at 170.4 in 2009, downfrom 197.7 in the previous year. On the otherhand, the IPI for manufactured beverage,tobacco and related products was muchhigher at 574.1. The sub-sector has been ina growth spur since 2000.

The biggest setback in the foodmanufacturing sector is the lack of sufficientinfrastructure. Currently there are numeroustaxes, local taxes and levies imposed on a

variety of commodities belonging to F & Bsector. Each state has their differentindividual sales tax rates. These multiform oftaxes inflict serious damages to soundgrowth and development of the F & B sector.

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1.3.1 Branded Flour Industry

Production of wheat flour and maida during2009 rose 9.88% to 2.36 million tons against2008s production of 2.15 million tons. Themilling industry is a trinity of rice milling,wheat-flour milling and pulse milling. Itcomprises an assorted range of productsfrom ground wheat to flakes of wheat, rice orcorn. The milling industry has undergonegradual proliferation of technology and rapidmodernization. The grain processing sectoris very fragmented, with a few largecompanies in the market.

Mumbai-based DCW group entered thepackaged flour market in 1994 with CaptainCook. Since then, other large players, like

Hindustan Lever (with its Annapurna brand)and Godrej Pillsbury (Pillbury), Agro Tech(Healthy World), Nature Fresh and ITC(Aashirvaad) also moved into the market.Orthodox brands like Shakti Bhog havealso taken the necessary steps to strengthentheir position. The increased competitiveactivities among these companies arespurring the industry growth.

1.3.2 Bread Industry

The market for bakery and cereals in Indiaincreased at a compound annual growth rateof 10% between 2003 and 2008. The largeorganized sector players who are prominentin the upscale segments include Britannia,Modern Industries Ltd. Brands like Modemand Britannia are major players in the breadmarket and together they account for 90% ofthe organized bread market.

Local manufacturers armed with numerouslocal brands tend to target the populoussegment and contribute substantially in thebread segment. Miniscule profits marginsand high level of fragmentation are thesalient characteristics in the bread segment.

Recently, organized bread industry is facingpredicaments due to low profit margins partlydue to rising prices of raw materials such aswheat flour, vegetable oil, sugar and milk.

1.3.3 Biscuit Industry

1,900

2,000

2,100

2,200

2,300

2,400

2,500

2005 2006 2007 2008 2009

'000 tons

Chart 4: Production of Wheat Flour and Maida

Source: CEIC

0

200

400

600

800

1,000

1,200

1,400

1,600

2005 2006 2007 20082009

'000 tons

Chart 5: Production of Biscuits

Source: CEIC

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Production of biscuits went up 8.78% y-o-y in2009 (Chart 5). Britannia, Parle andBakeman are the three large organizedsector players who reign in the high andmedium price segments. The major brandsof biscuits include Britannia, Parle,Bakeman, Priya Gold, Eilite, Cremica,Dukes, Anupam and Horlicks.

Within the sector, Britannia with its Tigerbrand has become Parles Parle Gs biggestrival in the glucose biscuits category.Britannia and Parle rule the branded biscuitsegment.

The rapid urbanization has contributedsignificantly to the growth of the biscuitindustry. Targeted advertising and newproducts has helped the biscuit industry togrow. The top five manufacturers Britannia,Parle, Priya Gold, Cremica and Anmol havecompeted with each other over prices andquantities.

Biscuits packaging has gone through acomplete overhaul. The transformationincludes Britannias functional protectiveblister wraps which prevent breakage toParles stylish offering packaging. The exciseduty lowered on biscuits from 16% to 8% hasgiven the biscuit industry a major lift.However, there are still some lingeringissues facing the industry. The sales tax isdisorganized all over the states. AndhraPradesh has increased sales tax on Indiabiscuits to 16% while Uttar Pradesh,Karnataka, Delhi and Haryana adopted 8%.

The Federation of Biscuits Manufacturers ofIndia (FBMI) urges the Central government

to reconsider its decision to include biscuitsin the category of Revenue Neutral Rate(RNR), and levy 12.5% value added tax.Biscuits ought to be acknowledged as amass consumption item.

