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Aurum Insights Agriculture, Food and Beverages___________________________Annual Newsletter 2015

Aurum Equity Partners LLP

“The year also saw over a dozen venture capital funding deals, a leap from the handful we have

seen in the past few years. The venture capitalists invested across the breadth of the sector,

including branded foods, dairy, supply chain, agri equipment, machinery, etc. This is a healthy

sign as VC funding at the grass-root businesses will go a long way in developing the sector.”

Read more on the M&A action in this issue.

“We believe the Agri, F&B sector is fast gaining visibility andrecognition from foreign strategic investors as well as theprivate equity community. The three significant in-bounddeals in the sector in 2014, namely Lactalis-Tirumala,Wilmar-Renuka Sugar and Nihon Nohyaku-HyderabadChemicals is testimony of the interest by Global Strategicsin the sector .”

Nitin JainPrincipal, Aurum Equity Partners LLP

[email protected]

Despite a weak macro environment, the India consumption story played well in the Agri,

F&B in 2014 with stronger deal flows in dairy and branded or packaged food segments

than we have seen in previous years. There was also much higher deal activity at the

venture-capital stage during the year.

India is by far the largest and fastest growing milk markets in the world by volume. Liquid

milk accounts for 75% of total volumes representing a huge scope for value added

products which are expected to more than double by 2020. In the last couple of years,

private equity investors funded large, regional dairy companies like Parag Dairy, Prabhat

Dairy, Dodla Dairy etc. In 2014 PE fund Fidelity invested in Orissa-based, Aavishkaar

funded Milk Mantra Dairy. The sector also saw a landmark deal, the $275 mn acquisition

of Carlyle-funded Tirumula Milk Products by Groupe Lactalis. We think the Indian Dairy

sector will continue to attract growth capital from private equities as well as from the

capital markets, as some of the PE funded dairies may look to tap the buoyant capital

markets in the current year.

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India ranks 2nd in the production of fruits and vegetables in the world after China, and

produces ~11% and ~19% of the global fruits and vegetables respectively. India has the

world’s largest production of Banana, Papaya, Mango and Lemons. The abundant supply

of fruits and vegetables, coupled with a strong demand for branded or packaged foods

growing at 15-20% p.a., has been driving private equity investments in the sector. The year

saw private equity funds invest in companies like Bikaji Foods, Nilon’s, Maiyas Beverages,

Manpasand beverages, the rural and semi-urban focused juices company raising a second

round of funding. The packaged, branded food segment has a lot of headroom still to grow

in terms of per capita consumption, low penetration rates in organized market and scope

for product innovations, and will therefore continue to attract private equity investments

and interest from Strategics. With investments flowing at a robust pace in branded foods,

we believe that Fruit & Vegetables (F&V) processing may not lag behind for long.

Processed Fruit & Vegetables (F&V) forms just 2.5% of the total produce in India, which is

far lower than in the developed countries (US – 65%) and developing countries (Brazil –

70%, China – 23%).

The year also saw over a dozen venture capital funding deals, a leap from the handful we

have seen in the past few years. The venture capitalists invested across the breadth of the

sector, including branded foods, dairy, supply chain, agri equipment, machinery, etc. This is

a healthy sign as VC funding at the grass-root businesses will go a long way in developing

the sector.


Concluding Notes:

We believe the Agri, F&B sector is fast gaining visibility and recognition from foreign

strategic investors as well as the private equity community. The three significant in-

bound deals in the sector in 2014, namely Lactalis-Tirumala, Wilmar-Renuka Sugar

and Nihon Nohyaku-Hyderabad Chemicals is testimony of the interest by Global

Strategics in the sector. However, the deal activity in the sector is still relatively small

in comparison to similar sized, diversified sector like Healthcare in India, where USD

5.9 bn of transactions were concluded v/s just USD 927 mn in Agri, F&B during the

year.

With the new government at the Centre, renewed investor confidence and rising

business optimism, the investments in the sector are bound to grow. What the sector

needs is increased flow of venture capital funding to help nurture and incubate grass-

root businesses and much higher private equity investments across the various sub-

segments of the sector. The front-end will need to be supported by a robust and

scalable backend i.e. increased investments in areas including agriculture farming,

food procurement, supply chain management, warehousing and cold storage, F&V

processing etc. This will be imperative for the overall development of the sector in the

medium and long-term.


Table 1: Select M&A transactions in the Agri, F&B Sector (2014)


Table 2: Select Private Equity and Venture Capital transactions inthe Agri, F&B Sector (2014)

The Aurum Perspective on select transactions -

Established in 1998, Tirumala is the second largest private sector dairy player in Southern India

with existing processing capacity of 16.6 lakh litres per day across 7 plants. Private-equity firm

Carlyle India Advisors Pvt. Ltd had invested USD 22 mn into Tirumala for ~26% stake in 2010.

