Analysis of Edible Oil Industry

Table of Contents

Basis of competition
Financial profiles
Regulations
Key success factors and risks
Major Trends
Demand and supply Current market size
Outlook
Growth drivers
Competitive scenario-Market Share
Competitive intensity
Profitability outlook
Profitability drivers
Investment outlook
Player Profiles

Basis of competition

Basis of competition

Edible oil offers limited scope for product differentiation.

Players in this market largely compete on basis of the strength of the
brand. Several players are also looking at backward integration to
better manage input costs.
Companies whose plants are adjacent to the sources of oilseeds are also
better positioned to reduce the overall transportation cost.

Backward integration
Raw materials account for about 90 per cent of the total cost of
production for an edible oil manufacturer.
However, in the edible oil industry, very few players are backward
integrated, i.e. have access to plantations of oilseeds
For e.g. KS Oil has purchased an 85,000-hectare area in Malaysia and
138,000-hectare area in Indonesia to produce palm oilseeds.
Ruchi Soya is also looking at sourcing crude palm oil through
backward integration.
The company has exclusive procurement rights covering an area of
185,000 hectares in India.
Many players are also looking for acquisitions or joint ventures (JVs)
by which they can procure oilseeds in a planned manner at reasonable
prices.
These initiatives give players control over availability of raw materials
and also offer an effective hedge against rising raw material prices.

Creating brands
The edible oil industry is acutely price competitive, with players
typically being price takers.
Larger players, though, are creating brands to gain some amount of
pricing power and protect their margins.

Well-known brands

Well-known brands
Branded edible oil is targeted at upper income groups, where price
sensitivity is relatively lower and health and hygiene considerations
assume higher significance.
Minor price variations do not prompt consumers to opt for lower
category of edible oil in this segment.
Thus, branded edible oils enjoy higher price flexibility, with players
earning realisations that are 5-7 per cent higher as compared to
unbranded edible oils.
However, margins in this segment, which are higher by 3-4 per cent
vis-a-vis unbranded edible oils, are lower than the
incrementalrealisations.
This is due to incremental costs incurred in branding and marketing
exercises.

Well-known brands

Since oilseeds carry around three times additional weight compared to

oils, companies can reduce their overall transportation cost
significantly by setting up plants near ports (in case of imports) or
fields (in case of domestic production).
This will help players improve their thin margins.

Financial Profiles

DuPont analysis

DuPont analysis

DuPont analysis

DuPont analysis

DuPont analysis
In 2011-12, although most players in the edible oil industry have
reported significant revenue growth on a y-o-y basis due to sharp price
rise across different edible oils, players like Sanwaria Agro actually
reported negative growth in their revenues.
Net margins for players declined sharply due to high amount of losses
on hedging contracts and higher interest rates.
Consequently, they reported a weak financial performance during the
year.
Overall revenue growth was robust during 2011-12 due to rise in prices
and stable growth in volumes.
Sales growth was the highest for Ruchi Soya because of significant
growth in the trading business.

DuPont analysis
The recent commissioning of few plants led to a growth in sales for
Gokul Refoils.
Among all players in this industry, Sanwaria Agro Oils Ltd enjoys the
highest return on equity, as the company has an above average net
profit and asset turnover.
This is well reflected in the company's net worth, which has
demonstrated a healthy growth rate.
Nevertheless, the net profit for most players still remains low due to
the fragmented and competitive nature of the industry .
Also, consumers of edible oil are price sensitive, due to which
companies in the unorganised sector compete on the basis of price.

DuPont analysis
In addition, scarcity of raw materials has forced players to operate at
low levels of utilisation.
In recent times, prices have been highly volatile, which has intensified
risks further.
A weak rupee has also increased the input cost for many players, as
the industry is heavily dependent on imports.
Going forward, the financial performance of companies will remain
under pressure.
Although domestic production is expected to improve in the next oil
year, increased MSP will pressurise margins as companies have limited
ability to pass on the increased prices.

Regulations

A balance between industry players' and consumers' interest

The government has been taking progressive steps with regard to the
edible oil industry, balancing the interests of consumers, farmers and
companies.
It controls edible oil prices by imposing duties on imports and exports
of refined and crude oil.
The government also offers a minimum support price (MSP) for
different oilseeds and assists domestic farmers in production,
distribution, purchase and pest management.
Imports of oilseeds, edible oil (except copra) and coconut oil are
permitted under the Open General License.
Currently, customs duty on imported edible vegetable oil is nil for
crude palm oil and around 7.5 per cent for refined oil.

A balance between industry players' and consumers' interest

There are limits on storage of edible oil and oilseeds at the retail and
wholesale level.
The government also introduced a ban on export of few edible oils in
2008 to curb inflationary pressures.
Over the years, there has been a steady increase in the MSP of oilseeds,
so as to increase the cultivated land under this crop.
In 2012-13, the government of India has increased the MSP for oilseeds
by 20-40 per cent y-o-y as against 10-15 per cent for pulses.
This move is aimed at encouraging farmers to shift from other
competing crops like wheat to oilseeds.

Minimum support price (MSP)

Export duty change by Indonesia and Malaysia to impact refiners in

India
In September 2011, the Indonesian government raised export duty on
CPO to 16.5 per cent from 15 per cent earlier.
At the same time, to promote the Indonesian refining industry, export
duty on RBD palmolein was reduced to 7.5 per cent from 15 per cent
earlier.
Later, the Indonesian government raised export duty on CPO further to
22.5 per cent.
This is expected to make RBD palmolein imports from Indonesia more
competitive.
This adversely impacted the Indian refining industry. Also, exports
from Malaysia became less competitive in the international market.
Consequently, Indian refiners started shifting from processing crude
palm oil to trading refined palm oil.

Export-import duty change on edible oils

Export-import duty change on edible oils

The above measures are expected to keep Indian refiners at a

disadvantage, while refiners from Indonesia and Malaysia are likely to
benefit over the long term.
A few Indian refiners have shut down their plants in India and have
increasingly been trading refined palm oil.
These companies buy refined palm oil from Indonesia and sell it in
India.
This is expected to affect their overall operating margins over the long
run.

Export-import duty change on edible oils

This impacted their utilisation levels and margins took a hit.
In response, the Indian government unfreezed the base price, which
was fixed at US dollar 484 per tonne since 2006, while market price of
refined palm oil were above $1000 per tonne.
This action increased the effective import duty on refined palm oil, and
domestic refiners got some respite.
Malaysia, the second largest exporter of palm oil, also faced significant
challenges in terms of cost competitiveness after the Indonesian
government reduced their export tax on refined palm oil.
It was also important for Malaysia to make sure domestic prices do
not increase beyond a limit.
Hence, in November 2012, they announced export duty of 4.5-8.5 per
cent to be implemented from January 1, 2013.
The exact duty will be determined every month depending on the
prevailing price.
Also, the zero duty quota ( for the first five million tonnes) will be
abolished from the same day.