1.3.4 Semi Processed/Cooked/Ready toEat Food Industry

The ready to eat market in India has been a

new concept which is in its nascent stage.The market is worth INR800 million andshows huge potential for growth by tapping alarger consumer base. With the altering lifestyles of the Indian middle class and hecticschedules of both the working husband andwife, the demand for semi processedcooked/ready to eat food will be sustained.

HLL has entered the ready to eat segmentthrough Indus Valley rice metals in sevenflavors. MTR Food has also launched awhole range of rice meals and other curries.Satnam Overseas has also entered thisgrowing market with its Kohinoor brands ofrice meals and curries. ITCs more than 50packaged branded food products underKitchens of India and Aaashirvard brandswith different varieties of ready to eat/cookedfood is gaining popularity in the market.

1.3.5 Culinary Products and Snack FoodIndustry

The culinary products market has beengrowing at a moderate pace for the pass fewyears. Culinary products includes wheatbased products comprising noodles,vermicelli, marcaroni and spaghetti. In thissegment, HLL (Kissan and Knorr range) andNestle (Maggi) dominates as both have alarge portfolio of products. Heinz and TopRamen are waiting in the wings to enter intothis segment.

Indian snack food market is valued at aroundUSD3 billion with a growth rate of around 15-20%. It is one of the largest snack markets inthe world as of this day. The biggest productcategory within snacks by a considerable

margin is potato chips with 85% of the totalmarket share. Snack nuts and savory snacksare also included into the market.

The worlds largest producer of French friesand potato specialist McChain Foods withMcChain Smiles and NP Foods has invadedthe India potato snacks industry in 2005.

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The output for chocolate and sugarconfectionary stood at 63,535 tons in 2009, a

2.83% improvement from 2008 (Chart 6).The Indian confectionary market is estimatedto be worth INR26.9 billion and can besegmented into sugar boiled confectionary,chocolates, mints and chewing gums. Thewhole market can be further separated into 7major categories viz. - Hard Boiled Candies(HBC), Toffees, Eclairs, Chewing gums,Bubble gum, mints and Lozenges. Theconfectionary market is highly fragmentedwith several strong regional players. Theprominent players are Cadbury India, Nestle,Nutrine, Parrys Confectionary, Parle,Ravalgon and Candico.

The chocolate market in India is dominatedby 2 major players, Cadbury India Ltd andNestle India Ltd controlling about 90% of thetotal chocolate market. Standard grocers arethe preferred distribution channel with 33%of the Indian confectionary market by value.

The only other channel to take a double digitshare is the traditional grocers.

Low profit margins, high volumes, pricesensitivity and high advertising expenses aresalient features of the chocolate industry.Given the perishable nature of the productand the fact the India lacks an effective coldchain distribution network are amongst themajor predicaments that restrain any marketexpansion.

The chocolate companies are havingpredicaments due to scarcity of milk andascending prices. Most the private dairieshave increased the prices including theprices of Skimmed Milk Powder (SMP), acrucial ingredient for manufacturing milkchocolates and ice cream mixes besidesbiscuits and confectionary products.

1.3.6 Confectionary Industry

Chart 6: Production of Chocolate and Sugar Confectionary

0 10,000 20,000 30,000 40,000 50,000 60,000 70,000

Tons2005

2006

2007

2008

2009

Source: CEIC

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Indias milk powder production was down by19.21% from 178,808 tons in 2008 to

144,468 tons in 2009 after shooting up23.68% from 144,569 tons in 2007. Milk andmilk products are regarded as one of themost promising sectors in the foodprocessing industry. Predominantly, India isthe one of the worlds largest milk producingcountry and is estimated to have aproduction of more than 109 million tons by2010. As a corollary with increasedproduction in liquid milk, there has been aconcurrent growth in the production ofvarious processed milk products including

milk powder, infant milk food, condensedmilk, butter, cheese, ice- cream, curd, khoaand khoa based sweets.

With the liberalization, the influx oftechnology and machinery has a positiveeffect on the in the production of traditionalmilk products and this has given the dairysegment an impetus to continue to grow. Thecooperative sector dominated the dairy

industry and about 60% of the installedprocessing capacity is owned by the

cooperative sector.

