Cold storage to grow to $30 bn with CAGR of 16%; Growth in organized sector likely to fuel investment

Estimated loss in post-harvest in India is estimated to be $8.3Bn. Existing There are 3500 companies operating currently, just 15% in organized
cold storage facilities allows only 11% of total produce to be stored. 75% of sector. This limits the availability of credit to 85% market
capacity is available only for potatoes
In India, crop loss is much higher than in 75% cold storage capacity in India is for In India, there is a lack of credit for
Indian cold storage is expected to
developed nations, thereby increasing the potatoes, only 25% is for fruits, development of warehouses, with ~
grow to $30 Bn, currently at ~18 Bn
need for cold storages vegetables and processed foods 15% companies in organised sector
Crop Loss in % of total Cold-storage facility in Market Snapshot: Cold
production India (2020) 35
Storages
35% 25 23.25
30
20% - CAGR
40% - Waste
20 3500
25 8064 – Cold

Revenue (in bn $)
companies
20% storages
15
20

Million MT
15%
2980 Unorganized
10% 10 Sector
15 companies
5 2.48 10
1.86 2.17
1.24
Organized
0
520
Grains Potatoes Horticulture Meat Potatoes Horticulture Processed Pharma Marine &
5 Sector
crops food Meat
Products
✓ All categories are facing huge losses 0
due to post harvest crop losses ✓ Moreover, ~ 40% of food is dumped
in India, compared to just ~8% in ✓ Currently, there is a lack of credit
✓ This is much higher than in developed
developed nations. access for construction of medium and
nations, thereby increasing the need for
✓ 95% of capacity of cold storages is by small-scale warehouses
cheap credit ✓ This provides an opportunity of private players, hence majority of
growth both for cold storages and ✓ 36% of warehouses have capacity of
✓ Current cold storage allows only 11% of growth will come from private sector
technology improvements less than 1000MT, needing sufficient
total produce to be stored. Moreover
✓ Industry is expected to grow to capital to expand in India
70% is operating on old technology ✓ India is second largest producer of $30Bn, growing at a CAGR of 16%
fruits and vegetables, while share of ✓ Most of the credit to unorganized
✓ Total investment required ~ 4000 Cr
global exports is just 1.3% ✓ Highly unorganized sector sector are given by NBFC at ~18-20%
interest rate

Submitted by: Conquerors, IIM Bangalore

Aakash | Aditi | Piyush | Pavan
Impact of COVID-19 on the cold storage facilities in India
Due to the COVID-19, the long supply chains were severely affected especially when the lockdown was in place, restricting transport. While the
food bank had more than three times the operational buffer, lack of transportation put brakes on the system, causing immense losses. Around
70% of the farmers have been affected due to ~40% drop in demand. Robust cold-storage infrastructure could help farmers save their
produce for higher demand periods.

Immediate necessity for cold storage facilities in India for

Plans of action given the situation
the COVID-19 vaccines
Problems Expected vaccine potency vs temperature, based on OPV

✓ COVID-19 spread in the country in its prime in the harvest season 100% 100%

Projected Vaccine
Potency/Stability
✓ Restrictions on movement led to a shortage of farm workers, 80%
subsequently leading to a delay in harvesting the crops 60% 50%

✓ Farms and farm workers are the ones facing the brunt of the 40%
undesirable situation, while food by the tonnes gets lost in transit 20% 10%
due to issues in supply chain 0%
0%
0-8 22-25 35-37 over 37
Temperature in degrees Celsius
Resolutions
✓ Better cold chain infrastructure, i.e., temperature-controlled storage ✓ Cold chain infrastructure can also maintain the quality of vaccines and
space, transport, trained personnel with efficient management can help temperature-sensitive medicines from the time of manufacturing to
in reducing food wastage point of administration
✓ Temperature-controlled storage spaces incl. pack-houses, ripening ✓ Special emphasis on last mile connectivity using this infrastructure req.
chambers, and bulk & hub cold storages that help improve shelf life for robust healthcare system
✓ India Cooling Action Plan (ICAP) reports that while while cold storages ✓ Acc. to NII, current infrastructure falls short for maintaining the
inventory is quite large, the infrastructure, incl. pack-houses, reefer temperatures req. by some of the vaccines, Pfizer for example
transport, etc. are missing ✓ Transport need to be at 2 - 8 degrees Celsius