Key success factors and

risks

Key success factors

Taking into consideration the nature, operating model and demandsupply scenario in the Indian edible oil industry, the key determinants
of success for a company in the edible oil industry are :
Ability to procure oilseeds
Availability of raw material, that too at the right price and the required
quantity, is always a huge risk for industry players.
Raw materials alone comprise close to 90 per cent of the industry's
operating cost .
Therefore, backward integration or a strong network to procure
oilseeds can act as critical success factors for these players over the
longer run.
Utilisation of processing units
Utilisation levels within the industry are low due to inadequate
availability of oilseeds.
On the other hand, the industry is plagued by overcapacity. Hence,
prudent management of the existing capacity is essential to improve
profitability.

Location of crushing units

Favourable location of crushing units helps companies manage their
costs more effectively.
Units located closer to oilseed fields have an advantage in procuring
raw material and optimising transportation costs.
In the case of import-dependent crushing units, it is crucial to be
adjacent to a port.
This can emerge as a key differentiator in optimising transportation
costs and enhancing profitability levels

Brand value

Branded segment sales account for 20-25 per cent of total sales.
This is growing faster than the overall industry, due to increasing
health and hygiene consciousness among buyers and growth of the
organised retail market.
Players enjoy better margins on branded sales than packaged sales,
which in turn, earns more margin than bulk sales.

Diversification in offering

Demand and supply of different categories of edible oil is largely

driven by changes in their prices and quantity of oilseeds produced.
Hence, to reduce concentration risk, players with greater diversification
into related businesses such as oil cake, meals and power generation,
are expected to realise stable financial performance over the long run.

Key risks
Although, demand environment of the edible oil industry is quite stable,
there are multiple risks that companies bear, to sustain their thin
margins. Few of the major risks encountered are mentioned below:
Change in import regulations
Any change in the import duty structure would impact crude edible oil
prices. An increase in import duty would result in higher prices.
This will lead to lower consumption, as a large proportion of edible oil
consumers are price sensitive.

Change in export duty regulations of exporting nations

Any increase in export duty structure in the exporting countries
(Indonesia and Malaysia for palm oil, and Brazil, Argentina and the US
for soyabean oil) would increase the price of crude edible oil in the
Indian market.
This will reduce total consumption of edible oil in the country.
For e.g., the Government of Indonesia raised the export duty on crude
palm oil to 18 per cent from 15 per cent, and cut the export duty on
refined, bleached and deodorized (RBD) palmolein bulk and consumer
pack to 8 per cent and 2 per cent, respectively, from 15 per cent and 10
per cent.
This will make refined palm oil from Indonesia more competitive than
importing crude palm oil and refining it in India.
Currently, India imports 60-70 per cent of the total crude palm oil
imports from Indonesia.
This move by Indonesia in September 2011 has already resulted
increased proportion of refined edible oil import.
The oil year 2011-12 has witnessed an average of 16 per cent of refined
edible oil import, as compared to 13 per cent in the previous year.

Change in MSP of oilseeds

A hike in the minimum support price (MSP) of oilseeds would raise
the prices of edible oil, in turn lowering demand.
Since players operate on thin margins, it will be difficult for them to
absorb the price hikes.
To reduce the dependence on import and encourage farmers,
Government of India is increasing the MSP on a regular basis.

High dependence on monsoon

Like any agri-commodity, oilseed production is dependent on the
monsoons. A fall in production would result in increased imports and
also push up prices of edible oil in the domestic market.
However, this year, edible oil production is expected to be better than
last oil year which witnessed a delayed monsoon.
Fluctuation in foreign exchange rates
As the industry is heavily dependent on imports, any adverse exchange
rate movement would impact the price of edible oil.
A depreciating rupee in the oil year 2011-12, had increased import costs
significantly.

Overall Trends

Key conclusions
Market size

Edible oil consumption is projected to touch 23.1 million tonnes by Oil

Year (OY, November-October) 2014-15 from 19.5 million tonnes in OY
2011-12, a CAGR of 5.7 per cent.
Growth would be primarily driven by increasing per capita
consumption and a rising population base.

Demand
Demand for refined palm oil is projected to grow by 7.5 per cent
CAGR, with refined palm oil's share in total edible oil demand at 43 per
cent in OY 2013-14.
Demand for refined soyabean oil and rapeseed/mustard oil is expected
to grow by 3-4 per cent CAGR, with shares at 15 per cent and 12 per
cent of total edible oil demand in OY 2013-14.
Demand for refined palm oil is expected to grow to 9.9 million tonnes
in OY 2014-15 from 7.9 million tonnes in OY 2010-11, a CAGR of 7.5 per
cent. Growth in demand will primarily be from restaurants, hotels, and
rural and coastal areas along the east coast due to preference of palm oil
in these regions, and on account of lower price vis-a-vis other edible
oils.
Demand for refined soyabean oil and rapeseed/mustard oil would
grow by a lower 3-4 per cent CAGR to 3.4 million tonnes and 2.7
million tonnes, respectively, till OY 2014-15, primarily due to higher
prices vis-a-vis palm oil.
In OY 2011-12, the share of the two edible oil varieties stood at 16 per
cent and 13 per cent of total edible oil demand, respectively.

Supply
Domestic edible oil production is estimated to increase to 10.6 million
tonnes in OY 2012-13 from 9.5 million tonnes in OY 2011-12 due to a
relatively better monsoon expected during the oil year.
Edible oil imports will remain stable at 10 million tonnes as extra
demand will be met by better production in the OY 2012-13.

Margins

The industry's operating margins are expected to remain under

pressure at 3.5-3.0 per cent over the near term because of inventory
losses and increased proportion of trading (instead of refining crude
edible oil).

Risks
Oilseed production is highly dependent on the monsoons.
Prices of oilseeds are highly volatile and can be influenced by global
factors.
Minimum support price and import regulations are primarily based on
policy decisions and are not necessarily driven by economic reasons.
Currency fluctuations due to significant dependence on imports.

Industry Performance & Investment Matrix

Industry Performance & Investment Matrix

The edible oil industry scores 3 out of 5 on Industry Performance
Indicator and 3 out of 3 on Investment Required.
Although the industry is inherently a low margin business, strong
revenue growth due to increase in realisations along with stable volume
growth has supported the industry performance.
However, over the next 2 years, revenue growth is expected to be
lower due to a marginal price rise across oilseeds.
The industry's operating profit margins are expected to remain under
pressure at around 3.5 per cent over the same period.
The industry would require high amount of funding due to the
working capital intensive nature of business.

Industry Performance & Investment Matrix

While the industry is expected to witness a total of Rs 14 billion as
investment towards fixed assets over the next 2 years (with over 70 per
cent in greenfield projects), the working capital requirement is likely to
be in the range of Rs 35 billion.
This is due to stretched cash conversion cycle, which is in the range of
60-90 days. Many new plants are coming up near ports to save on
transportation costs, and thus have some cost advantages in a highly
price sensitive industry.
The total capital requirement for both fixed asset and working capital
will be approximately Rs 50 billion over the next 2 years.
Since plant commissioning typically takes 18-24 months, there is
limited visibility of investments thereafter, with no announcements
either.