The National Dairy Development Board(NDDB) is a major player in the market withits major, ubiquitous brand, Amul. Leadingbrands like Amul, Nestle, Mother Dairy andBritannia are competing fiercely with eachother to take advantage of the growingmarket. SmithKline Beecham ConsumerHealthcare, Nestle India and Heinz India areamongst the large MNCs that dominate thepremium segment of the milk products

market.

There are different set of taxes and dutiesimposed by both the Central and Stategovernments. Some of the procedural issuesincluding amendment of Milk and MilkProducts Order (MMPO) of the governmentof India need to be reviewed and reevaluatedfor improving viability in the production ofmilk and milk products.

1.3.7 Milk and Dairy Products Industry

Chart 7: Production of Milk Powder

0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000

Tons2005

2006

2007

2008

2009

Source: CEIC

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In order to tap the opportunities andpotentials, certain initiative and steps areneeded to be adopted for technologyimprovement , automation andcomputerization in the manufacturingprocesses, quality control, and improvementof packaging to improve shelf life ofproducts, investment in R&D to develop newproducts and for establishing an efficient cold

chain system.Nowadays, the consumers are paying moreattention about health products, rapidurbanization, improving standards of livingand popularity of convenience foods, theindustry is anticipated to witness sustainabledemand growth potential.

1.3.8 Malted Food & Beverage Industry

Chart 8: Production of Malted Food

In this segment, malted foods productionwas down by 19.55% in 2009 (Chart 8).Indias malted food market consists of twosegments, namely brown and white. The

brown drinks are deemed to be energyboosters, while the white drinks areconsidered as milk substitutes.

Malted beverages with nutritional attributestake up around 70% of the total market andenergy drinks (brown beverages) account forthe rest. Few players dominated the maltedfood drink industry. These include brandssuch as Horlicks, Complan and Viva which

are mainly reagarded as white beverages.Boost, Bournvita, Milo and Maltova on theother hand are known as brown drink.

The consumption pattern of maltedbeverages varies across different geographiczones according to the each distinctiveusage pattern. In the southern and easternregions white beverages are the preferredchoice. The people in the east prefer sweeterbased beverages, meanwhile the southernprefers more cocoa based beverages.

0

10,000

20,000

30,000

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90,000

Tons

Malted Food 84,581 77,704 82,115 61,821 49,732

2005 2006 2007 2008 2009

Source: CEIC

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Production of tea recorded a slight increaseof 0.30% in 2009 (Chart 9). India has a bigdomestic tea market. Tea has managed toretain its leading position despite recurringattempts by other beverage segments toovertake it, predominately because of itsprice advantages.

Cost of production of Indian tea remains thehighest amongst tea producing countries,and the factor has been impeding Indiascompetitiveness. A major component of thecost of production is the cost of employmentwhich includes social welfare cost onaccount of statutory amenities such as watersupply, medical, primary education to beprovided to workers in India under thePlantation Labor Act.

In 2009, exports are expected to reach 185million kilograms, a decline of 18 millionkilogram from 2008 levels. Therefore,competitiveness remains a key factor to theexports efforts and the industry warmlywelcomes the step taken by the governmenttowards the inclusion of tea (across all

categories) as part of thr Foreign TradePolicy announced in early 2009.

Consumers in different parts of the countryhave various tastes and preferences. Dusttea is very popular in the south and centralIndia. In the western states, good qualityloose tea is preferred choice in Gujarat, onthe other hand, consumers prefer packet andunbranded tea in Maharashtra.

Hindustan lever leads in the branded teasegment. The other significant players in thissegment are Tata tea, Duncans, Goodricksand Jay Shree. The unorganized playersdominate the major segment of the market.In addition, many local brands have enteredthe packaged tea segment. There areapproximately about 1000 brands of tea inthe country and out of which more than 90%brands belonged to the regional players.

Regional brands have further tightened theirgrip on their market share from about 37% toaround 50%.

1.3.9 Tea Industry

Chart 9: Production of Tea

Production in Tons

2009

979,010

2005

879,420

2006

960,510

2007

944,690

2008

976,100

Source: CEIC

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Distribution schemes vary betweenstates. Free market system practiced inMumbai while Government operatedsystem is followed in Delhi. The auctionsystem is operational in Haryana andMadhya Pradesh.

Lack of uniformity in sales tax rates andother charges by different stategovernments is an important deterrent.Each state has a different tax structureand levies and other regulationsregarding licensing fees and sales of newbrands.

