Kohinoor Foods: India on a Platter: CMP Rs.61.50

Kohinoor Foods: India on a Platter: CMP Rs.61.50

When Scott Price, president and CEO of Wal-Mart Asia, visited India last year, he talked about helping the country become food basket of the world and sourcing $1-billion worth of goods from here.

Perhaps he drew inspiration from the growing presence of Indian specialty food brands in the shelves of global retailers such as Wal-Mart(USA),Tesco(UK), Ralphs, ASDA(UK),Somerfield(UK) and Safeway.

Food-processing- a growing market.

India is one of the largest food producers with the industry estimated at more than $200 billion, according to a Confederation of Indian Industry study that projected it to grow to $310 billion by 2015. But India accounts for less than 1.5% of international food trade.

The ministry of food processing estimates the size of the industry at Rs 1,44,000 crore. But exports of processed food stood at just Rs 10,000 crore in 2008-09. It is estimated to be growing at around 15% over the past two-three years.

India's packaged food exports can expect dramatic growth driven by changing demographics, growing population and rapid urbanization along with increased government support. These factors will increase the demand for value added products and thus improve the prospects of food-processing industry in India.

With rapid increase in the per capita income and purchasing power along with increased urbanization, improved standards of living, there lies a large untapped opportunity to cater to 1000 million domestic consumers. It is estimated that 300 million upper and middle class consume processed food. With the convenience needs of dual income families, 200 million more consumers are expected to move to processed food by 2012. The market size for the processed foods is thus bound to increase from US $102 billion currently to US $330 billion by 2014-15 assuming a growth of 10%.

The share of the value added products in processed foods would almost double from US $44 billion currently to US $88 billion during the same period, growing at the rate of 15%. This presents enormous opportunities for investment in processed food sector. Several global food giants and leading Indian industrial enterprises are already making their presence felt in a big way in the sector. Some of them are Nestle India, Cadbury's India ,Kelloggs, Hindustan Unilever, ITC-Agro, Conagra.

Indian Food for the International Markets

There are many people of Asian origin in developed/developing countries and the globalization and popularity of Indian cuisine has now allowed companies from India to tap into the mainstream developed markets. Most importantly there is this huge Indian market to cater to, and then Indian food is gaining a lot of importance in many international markets. 

KOHINOOR FOODS-Ready to Eat: A Primer

Kohinoor Foods Ltd. embarked upon its journey in 1989. Since then it has been treating every milestone achieved as a stepping stone to go past another one. Today, in India and in over 60 countries, consumer's lives have been touched by not only some of the finest basmati rice brands, but also a wide assortment of food products that includes Basmati Rice, Ready to Eat products, Cook-in Sauces and Cooking Pastes to Spices, Seasonings and Frozen Food. It’s a feat that Kohinoor Foods Ltd. pulled off by spreading the authentic India flavour abroad. Thereby becoming a well-known food giant with one of the most powerful brand in its stable - Kohinoor.

At present, the company’s offerings are preferred by connoisseurs across the globe - from the USA, Canada, Australia, New Zealand and the UK to the Middle East and South East Asian countries. And they adorn the shelves of reputed retail chains like Metro Cash n Carry, Walmart, Reliance, Big Bazaar, Spencer's, Vishal, Shubhiksha, Hypercity, More, Nilgiris in India, TESCO, Somerfield and ASDA in the UK, Costco in Canada, Hankyu, Daimaru & Takashimaya in Japan, Coles & Woolworths in Australia, Krogers, BJs and Whole Foods in the US and Seven Eleven and Mustafa in Singapore. 

To be a globally competitive organisation, Kohinoor Foods Ltd. has strategic bases in the US, the UK and the Middle East. The company has two 100% fully owned subsidiaries – SOL Inc., operating from New Jersey, USA that looks after the North American and Canadian markets, and Indo European Food Limited, in the UK with headquarters in London, that looks after the European markets. The joint-venture company Rich Rice Raisers Factory LLC operating from Dubai, UAE takes care of the markets in the Middle East.

Even in India, Kohinoor Foods Ltd. has a wide-spread presence that boasts of an extensive and unmatched distribution network with more than 200 thousand retail outlets, 100 super distributors and 600 stockists.

And all that is supported by a strong Quality Control culture with dedicated and fully equipped QC centres and micro-biological labs, manufacturing and processing facilities that are HACCP and ISO 9001:2000 certified, US-FDA & FSA compliant as well as Kosher certified.

Kohinoor Foods Ltd. has emerged as an enterprise with very strong and dynamic fundamentals. And there's only one way things are looking - UP!

Kohinoor Foods Ltd. is no stranger to awards and recognition. And with its huge list of accomplishments, it’s really no surprise. Incredible as it may sound - 868,500 finest basmati grains flow out every second from Kohinoor factories. If on one hand, Kohinoor Basmati Rice is the first branded food from India to be served on board Malaysian Airlines, than on the other hand, Kohinoor has an elite list of customers that includes the Royal Palaces of Brunei, Emirates and the Sultanate of Oman. That’s not all, Kohinoor Foods Ltd. can be credited with a lot of firsts in the category-

• First to introduce one & five kg packs in the rice category – changing the way India buys rice

• First to start building brand in a traditionally commoditised market

• First to advertise rice in the Indian market

• First to bring automated packaging machines and color Z series Sortex machines to the country.