Demand and supply-current

market size

Palm oil's share in overall edible oil market is largest

The market size of the edible oil industry was estimated at around Rs
1,300 billion in Oil Year 2011 -12. Among all the varieties of edible oil,
palm oil accounted for the largest share at around 33 per cent in value
terms and 41 per cent in volume terms.
Among other categories, soyabean, rapeseed/mustard and
groundnut/peanut together constitute a majority share.
The collective market share of the four edible oils is around 72 per cent
in value terms and in excess of 75 per cent in volume terms.

Consumption of various edible oils (volume terms) - Oil Year 2011-12

Consumption of various edible oils (value terms) - Oil Year 2011-12

Demand and supply-outlook

Demand-supply outlook
Demand
Total edible oil consumption in India is approximately 19.5 million
tonnes, implying a per capita consumption of edible oil of 15.9 kg.
However, this is significantly lower than the global average per capita
consumption of about 23-24 kg. By the end of the forecast period (oil
year 2014-15), per capita consumption of edible oil is slated to increase
to 17.9 kg.
Consequently, overall edible oil demand in India is expected to grow
to 23.1 million tonnes, a CAGR of 5.7 per cent.

Demand-supply outlook
Demand

Production
An edible oil production of 9.5 million tonnes as against consumption
of 19.5 million tonnes in oil year (OY) 2011-12. Going forward,
production is unlikely to maintain pace with consumption due to the
following reasons:
Limited cultivation area of oilseeds
Low productivity compared to the world average due to high
dependence on monsoons
Absence of a long term policy measure to boost yield per hectare of
land

Production volume of various edible oils

Export and import

Going ahead, sustained growth in imports of edible oil as consumption
would increase at a faster pace as compared with production.
Currently, India imports significant quantities of crude edible oil,
primarily crude palm oil and crude soyabean oil.
The country is self-sufficient in mustard/rapeseed oil and groundnut
oil.
Limited cultivation area of oilseeds and low productivity vis-a-vis the
world average are the major constraints in increasing domestic
production. Low productivity leads to high production costs as w ell.
Further, import duty on crude and refined edible oil has been reduced
to nil and 7.5 per cent, respectively with effect from April 1, 2008.
Thus, because of its price competitive nature, imports of edible oil have
increased significantly post 2008.

Domestic production and import quantity

Domestic production and import quantity

India primarily imports crude palm oil from Indonesia and Malaysia
and crude soyabean oil from the US, Argentina and Brazil.
Crude palm oil imports grew by 17 per cent y-o-y in OY 2011-12 due to
continued increase in demand for palm oil and limited domestic
production.
The inverted duty structure in Indonesia on export of crude palm oil
and RBD palmolein from October 2011 will result in additional imports
of refined oil.
However, increased domestic production of other edible oils in OY2012
-13 will limit imports of crude palm oil and soyabean oil.
While crude palm oil imports are expected to decline to 7.4 million
tonnes in OY 2012-13 from 7.8 million tonnes in OY 2011-12, imports of
soyabean oil are likely to remain stable at current levels, as increased
domestic production is likely to keep pace with growing demand.

Import quantity of palm oil and soyabean oil

Demand and supply-growth

drivers

Growth Drivers
Demand for edible oil is driven by two factors - per capita consumption
and population.
Per capita edible oil consumption to grow by 4 per cent CAGR in
India, primarily due to enhanced affordability.
The current per capita consumption of edible oil in India is around 15.9
kg against a global average of 23-24 kg. India's population is further
expected to grow by 1.6 per cent CAGR over the next few years; this
would further boost demand for edible oil.
On a pan India level, among different varieties of edible oil,
consumption of palm oil and soyabean oil is expected to grow faster as
compared to other oil categories, largely due to the lower price of palm
oil.

Growth Drivers
Demand for palm oil will mainly arise from rural areas and also from
food processing units.
There is clear evidence of growing acceptance of palm oil across
different social strata. Health consciousness and perception of better
quality among users will be the key growth drivers of packaged oil in
the mid-term.
Also, the narrowing price differential between loose and packaged oil
is another key driving force for packaged oil demand in India.

Competitive scenario-market
share

Relative market share

The edible oil industry is fragmented with several small and mid-sized
players.
Ruchi Soya Industries, Adani Wilmar, KS Oil, Gokul Refoils & Solvent,
Marico and Liberty Oil Mills are amongst the leading players.
Among these players, Ruchi Soya has the highest market share of
about 15 per cent.
The top six companies together cater to approximately 34 per cent of
the total demand.

Share in sales - FY 2011-12

Competitive Intensity

Industry is highly competitive

The edible oil industry is highly competitive and fragmented. Large

players having strong brands enjoy marginal pricing power, whereas
manufacturers of unbranded edible oils are largely price takers.
Further, the industry is facing an overcapacity situation, especially in
primary crushing, which has lowered profitability.
Consequently, over the last few years, the industry has been operating
at low operating margins of 3-4 per cent.

Industry structure as per Porter's Model

Threat of new entrants: High

Low entry barriers for unbranded edible oils, as upfront investment
required is low and plant commissioning takes less than 24 months.
In the case of branded edible oils, creating a brand is a key entry
barrier. Hence, the threat of new entrants is relatively low in this
segment.

Bargaining power of buyers: High

The consumer base for unbranded edible oil is price sensitive. Also,
product differentiation is low due to which there is low customer
stickiness.
Price sensitivity is a relatively lower criterion for the branded edible oil
segment, where health and hygiene considerations take precedence
while selecting a brand of edible oil.

Bargaining power of suppliers: Moderate

As oilseed producers are fragmented, there is significant scope for

players to resort to bargaining.
However, the minimum support price acts a floor price which limits
bargaining power.

Threat of substitutes: Moderate

In unbranded edible oil, there is a high tendency to down trade within

a category, i.e. shift from higher priced soyabean oil to cheaper palm
oil.
For branded edible oils, the tendency to down trade is relatively low
due to health and hygiene considerations.

Competition intensity: High

Industry is highly fragmented.
Capacity utilisation of all players is low. Hence, to increase production,
players compete to source raw materials to improve utilisation rates.

Profitability Outlook

Price outlook
Price of edible oils depends upon the global demand and supply
conditions. Although global demand for edible oil is more or less
stable, supply may vary from year to year due to the vagaries of
weather. In the last few years, use of palm oil in bio diesel production
has been on the rise, consequently exerting an upward pressure on palm
oil prices.
However, In recent times, a fall in crude oil prices has made bio diesel
less competitive. Consequently, bio diesel production through use of
palm oil has reduced, which in turn, has eased palm oil prices.
Also, as in the case of all other commodities, prices of edible oils also
move in tandem with global macro-economic conditions.