Different states have different labelinglaws that lead to wastage, delay andhigher cost of production.

Besides heavy financial implications onthem, they cannot transport theirproducts from a market that has excesscapacity to one where there is a shortsupply.

The liquor output should be broughtunder the purview of the Value AddedTax (VAT) in all States. However, theVAT should comply with the principle ofrevenue neutrality rather than a revenueenhancing measures.

According to All India DistillersAssociation, there is the need for areview of the ban imposed in the year1975 on the expansion of capacity forproduction of alcoholic beverages As thequantitative restrictions on the import ofalcoholic beverages has been removedon 1st April 2001, there is no justification

for the ban on expansion of domesticcapacity by the domestic industry.

Increase in the price of molasses,essential raw materials for production ofalcoholic beverages due to shortage andinadequate availability, has affectedproduction adversely.

1.4 Food and Beverages PolicyInitiatives

The government has devised andimplemented a number of initiatives toprovide financial assistance for establishingand overhauling the food processing units,modernization and creation of infrastructure,funds for research and development and anumber of other measures to promotegrowth in this sector. Buoyed by the potentialgrowth of the food and beverages industry,the government has embraced the followingpolicies to give the sector a much neededboost:

Food processing industry declared apriority area

Entire sector is de-licensed

Automatic approvals for foreigninvestment up to 100%, except foralcoholic beverages and also technologytransfer

Import of capital goods and raw materialfor 100% export oriented units waived

Export earnings are exempted fromcorporate tax

All processed fruits and vegetablesproduct exempted from central exerciseduty

Government grant given for setting up ofcommon facilities in agro Food Park

Full duty exemption on all imports for

units in Export Processing Zones

Use of foreign brand name is freelypermitted

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2. Market Trends and Outlook

Indias tea production fell close to 12% inJune 2010 to 104.03 million kilograms. Thelower production was attributed to lowerrainfall, decreased soil humidity as well asincreased pest attack in some of the majortea growing areas in the country, especiallyin the northeast region.

Though there was a slight increase in southIndian production (Tamil Nadu), it was stillunable to offset the significant fall in northIndia, including Assam and west Bengal.Biggest production losses were reportedfrom Assam, especially from the Assamvalley plantation.

The countrys exports fell close to 15% to12.76 million kilograms in June 2010, against14.95 million kilograms in the lastcorresponding period. The fall in value of teaexports was even sharper at 21.5% fromINR166.96 crore (one crore equals to ten

million) as against INR213 crore. The higherfall in value can also be attributed to lowerunit realization, in which unit value for tea fellto INR130.84 per kilogram as againstINR142.46 per kilogram last year.

According to a Reuters report, a pest attackof helopeltis adversely affected tea gardensin Assam. Though the pest attack is nowunder control, it has likely caused damage inJuly production as well.

2.2 Major Investments in the F&BIndustry

According to the Associated Chambers ofCommerce and Industry of India(Assocham), a USD30 billion worth ofinvestment is needed to revolutionize thecountrys food processing sector. The multi-billion dollar injection will boost volume ofprocessed products to 10% of overall output

by 2015. The investment will also seeprocessed food exports jump by 70% toUSD25 billion a year within five years, whileimports of foodstuff will climb to USD13billion per annum by 2015.

At present, India processes just over a thirdof its milk, 26% of its fisheries output, 20% ofits buffalo meat, 6% of poultry and around2.2% of fruits and vegetables. But given theinvestment, Assocham predicts fisheriescould rise to about 40%, 15% for poultry,60% for milk and 40% for buffalo meat.

Some major investments in the industry are:

IFFCO is planning to enter the dairymarket by setting up a new venture by theend of 2010 with an investment of USD224.9million.

Capital Foods and Kishore Biyani-led

Pantaloon Retail plans on setting up aSpecial Purpose Vehicle (SPV) that involvesan investment of USD60 million for two megafood-parks in Maharashtra and Karnataka.

Shree Renuka Sugars, Indias largestsugar refiner plans to acquire 50.34% stakein Brazils Equipav AA for USD248.4 million.

McDonalds India plans to invest up toUSD2.15 million a year, for the next three tofour years, adding 30 restaurants annually in

the western and southern region.

