Unnati - Chemical, Fertilizer, Agriculture and Sugar - 2018

UNNATI INVESTMENT MANAGEMENT AND RESEARCH GROUP
UNNATI
SECTOR CHEMICALS, FERTILIZERS, AGRICULTURE &
REPORT SUGAR
2018-19
Aman Jain | Damanbir Singh Sandhu

CHEMICALS, FERTILIZERS, AGRICULTURE & SUGAR
TABLE OF CONTENTS
Executive Summary 2
CHEMICALS 3
Specialty Chemicals 4
• Pidilite Industries Ltd 7
• Elantas Beck India Ltd 9
• Bodal Chemicals Ltd 11
• Aarti Industries Ltd 13
Petroleum, Chemicals and Petrochemicals Investment Regions (PCPIR) 15
AGRICULTURE 17
• Indian Monsoon 19
Agrochemicals & Fertilizers 22
• PI Industries Ltd 24
• Sharda Crop Chem Ltd 26
• Dhanuka Agritech Ltd 28
Aquaculture 30
• Avanti Feeds Ltd 32
• Apex Frozen Foods Ltd 34
Farm Machinery 36
• Escorts Ltd 38
• VST Tillers Tractors Ltd 40
Food Processing 42
• Freshtrop Foods Ltd 44
• Hatsun Agro Product Ltd 46
Irrigation 48
• Jain Irrigation Systems Ltd 50
• Finolex Industries Ltd 52
Textile 54
• Indo Count Industries Ltd 57
• Welspun India Ltd 59
Seeds 61
• Kaveri Seeds Corporation Ltd 62
• Nath Bio-Genes (I) Ltd 64
SUGAR 66
• Balrampur Chini Mills Ltd 72
• Shree Renuka Sugars Ltd 74
Reference 76
Unnati Sector Report 2018-19 | 1

Executive Summary
Total chemical sales are expected to grow from US$139 billion in 2014 to US$214 billion by 2019.
By 2025, the Indian chemical industry is projected to reach US$403 billion.
India is the 4th largest producer of agrochemicals in the world. The industry comprises of diverse
players dealing in generic off-patent molecules to large multinationals with high-priced new
generation and patented molecules. The industry has players who manufacture only technical grade
pesticides as well as those who are pure formulators. Exports account for almost 40-50% of the
industry production. With the shutting down of factories in China due to tighter environmental
concerns, domestic market has been attracting multinationals due to good growth opportunity.
Going forward, Government’s commitment to doubling farmers’ income by 2022, growing
penetration of irrigation facilities and increasing popularity of crop insurance schemes may help
in reducing farm distress and help the agrochemical industry grow at a faster rate.
Agriculture accounts for ~ 15% of the total GDP of India, employing almost 50% of India’s
workforce. Thus, the sector continues to experience underemployment. There is much scope for
greater farm mechanization coupled with better agricultural extension services, including seeds.
Though, farm mechanization in India stands at about 40%-45%, which is still low when compared
to countries such as the U.S. (95%) and China (57%). Additionally, in India, farm mechanization
has meant tractorization. For example, tractors have an annual market of 600,000-700,000 units in
India whereas, threshers, the next largest segment, has an annual market of just 100,000 units,
according to ICFA. Thus, farm mechanization penetration needs to expand in both reach and
variety for further increases in productivity of Indian agriculture.
Global seafood consumption is continuing to increase at 1% per annum. The production from
aquaculture has grown by 4.5% during the year, cloaking harvest of 84 MnMT, whereas the
production from capture fisheries remained stable at 90 MnMT. India is well positioned to take
advantage of an increase in global seafood consumption because of our long coast line, availability
of raw materials and idle land available for taking up aquaculture on a large scale. Shrimp
continues to be the back bone of Indian seafood exports and accounted for 41% in volume terms
of total seafood exports from the country as against 38% in the previous year. The major export
market has been the US followed by Europe, Japan and South East Asia during 2017-18 for
shrimp exports like in the previous year.
The Indian sugar industry has four major stakeholders – farmers, sugar mills, consumers and the
government. Following the partial deregulation of the sugar industry in 2013, India had an installed
crushing capacity of 33 million tonnes from 716 mills across private, public and cooperative
sectors as on January 31, 2016, while actual output stood at 20.3 million tonnes.
There are six surplus sugar states in India – Haryana, Uttar Pradesh, Uttarakhand, Maharashtra,
Tamil Nadu, and Karnataka. Internationally, India is one of the most expensive producers of cane
at Rs. 3 per kilogram (Thailand and Brazil produce it at Rs. 2 per kilogram). At the same time, the
government provided umbrella protection to mills with a 40% import duty. Refineries are also
permitted duty-free raw sugar import with export commitments.

CHEMICALS

Specialty Chemicals
Indian chemical industry is expected to grow from a current market size of $160 billion in 2017 to
$300 billion in 2025. Specialty chemicals are predicted to make up a 20% share of it. Specialty
Chemicals are chemicals that are targeted towards specific end-use applications. It is a knowledge
and IP driven industry with raw materials cost (as fraction of net sales) much lower than that for
commodity chemicals (around 50% and 75% for specialty and commodity chemicals respectively).
The critical success factors for the industry include understanding of customer needs and product
/ application development to meet the same at a favorable price-performance ratio.
The segment can be divided further based on end-users. There are mix of end-use driven segments
and application-driven segments. End-user industries include agrochemicals, personal and home
care, polymer additives, water chemicals, textile chemicals and construction chemicals.
Application driven segments include surfactants, flavors and fragrances and dyes and pigments.
These industries cumulatively constitute over 80% of the specialty chemicals sector.
Industry Growth rate
(FY10-15) Breakdown of Specialty
Paints & coatings 10% Chemicals Segments by Value
Colorants 11% 2
Flavours and fragrances 14% 2 4
3
Surfactants 13% 6 26
Textile chemicals 12%
15 Management Group Report)
(Source: Tata Strategic
Polymer additives 11%
PC ingredients 14% 16 26
Water treatment chemicals 14%
Construction chemicals 12%
Source: Global Market Insights Paints and coatings Colorants
Flavors and fragrances Surfactants
Sub-sector description: Textile chemicals Polymer additives
PC ingredients Water treatment chemicals

1. Paints & coatings Construction chemicals
Source: Tata Strategic Management Group Report
The Indian paint industry is can be broadly classified into 2 segments:
i. Decorative Paints: This segment primarily caters to the residential and commercial buildings and
accounts for 73% of the total paint industry. Enamels are the most widely used followed by
distempers and emulsions. Based on product composition, decorative paints are of two kinds –
water based, and solvent based.
ii. Industrial paints: This segment includes paints used in automobiles, auto ancillaries, consumer
durables, containers, etc. This segment requires technological expertise and therefore it is largely
served by the organized sector. It accounts for 27% of the overall market.

2. Colorants
Colours have an inherent element of value addition to a wide variety of products like textiles,
leather, paper, food products, cosmetics, plastics, paints, inks and high-tech applications like
optical data storage (CDs, DVDs), solar cells, medical diagnostics (CT Scan, angiography),
security inks, lasers, photo dynamics etc.
3. Flavors and fragrances
Flavours and fragrances are small but significant constituents of food & beverage and FMCG
products respectively. They are directly involved in creating a sensorial connection between the
product and its consumer, often contributing to a strong brand recall. All F&F blends use a large
number of ingredients, which can be either natural or synthetic, depending on the source and
manufacturing process.
4. Surfactants
Surfactants or surface-active agents are organic compounds that lower surface tension between
two liquids or between a liquid and a solid. Functionally, they are used to improve cleaning
efficiency, emulsifying, wetting or dispersing actions, solvency, foaming/de-foaming and lubricity
of cleaning agents and other products.
5. Textile chemicals
Textile chemicals are specialty chemicals used during dyeing and processing of textiles to impart
desired properties to the end product.
6. Polymer additives
Polymer additives are specialty chemicals added to the base polymer or plastic resins to enhance
certain properties, improve processing or merely change its color. Additives can also be used to
improve the characteristics of polymers such as strength, luster, durability or heat sensitivity.
Polymer additives comprise less than 1% of the total weight of the end product.
7. Personal Care ingredients
The market for personal care ingredients is broadly classified into commodity, fine chemical, and
specialty chemical ingredients. Specialty ingredients are further classified as active and inactive
ingredients based on their functionality in consumer products.
8. Water treatment chemicals
Water treatment chemicals are used for a wide range of industrial and in-process applications such
as reducing effluent toxicity, controlling Biological Oxygen Demand (BOD) & Chemical Oxygen
Demand (COD) and disinfecting water for potable purposes.

9. Construction chemicals
Construction Chemicals, as the name suggests, are chemical compounds used in construction
activities, be it residential, non-residential or non-building. Although Construction Chemicals
account for 2%-5% of the project cost, the benefits realized are far more than the increase in the
cost of the project.
Market Growth Drivers:
1. Domestic availability of raw materials at competitive prices
Indian chemical industry is the provider of raw material to the specialty chemicals sub-segment.
It’s the 6th largest in the world and can be leveraged for providing cheap inputs. It also has a huge
growth potential in the future.
2. Low penetration in the end-use industry
Compared to China, EU ad USA, India has several times less penetration of specialty chemicals,
leaving a huge scope for growth. For example, in agrochemicals, kg per hectare usage for India is
0.5, that of China 2.0 and EU/US is 4.5, according to McKinsey analysis. Similarly, in concrete
admixtures, China and EU/US are 2x and 4.5x more penetrated respectively than India.
3. Competitive cost of manufacturing
Large talent pool, with number of STEM graduates second only to China, is a significant plus
point. India also stands 9th globally in the number of scientific papers published. It also has lower
labor costs than China and developed nations. These factors combine to make it a huge growth
driver for India.
Value Chain
Raw material
Marketing and
R&D chemicals Manufacturing
Distribution
manufacturing
In the specialty chemicals industry, the typical value chain is defined by common stages of whether
the company expends on R&D among its core operations, whether it has backward integration of
manufacturing synthetic chemicals, PVC resin and other compounds, and whether after going
through its production process, is it directly involved in B2B marketing and distribution.

Pidilite Industries Limited

Value Chain
Raw Material
Marketing &
R&D Chemical Manufacturing
Distribution
manufacturing
Company Description:
Incorporated in 1959, Pidilite is the largest adhesive manufacturer in India. It is also present in
other segments such as construction chemicals, art materials and other industrial chemicals.
Although it has some presence in B2B segment through industrial adhesives, but it dominates the
retail segment in construction chemicals. It has several strong brands such as Fevicol (adhesive),
Dr. Fixit(waterproofing) and M-seal(sealant). It is the largest Indian company in the construction
chemicals space.
The company has 19 manufacturing facilities in India in Maharashtra, Gujarat & Himachal
Pradesh and 9 factories abroad. The distributor network is 7,000+ with dealers over 4,00,000+.
The global presence is in 71 countries. The market cap of the company is around Rs. 59,631 cr.
FY 2016 FY2017 FY2018 Expenses Breakup(FY18)

11.50
Revenue 53,331.0 55,879.1 60,324.0
% Growth 10.64 4.78 7.95 49.98
38.52
EBIT 10,778.2 11,528.7 12,250.1
% Margin 20.21 20.63 20.31 Advertisement & Selling Expense

Employee Benefit Expense
PAT 8,028.3 8,599.9 9,623.5
Other Expense
Shareholder's Equity 26,813.7 35,982.3 37,490.5 Source: Pidilite Annual Report 17-18
Total Assets 37,189.7 47,741.9 52,044.6 Product wise revenue (FY18)

Dividend 4.15 4.75 6.00 1.0
16.3
ROE 32.71 28.16 27.32
ROCE 31.89 26.88 25.68
Operating Cash Flows 8,999.8 7,928.6 8,039.1 82.7
Inventory Days 90.63 92.15 96.52

Recievable Days 44.07 48.01 51.63 Consumer & Bazaar Industrial Others
D/E or ICR 0.21 0.13 0.19 Source: Pidilite Annual Report 17-18

Business Model Canvas

Partners Key Activities Value Proposition Customer Relationship Customer
Segments
• 50-50 JV with • Consumer centric company Trusted household • Fevicol’s
ICA – for best committed to quality and and industrial names Championship Club: • B2C
quality wood innovation with varied products Training programmes, includes
finishes • Providing ever evolving diverse such as : social initiatives, free consumers
• Subsidiary- product portfolio- adhesives, • Fevicol medical checkups using
Nina sealants, waterproofing • Fevikwik • Fevicol Furniture adhesives
Waterproofing solutions and construction • M-Seal Books given to for
Sytems Pvt. Ltd. chemicals to arts & crafts, • Dr. Fixit contractors, household
– Specialist industrial resins, polymers • Roff carpenters & applications,
waterproofing • Increased focus on using digital • Fevicryl architects kids for art
solutions platform as a medium for • Rangeela • 7 Hobby Idea’s Stores & craft work
provider marketing its brands • Industry Resins to showcase latest art and
• Subsidiary- • Industry & craft items contractors
Building Adhesives • Youtube Channel for
Envelope • Organic Pigments providing educative construction
Systems India – videos work.
Specializing in Key Resources Under fevicol brand - Channels • B2B
self adhesive variants for different includes
membranes • 70% + market share of ‘Fevicol’ uses such as Marine, • Network of 7,000+ users of
• Subsidiary- brand SR998, Probond etc. distributors & textile &
Percept • Strong Advertising campaign by are provided for 4,00,000+ paper
Waterproofing Ogilvy & Mather varied purposes such dealers/retailers chemicals,
Services Ltd. – • Brand name ‘fevicol’ synonyms to as water resistant, • Global Presence in 71 leather
Waterproofing Generic category – Adhesives heat protector etc. countries chemicals,
& heat • 3 R&D centres in India and 5 • Product Wise reach to industrial
insulation research & innovation centres Plywood, cement, adhesives,
services abroad with 150+ professionals paint dealers, Grocery, organic
‘Paan’ Shops pigment etc
Cost Structure Revenue Stream
The integrated model of business help to save raw material cost Revenue have increased at 17% CAGR for the last 15 years due
helping to maintain EBIT margin 22%. Also, company incurs a to monoply like market in the adhesives sector gaining 70%
huge advertisement and publicity cost of around 220 crores. market share
Analysis:
• Strong business moat: A combination of being first to market with new product innovations and
consistent engaging advertising and leadership in distribution has made Pidlite a near-monoply in
the market with its product “Fevicol” used as generic name for adhesives.
• Made customers fear experimenting: The cost of adhesive typically makes up ~2-3% of the total
cost of making a piece of furniture. The cost of usage is thus low but were any of the bonds to
break during service, the cost of failure can be high in terms of warranty costs, reputational damage
and lack of repeat business. Most carpenters thus do not bother with switching to another adhesive
even when pressed hard.
• Risk: With the advent of Asian paints with adhesives in the market, it might have to face an intense
competition. Still, Asian paints has a monumental task ahead to match Pidilite. Pick up in ready-
made furniture bonded using specialized bonding will decrease the sales

Elantas Beck India Limited

Value Chain:
Raw material
Marketing and
Distribution
manufacturing
EBIL is the Indian market leader in liquid insulation segment used in electrical equipment
like motors, transformers, generators and the like. It enjoys market leadership in both
primary and secondary insulation market with over 35 per cent market share.
EBIL has a market cap of ~Rs.1600 crores. Besides insulation, it also deals in electronic and
engineering materials. It has manufacturing plants in Pimpri (MH) and Ankleshwar (GJ). It
was incorporated in 1956.
FY 2015 FY2016 FY2017
Revenue Segmentation
Revenue 3,430.0 3,642.2 3,804.6 (2017)
% Growth 0.86 6.19 4.46
19
EBIT 548.7 728.6 731.1
% Margin 16.00 20.00 19.21 81
PAT 417.6 544.9 553.2

Electric insulation
Shareholder's Equity 1,717.1 2,218.9 2,772.1 Electronic and engineering materials
Source: Elantas Beck Annual Report 17-18
Total Assets 2,355.9 2,913.9 3,471.9
Dividend 5.00 4.50 4.50 Market Segmentation

ROE 27.17 27.69 22.17
(2017)
2
ROCE 27.26 27.76 22.23
Operating Cash Flows 490.0 609.6 568.5
Inventory Days 48.26 47.59 45.44 98
Recievable Days 55.93 54.50 60.57

Domestic consumption Export
D/E or ICR 0.00 0.00 0.00
Source: Elantas Beck Annual Report 17-18