The Aurum Perspective

The transaction exemplifies the undergoing consolidation in the Indian Dairy sector with the

industry becoming more organized. The transaction also marks the entry of the top global dairy

player- Lactalis - in the fast growing Indian dairy market. Setting up of own procurement network is

the biggest challenge for a foreign player entering Indian dairy market. It is essential for them to

have a local partner for ensuring consistent supply of raw milk to the plant.



Bikaji Foods is primarily engaged in the manufacturing of various kinds of packaged food

products like bhujia, papad, namkeens, rasgulla, gulab jamun, sohan papdi etc. Bikaji Foods will

use the funds to expand its manufacturing and distribution to markets outside North India and

to enter the fastest growing ready-to-eat food market.

Aurum Perspective

Packaged salty snacks market in India was estimated at INR 120 bn in FY12 and estimated to grow

at CAGR~20% over the period FY12-FY17. Brand namkeen segment estimated at INR 50 bn is a

faster growing segment with expected CAGR of 30% over the same period. Haldiram is the market

leader in the branded namkeen segment with ~50% market share.



In February 2014, Goldman Sachs and Mitsui Global Investment among others put in INR 3,150mn ($51 million) in Global Beverages & Foods Pvt Ltd (GBFPL) to pick an undisclosed stake.

GBFPL, a company founded by entrepreneur A. Mahendran (ex-MD of Godrej Consumer ProductsLtd) is looking to build a portfolio of consumer brands in juices, confectionaries and snacks. Thecompany is looking to launch its own brands in 2014 and is also looking at inorganic growthopportunities.

Aurum Perspective

Global Beverages & Foods is expected to expand and grow its business via organic growth andinorganic route of acquisition of regional brands.

The branded food & beverages market in India is highly fragmented with handful of large players(MNC and domestic) controlling a chunk of the market, while the remaining market is dividedbetween hundreds of small local/ regional brands. We think the strategy to consolidate will lead tocreation of large, pan-India players.



Aurum Perspective

Shree Renuka Sugars acquired two sugar companies in Brazil by taking massive amount of debt.

Due to drought in Brazil in 2011, Shree Renuka Sugars could not improve capacity utilization at

these two companies. Dilution of shareholding to Wilmar has been a distress effort by its

promoters towards reduction of debt for its India operations.

With this transaction, Singapore based Wilmar gets an entry into India- the world’s biggest sugar

consumption market. With global sugar prices at a 4-year low, the deal helps Renuka Sugar to

repay its high debt both in India and in Brazil (for the two acquisitions it had made earlier).



Aurum Perspective

Agrochemical industry in India is estimated at USD 4.1 bn in FY13 and growing at 12% per annum,

much faster than global growth rate of 5% per annum. The sector in India is dominated by MNCs

like Bayer, Syngenta, Monsanto etc and large Indian players like Rallis India, PI Industries, Excel

Crop Care etc. Top 10 companies in the Indian agrochemicals sector comprise ~50% of the Indian

market, compared to Top 10 companies contributing over 75% share in the global agrochemicals

market.



Aurum Perspective

USL was forced to sell Whyte & Mackay brand due to regulatory hurdle created after Diageo took a

controlling stake in USL. UK’s Office of Fair Trading found Diageo’s takeover of USL to be anti-

competitive as Diageo brands (Bell’s, Johnnie Walker etc) and Whyte & Mackay control significant

part of United Kingdom’s whisky market. USL had earlier acquired Whyte & Mackay for GBP 595

mn in 2007 mostly through debt funding.

Diageo-USL combine in India is now focusing on exclusively manufacturing and distributing Diageo

products in India completely through USL.


Aurum was established, as a mid-market focused; transaction oriented; investment banking firm,

by a team of professionals with decades of experience in investment banking, private equity and

general management.

Aurum advises clients on M&A, Divestitures, Fund Raising and Restructuring, focusing on

sectors that are in the high-growth trajectory. The Aurum team’s experience in handling large

and complex transactions helps in accelerating the speed of response that the Client needs to

demonstrate, in order to close transactions in a competitive environment. We have the ability to

structure deals derived from understanding the client's strengths and constraints, further

enabled by understanding of market trends and relevant regulatory environment.

www.aurumequity.com

For any further queries and information, please write to us at [email protected]

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Disclaimer: This report is presented solely for the internal use of the recipient to whom it is marked byAurum Equity Partners LLP (‘Aurum’) and does not carry any right of publication or disclosure to any otherparty. This report has been prepared on the basis of information obtained from publicly available,accessible resources. Aurum has not independently verified all the information given in this report. NeitherAurum nor its affiliates, partners, directors, employees, agents or representatives, shall be responsible orliable in any manner, directly or indirectly, for the contents or any errors or discrepancies herein or for anydecisions or actions taken in reliance on the report.

Private and Confidential For limited circulation only

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