Amul plans to add an additional 15,000retail outlets to its existing 70,000 outlets bythe end of 2010.

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2.1 Decline in Tea Production


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2.3 Foreign Trade

Indias anxiety over its erratic monsoon rainsbecomes more acute as both rising incomeand a growing population push up demandfor farmed products faster than supply,turning the nation into a major importer withinfive years.

Forecasts of a normal monsoon in 2010have set hopes for smooth supplies and lowinflation. However, the country is in need toboost yields if it is to feed its nearly 1.2 billionpopulations. India is already the worlds topimporter of edible oils and ranks among thebiggest producers and consumers of wheat,rice, cotton and sugar, making the country akey driver of global prices in the case ofunfavorable weather forcing it to importgrains and sugar.

According to the Agricultural and ProcessedFood Products Export DevelopmentAuthority (APEDA), exports of agriculturalproducts from India are expected to reacharound USD22.billion by 2014 and accountfor about 5% of the worlds agricultureexports.

Exports of floriculture, fresh fruits andvegetables, processed fruits and vegetables,animal products, other processed foods andcereals rose to USD7,891.8 million in 2008-09 against USD7,877.1 million in theprevious year, according to DGCIS annualdata by APEDA. In addition, APEDAreported that India exported scheduleproducts, floriculture and seeds, fruits andvegetables, processed fruits and vegetables,livestock products, other processed foods

and cereals worth USD6.53 billion betweenApril 2009 and February 2010.

India also exported 502,750 million tons ifspices valued at USD1.25 billion in 2009-10,according to statistics from Spices Board ofIndia. The nation enjoys a 48% and 44%share in terms of volume and valuerespectively in the world spice trade.

2.4 Industry Outlook

The Indian F & B market is one of the fastestgrowing markets in the world. The marketremained unaffected by the economicdownturn and is expected to register double-digit growth in the coming future. One of thekey drivers of the growth in the industryincludes the rapid expansion of organizedretailing in the country.

All segments in the F & B industry ispredicted to show positive growth, with thebeverage industry being the most promisingand is projected to post maximum returns inthe coming times. The two segments that areexpected to boost growth are the alcoholicdrinks segment and the soft drinks segment,of which, the soft drinks segments isforecasted to have a CAGR of 11.6% from2010 to 2013 in terms of volume.

Despites current under-developments in foodprocessing, India still has the potential tobecome one of the leading players in theindustry due to its low labor and productioncost, government initiatives and theavailability of raw material.

The booming tourism sector and rapidgrowth of western-style fast food chainsoffers great opportunity for the exports offoreign food products to this large but ratheruntapped market. Investment in the F & Bindustry is also expected to rise along withthe countrys burgeoning population.

However, the industry is vulnerable todomestic and external risks such as tradeprotectionism and volatile oil prices, which

could hinder industry growth.

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3. Leading Players and

Comparative Matrix

3.1.1 Ruchi Soya Industries Ltd

Ruchi Soya is the biggest player in Indiaspecializing edible oils, soya foods andprocessed foods. This is largely ascribable toits strict quality dedication and continuousinnovation and improvement to stay ahead of

times. Besides that, Ruchi Soya has movedaway from being a big manufacturingcompany to focus on branded path. Its twobiggest brands, Nutrela and Ruchi Gold havegained leading positions in the soya foodsand edible oils segment respectively.

Ruchi has extensive distribution network.Presently, the company has 5 Lac retailstores, with 90 company depots, 2,000distributors and over 200 sales staff. Ruchihas a dual strategy for the popular and

premium market. Ruchi Gold is well liked bythe consumers due to its value for money butwith no compromise in quality. The Nutrela

series is targeted at the premium market andoffers healthy options in soya foods andedible oils.

Some of the prestigious awards won byRuchi Soya Industries Limited are as below:

Global Gold Award for OutstandingPerformance: Highest Exporter of Oil Meals for the

years 2000, 2003, 2004 and 2006.