What’s more, the company has also received many prestigious and coveted awards - the APEDA award for fourteen consecutive years, Certificate from Guinness Book of World Records for making World's Largest Biryani, The National Award for Export Excellence, the Brand Equity award and a host of others. But the recognition that’s closest to the company is the one awarded by millions of satisfied customers across the globe who vouch for the authentic Indian taste it offers.

After operating in the basmati rice business for almost two decades, both in the India and the International markets, Kohinoor have not only gained a leadership position for themselves, but they have also come to understand that there is a huge potential in bringing Indian Specialties in their absolute authentic form to people all over the world. Indian food with its authentic taste has fans in huge numbers at almost any corners of the globe.

In this context, Kohinoor Foods have so far identified 6 different categories which could help the brand bring Indian Specialties in different forms to people all over world – The Indian Basmati Rice in which the brand has been operating for last so many years. The other identified categories are Ready-to-Eat Curries, Spices, Frozen Foods, Cook-in Sauces and Cooking Pastes. All together, this portfolio of different categories of products allows the brand to come out with a huge range of dishes. 

If you look at the brand Kohinoor is well-established in fact few years back it was selected as a super brand and it is probably the only rice brand in the country to be selected as super brand.

This company has got an excellent distribution network. They have close to 150 distributors, 600 stockiest and the product is sold at over 2.5 lakh retail outlets. Besides this, this company has got distribution network in place in more than 52 countries.

To summarise, you have a company, which has got a strong brand. It is available at significant discount to the price at which promoters increase their stake in the month of February. In fact, promoters increase their stake at a price of Rs 78, stock is available at Rs 65.

So it trades at a substantial discount to its 52-week high. Numbers – quarter-on-quarter (QoQ) have been quite good and I think the potential of the segment in which the company operates ready-to-eat food as well as rice, they are all driven by India’s domestic consumption story. So you have a company, which is trading at very sensible valuations and the product have got good potential and the downside looks restricted from the levels of Rs 55.

It is interesting to note that the total market capitalisation of Kohinoor is 1/5th of its annual sales and it is worthwhile to mention that MTR Foods was sold to a Norwegian company at 2.5 times its annual sales.

Below is the annual Income statement which shows consistent growth year on year.

Income Statement 2009-10    2008-09    2007-08   2006-07   2005-06

Revenue                 772.80     635.76      635.06      589.23      541.08

Other Income             3.12         2.10          2.58          2.01

Total Income          774.85     638.88      637.16      591.81     543.09

Expenditure           -659.11   -542.03     -552.38    -530.77    -491.35

Interest                    -65.74     -53.09       -69.11      -19.82      -15.58

PBDT                       50.00      43.76        15.67        41.22        36.16

Depreciation            -10.22     -10.72      -10.39      -10.40         -8.40

PBT                          39.78       33.04        5.28        30.82         27.76

Tax                           -2.49         6.17         0.04        -8.75          -6.25

Net Profit                   8.22       -10.79        5.32        22.07         21.51

Equity                       28.19        28.19      19.60        19.60         19.60

Reserves                 179.09      164.97     124.62     118.93             --

EPS                           2.92          -4.08        2.71        11.26        10.97

Overview:

• Available at 1/5th the price to sales ratio. Mcap of 180 crores as opposed to 850crores expected sales for 2010.
• Sunrise Indusry with huge potential for growth
• Prime takeover target-previous history-Temptation Foods Saga
• Previous takeover suggest that Price to Sales was 2.5 times(MTR Foods), with this being the benchmark the company may be taken over if it does happen at a valuation of atleast 1800crores
• Superbrand status-Kohinoor available in all stores including Reliance and otehr hypermarts and in 52 countries and almost in all the big supermarkets in all the western countries.
• Promoters are increasing their stake quarter on quarter and are even suggesting an open offer.

In my opinion, the food business in India is growing fast and will grow much bigger in the near future and Kohinoor has a huge business opportunity. This calls for an increase in the need for good packaging, good bottling, good bottle cap manufacturers, labels, cans, etc. We do not have enough people doing the right things when it comes to these, and these are in short supply. It is in this area that Kohinoor has a huge advantage. So that when the food business grows big, Kohinoor will be ready with all these provisions to make a good business themselves.

I recommend a buy in the stock of Kohinoor Foods from a Medium-to long-term perspective. It is apparent from the charts of the stock that it was on an intermediate-term downtrend from its September 2008 peak of Rs 130 till its July 2010 low of Rs 43. However, the stock reversed direction taking support from the significant support band between Rs 41 and Rs 43. Since then, the stock has been on a medium-term uptrend. While trending up, the stock surpassed 21 and 50-day moving average one after another and is trading well above these averages. I am bullish on the stock from a medium to long term horizon. I anticipate it to move up until it knocks my price target of Rs 130. 

Happy Investing

Prashant