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Aurum Insights Agriculture, Food and Beverages___________________________Annual Newsletter 2015
Aurum Equity Partners LLP
“The year also saw over a dozen venture capital funding deals, a leap from the handful we have
seen in the past few years. The venture capitalists invested across the breadth of the sector,
including branded foods, dairy, supply chain, agri equipment, machinery, etc. This is a healthy
sign as VC funding at the grass-root businesses will go a long way in developing the sector.”
Read more on the M&A action in this issue.
“We believe the Agri, F&B sector is fast gaining visibility andrecognition from foreign strategic investors as well as theprivate equity community. The three significant in-bounddeals in the sector in 2014, namely Lactalis-Tirumala,Wilmar-Renuka Sugar and Nihon Nohyaku-HyderabadChemicals is testimony of the interest by Global Strategicsin the sector .”
Nitin JainPrincipal, Aurum Equity Partners LLP
Despite a weak macro environment, the India consumption story played well in the Agri,
F&B in 2014 with stronger deal flows in dairy and branded or packaged food segments
than we have seen in previous years. There was also much higher deal activity at the
venture-capital stage during the year.
India is by far the largest and fastest growing milk markets in the world by volume. Liquid
milk accounts for 75% of total volumes representing a huge scope for value added
products which are expected to more than double by 2020. In the last couple of years,
private equity investors funded large, regional dairy companies like Parag Dairy, Prabhat
Dairy, Dodla Dairy etc. In 2014 PE fund Fidelity invested in Orissa-based, Aavishkaar
funded Milk Mantra Dairy. The sector also saw a landmark deal, the $275 mn acquisition
of Carlyle-funded Tirumula Milk Products by Groupe Lactalis. We think the Indian Dairy
sector will continue to attract growth capital from private equities as well as from the
capital markets, as some of the PE funded dairies may look to tap the buoyant capital
markets in the current year.
2Private and Confidential For limited circulation only
3Private and Confidential For limited circulation only
India ranks 2nd in the production of fruits and vegetables in the world after China, and
produces ~11% and ~19% of the global fruits and vegetables respectively. India has the
world’s largest production of Banana, Papaya, Mango and Lemons. The abundant supply
of fruits and vegetables, coupled with a strong demand for branded or packaged foods
growing at 15-20% p.a., has been driving private equity investments in the sector. The year
saw private equity funds invest in companies like Bikaji Foods, Nilon’s, Maiyas Beverages,
Manpasand beverages, the rural and semi-urban focused juices company raising a second
round of funding. The packaged, branded food segment has a lot of headroom still to grow
in terms of per capita consumption, low penetration rates in organized market and scope
for product innovations, and will therefore continue to attract private equity investments
and interest from Strategics. With investments flowing at a robust pace in branded foods,
we believe that Fruit & Vegetables (F&V) processing may not lag behind for long.
Processed Fruit & Vegetables (F&V) forms just 2.5% of the total produce in India, which is
far lower than in the developed countries (US – 65%) and developing countries (Brazil –
70%, China – 23%).
The year also saw over a dozen venture capital funding deals, a leap from the handful we
have seen in the past few years. The venture capitalists invested across the breadth of the
sector, including branded foods, dairy, supply chain, agri equipment, machinery, etc. This is
a healthy sign as VC funding at the grass-root businesses will go a long way in developing
the sector.
4Private and Confidential For limited circulation only
Concluding Notes:
We believe the Agri, F&B sector is fast gaining visibility and recognition from foreign
strategic investors as well as the private equity community. The three significant in-
bound deals in the sector in 2014, namely Lactalis-Tirumala, Wilmar-Renuka Sugar
and Nihon Nohyaku-Hyderabad Chemicals is testimony of the interest by Global
Strategics in the sector. However, the deal activity in the sector is still relatively small
in comparison to similar sized, diversified sector like Healthcare in India, where USD
5.9 bn of transactions were concluded v/s just USD 927 mn in Agri, F&B during the
year.
With the new government at the Centre, renewed investor confidence and rising
business optimism, the investments in the sector are bound to grow. What the sector
needs is increased flow of venture capital funding to help nurture and incubate grass-
root businesses and much higher private equity investments across the various sub-
segments of the sector. The front-end will need to be supported by a robust and
scalable backend i.e. increased investments in areas including agriculture farming,
food procurement, supply chain management, warehousing and cold storage, F&V
processing etc. This will be imperative for the overall development of the sector in the
medium and long-term.
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Table 1: Select M&A transactions in the Agri, F&B Sector (2014)
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Table 2: Select Private Equity and Venture Capital transactions inthe Agri, F&B Sector (2014)
The Aurum Perspective on select transactions -
Established in 1998, Tirumala is the second largest private sector dairy player in Southern India
with existing processing capacity of 16.6 lakh litres per day across 7 plants. Private-equity firm
Carlyle India Advisors Pvt. Ltd had invested USD 22 mn into Tirumala for ~26% stake in 2010.