Partners Key Activities Value Proposition Customer Customer
Relationship Segments
• Strong •Import of synthetic •High quality and
parentage in resins, solvents and reliable electric Joint product • Electric wire
Altana group, organic chemicals insulation development and industry, direct
world leader •Manufacture of liquid •Availability of leveraging customer
in speciality insulation for electric international international clients • International
chemicals, equipment and standard entering India help clients entering
provides electronic and technology forge loyal Indian market
significant engineering materials offering, leveraging relationship • Auto industry
scope for R&D parent’s R&D requiring
Key Resources Channels
activities ecosystem greater
•Leveraging key electronic
• R&D ecosystem part of • Sales representation
clients who are integration
larger Altana’s in major cities and
entering India
ecosystem references are primary
• Significant barriers to mode to reach to
entry as technology and customers
experience needed
Cost Structure Revenue Streams
Raw material costs make up 52.2% of total revenue, Wire enamels and varnishes make up 69% of
with organic chemicals making up 22%. These are revenue from operations, synthetic resins the
subject to international price changes and regulatory rest, as their usage in insulation or electronic and
actions in countries like China engineering materials
Analysis:
• Significant raw material price risk: As raw materials are majorly imported from China, price
fluctuations and impact of regulatory actions there have significant impact on prices and operating
margins
• Barriers to entry: Significant technical knowhow and market knowledge is needed in the
industry. For this EBIL has no major competitor, except imports
• Leveraging international clientele: As MNCs decide to set up operations in India, EBIL can
leverage the networks of its parent, international market leader in specialty chemicals, to grow its
client base
• Ability to make pricing decisions: Due to its market dominance, it can raise prices up to an extent
to protect its margins on account of input costs fluctuation

Bodal Chemicals Limited

Value Chain
Raw Material - Basic Manufacturing - Dye Manufacturing - Dye Marketing &

R&D Chemical intermediates (45% Stuff (40% of Dye Distribution -
Manufacturing of Basic Chem. used) Interm. used) Different Industries
Incorporated in 1989, Bodal Chemicals Limited (BCL) is the most integrated Dyestuffs Company
in India and also the biggest manufacturer of Dye Intermediates in India. The Company’s product
range covers Dyestuffs, Dye Intermediates and Basic Chemicals broadly classified under Specialty
Chemicals. It has a unique and integrated product line covering forward and backward integration
to dye intermediates. It contributes about 20% of India’s capacity and about 5% of the world’s
capacity for Dye Intermediates.
The company has 10 manufacturing facilities in Gujarat. The presence is not only in India but
across globe with more than 50+ countries. The market cap of the company is around Rs. 59,631
crores.
FY 2016 FY2017 FY2018 Geography Wise Revenue(FY18)
Revenue 9,099.6 12,234.6 11,422.2
% Growth -12.95 34.45 -6.64
29.00
EBIT 1,317.8 1,969.0 1,917.9
71.00
% Margin 14.48 16.09 16.79
PAT 859.9 1,285.8 1,225.6
Domestic Exports
Shareholder's Equity 2,346.0 3,610.2 6,980.8
Source: Bodal Annual Report 17-18
Total Assets 5,098.8 6,975.4 10,750.0

Product wise revenue (FY18)
Dividend 0.70 0.30 0.80
ROE 43.97 43.30 23.21 5
10
ROCE 24.21 29.99 18.07
32 53
Operating Cash Flows 1,328.2 1,155.0 9.8
Recievable Days 72.80 59.12 92.24 Dye Intermediates Dye Stuff
D/E or ICR 0.29 2.18 0.15 Basic Chemicals Others

Source: Bodal Annual Report 17-18


Partners Key Activities Value Proposition Customer Relationship Customer Segments
• Subsidiary- • Production of chemicals like • Leveraging • Believe in corporate B2B customers

SPS Suphuric acid, beta napthol etc. three decades responsibility and include Textile,
Processors which are used a raw materials of industry being socially Leather, Paper,
Pvt. Ltd. (70% responsible detergent, Water
for further production experience, it
stake) – organization, it Treatment industries.
Capacity to • Capacity of manufacturing upto continue to support several
prodcue key about 25 varieties of Dye build a robust social causes, health, Main Domestic-
dye Intermediates and upto about brand that and education • Atul
intermediates 150 variants of Dyestuff which customers • Group Maxi-Points • Clariant India
• Subsidiary – are principally used as raw believe in. scheme under which • Aarti Ind. Ltd.
Trion materials in Textiles, Leather, • Leading credits are awarded • SRF
Chemicals
Paper & other Dyestuff integrated
to customers • Aditya Birla
Pvt. Ltd. (59% Grasim
stake) – consuming industries Dyestuff
International-
Producing companies • Ohyoung
water Key Resources present in India, Channels • Hubei Color Root
treatment & offering end-to- Techn. Co.
textile • Annual Capacity – Basic end solutions to • Market presence in • Aceto Corp.
industry Chemicals with 1,90,000MT, Dye 40+ countries
our customers • BASF
speciality Intermediates with 33,000MT
across the • Archroma
chemicals and Dyestuff with 39,000 MT
world • Huntsman
• In house capabilities of 1 mn
• Unidye S.A.
ltrs/day for effluent treatment
• Farben
• Under Construction
• Stabl
Forward+Backward Integration
Project of Thionyl Chloride (TC) • Colorantel
Industriales
• Cogeneration power plant
generating power of 5MW
Check on RM costs as Inhouse 45% of Basic Chemicals & 40% of Less client concentration with top 5 clients contribution 25%
Dye Intermediates are used for next level of production and top 10 clients contributing 40% to the revenue
Analysis:
• Well-Integrated Business Model: Originally established as a manufacturer of Dye Intermediates

in 1989. The company carried out forward integration to start manufacturing Dyestuff & later it
integrated backwards to start manufacturing Basic Chemicals used in the manufacture of
Intermediates as well as Dyestuff. It protects from extreme RM price volatility.
• Reduced Power & Fuel Costs: Steam is generated as a by-product in the manufacturing of
Sulphuric Acid and with the help of a turbine; the steam is converted to power, a part of which is
used to run the sulphuric acid plant itself while the rest is transferred to the DI & DS plant thus
reducing coal consumption in the boilers
• LABSA (surfactant) yet another step towards forward integration: LABSA is a key ingredient
used in the manufacturing of detergent powders and dish wash cleaners. Bodal Chemicals Ltd. is
forward integrating to manufacture LABSA.

Aarti Industries Limited

Value Chain:
Raw material
Marketing and
Distribution
manufacturing
AIL is a diversified chemicals company with core competency in Nitro Chloro Benzene
related chemical processes. It has an offering of over 200 products, and in 75% of these,
command a position of top 4 in production globally.
AIL has a market cap of ~Rs.11000 crores. In specialty chemicals it is involved in

agrochemicals, polymers & additives, pharmaceuticals and dyes & pigments products. It has
17 plants throughout India and was incorporated in 1984.
FY 2016 FY2017 FY2018 Revenue Segmentation
Revenue 29,562.1 31,146.3 37,593.3 (2017)
% Growth 3.31 5.36 20.70
24 23
EBIT 4,678.3 5,290.2 5,451.2
18 17
% Margin 15.83 16.99 14.50 18
PAT 2,568.8 3,157.8 3,329.6

Agrochemicals Polymers & additives
Shareholder's Equity 11,893.9 14,263.2 16,554.5 Pharmaceuticals Dyes & pigments
Other
Total Assets 29,664.8 34,990.5 43,274.6 Source: AIL Annual Report 17-18
Dividend 8.50 1.00 1.00 Product Segmentation

ROE 23.85 25.26 22.64 (2017)
ROCE 14.80 15.17 13.44
Operating Cash Flows 4,585.0 3,529.8 2,035.7 42.2

57.8
Inventory Days 111.49 109.67 105.21

Export Domestic sales
D/E or ICR 44.30 41.85 54.87
Source: AIL Annual Report 17-18


• Company is •Involved at all levels of •Company is
aiming at the benzene value oriented towards Company oriented • With more than
becoming chain to produce market leadership towards becoming 200 products
Global Partner products for diverse in benzene based Global Partner of offered in four
of Choice due to industries chemicals, and Choice due to the major industries,
its integration • Expanding into all hence is an ideal variety of products the company has a
of benzene possible benzene supplier offered its diverse set of
value chain and based processes for •R&D network backward and segments
foray into diverse industries aimed at making its forward integration • With no industry
Toluene value Key Resources by-products into Channels segment
chain saleable comprising of
• Core competency in •Company can offer • Company aims at >25% of its total
benzene based seamless backward providing timely revenues,
industrial processes integration to delivery through company is well
and products companies variety of channels, diversified
• R&D program aimed planning to start and exports to
at backward and manufacturing more than 60
forward intergration processes from countries
India
Raw material costs comprise of 57% of total revenues, Company has diversified revenue streams across
but company’s pricing formula ensured pass through of industries and individual contacts
price to protect company’s profitability margins
Analysis:
• Value chain expansion has contributed to market leadership: R&D oriented towards
backward and forward integration of the benzene value chain, as well as towards making its
byproducts to saleable, has helped in cost reduction and capturing niche markets
• Ability to pass on input price effects: Being a large supplier, company can implement formula
to pass on effects of raw material price rise to its buyers, thus maintaining profitability
• Stiffer competition on expansion: The company may face stiffer competition in its plans to
expand into value chains based on other chemicals and their compounds, such as Toluene based
value chain

PETROLEUM, CHEMICALS AND PETROCHEMICALS INVESTMENT

REGIONS (PCPIR)
Petroleum, Chemicals and Petrochemicals Investment Regions (PCPIR) were conceptualised to

sustain the growth of the sector by providing quality infrastructure, competitive business
environment and Viability Gap Funding (VGF). The PCPIRs would bring together manufacturing
facilities, logistic and other services, required infrastructure, residential and administrative areas
etc. They are envisaged to generate better efficiency on account of using common infrastructure
and support facilities.
Currently, four coastal states host PCPIRs in the country. 4 each PCPIR will have one refinery or
petrochemical company as an anchor tenant along with other manufacturing units. It can also
include already existing industrial parks, Special Economic Zones (SEZs) and export units.
Since the announcement, the states of Tamil Nadu, Gujarat, Andhra Pradesh and Odisha have
created PCPIRs which are at the different stages of implementation. All projects have created
combined employment of around 273,000 in these regions. 7 each PCPIR has an investment region
of about 250 sq. km with at least 40% of the area dedicated to the processing activities. Till
September 2016, all four PCPIRs have attracted investments worth USD 26 Billion from various
oil and gas sector giants. With these investments, significant infrastructure is expected to be
created at PCPIRs.

India’s long coastline and large refining capacity will further complement the growth of the
PCPIRs. The current infrastructure and facilities in the PCPIRs are being marketed through various
exhibitions, road shows and interactions in order to attract investments from foreign as well as
domestic players. Upon its completion, the four PCPIRs in India are expected to attract
investments worth USD 117 Billion and create 3.4 million jobs.

AGRICULTURE

Indian Agriculture
Agriculture plays a vital role in India’s economy. 54.6% of the population is engaged in agriculture
and allied activities (census 2011) and it contributes 17.4% to the country’s Gross Value Added
for the year 2016-17 (at current prices).
As per the Ministry of Agriculture, Cooperation and Rice

Farmers Welfare’s Annual Report 2017-18, , production 115
of rice is estimated at a new record of 110.15 million
110
tonnes. Rice production is 3.50 million tonnes higher than
the previous record production of 106.65 million tonnes 105
achieved during 2013- 14 and has increased significantly
100
by 5.74 million tonnes than the production of 104.41
million tonnes during 2015-16. 2014-15 2015-16 2016-17(est)
Source: Annual Report 17-18, MoACFW
Report 17-
Production of wheat during 2016-17 is also estimated at a
Wheat record level of 98.38 million tonnes. The wheat production is
100 higher by 2.53 million tonnes than the previous record
95 production of 95.85 million tonnes during 2013-14. The wheat
90 production is higher by 6.10 million tonnes as compared to the
wheat production of 92.29 million tonnes in 2015-16.
85
80
2014-15 2015-16 2016-17(est)

As a result
Source: Annual Report 17-18, MoACFW of
significant increases in Pulses
the area coverage and productivity of all major pulses, total 30
production of pulses during 2016-17 is estimated at a
20
record level of 22.95 million tonnes. The production during
2016- 17 is higher by 6.61 million tonnes than the previous 10
year’s production of 16.35 million tonnes.
0
Total foodgrain 2014-15 2015-16 2016-17(est)
Foodgrains production during 2016- Source: Annual Report 17-18, MoACFW
1300
Report 17-
17 in the country is estimated at 275.68 million tonnes which is
1280 higher by 10.64 million tonnes than the previous record
1260
production of foodgrain of 265.04 million tonnes (2013-14) and
1240
also higher by 24.12 million tonnes than the foodgrain production
1220
in 2015-16.
1200
2014-15 2015-16 2016-17(est)

Source: Annual Report 17-18, MoACFW
Report 17-

Indian Monsoon
Systematic studies of the causes of rainfall in the South Asian region help to understand the causes
and salient features of the monsoon, particularly some of its important aspects, such as:
(i) The onset of the monsoon. (ii) Rain-bearing systems (e.g. tropical cyclones) and the relationship
between their frequency and distribution of monsoon rainfall. (iii) Break in the monsoon. (iv)
Winter monsoon
Onset of the Monsoon
During April and May when the sun shines vertically over the Tropic of Cancer, the large landmass
in the north of Indian ocean gets intensely heated. This causes the formation of an intense low
pressure in the north-western part of the subcontinent. Since the pressure in the Indian Ocean in
the south of the landmass is high as water gets heated slowly, the low pressure cell attracts the
southeast trades across the Equator. These conditions help in the northward shift in the position
of the Inter Tropical Convergence Zone (ITCZ).
The southwest monsoon may thus, be seen as a continuation of the southeast trades deflected
towards the Indian subcontinent after crossing the Equator. These winds cross the Equator between
40°E and 60°E longitudes The shift in the position of the ITCZ is also related to the phenomenon
of the withdrawal of the westerly jet stream from its position over the north Indian plain, south of
the Himalayas. The easterly jet stream sets in along 15°N latitude only after the western jet stream
has withdrawn itself from the region. This easterly jet stream is held responsible for the burst of
the monsoon in India.
Entry of Monsoon into India : The southwest monsoon sets in over the Kerala coast by 1st June
and moves swiftly to reach Mumbai and Kolkata between 10th and 13th June. By mid-July,
southwest monsoon engulfs the entire subcontinent.
Rain-bearing Systems and Rainfall Distribution
There seem to be two rain-bearing systems in India. First originate in the Bay of Bengal causing
rainfall over the plains of north India. Second is the Arabian Sea current of the southwest monsoon
which brings rain to the west coast of India. Much of the rainfall along the Western Ghats is
orographic as the moist air is obstructed and forced to rise along the Ghats. The intensity of rainfall
over the west coast of India is, however, related to two factors: (i) The offshore meteorological
conditions. (ii) The position of the equatorial jet stream along the eastern coast of Africa.

The frequency of the tropical depressions originating from the Bay of Bengal varies from year to
year. Their paths over India are mainly determined by the position of ITCZ which is generally
termed as the monsoon trough. As the axis of the monsoon trough oscillates, there are fluctuations
in the track and direction of these depressions, and the intensity and the amount of rainfall vary
from year to year. The rain which comes in spells, displays a declining trend from west to east
over the west coast, and from the southeast towards the northwest over the North Indian Plain and
the northern part of the Peninsula.
Season of Retreating Monsoon
The months of October and November are known for retreating monsoons. By the end of
September, the southwest monsoon becomes weak as the low pressure trough of the Ganga plain
starts moving southward in response to the southward march of the sun. The monsoon retreats
from the western Rajasthan by the first week of September. It withdraws from Rajasthan, Gujarat,
Western Ganga plain and the Central Highlands by the end of the month. By the beginning of
October, the low pressure covers northern parts of the Bay of Bengal and by early November, it
moves over Karnataka and Tamil Nadu.
By the middle of December, the centre of low pressure is completely removed from the Peninsula.
The retreating southwest monsoon season is marked by clear skies and rise in temperature. The
land is still moist. Owing to the conditions of high temperature and humidity, the weather becomes
rather oppressive. This is commonly known as the ‘October heat’. In the second half of October,
the mercury begins to fall rapidly, particularly in northern India. The weather in the retreating
monsoon is dry in north India but it is associated with rain in the eastern part of the Peninsula.
Here, October and November are the rainiest months of the year. The widespread rain in this season
is associated with the passage of cyclonic depressions which originate over the Andaman Sea and
manage to cross the eastern coast of the southern Peninsula. These tropical cyclones are very
destructive. The thickly populated deltas of the Godavari, Krishna and Kaveri are their preferred
targets.
Winter Monsoon
Winter monsoons do not cause rainfall as they move from land to the sea. It is because firstly,
they have little humidity; and secondly, due to anti cyclonic circulation on land, the possibility of
rainfall from them reduces. So, most parts of India do not have rainfall in the winter season.
However, there are some exceptions to it. During October and November, northeast monsoon
while crossing over the Bay of Bengal, picks up moisture and causes torrential rainfall over the
Tamil Nadu coast, southern Andhra Pradesh, southeast Karnataka and southeast Kerala.