Submitted by: Conquerors, IIM Bangalore

Aakash | Aditi | Piyush | Pavan
Problems faced by cold storages and how will fund help solve the problems
Challenges faced by cold storage facilities in India
Fund invests in cold storage warehouse
Lack of steady power Inadequate labour Low technical facilities via three mediums
supply knowledge standards

Equity stake in technology

companies through funding in
firms working to improve cold
storage technology

✓ The technical Debt facility to warehouse firms

✓ Frequent power cuts
✓ Inadequate labor standards are
are a major factor of
knowledge in handling unsuitable for Indian
concern in India
temperature sensitive conditions of high temp
products
✓ Companies need to
✓ This results in failure to
invest in separate Equity stake through SPV in real-
✓ Need to retrain labor, achieve optimum
power back ups, fuel estate developers building
which is concerning performance of
costs 30% of operating warehouses
factor and increases cost standard refrigerator
expenses compared to
systems
10% in west

All these factors significantly push capital investment requirement. This increases the
requirement for lower cost of funding

Submitted by: Conquerors, IIM Bangalore

Aakash | Aditi | Piyush | Pavan
A mixed growth fund having 72% debt and 28% equity with time horizon of 12 years for social impact investors
Fund portfolio: Investment in 18 warehouses, 6 technology companies and 10 warehouses across real estate companies

Flow of cash flows through deployment of Fund Fund Information

✓ Fund size of INR 105 Cr to be
invested among asset classes:
▪ 18% equity in
Technology companies
▪ 72% debt to warehouse
firms
▪ 10% equity stake in
real-estate developers
✓ Management fee: 2%
✓ Other payments: 1%
▪ Correspondents
▪ MFIs, due-diligence
✓ Social Impact Investors:
▪ Development finance
institutions – Asian
development Bank
▪ Foundations like Bill and
Melinda Gates, Tata
Trusts
▪ CSR of private
companies
▪ HNIs looking to create
social impact

Submitted by: Conquerors, IIM Bangalore

Aakash | Aditi | Piyush | Pavan
Portfolio diversification and hedging has been used to provide adequate social and financial returns for the fund

Investment in Venture capital, debt and real estate to diversify risk and ensure smooth distribution of cash flows across
time. Commodity forwards used to address risk of payment defaults by warehouse firms. SPV has been used for real
estate investment to limit scope to warehouse construction for creating social impact.

Debt investment provides cash Commodity forwards hedge risk of Social returns through reduced food
periodically payment defaults wastage by warehouse construction

Warehouse firms helping

18 mid-low scale
farmers store their
companies- Debt
produce

Tech. companies
6 tech. companies working in niche
– Venture Capital segment to improve cold
storage
Investment through SPV
5 real estate ✓ Investment in real-estate warehouse
limiting the scope to land
developers – Real construction to reduce capacity gap of
for warehouse
Estate warehouses
construction
✓ Providing capital to technology-based
✓ Debt provides cash periodically and firms to drive progress in agricultural
diversifies high risk of VC investments sector improving productivity
✓ Investment in warehouse firms provides
✓ Returns from real-estate and venture them capital to extend warehouse
capital investments are expected on operations and encourage more farmers
average after 7-8 years to use cold-storage facilities

Submitted by: Conquerors, IIM Bangalore

Aakash | Aditi | Piyush | Pavan
Investors receive portfolio returns of 11% with positive cash flows starting from 5th year for the fund in aggregate

11% portfolio return comprises of 9.5% return on debt to warehouse firms, 19% from Tech. companies and 14% from
real-estate developers

Cash-flows from debt facility to Cash-flows from equity investment in Cash-flows from SPV investment in real-
warehouse firms technology companies estate developers