The Aurum Perspective
The transaction exemplifies the undergoing consolidation in the Indian Dairy sector with the
industry becoming more organized. The transaction also marks the entry of the top global dairy
player- Lactalis - in the fast growing Indian dairy market. Setting up of own procurement network is
the biggest challenge for a foreign player entering Indian dairy market. It is essential for them to
have a local partner for ensuring consistent supply of raw milk to the plant.
7Private and Confidential For limited circulation only
The Aurum Perspective on select transactions -
Bikaji Foods is primarily engaged in the manufacturing of various kinds of packaged food
products like bhujia, papad, namkeens, rasgulla, gulab jamun, sohan papdi etc. Bikaji Foods will
use the funds to expand its manufacturing and distribution to markets outside North India and
to enter the fastest growing ready-to-eat food market.
Aurum Perspective
Packaged salty snacks market in India was estimated at INR 120 bn in FY12 and estimated to grow
at CAGR~20% over the period FY12-FY17. Brand namkeen segment estimated at INR 50 bn is a
faster growing segment with expected CAGR of 30% over the same period. Haldiram is the market
leader in the branded namkeen segment with ~50% market share.
8Private and Confidential For limited circulation only
The Aurum Perspective on select transactions -
In February 2014, Goldman Sachs and Mitsui Global Investment among others put in INR 3,150mn ($51 million) in Global Beverages & Foods Pvt Ltd (GBFPL) to pick an undisclosed stake.
GBFPL, a company founded by entrepreneur A. Mahendran (ex-MD of Godrej Consumer ProductsLtd) is looking to build a portfolio of consumer brands in juices, confectionaries and snacks. Thecompany is looking to launch its own brands in 2014 and is also looking at inorganic growthopportunities.
Aurum Perspective
Global Beverages & Foods is expected to expand and grow its business via organic growth andinorganic route of acquisition of regional brands.
The branded food & beverages market in India is highly fragmented with handful of large players(MNC and domestic) controlling a chunk of the market, while the remaining market is dividedbetween hundreds of small local/ regional brands. We think the strategy to consolidate will lead tocreation of large, pan-India players.
9Private and Confidential For limited circulation only
The Aurum Perspective on select transactions -
Aurum Perspective
Shree Renuka Sugars acquired two sugar companies in Brazil by taking massive amount of debt.
Due to drought in Brazil in 2011, Shree Renuka Sugars could not improve capacity utilization at
these two companies. Dilution of shareholding to Wilmar has been a distress effort by its
promoters towards reduction of debt for its India operations.
With this transaction, Singapore based Wilmar gets an entry into India- the world’s biggest sugar
consumption market. With global sugar prices at a 4-year low, the deal helps Renuka Sugar to
repay its high debt both in India and in Brazil (for the two acquisitions it had made earlier).
10Private and Confidential For limited circulation only
The Aurum Perspective on select transactions -
Aurum Perspective
Agrochemical industry in India is estimated at USD 4.1 bn in FY13 and growing at 12% per annum,
much faster than global growth rate of 5% per annum. The sector in India is dominated by MNCs
like Bayer, Syngenta, Monsanto etc and large Indian players like Rallis India, PI Industries, Excel
Crop Care etc. Top 10 companies in the Indian agrochemicals sector comprise ~50% of the Indian
market, compared to Top 10 companies contributing over 75% share in the global agrochemicals
market.
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The Aurum Perspective on select transactions -
Aurum Perspective
USL was forced to sell Whyte & Mackay brand due to regulatory hurdle created after Diageo took a
controlling stake in USL. UK’s Office of Fair Trading found Diageo’s takeover of USL to be anti-
competitive as Diageo brands (Bell’s, Johnnie Walker etc) and Whyte & Mackay control significant
part of United Kingdom’s whisky market. USL had earlier acquired Whyte & Mackay for GBP 595
mn in 2007 mostly through debt funding.
Diageo-USL combine in India is now focusing on exclusively manufacturing and distributing Diageo
products in India completely through USL.
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Aurum was established, as a mid-market focused; transaction oriented; investment banking firm,
by a team of professionals with decades of experience in investment banking, private equity and
general management.
Aurum advises clients on M&A, Divestitures, Fund Raising and Restructuring, focusing on
sectors that are in the high-growth trajectory. The Aurum team’s experience in handling large
and complex transactions helps in accelerating the speed of response that the Client needs to
demonstrate, in order to close transactions in a competitive environment. We have the ability to
structure deals derived from understanding the client's strengths and constraints, further
enabled by understanding of market trends and relevant regulatory environment.
www.aurumequity.com
For any further queries and information, please write to us at [email protected]
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Disclaimer: This report is presented solely for the internal use of the recipient to whom it is marked byAurum Equity Partners LLP (‘Aurum’) and does not carry any right of publication or disclosure to any otherparty. This report has been prepared on the basis of information obtained from publicly available,accessible resources. Aurum has not independently verified all the information given in this report. NeitherAurum nor its affiliates, partners, directors, employees, agents or representatives, shall be responsible orliable in any manner, directly or indirectly, for the contents or any errors or discrepancies herein or for anydecisions or actions taken in reliance on the report.
Private and Confidential For limited circulation only