Cropping Systems of India- Kharif and Rabi
The agricultural crop year in India is from July to June. The Indian cropping season is classified
into two main seasons-(i) Kharif and (ii) Rabi based on the monsoon. The kharif cropping season
is from July –October during the south-west monsoon and the Rabi cropping season is from
October-March (winter). The crops grown between March and June are summer crops. Pakistan
and Bangladesh are two other countries that are using the term ‘kharif’ and ‘rabi’ to describe about
their cropping patterns. The terms ‘kharif’ and ‘rabi’ originate from Arabic language where Kharif
means autumn and Rabi means spring.
The kharif crops include rice, maize, sorghum, pearl millet/bajra, finger millet/ragi (cereals), arhar
(pulses), soyabean, groundnut (oilseeds), cotton etc. The rabi crops include wheat, barley, oats
(cereals), chickpea/gram (pulses), linseed, mustard (oilseeds) etc.

Agrochemicals & Fertilisers

Introduction
Agrochemicals is a generic term referring to a broad range of chemicals used in agriculture
(including crop protection chemicals, synthetic fertilizers, hormones and chemical growth agents),
for the purpose of this report, we have defined agrochemicals exclusively as crop protection
chemicals. They can be classified as :
• Insecticides: They are used to limit insects below

a certain level, thereby improving crop yields by preventing Indian Crop Protection
damage such as plant defoliation, boring of parts of the plant, Market Split (Source: FICCI)
etc. Insecticides Fungicides
• Fungicides: They are used to control fungal diseases by either Herbicides Biopesticides
inhibiting or killing the ausative fungi. They are the most Others
widespread causes of crop loss across the world. 3%
• Herbicides: They are used to kill unwanted plants. Selective 3%
16%
herbicides kill specific plants, leaving the desired crop
unharmed, while non selective herbicides are used for
18% 60%
widespread clearance of ground and are used to control weeds
before crop planting.
• Other pesticides: Other categories include nematicides(for
roundworms), termiticides(for termites), rodenticides(for
rodents)etc. Biopesticides comprise deravatives of naturally occurring substances with pesticidal
properties.
Fertilisers are material of natural or synthetic origins, applied to soils or to plant tissues to supply
one or more plant nutrients necessary to the growth of plants. In terms of nutrient content, Indian
fertilizer industry is divided into three broad segments: Nitrogenous, Phosphatic and Potassium
(NPK) Fertilizers. These are also known as primary nutrients. Of these the Nitrogenous and
Phosphatic fertilizers are domestically produced while Potassium fertilizer needs are entirely met
through imports.
Industry Overview:
India, with a market share of around 10%, is globally the fourth largest producer of agrochemicals.
India produced US$4.9 bn in FY17, equally distributed between domestic markets and exports.
The Indian agrochemical industry is expected to grow at 7.5% per annum to reach US$ 7.5 bn by
FY19. India is the second-largest consumer of fertilizers. It is also the second largest producer of
nitrogenous fertilizers and ranks third globally as far the production of phosphatic fertilizers is
concerned.
The industry comprises of diverse players ranging from small and medium ones dealing in generic
off-patent molecules to large multinationals with high-priced new generation and patented
molecules. The industry has players who manufacture only technical grade pesticides as well as
those who are pure formulators. It also has some balanced players who produce both – technical
grade pesticides and their formulations.
Value Chain:
Technical
Identification Formulation Marketing and
R&D Grade
& Registration Manufacturing Distribution
Manufacturing
R&D involves researching for novel molecule discovery which commands humongous
investments in capital and manpower. Identification & Registration involves identifying the
potential molecules and obtaining licence to sell them in different geographies owing to their
different regulations. Technical grade manufacturing involves production of active ingredients
used to make commercial agrochemicals. Formulation stage uses technical to produce
formulations which are then marketed and distributed to end-use farmers.
Growth Drivers:
• Tightening policies of China’s chemical industry: China is a major supply source of raw materials
and intermediates for the industry; it is also major supplier of finished products globally as well as
the main consumer of agrochemicals. Of late, China has taken several measures for tightening its
industry licensing and pollution control policies which lead to the curtailment of production
resulting in reduced supplies. This increased their cost and provided growth opportunities to global
agrochemical industry.
• Contract Manufacturing & Export Opportunities: India offers good scope for contract
manufacturing due to its low cost manufacturing, availability of technically trained manpower,
overcapacity & strong presence in generic pesticide manufacturing. Also, Agrochemicals worth
USD 4.1 billion are expected to go off- patent by 2020. This indicates export potential for Indian
companies.
• Growth in herbicides and fungicides: Labor shortage, rising labor costs and growth in GM crops
has led to growth in the use of herbicides. The herbicide consumption in India stands at 0.4 USD
billion in FY17 and is expected to grow at a CAGR of 15% over the next five years to reach
0.8USD billion by FY20.
• Low consumption of pesticides in India: The per hectare consumption of pesticides in India is
amongst the lowest in the world and currently stands at 0.6 kg/ha against 5-7 kg/ha in the UK and
at almost 20 times ~ 13 kg/ha in China . In order to increase yield and ensure food security for its
enormous population agrochemicals penetration in India is bound to go up.
Challenges
• Introduction of Genetically modified seeds: Genetically modified crops are immune to specific
pests or are tolerant to specific agrochemicals. Presently, the only genetically modified crop
permitted in India is cotton.
• Low focus on R&D by domestic manufacturers: R&D for novel molecule discovery requires huge
capital and manpower investments. Indian Companies spend only 1-2% of their revenues in
Research and Development as against the global MNCs which invest about 8-10% of their
revenues.

PI Industries Limited
Value Chain
Identification Technical
Formulation Marketing and
R&D and Grade
Manufacturing Distribution
Registration Manufacturing
CSM (Except Ident. & Reg.)
Domestic Agri Inputs
PI Industries was founded in 1947. PI has two business activities: (a) Domestic Agri Inputs
offering plant protection products, and specialty plant nutrient products and solutions, (b) Custom
Synthesis & Manufacturing (CSM) for contract research and production of agro-chemicals,
intermediates and other niche fine chemicals for global innovators.
The company has 5 multi-product plants in Panoli, 3

multi-product plants in Jambusar and world class state of Geography wise revenue (FY18)
art R&D lab at Udaipur. It has 10000+ distributors and 8 3
60,000 retailers. The market cap is Rs. 10,500. 14 37
38
FY 2016 FY2017 FY2018
Revenue 20,963.5 22,768.3 22,770.9
India Asia(Except India)
% Growth 8.23 8.61 0.01
North America Europe
EBIT 3,769.6 4,802.2 4,706.6
RoW
% Margin 17.98 21.09 20.67
Source: PI Industries Annual Report 17-18
PAT 3,115.5 4,594.4 3,676.3
Shareholder's Equity 11,709.2 16,271.8 19,248.4 Segment wise revenue (FY18)
0.5
Total Assets 19,486.0 23,014.0 26,264.2
Dividend 4.40 1.50 1.50 35.9
63.6
ROE 30.14 32.84 20.70
ROCE 27.30 30.34 20.00
Operating Cash Flows 3,779.3 3,472.9 3,406.7
Active Ingredients and Intermediates
Inventory Days 120.04 125.31 138.92
Formulations
Others
D/E or ICR 10.46 5.10 2.41 Source: PI Industries Annual Report 17-18


18+ year Global • Crop Protection & • 60 years of brand Introducing new & • Unique IT based digital
Innovator Nutrition Solutions building with some novel products for the tools helped to acquire
partnership • Custom Synthesis & brands being more than past 40 years extensive geo-tagged
across value Contract 3 decades old partnering with global farmer database of over
chain including Manufacturing • Top selling brands in innovators making it 2.5 million PI farmers
3 subsidiaries commercialising 2-3 respective in their amongst Top 5 Ag- • Dealing with large 6
BASF, Kumiai & new patented respective segments chem distribution innovators, company
MCAG. 40+ molecules every are Nominee Gold, companies with has strong presence in
years working year Osheen, Roket, Biovita, leading market share US, Asia, Europe and
with Key Resources Fosmite Channels Australia
Japan.Also, • Providing CSM services
involved with • GLP accredited R&D to wide end use Pan-India presence
Europe and US . facility with over segments across global through a vast
350 researchers agrochemical, distribution network
• Assosciation with pharmaceutical with over 10,000
leading innovators &Technology sectors distributors and more
primarily in Japan, than 60,000 retailers
Europe and US with 32 stock points
Unique Business Model of in-licensing new molecules from India’s largest CRAMS Company with over 95% Revenue from
global innovators and nurturing the same into strong brand Patented Products. 60% of domestic agro-chemical revenues coming
propositions with EBITDA margin of around 22% from in-licensing. Strong CSM order book of US$ 1.1 bn.
Analysis:
• In-licensing- a key differentiator against rest of peers: PI has managed exclusive tie-ups with
patent originators, led by its track record of respecting innovator’s IPR. The company’s focus on
selected and patented innovative products through in-licensing differentiates it from the rest of the
market participants, who sell largely generic products with little product differentiation.
• Presence in complete value chain: PI Industries has the presence in each and every stage of value
chain by providing strong technical capabilities in the areas of research and development,
manufacturing services, brand building, strong distribution presence in India and customer-
connect initiatives.
• Focus on CSM exports: PI’s longstanding relationship with global innovators in the agro-
chemical space is a testament to capabilities and trust it has built over the years. The company has
been in the CSM business for the last 20 years and it will take long gestation period for any new
entrant to acquire knowledge, create strong R&D capabilities, infrastructure and build trust, which
acts as a major entry barrier. Besides, the business faces procedural entry barriers in India in the
form of protracted registration process and a three-year exclusive data protection for the product
post registration.
• Foreign Currency Risk: The company is exposed to foreign exchange risk arising from foreign
currency transactions, primarily with respect to the US$.

Sharda Cropchem Limited

Value Chain
Identification Technical
Formulation Marketing and
R&D and Grade
Manufacturing Distribution
Registration Manufacturing
Sharda Cropchem was founded in 1947. It follows an asset light business model focusing on
identifying opportunities in generic molecules and corresponding formulations and generic active
ingredients, preparing dossiers and seeking registrations in the relevant jurisdictions. The company
does not have a single manufacturing unit and outsources all its needs for manufacturing of Active
ingredients and Formulations.
The company has business operations in over 78 countries across Europe, NAFTA, Latin America
and Rest of the World. It has set up its own sales force along with third party distributors for
marketing and distributing formulations. The Market Cap is around Rs.3600 crores. The Company
is also involved in order- based procurement and supply of non- agrochemical products having
a product profile of Belts, general chemicals, dyes and dye
intermediates. Geography wise revenue (FY17)
10.4
FY 2016 FY2017 FY2018
12.7
Revenue 12,157.5 13,901.0 17,133.9
% Growth 14.58 14.34 23.26 26.50
50.4
EBIT 2,363.8 2,561.6 2,754.8

% Margin 19.44 18.43 16.08
Europe NAFTA LATAM RoW
PAT 1,751.3 1,904.4 1,907.7
Source: Annual Report 17-18
Total Assets 13,313.7 16,496.3 22,262.1 Segment wise revenue (FY17)
(FY18)
Dividend 3.00 2.00 2.00 0.5
1
ROE 23.99 21.58 18.21

23
35.9
ROCE 23.40 21.52 17.11 48
63.6
Operating Cash Flows 1,965.6 1,839.9 1230.6
28
Recievable Days 161.28 169.69 166.64 Active Ingredients and Intermediates
D/E or ICR 0.00 0.00 0.01 Formulations
Herbicides Fungicides
OthersInsecticides Others


• Relationship • Sale of Generic • Helping farmers and Increased the • Most customers are
with multiple Agrochemical products economies worlwide penetration of abroad .
manufacturer (81% revenues) to attain food security formulations and • Europe: Established track
s and • Order based procurement in terms safety, health generic active of securing registration in
formulators of non-agrochemical and yields. ingredients in various ‘toughest market’ as it
(Mainly in products with products • Adopting the factory countries due to the takes more than 4 years
India and such as belts, general to farmer approach by pan presence of the to complete registration
China) chemicals & dyes (19% forward integration of third party distributors process(FY17-50.4%)
• Third party revenues) building own sales and availability of its • NAFTA: Received
distributors force own sales force. registration in crops such
in Europe, • Identifying generic as soyabean, orn and
Mexico, Key Resources molecules going off- Channels vegetables (FY17- 26.5%)
Colombia, patent and investing • LATAM: Spending pattern
South Africa • 1980 registration for to prepare dossiers & Strong Geographical of consumers as well as
and other formulations and 229 seek registration in presence in more than currency fluctuation
jurisdictions registration for active own name 80 countries through remained uncertain
ingredients across Europe, • Scaling up marketing 724+ third party (FY17- 12.7%)
NAFTA, Latin America and and distribution of distributors, who are • RoW- Growth in sales in
RoW biocides with a focus managed directly Morocco and Ukraine
• Asset Light business Model on Europe through own in-house (FY17- 10.4%)
focusing on organic growth sales team

Asset Light Business Model helping to save capex costs with Revenue have increased by 22.5% from previous year. This was
EBITDA margin of 20% driven by growth of 18.7% in Europe, 50.3% in the NAFTA
region, -6.9% in LATAM and 5.4% in the Rest of the World.
Analysis:
• Presence in specific parts of the value chain offer unique competencies to Sharda Cropchem.
• Rich in-house sales force: Since the company has its own salesforce on ground, the company is
able to gather and act on insights generated by the salesforce about customer needs. This helps
the company get the pulse of the market and therefore, knowledge about what product will sell
and what wont.
• Focus on registrations: The company maintains its niche focus on registrations in difficult
countries. Not only does this business have an entry barrier in the form of past track record, but
a capex heavy firm does not have the intellectual resources to commit to this task.
• This enables Sharda Cropchem to keep selling agrochemicals where others find it hard to sell,
thus earning an unparalleled EBITDA margin on its products.
• Risks: Sharda Cropchem is dependent on its manufacturers to produce a standardized quality of
goods, and therefore its reputation is dependent on theirs. Any failure to adhere to strict
standards, can cause a major reputational loss, which is one of the largest assets the company
has.

Dhanuka Agritech Limited

Value Chain
Technical
Identification Formulation Marketing and
R&D Grade
& Registration Manufacturing Distribution
Manufacturing
Incorporated in 1985, Dhanuka Agritech Limited manufactures a wide range of farm input
products to support the farmer in his pursuit for better crop, better farming and better life. The
Company has a pan-India presence through its marketing offices in all major states in India, with
a network of more than 8,000 distributors selling to approx. 80,000 retailers across India and
reaching out to more than 10 million farmers.
DAL’s manufacturing plants are located in Sanand (Gujarat), Udhampur (J&K) and Kehswana
(Rajasthan). Dhanuka Agritech is among the top five companies in India in Brand sales. With more
than 200 registrations and 500 active SKUs, the company has one of the largest market penetration.
The Market Cap is around Rs. 2600 crores.
Geography wise revenue
FY 2016 FY2017 FY2018 (FY17)
Revenue 8,271.1 8,527.6 9,524.2 19.8
% Growth 5.53 3.10 11.69
35.5
EBIT 1,403.4 1,550.2 1,518.5 33.5
% Margin 16.97 18.18 15.94 11.2
PAT 1,073.1 1,218.7 1,261.8 South West East North
Shareholder's Equity 4,804.4 5,217.1 6,333.6 Source: Annual Report 17-18
Total Assets 6,566.5 7,148.1 8,226.7

Product wise revenue
Dividend 6.50 0.60 2.00 (FY17)
ROE 24.04 24.32 21.85 19.8
ROCE 23.55 24.07 21.71
44.2
29.8
Operating Cash Flows 1,447.0 722.9 1,446.8
Inventory Days 129.92 141.89 172.02 15.2
Recievable Days 83.76 79.10 75.08 Insecticide Fungicide

Herbicide Others
D/E or ICR 0.00 0.00 0.00


Segments
Strategic • Facilitator role to • Push for higher • Strong brand identification in
Partnerships: maintain soil health & yields and rising fertilizer segment with the 10 million
• Nissan running a Mobile Soil preference for help of brand ambassador farmers from
Chemical (J) Testing Van speciality “Amitabh Bachchan” across
• Mitsui • Publicizing the crop chemicals, is likely • DAL telecasted a Path landholding
Chemicals Inc. insurance scheme with to derive long term breaking 13 Episodes series segments.
(J) the help of field staff demand "Dhanuka Kheti Ki Nayi Dhanuka is
• Sumitomo • Providing machines for • Strong Product takneeq, Kisan ki aamdani regularly
Chemical (J) seed treatment at the portfolio of over 80 doguni karne ki disha me ek organizing
• Dupont (USA) farmer’s doorstep brands with 100% pahal" on ABP News network various
• Arysta Life domestic sales from January 2018 to March conferences to
Science which includes 2018 support PM's
• Hokko Key Resources recetly lunched Channels Vision
Chemical(J) Dumil, Fenox, "Doubling
• Oat Agri (J) • Amitabh Bachchan as Godiwa, Domar etc. • Second largest rural Farmers'
• FMC brand ambassador distribution network with Income" under
Corporation • Registrations of 8000 distributors and 80,000 our vision of
(USA) speciality molecules retailers network "Transforming
• Oro Agri (USA) from global innovators • 1500 Dhanuka Doctors India through
Most of the • Land parcel at Dahej disseminating information on Agriculture". It
relationships have which can be used for “Dhanuka kheti ki nayi serves farmers,
been active for setting up technical taknik” planters and
more than a manufacturing facility pest control
decade for innovative molecules operators.