Soyabean Processors Association ofIndia, Indore: 1

stHighest Exporter as Manufacturer

Exporter 2004-2005 1st Highest Processor 2004-2005 1st Certificate of Merit for Highest sale

of textured vegetable protein (Soy

Nuggets) 2004-2005 1

stCertificate of Merit for Highest

Sale of Lecithin

3.1 Leading Players

73%

16%

6%

3%2%

Oil

Seed Extraction

Vanaspati

Food Products

Others

Chart 11: Ruchi Soya Break-Up of Revenue

Source: Company Website

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For the financial year 2009, income for thecompany was INR12,209.51 crore, a 10.31%increase from INR11,068.81 crore from theprevious financial year. Profit after tax,however drop from INR159.23 crore toINR93.28 crore, representing a 41.42% drop.

3.1.2 Nestle India Ltd

Nestle India is one of the subsidiary of NestleS.A. of Switzerland. Nestle started doingbusiness in India since 1912, at that timeunder the name of The Nestle Anglo-SwissCondensed Milk Company (Export) Limited.Currently, Nestle India has seven factoriesand a large number of co-packers.

Nestle has been a loyal partner with India forover 90 years hitherto, thus has developed avery close and special relationship with thepeople of India. The companys activitieshave directly and indirectly brought aboutemployment for over one million peopleincluding farmers, suppliers, services andother goods.

Nestle India has a number worldwide famousbrand names such as Nescafe, Maggi,

Milkybar, Milo, Kit Kat, Bar-One, Milkmaidand Nestea and lately the company has alsolaunched products of daily consumption suchas Nestle Milk, Nestle Slim Milk, NestleFresh n Natural Dahi and Nestle JeeraRaita.

Over the years the company has been verypassive. For long, Nestle was satisfiedachieving the same growth with the GDP andunderperformed given the potential that theyhave. However, Nestle has finally turned thecorner and the recent performances havevindicated it, partly due to a shift in paradigmby the management for a more aggressiveapproach.

For first six months of 2010, net sales forNestle India increased 19.0% y-o-y toINR29.4 billion, driven by strong domesticand export businesses. Domestic businessgrew by 18.4% y-o-y to INR27.5 billion,driven mostly by volume growth. Profit aftertax climbed 10.4% y-o-y to INR3.97 billion,while EPS was higher at INR41.14 comparedto INR37.27 a year ago.

Chocolates &

Confectionery, 16%

Culinary Products,

25%

Beverages, 15%

Milk Products, 44%

Chart 12: Nestle India Composition of Sales

Source: Company Data

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3.1.3 Britannia Industries Ltd

Britannia started from humble beginning andit is now one of Indias favorite biscuitbrands. In 2002, Britannia formed a jointventure with Fonterra, the worlds secondbiggest Dairy Company and Britannia NewZealand Food Pvt. Ltd was established. Inacknowledgement of its outstandingperformance, Forbes Global rated Britannia,One amongst the Top 200 Small Companiesof the World, and The Economic Timesawarded Britannia Indias 2

ndMost Trusted

Brand.

The secret to Britannias successful storyrests on its strategy of identifying high value

opportunities and capitalizing on themthrough differentiated brands, underpinnedby an effective supply chain. The key to thisstrategy is brand building. The driving forcesare availability, presence and merchandisingfor brands that provides the consumers asatisfying experience and reasonable prices.

For the financial year ended 31 March 2010,gross sales increased by as much asINR2,817 million (8.96% ) to INR34,246million. Profit from operations fell fromINR2,293 million to INR1,257 million,including the provisions for one-off itemsworth INR258 million. Net profit fell 35.42%from INR1,804 million to INR1,165 million inthe reporting period.

Chart 13: Britannia Performance Trends

Source: Company Annual Report

Chart 14: Britannia PAT, Cash Profit and EPS

Source: Company Annual Report

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3.1.4 Tata Global Beverages Ltd

Tata Global Beverages Ltd (formerly TataTea Ltd) was born in 1964 as a joint venturewith UK-based James Finlay and Companyto produce value-added tea. Presently, thecompany is the worlds second largest globalbranded tea with products available in 40countries.

The consolidated worldwide branded teabusiness of Tata Tea Group chips in around86% of its consolidated turnover with the restcoming from bulk tea, coffee and investmentincome. The companys headquarter is sitedin Kolkata and possesses 27 tea estates ofAssam and West Bengal in eastern India andKerala in the south.