Price outlook
During the first half of oil year 2011-12, edible oil prices increased
significantly in India due to low production across the globe.
The weak rupee also affected landed price of imported oil
significantly.
This was also a reflection of increased crude oil prices, which led to
increased usage of edible oil to produce bio-diesel.
However, prices have corrected sharply in the last few months
because of excess production in Indonesia and Malaysia and consequent
high inventory levels.
In November 2012, prices of refined palm oil came down to Rs 52 per
kg from as high as Rs.
67.7 per kg.

Volatility in refined palm oil prices

Volatility in refined palm oil prices

Over the next oil year , prices to remain more or less stable as
compared to oil year 2011-12.
For the entire oil year, the following are estimated:
Soya oil price is expected to increase only by 3-4 per cent in OY 2012-13
due to strong production in Brazil and USA.
However, demand from China has been strong enough to maintain the
price at current levels.
Also, rupee is expected to appreciate by 2 per cent, which will have
marginal impact on domestic prices.

Volatility in refined palm oil prices

Refined groundnut and mustard oil prices are likely to increase by 5
per cent in OY 2012-13 due to significant increase in MSP.
Higher MSP will lead to higher raw material cost, which is expected to
negate the benefits arising from higher domestic production.
Palm oil price is expected to decline marginally due to strong
production in Indonesia and Malaysia.
A favourable duty structure on refined oil by Indonesia, Malaysia and
India will also aid the decline in prices.
If crude oil prices are at moderate levels, demand for palm oil for biodiesel production would decline.

Volatility in refined palm oil prices

Review on profitability
On an aggregate level, operating profit margins and net profit margins
are 3-4 per cent and 1 per cent, respectively.
The thin margins could be attributed to low utilisation levels, a price
competitive environment
and fragmentation within the industry.
Margins of large players with strong brands - who enjoy a relatively
higher pricing flexibility - typically range around 8-9 per cent, which
would be 3-4 per cent higher than margins reported by players in the
unbranded segment.
For most players, the ability to procure raw material at the right price
determines margins, as explained below in the cost structure section.
Cost structure: Raw materials (oilseeds/crude edible oil) account for 90
per cent of the total
cost of the edible oil industry.
Hence, a company's profit margin is highly dependent on its ability to
source oilseeds/crude edible oil in sufficient quantity at the right price.
Few players have initiated backward integration to better manage the
input-related risks.

Overall cost break-up - 2011-12

Overall cost break-up - 2011-12

In 2011-12, operating margins of all players rose due to significant

inventory gains. When prices increase, companies tend to benefit as
they generally would have procured the raw material at a lower cost 23 months ago.
However, net margins plummeted during the same period due to an
increase in hedging losses as well as interest costs.

Outlook on profitability
Margins will be under pressure in 2012-13, as companies will incur
inventory losses as prices are on the decline.
Increased MSP will restrict the ability of the companies to procure raw
material at lower cost.
Moreover, players may not be able to pass on the increase in input cost
immediately as consumers are extremely price sensitive.
Also, few companies have increasingly been trading refined palm oil by
importing from Indonesia, as processing crude palm oil (CPO) is no
longer viable after the Indonesian government's move on the inverted
duty structure.
This will affect their margins in the long term.
However, we expect net margins to improve due to less hedging losses
as the rupee becomes relatively stable at current levels.

Industry margin trend

Risks to margins
Change in import regulations
Change in MSP of oilseeds due to political reasons
Inability to procure oilseeds at the right price
Fluctuation in exchange rates

Profitability Drivers

Drivers of profitability
Increasing levels of backward integration

Non-availability of adequate quantity of oilseeds, coupled with rising

input prices, has led to players opting for backward integration.
Increasing level of backward integration will be a critical driver of the
industry's profitability.

Increase in share of branded oil

As branded edible oils offer higher margins, players have been
attempting to increase the proportion of branded oil sales.
This would help the industry to structurally improve its profitability
over the long run.

Investment Outlook

Larger players to drive capacity additions

Domestic production of the edible oil industry was around 9.5 million
tonnes in oil year 2011-12.
The overall utilisation level during the year was very low due to
increased imports of crude edible oil and low production of domestic
oilseeds.

Existing capacities

Existing capacities
Capacity totalling about 5.6 million tonnes to be added over the next 2
years.
This will translate into investments of Rs 14 billion. Most of the
investment will be channeled towards setting up refining plants.
Most of the fresh capacities in crushing/solvent extraction and refining
are being set up by large players.
Also, a large part of these capacities are coming up in coastal areas (to
leverage upon increased imports) as opposed to the hinterlands which
housed much of the earlier capacities.

Working capital requirement

The edible oil industry is not fixed capital intensive; however, there is
high requirement for working capital.
Over 70-75 per cent of the industry's capital requirement is for current
assets.
Since availability of raw materials is a challenge for the industry,
players tend to stock raw materials for a longer duration to avoid risks
associated with not being able to procure oilseeds at the right time.
Over the years, raw material days have increased, implying that
companies tend to hold oilseed for longer period to improve overall
utilisation.
Bigger players also enjoy significant benefit fr om long credit days.

Current assets

Cash conversion cycle

Industry Performance and Investment matrix

Industry Performance and Investment matrix

The edible oil industry scores 3 out of 5 on Industry Performance
Indicator and 2 out of 3 on Investment Required.
Although the industry is inherently a low margin business, a moderate
revenue growth, due to increase in realisation, along with stable
volume growth has supported the healthy Industry Performance
Indicator.
Over the next 2 years, revenue and net profit are expected to grow by
12-14 per cent and 20-22 per cent CAGR, respectively.
The industry's operating profit margins are expected to remain under
pressure at around 3 per cent over the same period.
The moderate score for Investment Required is because of the
substantial amount of incremental working capital required to meet
capacity expansion plans, closer to ports.

Industry Performance and Investment matrix

The industry is expected to record a total of Rs 14 billion of fixed asset
investments over the next 2 years, with over 70 per cent in greenfield
projects.
This exercise will require working capital to the tune of Rs 35 billion.
Such a huge amount reflects the cash conversion cycle, which is in the
range of 60-90 days.
Many new plants are coming up near ports to save transportation costs,
and thus, offer some cost advantages in a highly price sensitive
industry.
Total capital requirement, for both fixed assets and working capital,
will be in the range of Rs 50 billion over the next 2 years.
Since plant commissioning typically takes 18-24 months, there is
limited visibility of investments thereafter, with no announcements
either.

Player Profiles

Ruchi Soya Industries Ltd

Company profile

Ruchi Soya Industries Ltd. is the largest edible oil players in India.
The company"s revenues rose by 66 per cent to Rs. 303 billion in 201112.
Going forward, margins are expected to improve with the company
integrating backward by investing in palm plantations.

Summary
Ruchi Soya, established in 1986- is primarily engaged into extraction
of oil from oilseeds and refining of crude vegetable oil for edible use.
The company also produces vanaspati, food products from soya
(textured soya protein, soya flour and soya milk) and related byproducts.
Its portfolio of branded products includes "Nutrigold" in cooking oils,
vanaspati and bakery fats and "Nutrela" in soya foods.