Asset light formulation business model results in fixed cost Revenue base is dominated by insecticides(44%),
savings and an EBIT margin of ~18% herbicides(30%) & fungicides(15%).
Analysis:
• Asset Light formulation business: DAL has a unique asset light business model. The company
is present only in manufacturing of formulations and has no presence in manufacturing of technical
(active ingredients(AI)),which is a capital intensive business. This model helps DAL clock higher
asset turnover ratio versus competitors, which assures superior RoE/RoCE in the business.
• Focus on marketing & distribution: DAL instead of putting efforts in technical manufacturing
focuses on marketing and distribution which helped it in achieving second-largest rural distribution
network in India . The company has inked a contract with Amitabh Bachchan as brand ambassador
for its agrochemical offerings.
• Risks: DAL is dependent on global innovators for the supply of technical/active ingredients in its
key products. Technicals’ supply disruption could adversely impact the company’s earnings. Also,
any sharp INR movement could impact the company’s earning adversely.

Aquaculture
Introduction
Seafood is one of the most popular sources of protein worldwide. Seafood farming-also known as
aquaculture-is the fastest growing food production system and it remains as one of the most
important sources of food, nutrition, income and livelihoods for hundreds of millions of people
around the world. Estimates indicate that the total supply of fishery products is expected to increase
from 154 million tons in 2011 to 186 million tons in 2030. Almost half of this comes from farms,
with farmed shrimp accounting for nearly 55 percent of the total shrimp produced globally.
Industry Overview
• Global seafood production has grown by 1.40% in the year 2017 as per the report by Food and
Agricultural Organisation (FAO) recording 174 MnMT in volume in the calendar year 2017. The
production from aquaculture has grown by 4.5% during the year, cloaking harvest of 84 MnMT,
whereas the production from capture fisheries remained stable at 90 MnMT. The global export
market for shrimp stood at USD 25.5bn as of FY16.
India's Exports per Mn Tonne (FY18) Top Shrimp Importing Countries

(2017)
2.5
2 USA EU Vietnam Japan China RoW
1.5
1 India's Exports
0.5 per Mn Tonne 21% 26%
(FY18)
0 8%
23%
10% 12%
Source: UN.comtrade, Industry Reports
Source: MPEDA
• In FY18, shrimp forms ~41% of the overall seafood exports for India in value terms. In volume
terms it stood at 5.65Mn Tonne. Shrimps have earned higher realization verses other major Indian
seafood export products.
• India is well positioned to take advantage of an increase in global seafood consumption with 8,129
km of marine coastline, 3,827 fishing villages and 1,914 traditional fish landing centers. Currently,
India has ~14,000 sq. km. of brackish water available for aquaculture, ~16,000 sq. km of
freshwater lakes, ponds, swamps & nearly 64,000km of rivers and streams. (Source: MPEDA)
• Currently, 1,40,666 hectare is the area under cultivation for shrimp.

Value Chain:
Brood-stock Shrimp Food

Shrimp Shrimp Shrimp
Suppliers Hatcheries Service/
Farmers Processors Exporters
Imports (Spawning) Retail
Shrimp Feed
Producers
Brood-stock are group of matured animals used in aquaculture for breeding purposes. Specific
pathogen-free broodstock are used to control diseases. Spawn hatcheries involves cultivation of
shrimp eggs which are further matured by harvesting. Shrimp feed – A product made out of wheat
flour, soybean meal & squid is used to provide nutrition to these growing shrimps. Fully Grown
Shrimps are then processed and further value addition can be carried out by partially or completely
cooking the shrimp. Frozen processed shrimps are ready for final consumption which are majorly
exported.
Growth Drivers:
• Shrimp Industry - Huge untapped potentials: India’s shrimp aquaculture has already gained
momentum with the introduction of P. Vannamei species. Brackish water aquaculture presents
another opportunity to accelerate the growth witnessed in last 4-5 years as it is mostly based on P.
Vannamei farming. India has ~1.2mn ha of brackish water area which is suitable for shrimp
farming, but currently only ~0.12mn ha (or ~10.2%) is under shrimp cultivation
100%
80%
67 65 56
60% 91 77 90
99 99 96 95 95
40%
20% 33 35 44
9 23 10
0% 1 1 4 5 5
Source: Government
% area under cultivation % unused area
of Gujarat; Equirus
• Favorable Government Policies: The government in Budget 2019 has allocated a dedicated fund
of INR10,000cr to develop fisheries, aquaculture and animal husbandry. This lead to a world-class
aquatic quarantine facility and a brood-stock multiplication centre at Bangarammapeta in Andhra
Pradesh which would help to eliminate broodstock imports. Moreover, MPEDA has set an
aggressive target of 10,00,000 MT of shrimp output by 2020 from current 6,00,000 MT.

Avanti Feeds Limited

Value Chain

Suppliers - Hatcheries Service/
Shrimp Feed
Producers
Incorporated in 1993, Avanti feeds was the first to manufacture scientifically formulated shrimp
feed in India, with quality standards that are amongst the best in the world. It has now emerged as
a leading manufacturer of shrimp feed with market share of 43%. Its subsidiary Avanti Frozen
Foods Pvt. Ltd. exports the processed shrimp (Ready to Cook) to USA and other countries. It has
6,00,000 MT per annum shrimp feed manufacturing capacity and 22,000 MT per annum shrimp
processing & exports capacity.
The company has 185+ dealer distribution network and 15-16 corporate farmer customers. It has
4 shrimp feed and 1 wheat flour plant in AP & 1 shrimp
feed plant in Gujarat. The market cap is around Rs. 5650 Geography wise revenue
crores. (FY18)
2.22
13.53
FY 2016 FY2017 FY2018
Revenue 19,953.0 26,157.4 33,929.0
% Growth 13.17 31.10 29.71
EBIT 2,049.5 3,163.9 6,588.9 84.25
% Margin 10.27 12.10 19.42 India USA RoW

PAT 1,575.0 2,156.6 4,464.7

Total Assets 6,226.0 10,686.4 15,262.6
Dividend 2.33 3.00 3.00 0.05
ROE 48.47 42.29 53.57 17.13

ROCE 44.26 39.91 49.15
82.82

Shrimp Feed Shrimp processing
D/E or ICR 0.54 1.66 0.16
Power


• Technical • To produce • Provides ideal feed • 250+ strong technical Products are available
collaboration nutritionally well formulation which team assistance in
with Thai Union balanced and high gives best feed advising farmers • Andhra Pradesh,
Feed Mills conversion ratio (FCR) from pond selection • Gujarat,
quality feed,
Limited, Thailand to the farmers to harvest of shrimps • West Bengal,
consistently
(TUFM), (Around 1.1) • Set up 12 labs across • Tamil Nadu,
subsidiary of Thai • Close monitoring & • Timely technical India to help farmers • Maharashtra,
Union Group. testing at every stage support to farmers check their soil and • Karnataka,
TUG has 25% and proper storage during culture water samples • Goa,
equity stake in facilties along with the • Largest integrated • Telangana,
Avanti Feeds transportation in shrimp processing • Haryana,
• Thai Union is 40% insulated & refrigated plant in India with
vehicles • Punjab,
equity partner in facility to process • Daman and Diu,
Avanti Frozen Key Resources advanced, value- Channels
• Kerala and
Foods Pvt. Ltd added and cooked
• • Puducherry
• Assosciate Shrimp feed products 185+ dealer
Companies: manufacturing • Provides Good quality distribution network
capacity- 6,00,000 MT & 15-16 corporate Loyal customers from
Srivathsa power Shrimp Feed such as USA, Europe, Japan,
Projects Pvt. Ltd. per annum & Shrimp Profeed, Titan and farmers customers
Australia and the
- Gas based Processing and Manamei helping to • 80% sales made
Exports capacity- Middle East are also
independent gain 43% market through dealership
22,000 MT per annum present
power project share in the overall network & 20% sales
and Patikari • Capex. Of 200 million domestic pie of are made directly to
Power Pvt. Ltd. – in Shrimp Seed shrimp feed large & corporate
Hydel Power Hatchery which will be farmers
Plant commissioned in
2019.
The raw materials of shrimp feed includes soybean & wheat flour Revenue is dominated sale of shrimp feed (82%) & processed
whose prices are rising leading to pressure on EBIT shrimps (18%) which are expected to rise in future
Analysis:
• Good connection with farmers: The business model of Avanti Feeds helps it to maintain good
connect with farmers. It sells the shrimp feed to the farmers who then cultivates shrimp and sells
it back to the company for processed shrimps. This acts as an incentive to the farmers to produce
more and for the company, it increases the sale of shrimp feed.
• Beating the seasonality: The shrimp cultivation can be done for two times a year. Many a time
farmers produce only 1 time. During those times, company shifts its focus on boosting the exports
of processed shrimps, thus, helping it to maintain constant sources of revenue.
• Risks: The company is majorly exporting to US which is highly regulated market. The imposition
of import duties can hamper its exports.

Apex Frozen Foods Limited

Value Chain

Suppliers - Hatcheries Service/
Shrimp Feed
Producers
Incorporated in 1995, Apex Frozen Foods Ltd (AFFL) is an integrated producer and exporter of
shelf stable quality aquaculture products. AFFL supplies ready-to-cook products to a diversified
customer base consisting of food companies, retail chains, restaurants, club stores and distributors
spread across the developed markets of USA, UK and various European countries. The company’s
output majorly comprises of variants of processed Vannamei shrimp (White shrimp).
The company 100% exports through distributors spread across developed markets. It has
processing facility in Kakinada, AP & leased pre & post
processing facility at Bapatla, AP. The market cap is Geography wise revenue
around Rs.1330 crores. (FY18)
17.60
FY 2015 FY2016 FY2017
6.20
Revenue 5993.58 6035.27 6991.15
% Growth 16.54 0.69 15.83
76.20
EBIT 379.68 451.15 553.49
USA UK Other EU
% Margin 6.3 7.4 7.9 Source: Annual Report 17-18
PAT 183.57 192.80 244.05

Shareholder's Equity 559.83 752.63 967.79 Revenue Bifurcation(FY17)
6.00
1.00
Total Assets 654.75 873.19 1177.32
Dividend
ROE 39.13 29.38 28.37
ROCE 28.58 26.72 27.16
Operating Cash Flows 123.16 373.5 116.28 93.00
Ready to Cook Shrimp
Export benefits
Forex gain
D/E or ICR 1.61 1.05 1.14


• M/s. Royale Integrated operations • Provides Ready to • Maintains customer 100% export to Food
Marine Impex comprise of hatchery, Cook (RTC) satisfaction by deploying companies, retail
Private farming, pre-processing, acquaculture quality assurance check chains, restaurants,
Limited(Royale processing and exporting of products i.e. at each stage of PLC, club stores and
Marine) aquaculture products Whiteleg Shrimp • Processing facility distributors spread
(Litopenaeus approved by EIC, BRC across the developed
It owns the vannamei) and Food Grade, Best Acqua markets of USA, UK
processing plant in Black Tiger Shrimp culture practices, and various
Bapatla, AP which (Penaeus monodon) HACCP & ASC European countries
allows Apex to Key Resources under the brand Channels
pre-process and name of : Major End Customers
process shrimp • 105.78 acres of owned & • Bay Fresh • Kakinda Port- 20 Kms & –
upto a capacity of 926.22 acres of leased • Bay Harvest Vizag Port- 150 kms • Walmart
3000 MTPA. land for hatchery & • Bay Premium away from farm enabling • WinCo Foods
farming smooth transition used • US Foods
Business • Kakinada Processing for exports • Kroger
arrangement is facility, AP with capacity • Key Distributors- Pacific • Sysco
such that of 9240 MTPA located Seafood, Ocean world • Safeway
company provides within proximity to arms ventures, Mazzetta Co., • Aldi
raw material to • Completion Status Plants- Chicken of the sea
Royal Marine & 15,000MTPA for RTC & Frozen Foods
Royale Marine 5,000 MTPA for RTE
process it to prodcuts
finished products • Breeding capacity of 1 bn
for which SPF Seeds & 1,500 MT of
company pays a cold storage capacity
certain price.

Less cost of raw material as 15-20% requirement is met through Revenue is generated by exporting majorly Processed
own farming efforts. Kakinada Processing facility is located within Whiteleg Shrimp to distributors and retail/food service
10-200 kms of farms helping to use JIT model of raw materials companies in India
Analysis:
• Integrated Model: Backward integration allows flexibility in shaping production plan based on
customers’ needs. It is able to achieve economies of scale due to synergized business operations
• Constant Supply: In house farming and association with assosciate farmers enable reliable and
uninterrupted supply of raw shrimp. Also, it reduces the cost of raw material as 15-20%
requirement is met through own farming efforts
• Risks: The company is 100% export oriented majorly exporting to US, UK & other EU countries.
APEX does not have long-term contractual arrangements with its major customers; therefore, any
reduction in demand or deterioration in the financial condition of clients could adversely affect
APEX. Also, any disease outbreak will lead to scarcity of raw material in order to process shrimps.
.

Farm Machinery
Though, farm mechanization in India stands at about 40%-45%, which is still low when compared
to countries such as the U.S. (95%), Brazil (75%) and China
(57%). While the level of mechanization lags behind other
developed countries, it has seen strong growth through the
Farm power available
last decade. According to Indian Council of Food and on Indian farms, 2011-
Agriculture, farm power availability on Indian farms has 14
grown from 1.47 kW/ha in 2005-06 to 2.02 kW/ha in 2013- 2.2 2.02
14.
2 1.84
Kw/Ha
1.8 1.73
Indian Farm Mechanization Market
1.6
The Indian farm mechanization market, which was valued 1.4

at ₹320 billion in 2015-16, is expected to upsurge at a 2011-12 2012-13 2013-14
CAGR of 5.74% at reach ₹400 billion by 2019-20. Shortage
of farm labor and the need to enhance farm productivity are among Source: Indian Council of Food and Agriculture
the main reasons for increasing
farm mechanization in India.
Soil working and seed bed… 40 60
However, farm mechanization Seeding and planting 29 71

provides different streams of
employment related to handling of Plnt protection 34 66
farm machines thus resulting in Irrigation 37 63
increased rural employment.
Increased farm mechanization is a Harvesting & threshing 65 35
key step towards doubling farmer’s 0% 20% 40% 60% 80% 100%
income and better rural prosperity.
Mechanised (%) Non mechanised (%)
Source: UNESCAP CSAM
The availability of abundant and
cheap labor in India has largely confined farm mechanization to tractors and power tillers. While
tractors and power tillers still outsell other farm equipment like paddy transplanters and combine
harvesters, the gap has closed in recent years. It is because of rural youth population is migrating
to cities in search of better paying jobs in services and factories. This is creating a big market for
specialized machineries, such as threshers, rotavator, transplanters, reapers, zero till drills, laser
levellers and power weeders.
Indian Tractor Market
Tractor is the largest segment in the equipment category with an annual sale of 600,000-700,000
units. The market has grown at a CAGR of 8.62% till 2014- 15. However, there is a sharp downturn
since 2015-16. This has been attributed to a reduction in farm incomes due to the decline in
production of major crops as well as softening commodity prices with lower procurements by the
government on account of adequate buffer reserves. Penetration of tractors in India is higher in
northern India, mainly Punjab, UP and Haryana.

