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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

    nitinjain@aurumequity.com

    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.

    2Private and Confidential For limited circulation only

  • 3Private and Confidential For limited circulation only

    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

    worlds 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, Nilons, 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.

  • 4Private and Confidential For limited circulation only

    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.

  • 5Private and Confidential For limited circulation only

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

  • 6Private and Confidential For limited circulation only

    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.

    7Private and Confidential For limited circulation only

  • The Aurum Perspective on select transactions -

    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.

    8Private and Confidential For limited circulation only

  • The Aurum Perspective on select transactions -

    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.

    9Private and Confidential For limited circulation only

  • The Aurum Perspective on select transactions -

    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 worlds biggest sugar

    consumption market. With global sugar prices at a 4-year low, the dea