Share holding pattern as on March 31, 2012

Board of directors

Key financial indicators

Banking relationships

Axis Bank, Bank of India, Central Bank of India, Corporation Bank,

Dena Bank, IDBI Bank, Oriental Bank of Commerce, Punjab National
Bank, State bank of Bikaner and Jaipur, State Bank of Hyderabad, State
Bank of India, State Bank of Mysore, State Bank of Patiala, State bank of
Travancore, Syndicate Bank, The Karur Vysya Bank Ltd, Uco Bank.

Company stock V/S Sensex

Business evolution
The company was incorporated in 1986. It commenced operations with
soya food processing facilities in Madhya Pradesh.
In 1992-93, the company set up its first soya seed processing facility of
400 tonnes per day (tpd)
In 1994-95, it entered into the edible oil import and distribution
business.
In 1995-96, the company expanded its soya seed processing facility to
2,000 tpd.
In 1999-00, it set up its first port-based edible oil refinery at Chennai
(through a subsidiary) and introduced packaged palm oil under the
"Ruchi Gold" brand.
In 2004-05, it forayed into domestic palm plantation.
In 2005-06, the company amalgamated its soya and edible oil
companies into the main

Business evolution
company, following which it undertook a $60 million international
equity offering (GDR).
In 2009-10, its merger with Mac Oil Palm Ltd and Palm Tech India Ltd
resulted in access to 80,000 hectares of palm oil plantations and a palm
fruit processing capacity of 5In 2010-11, it set up wholly-owned
subsidiaries in Singapore and Dubai to pursue overseas ventures.
During the year, it also entered into a joint venture with Indian Oil
Corporation Ltd for renewable energy (bio -diesel) Expansion of the
crude oil refining capacity by 6,00,000 MTPA. Introduction of new
healthy 25 per cent less absorbent variant of Nutrela oils.18,400 million
tonnes per annum (mtpa).
Post-merger, the company had palm oil procurement rights covering
an area of 175,000 hectares spread across six states in India.

Business structure
Ruchi Soya's primary business is processing of oil-seeds and refining of
crude edible oil.
The company also produces oil meal, food products from soya and
value added products from downstream processing. The company has
ventured into manufacturing derivatives like soaps as well.
Edible oils form the largest share of the company's revenues at about
64 per cent (in 2011-12) followed by extractions at 28 per cent.
The company has three subsidiaries, Ruchi Worldwide Ltd (52.5 per
cent stake), which is involved in trading of commodities, including raw
cotton, coffee, grain and pulses, etc, Gemini Edible & Fats India Pvt Ltd
(58.82 per cent stake), which is into the production of vegetable oils,
and Mrig Trading Private Ltd (wholly-owned).
The company has also set up wholly-owned subsidiaries, Ruchi
Industries Pte Ltd in Singapore and Ruchi Ethopia Holdings Ltd in
Dubai to invest in plantations abroad.
In addition, it has controlling stakes in:
RIFL Energy Pvt Ltd and
Ruchi Infrastructure Ltd

Segment wise revenue breakup

Revenue segmentation

Market share
Ruchi Soya has the highest market share in the domestic edible oil
industry with a share of 15 per cent.
The company enjoys a strong presence in the refined oil consumer
pack segment with a market share of 25 per cent.
Its branded products include Nutrela (soyabean oil, sunflower oil,
mustard oil, groundnut oil, rice bran oil, high protein soya chunks,
granules and flour) and Ruchi Gold (refined edible palm oil).
Other prominent players in packaged edible oil are Adani Wilmar
(Fortune), Agrotech Foods (Sundrop/Crystal), NDDB (Dhara), Kalisuri
Oil Mills (Gold Winner), Marico Industries (Saffola), and Cargill Foods
(Nature Fresh).

Business trends
Ruchi Soya's revenues have grown by 33 per cent CAGR over the last 4
years, driven by volume as well as price increases.
However, both operating and net margins declined on a y -o-y basis
during 2011-12..
Margins had dropped across the industry in 2011-12 due to higher
input costs resulting from low production in the domestic market,
weak rupee and significant hedging losses.

Revenue growth and net profit margin

Revenue and margin drivers

Revenue growth to be led by higher volumes
Volumes are expected to rise in line with the growth in per capita
consumption of edible oil, which has increased by 30 per cent since
2001 to 15.9 kg per year in oil year 2011-12.
Per capita consumption is expected to increase further with the rise in
per capita income levels.
The world average per capita consumption of edible oil is 23-24 kg per
year.
Further, demand for branded products is expected to grow at a higher
rate over the forecast horizon.
Ruchi Soya's strong distribution network and retail tie-ups are
expected to boost branded sales, which currently account for 25 per
cent of the company's total turnover.

Revenue and margin drivers

In 2011-12, Ruchi Soya's sales grew by 66 per cent y-o-y, led by price
increase.
Although volume increase was stable, price of all kinds of edible oil
increased significantly in 2011-12, due to alternative use of edible oils
such as the usage of palm oil for manufacturing bio-diesel.
Sales of oils, which currently accounts for 64 per cent of the company's
total revenues, are expected to grow on account of increase in volumes
and realisations as branded sales improve.
The company increased its refining capacity to about 2.87 million
tonnes (MT) in 2011-12 from 1 MT in 2004-05.
Further it is backward integrating and investing in palm plantations to
reduce dependence on imports .
This is expected to protect the company from
fluctuations in crude edible oil prices in the international market.

Margins to improve with backward integration

Over the last few years, Ruchi Soya's operating margin has remained
flat at about 3 per cent.
This is due to the high competitive intensity in the industry coupled
with a high proportion of trading sales on the company's portfolio.
With backward integration into the production of raw materials (palm
plantations), the input risk is expected to be minimized, thus improving
the company's margins over time.

Key highlights
Market leader in edible oil: Ruchi Soya's market share in the edible oil
industry stood at 15 per cent in 2011-12.
Backward integration plans of palm oil: The industry is plagued with
low supply of oilseeds. To counter this, the company is focusing on
backward integration through the acquisition of land in India and
abroad.
Higher proportion of branded sales expected to boost margins:
Focus on the branded segment and extending the Nutrela brand into
other segments will help increase the proportion of branded sales.
Over the last 4 years, the branded segment has grown by 25 CAGR
per cent as against a total sales growth of 33 per cent CAGR.
This trend is expected to change with more organised retail sales and a
higher proportion of branded product sales boosting the margins.

Peer comparison

The industry is highly fragmented with many small sized players.

Ruchi Soya has the highest market share at 15 per cent.
The top six players constitute a mere 34 per cent of the total market.
Hence, all individual players focus on their respective strengths and
supply particular varieties of edible oil.