While the country produces a large volume of tractors, it also exports tractor units to other
countries across the world. On an average, the country exports an average of 60,000 tractors
annually. India’s tractor export markets primarily include African countries and ASEAN countries
where soil and agro-climatic conditions are similar to India.
Market Drivers
1. Agricultural labour shortage: Labor shortage is being experienced at peak seasons due
to the enactment of the National Rural Employment Guarantee Act and huge demand
from the construction sector in cities. Labor is available at a higher cost per hectare and
this would increase the demand for mechanization.
2. Contract farming: Business establishments provide farmers with specialized farm
equipment and various amenities to improve crop yield through the adoption of latest
agricultural technologies.
3. Credit availability: The government is promoting 'balanced farm mechanization' by
providing subsidy on various equipments and by supporting bulk buying through front-
end agencies. The government also provides credit and financial assistance to support
local manufacturing of farm mechanization equipment.
4. Low penetration: Penetration of farm equipment in India provides a strong growth
opportunity. As mentioned above, only about 40%-45% of agriculture in India is
mechanized. In 2012-13, it was estimated that the penetration of tractors was about 20 per
1,000 hectares.
Thus, farm machinery segment is poised to see future growth due to such growth drivers.This
would positively impact productivity, wastage and climate resiliency of Indian agriculture. It is
interesting to note that there is a Centrally Sponsored Scheme for short term loans, namely, Interest
Subvention Scheme, there is none to facilitate capital investment in mechanization of agriculture
at the central level. Such a scheme could be crucial to boost productivity of Indian agriculture and
make it less employment intensive.
Value Chain Explanation:
Tractor Attachment Marketing and After sale

R&D
Manufacturing Manufacturing Distribution services
In the farm machinery industry, R&D activities involve technology upgradation, usually towards
greater efficiency or higher HP machinery. Tractor manufacturing is a core activity for all major
companies, but attachment manufacturing is not done by all. Marketing and distribution and after
sales services activities vary across industry in whether the company has set stringent standards in
these.

Escorts Ltd
Value Chain:

R&D
EL earns majority of its revenues from agri machinery, although its also involved in
construction and railway equipment manufacturing. It has an overall market share of 10.8%
of the Indian market, with traditional markets being the north and the central India.
EL has a market cap of ~Rs.10500 crores and has plants in Faridabad (Haryana) and
Rudrapur (Uttarakhand). Its long-term strategy is to penetrate the South Indian market.
The company was established in 1948.
FY 2016 FY2017 FY2018
Revenue 34,094.7 41,232.9 50,069.5 (2017)
% Growth -15.98 20.94 21.43 5
15
EBIT 1,032.6 2,461.3 4,803.8

80
% Margin 3.03 5.97 9.59
Agri machinery
PAT 706.1 1,312.7 3,470.2
Construction equipment
Shareholder's Equity 14,683.6 16,226.7 22,147.4 Railway equipment
Total Assets 29,439.9 31,992.2 39,733.4

(2017)
ROE 4.28 8.50 18.09
1.4
ROCE 4.98 7.44 16.73 42.1
56.5
Inventory Days 67.25 55.99 54.24 Farmtrac (35+ HP)
Recievable Days 42.25 36.80 38.22 Powertrac (25-60 HP)

Steeltrac (<20 HP)
D/E or ICR 6.11 3.61 0.66


• Company •Tractor manufacturing •Wide variety of
conducts of various HP tractors of various Strong after sale • Medium farmer
technical categories HP categories service has lead to with small field
transfer •Manufacturing of •Focussed and strong brand size for its
agreements and gensets and engines timely customer recognition and Powertrac tractors
in house •Focussed customer care services stable market • Large farmers for
manufacturing care services with time •In house share in traditional its Farmtrac
for foreign firms targets manufacturing of markets of North tractors
as a mode for repair products like and Central India • Foreign companies
technical Key Resources lubricants Channels looking to utilise its
upgradation and •Focus on region in house
for earning • Significant brand specific solutions as • It has a 50+ dealer manufacturing
revenue presence and market part of stated network and a capabilities
share in North and strategy customer service • Contruction
Central India and a customer equipment buyers
• Technology transfer care vertical that and Indian
agreements to corrects faults Railways
improve quality and within 72 hours
reduce costs
Material costs as proportion of revenues stand at 67%. Agri machinery accounts for 80% of its revenues.
Utilises VRS program to reduce blue-collar fixed costs. Although Powertrac most popular model, shift
happening to higher HP models.
Analysis:
• High competitive intensity in the market: As the company plans to expand into the South Indian
market, it faces competition in all its varieties from larger competitors. Thus, expanding market
share would require offering a superior value proposition.
• Accelerated technology upgradation through technology transfer: The company utilizes
technology transfer agreement to expand into more technological intensive sectors with higher
margins. It has helped the company achieve margins comparable to market leaders.
• Diverse revenue streams: The company also deals in construction and railways equipment which
have significant scope in the future. In its tractor segment too, value added services are an
important revenue source.

VST Tillers Tractors Ltd

Value Chain:

R&D
VTTL provides agri machinery solutions mainly for small and marginal farmers who make
up 70% of the land holdings. It has recently expanded its portfolio to higher HP tractors and
also power reapers, helping realize higher profit margins.
VTTL has a market cap of ~RS.1900 crores. It has manufacturing plants in Bangalore (KN),
Hosur (TN), and Mysuru (KN). The company was promoted as a joint venture by VST Motors
and Mitsubishi Heavy Industries Ltd, Japan, in 1967.
FY 2016 FY2017 FY2018
Revenue 6,466.7 6,951.2 7,639.5 (2017)
6.9 1.7
% Growth 17.24 7.49 9.90
EBIT 1,003.2 869.2 1,087.2

40.3 51.1
% Margin 15.51 12.50 14.23
PAT 741.3 717.5 1,119.8

Power tillers Tractors
Shareholder's Equity 4,201.1 4,890.5 5,877.3 Spares Other machinery
Total Assets 5,334.1 6,186.4 7,857.8
Dividend 15.00 0.00 0.00 Market Share

Segmentation (Power
ROE 18.92 15.78 20.80 Tiller)
ROCE 19.36 16.24 21.03
Operating Cash Flows 891.7 949.0 — 40

60
Inventory Days 81.48 63.12 —

VTTL Others
D/E or ICR 0.00 0.00 0.00 Source: Annual Report 17-18


Partners Key Activities Value Customer Customer
Proposition Relationship Segments
• Historical •Power tiller
collaboration with maufacturing •Affordable agri Company knows • Small and marginal
Mitsubishi group (market leader) machinery for the consumer farmers for its
for technological •Tractor small land profile and power tillers
transfer manufacturing holdings to boost positions its • Low to medium HP
• For FY18, the •Agri machinery productivity products to be of (upto 47 HP)
company has attachments • Attractive deals maximum benefit tractors for small
entered into an manufacturing offered by both to it through and medium
agreement with government government farmers
Kukje Machinery through DBT and subsidy and its own
(KM) of South the company, schemes
Korea for Key Resources such as warranty Channels
technology transfer extension
• Strong brand image •After sale services • Revenue derived
of market and through dealer from nationwide
technology leader network 250 dealer
• Technology transfer network, which
agreements for both also drive its spares
power tiller and revenues
tractor products
Cost of materials make up 63.3% of revenues, and Power tillers make majority of its revenues,
labour costs ~10%. although the share of tractors is increasing.
Analysis:
• Government support dependent: 95% of power tillers are sold through government subsidy.
Thus, sales are subjective to policy changes and its effectiveness. For example, adoption of DBT
has lowered company’s working capital costs.
• Lowering demand: Although there is a demand for power tillers dur to smaller sized land holdings
ad rural wage rise, increasing rural income growth has seen farmers moving to more productive
farm machinery like tractors. Company has had to offer multiple schemes and newer variants to
drive sales.
• Susceptibility of product sales on external factors: Catering to small and marginal farmers,
vagaries of monsoon, pests etc can impact demand in a significant manner

Food Processing
Food Processing Sector has also emerged as an important segment of the Indian economy in terms
of its contribution to GVA, employment and investment. The sector constitutes as much as 8.80
per cent of GVA in Manufacturing and adds 8.39 per cent to the GVA of Agriculture sector.
Market growth
Food Processing Industry GVA
Annual Growth Value Added in Food 10 5.78 6.71
Processing Industries sector during 2015-16 5 1.91
was 6.71 per cent as compared to around 4.90 0
per cent in Agriculture and 8.06 per cent in -5 Gross Value Added
Manufacturing. -10
-9.69
-15
GVA of sub-sectors – high variation
2012-13 2013-14 2014-15 2015-16
Source: MoFPI Annual Report 2016-17
Gross Value Added (GVA) in percentage terms
on average stands at 11.48% but with significant variation across sub-sectors. Some of the sub-
sectors with high GVA% are Malt Liquors and Malt at 36.15%; Manufacture of soft drinks;
production of mineral waters and other bottled waters at 32.06% and Manufacture of bakery
products at 28.30%. Fruits and Vegetables at 27.71% also display high GVA% level.
What brings the average down to its present level, is the low GVA% of 4.68% in case of Vegetable
and Animal Oils and Fats products, 10.01% in case of Dairy Products and about 8.62% in respect
of Grain Mill. Process and product innovation driven by technological infusion is required to
increase value addition in low value-added subsectors.
Growth Drivers
1. Growth in food and grocery market: Currently ranks sixth in the world and contributes
approximately 80% to total retail sales.
2. Changing demographics: Working women and nuclear families causing the rise of
ready-to-eat and frozen foods, and may lead to emergence of new eating habits.
3. Strong raw material base: The country is first in terms of milk production with
production close to 146 155.5 million MT in FY 2015-16 and second in terms of fruits
and vegetables in the world with production of 256 million MT. It is also the largest
producer of spices with 6.9 million tonnes spices produced in the year 2015-16. The
country is third in egg production, fifth in meat production and second in fish production
in the world.
4. Government support: The upcoming ‘Scheme for Agro-Marine produce Processing and
Development of Agro-clusters’ (SAMPADA) will provide a renewed thrust to the sector
with the budget allocation of USD 923 Million. The FDI in trading and e-commerce of
food products is allowed up to 100% through government approval route.
Key Challenges

1. Supply Chain Infra Gaps: Lack of primary processing, storage and distribution
facilities.
2. Inadequate Focus on Quality and Safety Standards: It may cause increase in demand
for these goods to not be as pronounced, causing missed growth opportunity.
3. Supply Chain Institutional Gaps: Procurement dependence on APMC markets, causing
rise in costs and time delays.
Government Schemes
Government intervention comes under the umbrella of “Scheme for Infrastructure

Development”. It has 3 components- Mega Food Park Scheme, Scheme for Cold Chain, Value
Addition and Preservation Infrastructure and Scheme for Setting up / Modernization of Abattoirs.
These has been a Re-structuring of the Schemes under the new Central Sector Scheme –
SAMPADA (Scheme for Agro-Marine Processing and Development of Agro-Processing
Clusters). SAMPADA Mission will promote all the segments of food processing from
infrastructure to forward linkage at the front end of the supply chain and will provide a big thrust
to the growth of this sector. It A is proposed to be implemented with an allocation of Rs. 6,000
crore for the period of 2016-20.

Freshtrop Foods Limited

Value Chain:
Agro Selling and

R&D Production Procurement processing/ distribution/
Packaging Export
FFL is an export oriented fresh foods company dealing primarily in export of table grapes. It also
deals in pomegranates and has recently expanded into RTD juice segment. It has developed
relationships with over 1000 farmer-members, as well as with reputed customers in domestic and
overseas markets.
It procures form 100 hectares of grape cultivation in the Nashik and Sangli region. It has a market
cap of ~Rs.175 crores. It was incorporated as a private company in 1992 and went public in 1994.
FY 2015 FY2016 FY2017

Revenue 1406.32 1190.19 1406.32 (2017)
% Growth 6.1 -1.2 18.15
EBIT 152.94 151.89 152.94 27.1
% Margin 13.28 12.76 10.87 72.9
PAT 90.15 80.50 90.15
Shareholder's Equity 555.96 465.81 555.96 Fresh fruits Processed food

Total Assets 561.60 478.34 561.60
Dividend - 1 - Revenue by geography

ROE 17.65 18.60 17.65 (2017)
15.6
ROCE 19.01 20.36 19.01
Operating Cash Flows 40.93 35.78 40.93

84.4
Inventory Days 110.16 110.51 110.16

Domestic Export
D/E or ICR 0.47 0.52 0.47


• Key customers • Table grape production for • Fresh table grape Regular supply from • Reputable intl
for export are export produce from internationally accounts in retail
ADA (part of • Processing fruits like internationally certified farmer groups and food processing
Walmart guava, mango etc for certified farmer ensuring smooth segment, like ASDA
family), Albert export market groups operations in food (Walmart), Pepsico
Heijn and • Ready to drink juice • Processed processing space etc.
Pepsico processing and pomegranate arils • Reputable domestic
• Key account for distribution for domestic for export accounts in food
domestic sales market • Ready to drink juice processing space like
is ITC Ltd Key Resources brand Second Channels ITC Ltd.
Nature at • Retail customers
• 25 years’ experience and affordable price, • Key large and looking for
in fresh fruit exports for domestic reputable accounts for affordable RTD juice
• Large procurement area market export products
ensuring regular supply • RTD juice through own
brand and other retail
stores
Low procurement and processing costs and high Fresh fruit products, processed foods and RTD juices
international prices ensure high operating margin for fresh are the main revenue streams
fruit export business
Analysis:
• High working capital requirement: Seasonal concentration of demand along with high transit
timings during export, while payables tighter payment periods result in high corking capital
carrying cost for the business.
• Vulnerability to external factors; Geographical concentration of procurement area leaves
supplies vulnerable to weather patterns and pest infestations, amongst other external events.
• Stability in future sales: Holding large accounts from well established customers has reduced
future earning variability and encouraged company to invest into adjacent industries like ready-to-
eat segment.
• Placed to meet demand from newer markets: Rising demand for table grapes in South East
Asian markets and presence of company as the only major exporter of the product in the country,
gives it a first mover advantage to cater to it

Hatsun Agro Product Limited

Value Chain:
Agro Selling and

R&D Production Procurement processing/ distribution/
Packaging Export
HAPL is the largest private milk producer in the country. Although most of its revenues accrue
from milk sales, it has developed a large variety of processed products, achieving leadership in
South Indian market, especially Karnataka and Tamil Nadu.
HAPL has a large and efficient procurement network through its milk banks, which have
eliminated middlemen. Its processing centers are present in many districts of Tamil Nadu. Its
market cap is ~Rs. 1200 crores. The company was set up in 1986 in Chennai.
FY 2016 FY2017 FY2018

Revenue 34,445.9 41,975.9 42,873.7 (2017)
% Growth 17.44 21.86 2.14 5
8
EBIT 1,975.9 2,359.6 1,980.0

26
61
% Margin 5.74 5.62 4.62
PAT 605.0 1,353.9 908.4

Milk Milk products
Shareholder's Equity 2,306.7 3,486.1 3,655.3 Ice cream Cattle feed
Total Assets 11,574.8 15,877.2 21,114.2 Source: Annual Report 17-18
Dividend 2.82 0.99 3.92
ROE 26.76 46.74 25.44
ROCE 10.39 19.48 12.90
Inventory Days — 39.17 38.98
D/E or ICR 99.88 105.95 148.30


Partners Key Activities Value Proposition Customer Customer Segments
Relationship
• 3 lakh farmers • Liquid milk production • Liquid milk of • Targets the growing
from whom with different cream various processed Apart from offering milk market across
direct content varieties variety of milk and age groups which is
procurement is • Processed milk products • Ice cream products milk products, HAPL growing due to rising
done through • Cattle feed under the brand Arun, has placed itself as a disposable income
9700 • Ready to eat branded which has ~20% brand reflecting • Targeting high
procurement products share in South Indian growth of dairy growth processed
centres covering market sector in South India, dairy products
13000 villages • Cattle feed to its to its customers markets through its
Key Resources farmer network to Channels brands like Arun and
maximise milk Hatsun
• Direct procurement production • Hatsun has its own • Ready to eat non
network resulting in low network of franchise dairy products
procurement costs stores and its market through
• Household brand names in products are also Oyalo brand
its market, like Arun, available in other
Arogya and Hatsun retail stores
products
Operating margin is 8.88%, and operating costs primarily Milk and milk products are its main revenue streams,
depend upon procurement costs in which Hatsun has which grew by 2% in FY18. HAPL is expanding into
leadership due to its own procurement network, eliminating high growth processed dairy segment with its products.
middlemen
Analysis:
• Procurement efficiency resulting in cost leadership: Direct procurement through milk banks
and eliminating the middleman enables the company to have lower procurement costs, which is a
significant part of operational costs in the industry.
• High competitive intensity in expanding markets: As the company plans to expand into North
India, higher competition would result in lowering operating margin, which is already being
experienced by the company
• Significant internal marketing for the product: Due to its large procurement base, and its
favorable bran image as reflecting rising rural productivity, its stakeholders are significantly
motivated in ensuring its smooth operations to derive maximum utility from the business.