The company has five major brands in theIndian market viz. - Tata Tea, Tetley, KananDevan, Chakra Gold and Gemini, each brandto cater for various consumer segments fortea. The Tata Tea brand dominates themarket share in terms of volume and value inIndia and the Tata Tea brand is accordedSuper Brand.

Tata Global Beverages has a 100% export-oriented unit manufacturing Instant Tea inMunnar, Kerala, which is also the largestfacility of this type outside the United States.Instant Tea is used for light density 100%Teas, Iced Tea Mixes and in the preparationof Ready-to-drink (RTD) beverages.

The company has around 15,900 hectares ofarea under tea cultivation, with an annualproduction of approximately 30 millionkilograms of Black Tea.

For the year ended March 31 2010, TataGlobal Beverages Ltd registered net sales ofINR169,792 lakhs (1 lakh = 10

5). Income

from operation for the second quarter of theyear stood at INR45,101 lakhs, and increaseof 7.94% y-o-y from the previouscorresponding period. However, profit aftertax fell by INR681 lakhs to INR3,615 lakhs.

3.1.5 Hatsun Agro Products Ltd

Hatsun Agro Products Ltd is Indias largestprivate diary with the span of three decades.It started from a modest ice-creammanufacturer to one of the biggest names inIndias dairy sector. They company has over70 types of flavors and its the number 1selling ice cream in south India. Arun IceCreams is manufactured at Chennai. ArunIce Cream reaches the consumer throughthe largest network of exclusive parlors inIndia.

Arokya is one of the most preferred milkbrand consumed by India before Komathacame along. Komatha is Hatsuns proudestproduct to date. It embodies the values andattributes of fresh milk. Komatha is well likedby kids and adults for its taste and freshnessand is acclaimed as the most suitable milkfor the whole family.

Hatsun produces a total of 1.8 million liters ofmilk per day, and the companys quest forquality starts at the procurement stage, twicea day from over a thousand collectioncenters and from over a hundred thousandfarmers.

For the financial year ended 31 March 2010,Hutsun had net sales of INR114,060.31lakhs, up from INR101,305.01 lakhs in theprevious financial year. Profit after taxhowever slump by 77.53% to INR268.93lakhs, due to unfavorable economicconditions and rise in input material prices.Sales from its milk and milk productssegment was 10.52% higher atINR110,570.61 lakhs while sales from other

segments surged by 177.90% to settle atINR3,489.70 lakhs.

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Ruchi Soya

Strengths Weaknesses

Strong Brands

Increasing import of foreign vegetable oils will give toughcompetition to Ruchi Soya

Economies of scale

Market leader in edible oil segment

Amalgamation with Mac Oil Palm has expanded itspresence in the oil plantation in India

Opportunities Threats

Rise in disposable income in India offers opportunitiesfor the company Rally in cost of raw materials drive down profits

3.2 SWOT Analysis

Nestle India


Strong stable brands

Low penetration levels

Large diversified portfolio

Nestle India has a very strong parent, Nestle SA

Superior capital efficiency


Rise in disposable income in India offers opportunitiesfor the company

Rally in cost of raw materials drive down profits

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Britannia

Strengths Weakness

Market leader in bread and cakes industry in India

Strong competitive pressures from rival companiesEntered the value-added dairy products namely UHTmilk category and milk-based drinks.

Economic Times pegged Britannia as the 2nd mosttrusted brand in India

Opportunity Threat



3.2 SWOT Analysis (Cont)

Tata Global Beverages

Strengths Weakness

Second largest branded tea in the worldAdverse currency movements would have an impact ofTata Global Beverages

Strong global presence in over 40 countries

Accepted and has significant market presence inwestern countries




Black tea segment has been showing flat growth forsome time

Sluggish growth of European tea market is a cause of

concern

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The research report is based on material compiled from data considered to be reliable at the time of

writing. However, information and opinions expressed will be subject to change without notice. We donot accept any liability directly or indirectly that may arise from investment decision-making based on

this report.

Hatsun Agro


India's largest private diary company

Strong competitive pressures from rival companiesLarge diversified product portfolio that is popular withconsumers

Arun ice cream is the no.1 selling ice cream in southIndia

Efficient and effective supply and cold chainmanagement




3.2 SWOT Analysis (Cont)

Food & Beverage 2H10 Industry

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