Financial comparison of peers

Financial comparison of peers

Ruchi Soya has grown at a robust pace over the last 3 years, mainly
driven by price increase.
Unlike many companies, Ruchi Soya has been able to maintain volume
growth in an increasing price environment as their business is fairly
robust.
In 2011-12, operating and net margins declined as raw material cost
and trading business proportion increased significantly.
Asset turnover ratio is on the lower side as many of the plants have
poor utilisation levels. Gearing increased significantly as compared to
the previous year due to major investments in capacity expansion.
A moderate asset turnover and lower margin restricts return on equity.
The company has been able to manage its working capital cycle by
getting sufficient credit period from suppliers.

Business & Financial Assessment

Business environment

Key competitiveness factors

Financial statements analysis

Profit and loss account

Financial statements analysis

Profit and loss account

Business and financial outcomes

Cash flow statement

Future strategy & plans

Focus on driving down cost and operational efficiencies: The
company has employed the latest technology, sourcing raw materials
from points of origin, reducing inefficiencies in supply chain and
logistics, and expanding capabilities to process at strategic locations to
improve product quality and reduce operational costs.
Strengthening brands: Nutrela is the company's umbrella brand. It
covers all type of edible oils. The company is launching a brand under
the same umbrella in foods division.
New products are proposed to be rolled out with a focus on the
growing "health and wellness" segment.
At the same time, the company is strengthening its business processes
for quality, scalability, sustainability and visibility in branded products.

Future strategy & plans

Developing upstream business: As a part of its growth strategy, the
company is expanding its global presence internationally by setting up
facilities for soya/oil palm cultivation and processing the same from
upstream to downstream products.
Backward integration in the palm oil segment: The company is a
leader in the palm oil segment.
Also, it has the largest exclusive access area for development of oil
palm cultivation in India, with the commensurate processing capacities.
The tie ups with different stakeholders to access oilseeds will help the
company to mitigate the input risks.
The company is also looking for suitable joint ventures or acquisitions
for backward integration This will result in a business model having
reasonable predictability and sustainability.

KS Oils

Company profile
KS Oils Ltd is a leading integrated edible oil company in India and has
brands like Kalash, Double Sher and K S Gold.
In 2010-11, KS Oils changed its annual reporting period from March 31
to June 30. Consequently, for the financial year 2010-11, the reporting
period was for 15 months, from April 1, 2010, to June 30, 2011.
The company's turnover stood at Rs 56 billion in the financial year
ended on June 30, 2011 ( For 15 months period).
K S Oils has 4-5 per cent market share in the overall edible oil industry.
However, it has higher presence in mustard oil segment, where it
enjoys 11 per cent market share.
Within branded mustard oil segment, the company has a dominant 25
per cent market share.
KS Oils has six manufacturing plants, numerous marketing offices and
plantations in India, Malaysia, Indonesia and Singapore.

Summary

KS Oils was incorporated in 1985.

The company sells branded mustard/rapeseed oil, soyabean oil and palm oil.
Its brands include Kalash, Double Sher and KS Gold.
In India, KS Oils enjoys an 11 per cent market share in the overall mustard oil
segment with a dominant 25 per cent share in branded mustard oil.

Shareholding pattern

Board of directors

Key financial indicators

Banking relationships
State Bank of India, Axis Bank, Andhra Bank, IDBI Bank, ICICI Bank,
PNB
Auditors

BDO Haribhakti & Co. Chartered Accountants

Company stock V/S Sensex

Business Profile
Business evolution
The company set up its first refinery in 1985, with a production
capacity of 60 tonnes of edible oil per day.
In 1989, it commissioned a 150 tonnes per day mustard oil crushing
mill.
In 1992-93, the company undertook a major expansion with the
commissioning of a solvent extraction plant.
In 1994, the company listed on the Bombay Stock Exchange, Madhya
Pradesh Stock Exchange,
Johannesburg Stock Exchange and Delhi Stock Exchange.
In 2007, it entered into a strategic tie up with a plant in Alwar,
Rajasthan to increase production capacity.
In 2008, the company acquired palm oil plantations in Indonesia.
In November 2008, the company acquired a refinery at Haldia from
Ambo Agro Products Ltd for Rs. 1,250 million in a slump sale.

Business structure

Business model
Edible oil, which includes crushing of oilseeds and extraction of oil,
refining crude edible oil and production of vanaspati.
Power generation (windmill) and agriculture income contribute a small
proportion to the company's revenues.
The company's brands include Kalash, Double Sher, KS Gold, Kalash
Refined Sunflower, KS Gold Palmolein and KS Gold Vanaspati.
It is a leader in the mustard oil segment with a 25 per cent market
share in branded mustard oil.

Capacity utilisation for FY 2010-11 (15 months period):

KS Oils' edible oil brands

Segment-wise revenues
Edible oils account for bulk of the company's revenues.
Within the edible oil segment, it is a leader in mustard oil.
It also refines and sells soyabean oil and palm oil.
Recently, the company has started to realise a small portion of its
revenues from its power division (wind mills).

Revenue Distribution

Revenue Distribution
Mustard oil: KS Oils has an 11 per cent market share in the domestic
mustard oil segment.
In branded mustard oil, the company has a dominant 25 per cent
share.
The company's premium brand, Kalash, is the market leader in the
mustard oil segment.
The company is leveraging on this brand, extending to other edible oil
segments such as Kalash refined soyabean oil and Kalash refined
sunflower oil.
In 2010 -11, it processed 706,417 metric tonnes of mustard seed.
Refined oil: Though mustard oil is a major revenue earning segment,
the company also has a presence in refined soya oil, and refined palm
oil. Total capacity utilised for refined oil plant in 2010-11 was at
266,864 metric tonnes.
In 2010-11, the refined oil plants' utilisation stood only at 44 per cent,
as against a healthy utilisation of 62 per cent in 2009-10.

Revenue growth and net margins

Revenue growth and net margins

The revenues of KS Oils have increased at 32 per cent CAGR in the last
4 years due to capacity expansions and inorganic growth undertaken
through overseas acquisition.
The company's operating margins and net margins stood at around 11
per cent and 5 per cent, respectively, in the same period.
This was higher than the industry average of 4-5 per cent and 2 per
cent, respectively.
Branded oil sales accounted for over 60 per cent of the company's
revenues, which helped it realise better margins vis-a-vis its peers.

Revenue and margin drivers

Revenues have grown because of increase in volume of trading
business as well as price increas es.
However, net margins have dropped due to higher interest cost and
provision for deferred tax in the last financial year.
We expect a strong growth in revenue on the back of palm oil segment
volume growth.
Margins are also expected to improve once palm oilseed production
starts in Indonesia and Malaysia from early 2013.

Key highlights
Backward integration in Indonesia and Malaysia is expected to be
completed by 2013.
The company has made significant investments in palm oil plantations
in Indonesia and Malaysia.
The palm oil plantation is expected to be ready for producing palm
oilseed by early 2013.
This will help the company manage input costs, ensuring higher profit
realisation and de-risk it with respect to availability of oilseeds.