Irrigation
The Indian summer monsoon typically lasts from June-September, with large areas of western and
central India receiving more than 90% of their total annual precipitation during the period, and
southern and northwestern India receiving 50%-75% of their total annual rainfall.
Ministry of Earth Sciences has found that the potential predictability of both active and break spells
has undergone a rapid increase during the recent three decades. An analysis of daily rainfall over
India during 1951-2007 reveals an increased duration and frequency of monsoon breaks over the
subcontinent. While noting that the increasing trend of break monsoon condition is consistently
related to changes in large sale monsoon circulation and vertically integrated moisture transport,
the findings point to the role of sea surface temperature (SST) warming trend (0.015°C per year)
in the tropical eastern Indian Ocean in inducing anomalous changes favorable for the increased
propensity of monsoon breaks.
Thus, the rising irregularity of monsoon has made requirement of irrigation systems more apparent.
According to Economic Survey 2017-18, 52% of the net sown area of 141 million hectares
continues to be rainfed. This reflects a huge unmet demand which must be met by the irrigation
industry. At the same time, falling groundwater levels in northwestern India shows the effects of
overexploitation and need for more efficient methods of irrigation.
At the same time, vagaries in climate systems have further endangered the already stressed water
systems in India. Therefore, there is a need for more efficient irrigation systems, namely, micro
irrigation systems (MIS). MIS also have a lesser impact on the ecology than large hydroelectric
projects.
Types of Irrigation:
1. Well and tube well irrigation
Well irrigation is more popular in those regions where ground water is in ample and where there
are few canals. These areas include a large part of the Great Northern Plain, the deltaic regions of
the Mahanadi, the Godavari, the Krishna and the Cauvery, parts of the Narmada and the Tapi
valleys and the weathered layers of the Deccan Trap and crystalline rocks and the sedimentary
zones of the Peninsula. However, the greater part of the Penisnular India is not appropriate for
well irrigation due to stony structure, rough surface and lack of underground water.
2. Canal irrigation
Therefore, the main concentration of canal irrigation is in the northern plain of India, especially
the areas comprising Uttar Pradesh Haryana and Punjab.
The digging of canals in stony and uneven areas is difficult and unprofitable. Thus the canals are
practically absent from the Peninsular plateau area. However, the coastal and the delta regions in
South India do have some canals for irrigation.

3. Tank irrigation
Tank irrigation is more suitable in the peninsular plateau area such as Andhra Pradesh (Including
Telangana) and Tamil Nadu.
4. Micro irrigation
The two types of micro irrigation most prevalent in India are drip irrigation and sprinkler
irrigation. As per Indian Council
of Food and Agriculture, All India Area Covered Under 10
7.73
million hectares
penetration rate in 2015 of MIS Micro 8
Irrigation by Segments; 2015 6 4.94
is at 5.5%. Their distribution in (Million Hectare) 3.09
4
Indian agriculture is stated in the 2
following graphs: 0
3.37
4.36 All India Area Covered
Government schemes: under MIS
Axis Title
Pradhan Mantri Krishi Drip Irrigation
Sinchayee Yojana
Sprinkler Irrigation 2005 2010
▪ Convergence of Source: Indian Council of Food and Agriculture Source: Indian Council of Food and Agriculture
investments in irrigation
at the field level
▪ Improve on farm water use efficiency
▪ Enhance adoption of precision irrigation and water saving technologies
▪ Enhance recharge of aquifers and explore feasibility of reusing municipal waste water
Value Chain Explanation:
Resin Pipe Marketing and

R&D Installation
Manufacturing Manufacturing Distribution
In the irrigation industry, R&D activities involve engineering for different methods of water
delivery n different climate and soil types, focusing on productivity. Resin manufacturing is a
backward integration measure to obtain consistent supply of PVC components for manufacturing
of irrigation system components. Subsequent steps involve marketing through dealers or own
stores and installation services.

Jain Irrigation Systems Limited

Value Chain:

R&D Installation
JISL is a diversified irrigation company which earns majority of its revenue through its irrigation
systems. It provides hi-tech micro irrigation systems as well as systems based on PVC pipes. It has
production and R&D across the globe and is a domestic and world leader in micro irrigation space.
Products offered by JISL include ‘Jain Drip’ drip irrigation components, as well as sprinkler
irrigation systems. Its PVC irrigation systems are sold under Jain Irrigation brand. Its current
market cap is Rs.4300 crores. It was established in 1963, and incorporated in 1986.
FY 2016 FY2017 FY2018

Revenue 63,222.4 67,697.8 79,467.6 Revenue Segmentation
% Growth 4.49 7.08 17.39 (2017)
EBIT 5,553.9 6,388.5 7,168.4 10
% Margin 8.78 9.44 9.02
PAT 484.0 1,694.7 2,193.2 90
Shareholder's 41,667.6 42,666.6 44,812.6 Exports Domestic

Equity
Total Assets 1,07,784.4 1,11,554.8 1,22,679.4 Source: Annual Report 17-18
Dividend 0.50 0.75 — Source: Annual Report 17-18
ROE 1.56 4.12 5.16

Geography wise
ROCE 4.63 5.29 6.80
revenue(2017)
Operating Cash Flows -350.7 2,265.6 —

27.8
119.17 120.14 110.45 72.2
Recievable Days
D/E or ICR 38.87 52.03 59.11
USA Rest of the world
North America


Relationship
N/A • Hi tech agriculture • Enhanced crop • Agri producers in
▪ Micro irrigation productivity Believes that rainfall deficient
solutions (drip and • Sustainable returns providing timely and regions in India and
sprinkler systems) due to targeted cost-effective abroad.
▪ Tissue culture inputs improvements in • General irrigation
• Plastics • Higher returns from product quality is a market for piping
• PE Pipes and investment key factor in ensuring systems
Fittings • Improved farm customer satisfaction • Precision
• PVC Pipes and produce quality and retention. agriculture
Fittings producers
• Brand value • 4028 Intl distributors

• Intl marketing • 7000 domestic
• Domestic dealer dealers
network
PVC resins and other input costs make up 62% of total Hi tech agriculture and plastic pipe products contribute
revenue ~75% of total revenues
Analysis:
• Geared to meet demand for climate change mitigating interventions: Micro irrigation systems’
demand is set to rise as it mitigates climate change effects on agricultural productivity. The
company is already placed domestically and abroad to meet this demand.
• Low competitive intensity against business’ core competency: Limited competition against
JISL is there domestically in high-tech irrigation systems. This also limits bargaining capacity of
the buyers. This is especially true for comparatively well-off southern and western regions of India,
where JISL has a major market presence.
• Foreign exchange risk: As input costs make up 62% of its revenue, and crucial inputs like PVC
resins ae imported, foreign currency fluctuations can adversely impact profit margins due to lack
of backward integration of the company.

Finolex Industries Ltd

Value Chain:

R&D Installation
FIL is the only Indian pipes and fittings company with backward integration into resin
manufacturing. It has a 20% market share in organized irrigation segment. It has been expanding
its target market into new geographies and into the housing segment.
FIL has manufacturing plants in Ratnagiri (Mh), Urse (Mh) and Masar (Gj). It has a market cap of
Rs 7,700 crores and was incorporated in 1981.
FY 2016 FY2017 FY2018

Revenue 27,915.4 29,557.2 27,377.9 (2017)
% Growth — 5.88 -7.37
30
EBIT 3,564.6 5,079.7 4,233.2
70
% Margin 12.77 17.19 15.46
PAT 2,577.7 3,548.5 3,063.3

Agricultural sales
Shareholder's Equity 15,905.0 23,147.7 27,951.3 Non- agricultural sales
Total Assets 23,853.4 29,939.6 35,060.4
Dividend 10.00 11.50 — Geography wise

ROE 21.59 18.17 11.99
revenue (2017)
ROCE — 17.61 11.79

20
Operating Cash Flows 5,362.6 2,268.9 — 38
Inventory Days — 89.27 —

37
Recievable Days 1.15 4.33 6.37 5
D/E or ICR 0.00 0.00 0.00 North South East West



Relationship
• FlowGaurd • Agriculture PVC • Wide variety of farm • Farmers
Processor pipes and fittings fittings, with Warehouse network demanding agri
agreement with • FlowGaurd Plus available SKUs at coupled with cash-n- pipes and fittings,
Lubrizol, for CPVC CPVC pipes and 1400 carry model provides comprising 70% of
resin and fittings • Only domestic fast and clear revenues
compounds • Sewerage pipes production of CPVC delivery of product • Construction
• Finolex Plasson, a JV pipes for high to dealers and sector raising
with Plasson Ltd, temperature use customers demand for CPVC
Israel, with Finolex’s Key Resources • Own warehouse Channels pipes and fittings
46% stake, in drip network for faster • Contractors and
and sprinkler • Intl collaborations to warehouse delivery • 800+ distributors local bodies
irrigation space leverage technical • Solvent cement • 1800 retail stores demanding
knowhow products for sewerage pipes
• Balance sheet light agricultural and fittings
cash-n-carry model applications
• 800+ dealers, 1800
retail outlets
Despite in-house resin production, import of VCM and EDC Agriculture pipes and fittings result in 70% of the
raw materials. For e.g. a 5% change in EDC price causes a revenues, bulk of non-agricultural revenues from
5.4% change in PBT construction sector
Analysis:
• Domain expertise and focus: With the business model focused only on pipes and fittings, the
company has domain expertise and market leadership. It has the highest market share in organized
pipes segment. It has also set up the first CPVC production facility in the country and is also
looking to expand its market. It has also undergone backward integration.
• Opportunities in adjacent industries: Market leadership in irrigation segment gives the entity
resources and know how to pursue emerging demand sources in non-agricultural sectors like
construction and housing. For e.g., the company’s offerings in casing pipes and sewerage segment.
• Vulnerability to input price fluctuations: Despite backward integration, raw material
compounds are still imported, which leaves the firm exposed to price and foreign exchange
movements. Company’s lack of significant export revenues also increase extent of vulnerability.

TEXTILES

Textiles
The ranking of the top 10 exporters of textile and apparel products remained unchanged in 2016,
with China (36%), India (5%) and Bangladesh (4%) in the first three positions. China has
consistently led the global exports of apparels and textiles, but the trend has been declining.
However, China is strategically moving towards more value added tech-intensive products in the
sector with limited emphasis on the traditional market share.
The fundamental strength of the textile industry in India is its

strong production base of wide range of fibre / yarns from natural Indian Textile
fibres like cotton, jute, silk and wool to synthetic / man-made Industry (US$bn)
fibres like polyester, viscose, nylon and acrylic. The Domestic
200
Textile and Apparel Industry in India stood at US$ 150 bn in July 137 150
150 108
2017 and expected to reach US$ 200 bn by 2019. The industry has 99
grown at 10% CAGR during 2009-17. Rising per capita income, 100
favourable demographics and a shift in preference to branded 50
products are major factors driving industry demand. Exports have 0
been a key component of growth in India’s textiles and apparel 2014 2015 2016 2017
sector. Indian Textile Industry (US$bn)
Source: IBEF
Exports have grown at 7% CAGR over FY2008-09 to FY2016-17
to reach at US$ 36.6bn and expected to reach upto US$ 62bn by Top exporters of
2021. The textiles industry accounts for 15% of India’s total textiles (US$bn)
exports.
271 278
Market Drivers:
30
1. Availability of raw material 32 32 35
China India
Abundant availability of raw materials such as cotton, wool, Bangladesh Italy
silk and jute as well as skilled workforce have made the
Germany Others
country as a sourcing hub. It is the world’s second largest Source: IBEF
producer of textiles and garments.
2. Innovation and R&D
P&D has been a major focus area for both the private players and the government, to move up
the value chain and escape the cost competition offered by countries have lower wage costs
like Bangladesh.
3. Changing retail trends
The Indian e-commerce industry has been on an upward growth trajectory and is expected to
surpass the US to become the second largest e-commerce market in the world by 2034. Rising
internet penetration is expected to lead to growth in e-commerce and this sales channel is
expected to be a major driver of industry growth.
4. Skilled manpower availability
Policy changes in the implementation of the Apprenticeship Act, as well as labor law reforms
conducted by various individual states, have made skilled manpower available at low costs to
the industry.
Government Schemes:
Huge investments are being made by Government under Scheme for Integrated Textile Parks
(SITP)- (US$ 184.98mn in total) and Technology Upgradation Fund Scheme (TUFS)-(US$
216.25mn released in 2017) to encourage more private equity and to train workforce.
In the Union Budget 2017-18, Government of India allocated around Rs.7,148cr (US$ 1.1bn)
for the textile Industry. Allocation for the Technology Up-gradation Fund Scheme (TUFS) is
Rs.2,300cr (US$ 355.27mn), and the allocation Rs.30cr (US$ 4.63mn) for the Scheme for
Integrated Textile Parks, under which there are 47 ongoing projects.
Value Chain explained:
Product Branding and

Procurement Spinning Weaving Processing Cut and Sew Retailing
Development Marketing
Textile manufacturing value chain first involves product development, which involves type of
product decision to design decision. Subsequent stages are procurement and several value addition
processes to implement the product design to make it available to the market. Final stages include
the branding and marketing decision and retailing to the retail consumer or conduct B2B retail.

Indo Count Industries Limited

Value Chain:

ICIL is a home textiles leader and second largest bed linen, bed sheets and quilts exporter in India.
It primarily exports to US and European markets. Its has an expertise in designing and processing
bed linen and has built up a reputed clientele base as part of its export operations.
ICIL has a market cap of ~Rs.1500 crores. It has its base of operations in Kohlapur (MH). It
commenced its operations in 1991 as a 100% Export Oriented Unit.

Revenue 20,627.0 21,528.2 18,585.2 (2017)
% Growth 20.14 4.37 -13.67
10
EBIT 3,866.5 3,883.7 1,294.5
% Margin 18.75 18.04 6.97

90
PAT 2,513.9 2,322.4 1,260.4 Exports Domestic

Total Assets 13,917.5 15,239.2 16,991.9
Dividend 2.00 2.00 0.80 Geography wise

ROE 47.80 31.46 13.98 revenue(2017)
ROCE 30.00 23.02 11.17
Operating Cash Flows 1,068.1 1,807.5 109.0 27.8
Inventory Days 140.61 149.88 174.58 72.2
D/E or ICR 9.00 2.50 5.07 USA Rest of the world



• Established •Designing and •Design leadership
international processing bed linen which can set and Export orientation • Large retail chains
clientele help •Branding and marketing respond to trans in and integration of in US which make
provide to diverse emotional the market to stay its supply chain up 65% of its total
stability in needs of customers relevant in the coupled with revenue
revenues of •Involved in all processes international historic expertise • Large clients in the
the company from procurement to market makes it a stable rest of its export
• These include export • Historic expertise relationship with locations
Wal-Mart, JC of promoters in the its US clients • Retail consumers
Penny, Target, Key Resources business to deal Channels for its Boutique
Bed Bath and with all challenges Living brand
Beyond, • Relationship with an and deliver to its • Export to large
Macy’s, John established client base clients retail chains in US
Lewis, etc. • Branding and marketing and Europe are its
strategy to serve diverse primary channels
set of potential
consumers
Textile export industry entails significant raw material 90% of its revenues are derived from exports,
cost risks. Raw material cost is 50% of its total revenue subject to significant foreign exchange fluctuation
risk, although 75% of it is hedged
Analysis:
• Constant creativity and trends connect needed: ICIL needs to constantly catch on to emerging
trends and influence them itself to get noticed in the market place. This is apparent in the number
of brands the company has to cater to different segments in the home textiles market.
• Significant raw material costs and foreign exchange fluctuation risks entail: This requires a
certain level of supply chain integration at the cost end and hedging at the revenue end. It also
required the company to have lower debt equity ratio to lower fixed costs.
• Opportunities to enter adjacent sectors: Expertise in its core sector has given the company the
ability to enter into the domestic retail space, which it did in 2016.