✓ Investment of INR 18 Cr across 6 ✓ Stake taken through SPV limiting the

✓ Facility of INR 72 Cr across 18
technology companies scope to land for construction of
warehouses
✓ INR 2 Cr each in 2 years for warehouse ✓ 3 disbursements of 17%, 33% and 50% warehouses
based on achievement of milestones ✓ Investment of 10 Cr across 10
✓ 6 warehouses are funded every year
✓ 2 companies funded each year for 3 warehouses (3 in first 2 and 4 in 3rd year)
for first 3 years
years ✓ 10 years of investment
✓ Returns of 9.5% are expected after
✓ Return of 19% at divesting of stake in 8 ✓ 14% expected return
moratorium period of 2 years
years
Cash Flow from warehouses (INR Cr) Cash Flow from Technology Cash Flow from SPV (INR Cr)
Companies (INR Cr)
₹7
₹ 15 ₹ 15 ₹ 15 ₹ 15 ₹ 15 ₹ 23 ₹ 23 ₹ 23 ₹6
₹5
₹ 12 ₹ 12

₹7

₹1 ₹1 ₹1 ₹1 ₹1
₹1

Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Y11 Y12

₹ -5 Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Y11 Y12

₹- ₹- ₹- ₹-
₹ -12
Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Y11 Y12 ₹ -3 ₹ -3
₹ -4
₹ -1 ₹ -3 ₹ -3
₹ -22 ₹ -5
₹ -24 ₹ -6

Submitted by: Conquerors, IIM Bangalore

Aakash | Aditi | Piyush | Pavan
Fund creates value for all stakeholders by attractive returns, access to capital and societal benefits

11% portfolio return comprises of 9.5% return on debt to warehouse firms, 19% from Tech. companies and 14% from
real-estate developers

Firms get access to capital and chance to Reduced post-harvest losses increases
Attractive return to investors
enter formal economy. farmers income and benefits society

Total Cash Flow from Fund (INR Cr)

₹ 30

₹ 20

₹ 10

₹-
Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Y11 Y12

₹ -10

₹ -20

₹ -30 ✓ Access to funds for unorganized

Debt to warehouse firms Tech Equity Real Estate Warehouse SPV market of warehouse firms, thereby,
driving financial inclusion
✓ Attractive returns of 11% with 72% debt ✓ Increased supply chain efficiency
portfolio ✓ Capital for new innovative solutions by ✓ Preservation of food-crops by
technology companies increasing their shelf life
✓ Social impact created by increased ✓ Increased income for farmers
farmer incomes, reduced wastage and ✓ Capital for construction of warehouse ✓ Improved agricultural productivity
employment creation to real-estate developers through technological investment

Submitted by: Conquerors, IIM Bangalore

Aakash | Aditi | Piyush | Pavan
Prevalent risks need to be mitigated; 8% return if downside risk is realized while 13% upside potential return
Credit, operations, regulatory and economic risks might affect Stressed economic situation can increase payment default risk from warehouse
returns, thereby requiring mitigants firms & reduce real-estate & technology returns leading to reduced cash-flows
Risks Mitigation Plan Downside risk and upside potential

Credit Risks Warehouse firms (INR Cr) Technology companies (INR Cr)

Default by ✓ WHs contribute 20-30% of cost ₹ 15 ₹ 30

Warehouses (WH) ✓ Due diligence ₹ 20

₹5
✓ Financial Records
✓ Background checks ₹ -5 1 2 3 4 5 6 7 8 9 10 11 12
₹ 10

✓ Correspondents with ₹ -15

₹-
knowledge of assessing 1 2 3 4 5 6 7 8 9 10 11 12
₹ -10
warehouse companies ₹ -25 Pessimistic Expected Optimistic Pessimistic Expected Optimistic