Peer comparison
The edible oil industry is fragmented with several small players.
The market share of KS Oil is close to 4 per cent.
Only Ruchi Soya has a double-digit market share.
Further, the top six players constitute 39 per cent of the total market.
Hence, all individual players focus on their respective strengths and
supply particular varieties of edible oil.

Financial comparison of peers

Financial comparison of peers

Over the last 3 years, KS Oils has grown at par with the industry.
However, the revenues for 2010-11 were for 15 months period. On an
adjusted basis, it is estimated to have grown at 19 per cent.
This was on account of capacity expansion and inorganic growth
through overseas acquisitions.
In the reporting period 2010-11, company had to bear significant
trading losses in the futures market.
Consequently, they reported losses at the net level for the same
period.
Asset turnover was lower than peer group as utilisation of plants
reduced significantly in 2010-11 as compared to 2009-10.

Business & Financial Assessment

Business environment

Key competitiveness factors

Financial statement analysis

Profit and loss account

Balance Sheet

Business and financial outcomes

Cash flow statement

Future strategy and plans

Brand creation in all segments: Kalash is the company's premium
brand and a leader in the mustard oil segment.
The company is planning to create brands in both refined soya oil and
refined palm oil; it is looking at making the brands one of the top three
in their respective segments.
Extended backward integration: The company has extended its
operations into palm plantation in Indonesia and Malaysia.
It has already acquired around 1.38 lakh acre of land in Indonesia.
The first palm plantations will be ready for harvest by 2013.

Gokul

Company profile
Gokul Refoils and Solvent Ltd (GRSL) is a leading FMCG company in
India.
The company is into edible oils such as soyabean oil, cottonseed oil,
palm oil, sunflower oil, mustard oil, groundnut oil, vanaspati and
industrial oils such as castor oil.
The company exports to the US, South Korea, the EU, China,
Singapore, Indonesia, Malaysia and Vietnam.
It has four production plants in Gujarat and West Bengal.
Its facilities are located near ports to ensure efficiency in supply of raw
materials and maintain cost competitiveness.
Proximity to ports also helps facilitate distribution to domestic and
international markets.

Summary
GRSL is one of the top five edible oil companies in India. It is present
across most types of edible oils.
The company has a strong distribution network in India and also
exports to several countries.
Its key brands are Gokul (premium brand) and Zaika (mass brand).

Shareholding Pattern ( as of 31st March 2012)

Board of directors

Key financial indicators

Banking relationships
State Bank of India, Punjab National Bank, Central Bank of India, Bank
of Maharashtra, State Bank of Travancore,
Union Bank of India, Bank of India, The Jammu & Kashmir Bank Ltd .
Auditors
M R Pandhi & Associates

Company stock V/S Sensex

Business Profile
Business evolution
The company was incorporated as a private limited company in 1992.
In 1994 it was converted into a public limited company.
In 1999, the company set up a 200 tonnes per day (tpd) seed processing
and solvent plant, and a 200 tpd refinery.
In 2003, the company commissioned a 900 million tonnes (MT) refinery
and a 100 MT vanaspati plant.
It also set up a subsidiary in Mauritius.
In 2006, the company set up four windmills of 1.25 MW each and a 750
kWh co -generation power plant in Kutch.
In 2007, it commissioned a 1,500 tpd soyabean processing unit at
Gandhidham.
During the year, it also established a wholly-owned subsidiary in
Singapore.
In 2008, the company listed on the Indian stock exchange.
In 2009, it set up a 1,100 tpd refinery and a 2.4 MW co-generation plant
at Haldia, West Bengal.
In 2010, the company commissioned a 400 tpd refinery, 100 tpd
vanaspati plant and 400 tpd castor facility at Gandhidham

Business structure

The company classifies its revenues in two ways:

Primary segmentation (based on products): From 2010-11, the
company has classified revenues into two segments - agro-based
commodities and others. Currently, its entire revenue is from agrobased commodities.
The agro-based commodity business includes soyabean oil, palm oil,
cotton seed oil,
sunflower oil, mustard seed oil, castor oil, oil cakes, de-oiled cakes,
vanaspati, oil seeds, its by-products and other agro-commodities.
Secondary segmentation (based on geography): The company is
present in the domestic as well as export markets. In 2011-12, revenues
from the overseas market accounted for 23 per cent of the company's
total revenues.
This proportion was 17 per cent just 2 years ago .
The share from this segment is expected to grow further.

Segmental break-up of revenues

Business trends
The company's revenues grew by 32 per cent CAGR over the last 4
years due to commissioning of several plants.
Over this period, the company's average operating margins and
average net margins stood at around 4 per cent and 2 per cent,
respectively. However, in 2011-12, operating margin plummeted
sharply to negative (0.4) per cent due to high input cost.
Due to aggressive expansion into rural areas and severe competition
from unorganised players, its margins fell to below average levels.
Net margins were also negative due to lower operating margin and
high foreign exchange losses.

Revenue growth and margins

Revenue and margin drivers

Revenues are expected to grow at a healthy pace with the
commissioning of new plants.
However, net margins are expected to decline due to a higher
proportion of sales volumes in rural areas, where margins are typically
on the lower side.
Margins are expected to improve once backward integration is
complete and the plants near ports are commissioned.

Key highlights
Several expansion projects commissioned in the recent past
GRSL commissioned its 1,100 tpd port-based refinery at Haldia in
August 2009. It expanded its castor manufacturing facilities at
Gandhidham by setting up a new castor refining facility of 200 tpd and
by shifting Sidhpur's unutilised expeller and extraction capacities to the
Gandhidham plant.
The company further strengthened its manufacturing
facilities by expanding its refining capacity at Gandhidham by 400 tpd.

Wide distribution network

GRSL has a well-established domestic network spread across 22 states.
The company's network covers the north-eastern states, West Bengal,
Bihar, Jharkhand, Orissa, Maharashtra, Uttar Pradesh, Uttarakhand,
Madhya Pradesh, Delhi, Punjab, Haryana, Himachal Pradesh, Jammu &
Kashmir, Rajasthan and Gujarat.

Consolidated export revenue stood at 23 per cent

In 2011-12, the company's export revenues constituted 23 per cent of its
overall revenues, net of excise duty.
The company supplies soya de-oiled cake and castor oil through
Kandla Port, Gujarat to the US and European countries.

Peer comparison
The edible oil industry is fragmented with a number of small players.
GRSL's market share is around 4 per cent.
Only Ruchi Soya Industries has double-digit market share.
Further, the top six players constitute a mere 34 per cent share of the
total market.
Hence all individual players focus on their respective strengths and
focus on particular variety of edible oil.

Financial comparison of peers

Financial comparison of peers

GRSL's growth has outpaced its peers over the last 3 years.
This was because of the commissioning of several plants and better
capacity utilisation. Better capacity utilisation and more proportion of
trading business have resulted in higher asset turn over.
The company reported negative margins in 2011-12 as the cost of
inputs increased significantly and it incurred high foreign exchange
loss.
Gokul Refoil's pricing power has remained at low levels as compared
to its peers, as in the last few years, the company has increased its
presence in rural areas, where consumers are more price sensitive.
The company has been able to efficiently manage its receivables.
Working capital cycle duration is low due to fewer inventory days
and long credit duration.