Welspun India Ltd

Value Chain:

WIL is the largest Indian maker and exporter of home textiles. As part of the larger Welspun
group, it has a network covering 50 countries. WIL supplies to 17 of the top 30 global
retailers. It has also ventured into home textile retail space domestically and aims to achieve
50% revenues from it by 2022.
Welspun has a market cap of ~Rs.7500 crores. Towels, bed linens and Rugs and Carpets are
its main home textile products. Its production facilities are located at Anjar and Vapi (GJ). It
began its business in Indi in 1985.
Revenue 52,967.8 57,704.6 53,302.6 (2017)
% Growth -0.11 8.94 -7.63
5
EBIT 12,591.4 10,798.9 6,192.3
% Margin 23.77 18.71 11.62

95
PAT 7,365.0 3,575.6 3,849.7

Exports Domestic
Total Assets 65,491.2 73,283.2 72,248.6

(2017)
ROE 43.29 16.37 15.39
ROCE 18.19 8.23 8.40 5

11
Operating Cash Flows 11,136.5 7,362.8 4,289.1 18

66
Inventory Days 153.33 134.63 159.68

USA Europe India RoW
D/E or ICR 89.11 82.87 64.20


• Working on •Production of home •Welspun products
being textiles through include several brands Welspun’s relationship • Large retail
preferred integrated supply chain aimed at different with retail stores is stores like
surcing •Branding and marketing target consumers that of a quality home Walmart and
partner for of own brands like •Products under Spaces textile provider, to the Macy’s
e-commerce Christy, Spaces provide luxury and consumers it is a high • Retail
platforms •Partnership to produce comfort end brand appealing consumers
• With Oritain home textiles for other •Products under Spun to a variety of their which identify
Global brands focus on sustainability emotions with one of
Limited to combined with the different
augment the traditional values brand
validation of •SpinTales is a new offerings
• 50+ nation network • Welspun Group’s
home textile offering including Welspun
boost competitiveness network across 50+
supply chain interactive textiles and offers
• Integrated supply chain nations help in
seamless integration • Fans buying
inducing economies of reaching out to retail
of technology textiles
scale stores or to the end
produced
• Welspun brand as well consumer through its
under licences
as brands in the group brand
owned by
Welspun
Material costs as proportion of revenues stand at US sales account for 66% of its revenue, India 5%.
~50%. WIL is significantly lowered costs through supply WIL aims to earn 50% of its revenue from India by
chain integration 2022.
Analysis:
• Diversified revenue stream: WIL’s various product offerings and marketing strategy can be
leveraged to capturing the growing domestic home textile market.
• Significant bargaining power against suppliers: WIL’s plan to outsource procurement,
spinning and weaving activities and create an asset light model could heap return as it has the
size to be in an advantageous bargaining position as it provides integration advantages to these.
• Significant competitive rivalry: Competitive rivalry from domestic firms such as India Count,
as well as other developing countries which enjoy cost competitiveness may emerge, which the
industry is sensitive to

Seeds
Seed production can be categorised into field and vegetable crops. Feld crops are ones which are
used in extensive agricultural practices, especially in developed countries. These include cereals,
cotton etc. Vegetable crops are the ones used in horticulture activities, which use intensive
agriculture methods.
Based on various applications to improve crop productivity along its growth Seeds
timeline, seeds industry provides the initial intervention, which is followed

by irrigation, fertilisers and plant nutrients and finally crop protection. Irrigation
Industry Overview: Fertilisers and

plant
nutrients
India is the fifth largest seed market. At present, India’s organized seed Crop
market is worth US$ 3.6 billion which is expected to grow to US$ 8 billion protection
by 2023.
Cotton, paddy, maize and vegetables drive the demand for commercially enhanced seeds in India.
Among all agriculture inputs, seeds have a relatively inelastic demand, that being the primary
input. Using high-quality seeds can improve the crop yield in the range of 15% to 20%.
FY 2017-18 was a mixed bag for the seeds industry. Satisfactory monsoon ensured stable demand,
but Government interventions experienced in some States, towards the end of the fiscal, posed
some challenges. Regulatory interventions, price controls and bad crop years can negatively
impact the sector. The extent of damage cotton acreage has suffered due to an infestation of pink
bollworm this crop-year remains to be seen. Cotton contributes nearly 35% of the organized seed
market in value terms. The negative impact of one bad crop year can lurk for 2-3 seasons.
Value Chain:
Assemble -
Designing- R&D Initial crosses &
Required traits from Final seed Marketing and
Team gets Product shortlisitng of Multi Location Trials Plant processing
Germplasm production in fields Distribution
approval hybrids
collections
Seeds industry’s value chain comprises of R&D activities and getting product approvals. It then
involves procedures to arrive at a shortlist of hybrids, which are to be used for trials. Trials are
required to measure both the efficacy of required expression from the seeds, as well as other
requirements like germination potential and storage ability. It is also required to ensure seeds meet
regulatory standards. Based on trial results, if they are successful, moving forward involves plant
processing for marketplace followed by marketing and distribution.

Kaveri Seeds Corporation Limited

Value Chain
Designing- R&D Assemble -

Initial crosses & Final seed
Team gets Required traits Multi Location Marketing and
shortlisitng of production in Plant processing
Product from Germplasm Trials Distribution
hybrids fields
approval collections
Incorporated in 1986, Kaveri Seed Company Ltd (KSCL) is one of the fastest growing seed
company in India. It is engaged in production, processing and marketing of products and services
in yield optimization, soil enrichment and crop protection areas in India. It offers its products in
two categories – field crops and vegetables. Its range of field crops includes corn, paddy, cotton,
sunflower, mustard sorghum, pulses, bajra and wheat. Its range of vegetables includes tomatoes,
okra, chilies, watermelon, gourds and brinjal.
KSCL owns over 600 acres of farm land and has a large network of over 15000 distributors and
dealers spread across the country. Company has seven State-of-the-art seed technology, processing
and storage plants. The market cap of the company is
around Rs. 4200 crores. Cotton Seed Volume
Breakup(FY17)
FY 2016 FY2017 FY2018
11.4
7.7
Revenue 7,448.8 7,049.9 8,192.3
% Growth -35.84 -5.36 16.21
27.2 53.7
EBIT 1,600.8 1,093.1 2,204.1
% Margin 21.49 15.51 26.90 Ap & Telangana Maharashtra

Karnataka Others
PAT 1,678.8 778.3 2,112.4 Source: Annual Report 17-18

3.2 Product wise revenue (FY17)
Total Assets 13,606.7 15,277.6 14,487.0
0.4
Dividend 2.50 — —
ROE 19.57 8.02 20.85
ROCE 19.49 7.95 20.86

96.5
Operating Cash Flows 2,469.7 2,191.7 —

Seeds Micronutrients Vegetables


Segments
• 30,000+ • Providing high-quality hybrids • Farmer-centric • Focussed programmes to
loyal and variety seeds developed product pipeline spread awareness among Country’s
production across field and vegetable crops with superior the farming community on farming
growers, • Rapid growth of new products in agronomic new products in the market community
across 12 Maize, Hybrid Rice & Bajra in features making it • Market-oriented and need majorly in the
different order to reduce dependence on amongst the top focused breeding states of
agro- Cotton business(3rd largest 5 leader in key programmes Andhra
climatic producer of hybrid cotoon seeds crops • Farmer incentive Pradesh,
zone in India) • 15,000+ programmes, merchandise Telangana,
• 1000+ • Engaging the farmer activity with customer distribution, decorated Karnataka,
promoters, the help of on-farm technology touchpoints vans to educate farmers are Maharshtra
who work demonstration & Krishi Melas across India’s 15 waiting to be rolled out. and Tamil
with Key Resources key states Channels Nadu. The
farmers all • 16 notified company also
the time • Warehouses across India with hybrids under • Network of 15000+ exports seed to
combined storage space of CVRC-Gol direct/indirect distributors Bangladesh.It
around 6,00,00 sq feet • Capability to over the country has also
• 7 company owned plants with produce over 100 • 200+ highly motivated targeted Asia-
processing capacity of approx. high-quality marketing professionals Pacific region
130 tonnes per hour hybrid seeds • Utilise more than 8000 and Africa to
• 214 product filings with 94 across field and man-months of Promoters gain the
product registrations with PPV to vegetable crops to communicate about best significant
date such as Jadoo, farming practices to traction
• Strong Leadership team- Jackpot and ATM farmers
recruited R&D head from
Monsanto
As farmers are not taxed, KSCL is also not taxed.Debt free Revenue increased by 16% as Kaveri is amongst the top three
company with huge cash reserves. Pay ~12-20% as royalty to seeds companies in the cotton segment, and top five in the
Monsanto (INR 180 per packet) for using its maize, paddy and pearl millet segments. Combined, these
underlying BT gene. crops account for more than 90% of revenues of the Indian
hybrid seed industry
Analysis:
• Comprehensive business model: Kaveri Seeds is the leader in the manufacturing of seeds due to
the efficient presence in all parts of value chain. It has strong R&D capabilities with one of the
largest germplasm bank acting as key entry barriers in the business. The company has a strong
farmer centric product portfolio with a wide distribution network and strong marketing on a pan
India basis.

Nath Bio-Genes (I) Ltd.

Value Chain
Designing- R&D Assemble -

Initial crosses & Final seed
Team gets Required traits Multi Location Marketing and
shortlisitng of production in Plant processing
Product from Germplasm Trials Distribution
hybrids fields
approval collections
Incorporated in 1979, NBL, a flagship company of Nath group is engaged in the business of
Production, Processing and Marketing of Hybrid and Genetically Modified (GM) Seeds. The
Company’s segments include agricultural activities (seed production) & trading activities. Its
products portfolio ranges from field crops, vegetable crops to micro nutrient supplements. The
Company has approximate 30,000 acres of area under seed production and has a network of over
15,000 farmers for growing seeds.The Company currently has 10 production centres and 2
processing centres in 7 states.
NBL has 16 branch offices and approximately 1,265 distributors with 12 strategically located
distribution & storage facilities to market in 16 states of India. The company has sowed the seeds
of R&D and is now focusing on marketing and distribution to achieve the desired heights. The
market cap. is around Rs. 900 crores.
FY 2016 FY2017 FY2018 Geography wise revenue

(FY18)
Revenue 1,621.1 1,697.3 1,916.5 2.6
% Growth -12.53 4.70 12.92
EBIT 206.2 257.5 394.2
% Margin 12.72 15.17 20.57 97.4
PAT 141.7 162.8 294.2 India Outside india

Shareholder's Equity 1213 1,375.9 4,692.3
Total Assets 1380.9 2,893.5 5,712.0
Dividend — — —
ROE 12.40 7.67 9.70
20.0
30.0
ROCE 13.85 9.50 9.20
40.0
Operating Cash Flows -136.25 -63.1 -469.84
10.0
Inventory Days 290.2 291.03 241.50
Recievable Days 0.00 55.73 127.48 Cotton Paddy PNS Others
D/E or ICR .48 14.59 0.07


Segments
• An agreement with • Providing high-quality • Providing Hybrid • 20 RRTS in different
Interna onal Crops hybrids and GM seeds by and Genetically agro-climatic zones for Country’s
Research Ins tute for pursuing both Genetic Modified seeds for research demonstration farming
the Semi-Arid Engineering field crops ( maize, & evaluation community
Tropics (ICRISAT) for Technologies as well as paddy, pearl millet, • 450+ Nath Farm advisors majorly in the
transfer of breeding Molecular-Aided wheat and jowar) & to provide after sales 16 states of
material Selection systems to vegetable crops ( service with the help of India. The
• An MOU with Global enrich crop breeding and chilli, okra, tomato, “Nath farmer Helpline” company also
Transgenes Limited product development bole gourd, bitter • Quality products after exports seed to
(Asso. Comp.) for use programs gourd, cucumber being tested for Pakistan,
of Bollgard II • Marketing efforts by and coriander) parameters like Bangladesh,
technology rejuvenating sales team • Offers fiber and oil germination, Grow out Nepal, Bhutan,
• International Rice • Strong R&D efforts to seeds such as test (GOT test) and Kenya, Egypt,
Research Institute create high yielding cotton, mustard & ELISA testing for cotton Saudi Arabia,
(IRRI), Phillippines varieities sunflower and Myanmar.
for rice development Key Resources • Providing Channels It is also
And several others nutritional exploring
national/international • Valuable library of supplements such • 16 branch offices & opportunities
research institutions 18,925 germplasms as Bio-energy and approx. 1265 for marketing
• Network of 15,000+ • 18 stations for evaluating Win-chi-Win distributors in SAARC
farmers for growing research products across • Popular products • 12 strategically located countries.
seeds agro-climatic zones are NBC-102, distribution and storage
• Seed testing lab at Ghazab, Super facilities (including
Aurangabad & 250 acres Duper, NMH 1008, conditioned storage) to
of land for R&D NTH 1894 meet varying
• Only company to receive requirements of
approval for BT Cotton customers in 16 states
from Philippines of India
Reduction in inventory holding and cash discount schemes. Trade Revenue increased by 13% due to increase in sales of Cotton,
payables have reduced with decreasing payable period. Net profit Paddy, Win-Chi-Win and Vegetable crops
increased by 79%
Analysis:
• Company at inflection point: The company has heavily invested in research and development. It
has always believed in original research and over 4 decades of existence, company has created a
valuable library of 18,925 germplasms. The company also has affiliations and research alliances
world over which are showing outstanding financial performance.
• Business model with diversified portfolio: The company de-risked the portfolio from
dependence on single product by opting for value-added and high-margin offerings from field
crops, vegetable crops to micro nutrient supplements.

SUGAR

Sugar
Introduction
• Sugar is the generalized name for sweet, short-chain, soluble carbohydrates many of which are
used in food. The table or granulated sugar most customarily used as food is sucrose, a
disaccharide. Two important sugar crops predominate from which sucrose is often extracted and
refined: sugarcane and sugar beets in which sugar can account for 12% to 20% of the plant's dry
weight. Minor commercial sugar crops include the date, sorghum and the sugar maple. Sucrose is
obtained by extraction from these crops with hot water; concentration of the extract gives syrups
from which solid sucrose can be crystallized. Most cane sugar comes from countries with warm
climates because sugarcane does not tolerate frost. Sugar beets, on the other hand, grow only in
cooler temperate regions and do not tolerate extreme heat. About 80 percent of sucrose is derived
from sugarcane, the remaining mostly from sugar beets.
Industry Overview
• Sugar industry is an important agro-based industry that impacts rural livelihood of about 50 million
sugarcane farmers and around 5 lakh workers directly employed in sugar mills. Employment is
also generated in various ancillary activities relating to transport, trade servicing of machinery and
supply of agriculture inputs
• The global sugar balance is expected to rise by 11.075 million tonnes to a record 179.448 million
tonnes following high production in India, European Union, Thailand and China. Brazil is
expected to see a significant drop in production with mills changing their production preference
from sugar to ethanol.
• There are 735 installed sugar factories in the country as on 31.01.2018, with sufficient crushing
capacity to produce around 340 lakh MT of sugar. The capacity is roughly distributed equally
between private sector units and co-operative sector units. The capacity of sugar mills is, by and
large, in the range of 2500 TCD-5000 TCD bracket but increasingly expanding and going even
beyond 10000 TCD. Two standalone refineries have also been established in the country in the
coastal belt of Gujarat and West Bengal which produce refined sugar mainly from imported raw
sugar as also from indigenously produced raw sugar.
• India is the second largest producer of sugar in the world after Brazil and is also the largest
consumer. Today Indian sugar industry’s annual output is worth approximately Rs.80, 000 crores
producing nearly 15% and 25% of global sugar and sugarcane respectively.
Sugar Balance Sheet for 2017-18 (in million tonnes) Amount

Opening Balance Sheet (as on 1st October,2017) 3.8
Estimated sugar production 32.0
Imports 0.2
Sugar Availability 36.0
Estimated sugar sales (considering 2% growth) 25.5
Estimated exports (MIEQ Quota) 2.0
Closing Balance (as on 30th September,2018) 8.5