✓ MFI partners to collect late EMIs

Default by farmers Real-estate developers (INR Cr) Total Cash Flow (INR Cr)
✓ Commodity hedging using
to WH firms forward contracts as explained ₹ 10
₹ 50
₹8
₹6 ₹ 30
Operational Risks
₹4 ₹ 10
✓ Firms have skin in the game ₹2
₹ -10 1 2 3 4 5 6 7 8 9 10 11 12
₹-
Time and Cost ✓ Background check of ₹ -2 1 2 3 4 5 6 7 8 9 10 11 12 ₹ -30
Over-run contractors ₹ -4
Pessimistic Expected Optimistic
Pessimistic Expected Optimistic
✓ Outcome based payments
Assumptions:
Regulatory Risks ✓ Warehouse loan default is assumed 20% p.a. in pessimistic case and 0% p.a. in
optimistic case
Rental rates fixed ✓ Initial investment in states with ✓ Return from investment in technology companies is 10% p.a. in pessimistic scenario
by Govt. market driven rates and 30% p.a. in optimistic case
✓ Real-estate returns are 12% in economic downturn and 20% in booming economy

Submitted by: Conquerors, IIM Bangalore

Aakash | Aditi | Piyush | Pavan
Geographical expansion and Crop Selection in high growth rate states to drive scalability of AgriVenture fund
Fund 1: Reasons for choosing Punjab &
Haryana and the respective crops
✓ High growth rate of 6.1% and 8.4%
✓ Storage of fruits & vegetables from
Himachal Pradesh
✓ Favorable govt policies (SEZs,
Subsidies and Land availability)
✓ Tomato and Cauliflower spoiled in huge
volumes every year (~925 k tonnes)
✓ Shelf life of tomatoes could be extended
by 3-4 months under cold storage facility
Post-harvest Shelf-life elongation
State Crop wastage (2019- (when sored in Govt Policy
20) cold storage)
Potato 900 k tonnes 3-4 months
Electricity subsidy
Punjab Tomato 350 k tonnes 3-4 weeks
Land availability
Cauliflower 100 k tonnes 3-4 weeks
Potato 300 k tonnes 3-4 months Land availability
Haryana
Tomato 175 k tonnes 3-4 weeks Multiple SEZs

Strategy for scalability

✓ Fund 2 and Fund 3 would be used for geographical expansion based on growth and
capacity of different states as in figure 1
✓ In later stages, fund would venture into related sectors such as:
✓ Integrated Pack-House with required investment of INR 66,339 and job creation
potential 2,800,000
✓ Reefer Trucks with required investment of INR 15,848 Cr and job creation potential of
186,000
✓ Ripening units for fruits with required investment of INR 3,328 Cr and job creation
potential of 40,000
Source: India Ministry of Food Processing Industries, 2017

Submitted by: Conquerors, IIM Bangalore

Aakash | Aditi | Piyush | Pavan
Impacts of cold-storage warehouses are multi-faceted; Need a comprehensive timeline of execution to realize gains

Increased cold-storage warehouse prevents food Partners, suppliers and investors with efficient
wastage impacting over 50,000 farmers operations result in execution plan for social and financial
returns
600 Near-farm jobs 50,000+ farmers H1 H2 H3 H4 H5 H6 H7 H8
generated impacted
Office set-up, Hiring
employees

Fund Set- Selecting metrics for

up investing in companies
Additional earnings for 18 New Warehouses Raising Funds for Raising Funds for Raising Funds for
farmers funded Fund 1 Fund 2 Fund 3

Identifying warehouse firms, Technology start-ups and real-estate

developers for investment

Financial Inclusion:
Food wastage Due diligence with the help of correspondents and partner institutions
Access to unorganized Operations
prevented
warehouse firms Fund disbursements

Monitoring of invested funds

Reduced prices in
Suppliers Investors: Partners:
domestic market due to Increase in exports ✓ Human Resources ✓ Development • Multi-financial institutions
reduction in crop-loss provider Financial Institutions • Correspondents with local
Partnershi ✓ Legal advisory ✓ Pension Funds information
ps services ✓ Foundations to
✓ Real-estate brokers support
for setting-up offices Philanthropic goals
Technological
Funding to social
innovation results in
enterprises First funds
improved productivity Milestones Kick-off Loans disbursed
raised

Submitted by: Conquerors, IIM Bangalore

Aakash | Aditi | Piyush | Pavan