Business & Financial Assessment

Business environment

Key competitiveness factors

Financial statements analysis

Profit and loss account

Balance sheet

Business and financial outcome

Cash flow statement

Future strategy and plans

Expansion into strategic locations: The company is focusing on cost
and operational efficiencies by sourcing raw materials from points of
origin, reducing inefficiencies in supply chain and logistics, developing
capabilities to process at multiple locations, and improving product
quality.
In the previous financial year, the company was able to realise these
benefits at its Haldia-based plant due to its proximity to the port.
This helped the plant process imported crude palm oil at better
margins.
Extended backward integration: Given the constraints in availability
of raw materials and sharp intermittent rise in the prices of the same,
the company will benefit significantly from backward integration.
The company is actively looking to expand into palm plantation in
India and overseas.

Sanwari agro

Company profile
Sanwaria Agro Oils Ltd manufactures soya de-oiled cakes, soya crude
oil and soya refined oil.
Its solvent extraction plants are located in Mandideep, Itarsi and Betul.
It also has a 28 per cent interest in a plant in Harda; the plant's
crushing capacity is 750 tpd and refining capacity is 100 tpd.
It sells a part of its soya refined oil under the Narmada, Sulabh and
Sanwaria brands.
The company owns two wind mills with a combined capacity of 8.4
MW, located in Dewas, Madhya Pradesh and Tenkasi, Tamil Nadu.
The company plans to increase its capacity by 1,000 tpd in 2012-13,
catering to higher value-added products such as soya floor and soya
food.

Summary
Sanwaria, incorporated in 1991, is based in Madhya Pradesh. It is one
of the larger players in the domestic soya industry with 2,500 tpd
crushing capacity and 250 tpd refining capacity.

Shareholding Pattern

Board of directors

Key financial indicators

Banking relationships
Punjab National Bank, State Bank of India, State Bank of Indore, IDBI
Bank, Standard Chartered Bank, Axis Bank, HDFC Bank, ICICI Bank,
Yes Bank
Auditors
Sunil Saraf & Associates

Company stock V/S Sensex

Business Profile
Business evolution
Sanwaria was incorporated in April 1991.
The company commenced commercial production of soyabean and
other minor oils in December 1993 with a crushing capacity of 200 tpd.
In August 2001, the company set up a 75 tpd refinery.
The company launched edible oils under the brand names "Sulabh" and
"Sanwaria" for the mass market, and "Narmada" for the premium
segment.
In October 2007, the company entered into an MoU with the Madhya
Pradesh Trade and Investment Facilitation Corporation for capital
expansion of Rs 30 billion to be made in the state.

Business structure
Sanwaria does not have any subsidiaries.
Its parent company is Sanwaria Group of Companies.
The groups' other subsidiaries are:
Sanwaria Energy Ltd
Sanwaria Infrastructure Ltd
Sanwaria Foods Ltd
Sanwaria Warehousing and Logistic Ltd

Business model

Trading accounts for a bulk of Sanwaria's revenues.

Further, the company is one of the largest players in the soya oil
segment, with a strong presence in Madhya Pradesh, where it has direct
linkage to farmers for the collection of soya oilseeds; Madhya Pradesh
accounts for close to 60 per cent of the total soya production in India.

Segment-wise revenue share for 2011-12

Business trends
Sanwaria's revenues has grown four-fold in the last 5 years due to
aggressive expansion in the trading business.
As trading business generates low margins, the company's operating
and net margins declined to 3.9 per cent and 1.3 per cent, respectively,
in 2011-12 from an earlier average of 6 per cent and 3 per cent.
However, strong focus on the niche segment and revenues from
related businesses have helped the company to earn industry average
margins.

Revenue growth and margins

Revenue and margin drivers

Revenues are driven by an increase in trading volumes as well as price
increases.
However, margins are under pressure as a large proportion of the
company's revenues comes from the low-margin trading business.
In 2011-12, revenues declined by 10 per cent due to reduction in import
trading business.
Going forward, revenues are expected to be firm on the back of
increased palm oil trading, as demand for palm oil is increasing because
it is less expensive than other kinds of edible oils.
However, margins could decline further with the increase in the
trading business and uncertainty in input cost.

Key highlights
Strong raw material procurement network
Sanwaria's manufacturing facility is located in Madhya Pradesh, which
is India's major soya growing region (accounts for 60 per cent of India's
total soyabean production).
The company owns 75 licences for direct procurement from farmers.
This reduces Sanwaria's dependence on agents and eliminates middle
men.

Trading contributes 54 per cent of revenues

The company earned over half its revenues through trading of palm oil
and food grains.
It imports palm oil from Malaysia and purchases food grains from the
local market.
As palm oil consumption is expected to outpace consumption of other
edible oils, the proportion of Sanwaria's revenues from trading of palm
oil is expected to continue to be higher.

Peer comparison
The edible oil industry is fragmented with a number of small players.
Sanwaria has close to 1 per cent market share.
Only Ruchi Soya Industries has double-digit market share.
Further, the top six players constitute 39 per cent share of the total
market.
Hence, all individual players focus on their respective strengths and
focus on particular varieties of edible oil.

Financial comparison of peers

Financial comparison of peers

Over the last 3 years, Sanwaria has grown the least among its peers.
This is mainly because the company had witnessed a de-growth of 10
per cent in 2011-12 due to lower import trading business.
However, the company's operating and net margins were higher than
most players in the industry due to its strong soya oil seed procurem ent
network in Madhya Pradesh and focus on related businesses.
Its asset turnover ratio is on the higher side as the majority of its
revenues are from the trading business.
The company earns highest return on net worth among peers, mainly
due above average margins and higher gearing vis-a-vis its peers.
Meanwhile, the company has very low net working capital as it has
very high current liabilities and has been able to efficiently manage its
receivables.

Business & Financial Assessment

Business environment

Key competitiveness factors

Financial statements analysis

Profit and Loss Account

Balance Sheet

Business and financial outcomes

Cash flow statement

Future strategy and plans

Establishing as national player: Sanwaria has undertaken steps to
become a dominant player in basic edible oil and soya.
The company witnessed a revenues decline of 10 per cent in the last
financial year due to lower import trading business. It is undertaking
capacity expansions to take advantage of benefits associated with
economies of scale and become more cost efficient.
Focus on retailing and brand building: The company has followed a
strategy whereby emphasis is laid on retail packs, packaging and
quality.
This has led to an increase in profitability as demand for edible oil in
packed and branded form is increasing.
The company is also planning to expand its retail product portfolio by
including mustard oil, cotton seed oil, soya flour and other soya-based
products.
Focusing on brand promotion: The company is focusing on increasing
the share of branded edible oil.
Currently, close to 10-12 per cent of the company's refined oil sales are
branded.
The major brands include Narmada, Sulabh and Sanwaria.