• Maharashtra, Uttar Pradesh (UP) and Karnataka are the major sugar producing states in the
country. Top six states mentioned above account for approximately 90% of total India’s sugar
production; of which Maharashtra and Uttar Pradesh together account for nearly 60% of total sugar
production
Value Chain:
• 100Kgs. of Sugarcane gives ~10kg of sugar, ~30kg of bagasse, ~4.5kg of molasses & 3kg of
press mud.
• 100kgs of Molasses gives ~25 litres of alcohol
• 100kgs of Bagasse can generate ~35 units of power
• Cost of cane procurement accounts for 70 percent of the ex-mill sugar price and is the largest cost
component of sugar. The rest 30% is accounted for by conversion costs, transportation costs and
duties and taxes. Sugar production main by-products are press mud, fly ash, molasses and
bagasse. These by- products constitute around 40% of the weight of the total sugarcane crushed.
Beet pulp is also a by-product obtained while processing sugar beets for sugar. Utilization of these
by-products determines profitability and risk of mills to a major extend. Effective utilization of

these by- products can reduce the risk of revenue streams and hence increase the profitably of the
sugar mills.
• Sugar Manufacturing Process: The process of manufacturing sugar starts with crushing of
sugarcane to extract juice followed by boiling which results in thickening of juice nd sugar begins
to crystallize. Crystals are spun in a centrifuge to remove syrup, thereby producing raw sugar. Raw
sugar is then transported to a refinery where it is washed and filtered to remove remaining non-
sugar ingredients and colour. It is then followed by crystallization, drying and resultant packaging
of the refined sugar.
• By-products – An integral part of sugar industry : In case of integrated sugar player, a
substantial part of earning contribution comes from selling by-products, thereby de-risking the
overall business. Greater the level of integration better is the ability to wither the downturn and
de-risk the business from cyclicality. Major by-products comprise of bagasse, molasses which are
utilized to generate power, produce industrial alcohol/ethanol and fertilisers.
• Bagasse: It is the fibrous matter that remains after sugarcane or sorghum stalks are crushed to
extract their juice. It is used as a combustible in furnaces to produce steam, which is used to
generate power. Integrated sugar companies have established cogeneration power plants using
bagasse as raw material for both power generation for captive consumption and sell to state grids.
Current realizations for mills stand between Rs 4-5 per unit.
• Molasses: It is a by-product which is further processed to produce industrial alcohol/ethyl alcohol
to be used in other industries. In India molasses is used mainly in manufacturing of
industrial/potable alcohol, ethanol rectified spirit and various value added chemicals. Ethanol is
consumed by chemical industry and is also used in blending with petroleum to produce Ethanol
Blended Petroleum(EBP)
Business Model
At present, there are four types of business models available to a domestic sugar mill ranges from
least integrated sugar-molasses-bagasse (SMB) model to the most integrated Sugar- ethanol-power
(SEP) model. With the risk of cycle of sugarcane, Indian sugar mills are diversifying their risk of
variable income and profits through ethanol production from molasses and co-generation of power
from bagasse.
Different models have their own pros and cons based upon market scenario. In case of up-cycle
with low sugar supply and high prices, the SMB business model can yield higher profits. In
addition, direct sale of molasses and bagasse can result in higher profits than from the sale of
ethanol and power. For instance, during a sugar shortage in (SS) 2009-10, several sugar mills
earned higher realizations from the sale of molasses and bagasse than from the sale of ethanol/
alcohol or power. On the other hand, in case of down-cycle with high cycle and low prices, the
SEP business model can result in higher profits.
Processing molasses into alcohol/ethanol and undertaking bagasse based co-generation of power
helps companies protect revenues and mitigate the volatility in profitability. In general, SEP
business model offers higher and more stable average profits as compared to SMB model as

earnings from the sale of ethanol and power are relatively stable and are non-cyclical as compared
to the core sugar business. To conclude, higher the level of integration, better the profitability over
a complete business cycle. The revenue distribution for a typical integrated sugar mill is shown in
the above Figure. With higher co-integration like SEP business model, a sugar mill can project
their revenue streams from fluctuations. Although the revenue from other sources i.e. apart from
sugar is just 11%, it can help sustainably during the phase of low sugarcane production and low
prices of sugar.
Cylical Nature of Business
Source: KPMG Research

Recommendations of Rangarajan Committee in 2012 to revive

the sugar industry:
Government policies
• Deregulation of release of quota and levy sugar: Following the recommendation of the
Committee headed by Dr. C Rangarajan, the Government of India has partially deregulated the
sugar industry in June 2013 by eliminating the monthly release mechanism of non-levy sugar.
Moreover, the central government has removed the compulsory supply of 10% of mill’s production
as levy sugar at subsidized rate meant for the public distribution system. Both these moves have
helped the mills in reduction in their working capital requirement and improvement in average
sales realization. However, the key recommendation by the Committee on determination of
sugarcane pricing remains unimplemented.
• Ethanol Blended Petrol (EBP) Programme : The Government, in May 2018, approved a new
bio-ethanol policy to incentivise 5,000 Crore investments for setting up projects with a total
production capacity at least 1 Billion litres of ethanol per annum. Under the Ethanol Blended Petrol
(EBP) Programme, the Government states that 10% of sugarcane-based ethanol should be mixed
with petrol. The programme aspires for 20% ethanol blending in petrol by 2030. With a 139.5
Crore litre supply of ethanol in 2017-18, a 4% blending likely to be achieved. The Government of
India also encouraged ethanol production and its supply under Ethanol Blended Petrol (EBP)
Programme by giving an interest subvention on bank loans, limited to investment of `20 Crore in
new incineration boilers and `80 Crore in setting up new distilleries.

Balrampur Chini Mills Ltd.

Value Chain
Cane Juice Refined Sugar

Branded sugar
Weighing & Defecation & Centrifuging Raw sugar from inhouse
retailling
Crushing Clarification & imported
Cogeneration- Bio-Composting Distillery -

Power Ethanol
Founded in 1975, Balrampur Chini Mills is an integrated sugar manufacturing company. It is

engaged in the manufacturing of sugar, ethanol & power. Its products include Molasses and
bagasse. It has sugar crushing capacity of 76,500 tons of cane per day, distillery capacity of 360
kilolitres (KL) per day & saleable co-generation capacity of 163 MW. The company has 10
manufacturing plants across Eastern UP & Central UP.
The company has more than 4.5 lacs farmer base and it (FY18)
purchased Rs. 2925 crores sugarcane from farmers. The
market cap is around Rs. 1722 crores.
FY 2016 FY2017 FY2018
Revenue 27,566.6 34,601.3 43,425.4

100.00
% Growth -7.71 25.52 25.50
EBIT 3,007.1 7,640.0 5,022.6
% Margin 10.91 22.08 11.57 India

PAT 1,002.0 5,929.9 2,316.6
Shareholder's Equity 12,290.1 15,603.1 16,170.6 Product wise revenue (FY18)
Total Assets 37,005.6 40,274.9 37,010.1 7.08 0.01
7.54
Dividend 0.00 0.00 0.00
ROE 8.51 42.51 14.58
ROCE 5.67 20.40 8.94 85.37
Operating Cash Flows 769.5 2,890.1 11,297.7
Inventory Days 306.15 295.94 245.08 Sugar Distillery

Recievable Days 23.69 19.10 14.50 Cogeneration Others


Key Activities Value Proposition Customer Relationship Customer
Partners Segments
• Maximize value accrual • Providing • Providing holistic
• 4.5 lacs farmers who from every ton of cane centrifugal sugar support to farmers • Balrampur
sell the sugar canes crushed and raw sugar through soil health card has more
to it • Continuous investments • Distillery- Providing ditribution, providing than 4.5
• Commitment with in strengthening industrial alcohol wire net fencing, crop lacs farmer
the Government operational efficiency and ethanol monitoring and base as on
under the ethanol • Educates farmers in • Cogeneration- providing bio fertilisers 31st March,
blending programme superior cane Bagasse used to arising out of production 2018
• Partnership with the management techniques produce steam. to farmers • State
Government to Leftover bagasse is • Cordial relations with electricity
purchase the surplus used as biofuel and farmers owing to timely Board
power generated to make paper payment which takes
Key Resources Channels 163 MW of
produced
• Achieved Zero discharge • The company has power
in distilleries enabling it manufacturing facilities • For
to operate for more days in Balrampur, Babhnan, ethanol-
• High yielding early Tulsipur, Haidergarh, Portable
maturing seeds resulting Akbarpur, Rauzagaon, alcohol
in 60% early varietal Mankapur, Kumbhi, industry, oil
cane Gularia and Maizaour marketing
• Crushing capacity of providing a great acess industries
76,500 TCD & 360 KLPD to their markets (for
distillery capacity blending
petrol) &
chemical
industries
Majorly cost is of the sugarcane used as raw material which rose Revenue was generated majorly through sugar (85%) and
decreasing the PAT by 62% rest was covered up through cogeneration and distillery
Analysis:
• Well-integrated business: BCML is well suited to absorb volatility in the sugar segment due to
its well integrated business model. Distillery and Cogeneration segments act as a healthy cushion
to volatility in Sugar segment thus providing stability to the company’s overall profitability at the
PBIT level. The plants are located in proximity to each other resulting in cost-effective logistical
operations.
• Risks: In recent years, Over dependence on Sugar products (85%) makes the company vulnerable
to price fluctuation in the Sugar industry. Presence only in Uttar Pradesh and reluctance to make
plants elsewhere increases dependence on local market. The company does not deal in refined
sugars, thus, unable to make a branded market in the industry.

Shree Renuka Sugars Ltd.

Value Chain
Cane Juice Refined Sugar

Branded sugar
Weighing & Defecation & Centrifuging Raw sugar from inhouse
retailling
Crushing Clarification & imported
Cogeneration- Bio-Composting Distillery -

Power Ethanol
Founded in 1995, Shree Renuka Sugars Limited operates as a global agribusiness and bio energy
company. It is one of the first in India’s sugar industry to have ventured into sugar refining with
brand “Madhur”. It has 5 sugar mills in Karnataka, 2 sugar mills in Maharashtra with a capacity
of 35,000 TCD and 4 mills in South brazil. It also has two port based sugar refineries (Gujarat and
West Bengal) with a capacity of 1.7 MTPA.
The company has significant presence in Southeast Brazil
(FY18)
(Sao Paulo). Madhur has a strong presence in Gujarat,
Maharashtra, Delhi, Rajasthan & Karnataka. The Market
cap is around Rs. 2300 crores.
FY 2016 FY2017 FY2018 30.11
Revenue 98,518.4 1,18,444.7 77,281.0 69.88

% Growth -2.34 20.23 -34.75
EBIT -5,597.6 -1,389.4 -20,667.0
% Margin -5.68 -1.17 -26.74 India Outside india

PAT -18,094.2 -10,396.2 -22,037.0
Shareholder's -17,612.1 -26,503.8 -36,716.0 Product wise revenue (FY18)

Equity
Total Assets 1,35,147.4 1,30,552.5 1,00,019.0 7.08 0.01
7.54
Dividend 0.00 0.00 —
ROE — — — 75.57
ROCE -32.15 -12.54 —
Operating Cash -2,637.9 -2,068.9 —
Sugar Distillery
Flows
Inventory Days 90.73 65.61 — Cogeneration Trading
Recievable Days 24.81 26.72 41.89 Others
D/E or ICR — — — Source: Annual Report 17-18


Key Activities Value Proposition Customer Relationship Customer
Partners Segments
• Process sugarcane and •Providing refined • Efforts in the fields of
• Partnered with produce sugar and its by- sugar with the brand health, education, • Madhur is
Wilmar Sugar products – molasses, name – Madhur skills training and well
Holdings – a wholly bagasse and organic containing 99.9% infrastructure to established
owned subsidiary of manure sucrose empower in western
Wilmar International • Manufacture potable • Distillery- Providing communities and & southern
Ltd. involving an and fuel-grade ethanol industrial alcohol and elevate the quality of regions of
equity infusion that can be blended with ethanol their lives India
• Significant presence petrol • Pioneered the • Strong on-ground • Strategicaly
in South Brazil with • Generate power from concept of operating marketing and sales located
100% acquisition of bagasse for captive sugar manufacturing resources drive the port-based
Renuka Vale do Ivai consumption and sell assets on lease in brand’s market refineries in
and 59.4% surplus power to India dominance India help it
acquisition of national grids in India • Largest producer of cater to the
Renuka do Brasil in Key Resources fuel grade ethanol- Channels markets in
2010 Helping countries South Asia
• 100% subsidiary • Crushing capacity of 8.4 reduce their carbon • Variety of retail and the
firm- KBK Chem- MTPA & refining capacity footprints platforms- local Middle East
Engineering Private of 1.7 MTPA in India. • Providing organic, ‘kirana’ stores to • State Grid –
Ltd. providing • Crushing capacity of 13.6 eco-friendly and leading supermarket Surplus
optimal solutions for MTPA in Brazil cost-effective organic chains power
manure as compared • At present, Madhur
Fermentation & • Distillery capacity is production
Distillation industries 630KLPD from molasses has a strong presence in Brazil
to chemical and india
& 300 KLPD rom in Gujarat,
denatured spirit fertilizers. Maharashtra, Delhi,
• Production of 256 MW of • Providing Bio energy Rajasthan & Karnataka
power with exportable – a renewable enrgy
surplus of 142 MW helping to reduce
greenhouse gas
The cost of percentage of raw material to sales has grown to 78.65 Constant revenue beating cyclicity due to complimentray
as compared to 66.36% previous year seasons in Brazil and india
Analysis:
• Enjoys complimentary Crushing season: SRS is the only sugar/ethanol producer in the world
with almost year-long cane crushing operations as it has operations in Brazil and India, which have
complimentary cane crushing seasons. This allows it to maximize/plan inventory, benefit from
price arbitrage between sugar/ethanol, raw/white sugar and play price arbitrage between India's
regulated sugar industry and liquid global markets. It also allows SRS to leverage on synergies,
minimize risks and offer steady returns despite the cyclical nature of the industry.
• Operating Models: When India is sugar deficient- Import raw sugar & sell refined sugar locally
and when India produces surplus sugar – refine local raw sugar & sell it internationally. Sometimes
it also import & export to capture global refining margin

Reference
• http://indiachem.in/
• www.ficci.in
• Avendus Capital Report on Chemicals
• http://www.indiansugar.com/
• www.motilaloswal.com
• http://www.aceanalyser.com/
• Bloomberg Terminal
• Company Annual Reports
• http://crisil.com/
• http://religare.com/

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UNNATI INVESTMENT MANAGEMENT AND RESEARCH GROUP

Aman Jain | Damanbir Singh Sandhu

Unnati Sector Report 2018-19 | 1

Unnati Sector Report 2018-19 | 2

Unnati Sector Report 2018-19 | 3

Flavors and fragrances Surfactants

Sub-sector description: Textile chemicals Polymer additives

PC ingredients Water treatment chemicals

The Indian paint industry is can be broadly classified into 2 segments:

Unnati Sector Report 2018-19 | 4

3. Flavors and fragrances

7. Personal Care ingredients

8. Water treatment chemicals

Unnati Sector Report 2018-19 | 5

Market Growth Drivers:

1. Domestic availability of raw materials at competitive prices

2. Low penetration in the end-use industry

3. Competitive cost of manufacturing

Unnati Sector Report 2018-19 | 6

Pidilite Industries Limited

FY 2016 FY2017 FY2018 Expenses Breakup(FY18)

% Margin 20.21 20.63 20.31 Advertisement & Selling Expense

Total Assets 37,189.7 47,741.9 52,044.6 Product wise revenue (FY18)

ROCE 31.89 26.88 25.68

Operating Cash Flows 8,999.8 7,928.6 8,039.1 82.7

Inventory Days 90.63 92.15 96.52

Unnati Sector Report 2018-19 | 7

Business Model Canvas

Unnati Sector Report 2018-19 | 8

Elantas Beck India Limited

% Margin 16.00 20.00 19.21 81

PAT 417.6 544.9 553.2

Dividend 5.00 4.50 4.50 Market Segmentation

Operating Cash Flows 490.0 609.6 568.5

Inventory Days 48.26 47.59 45.44 98

Recievable Days 55.93 54.50 60.57

Unnati Sector Report 2018-19 | 9

Business Model Canvas

Unnati Sector Report 2018-19 | 10

Bodal Chemicals Limited

Raw Material - Basic Manufacturing - Dye Manufacturing - Dye Marketing &

Total Assets 5,098.8 6,975.4 10,750.0

D/E or ICR 0.29 2.18 0.15 Basic Chemicals Others

Unnati Sector Report 2018-19 | 11

Business Model Canvas

• Subsidiary- • Production of chemicals like • Leveraging • Believe in corporate B2B customers

• Well-Integrated Business Model: Originally established as a manufacturer of Dye Intermediates

Unnati Sector Report 2018-19 | 12

Aarti Industries Limited

AIL has a market cap of ~Rs.11000 crores. In specialty chemicals it is involved in

PAT 2,568.8 3,157.8 3,329.6

Dividend 8.50 1.00 1.00 Product Segmentation

ROCE 14.80 15.17 13.44

Operating Cash Flows 4,585.0 3,529.8 2,035.7 42.2

Recievable Days 59.41 61.41 54.15

Unnati Sector Report 2018-19 | 13

Business Model Canvas

Unnati Sector Report 2018-19 | 14

PETROLEUM, CHEMICALS AND PETROCHEMICALS INVESTMENT

Petroleum, Chemicals and Petrochemicals Investment Regions (PCPIR) were conceptualised to

Unnati Sector Report 2018-19 | 15

Unnati Sector Report 2018-19 | 16