The Indian Food Ingredients Sector: “Time to Spice it up”
by Nitin Jain
Nearly 50% of the Indian Food Ingredients market is comprised of food flavours, while the remaining 50% is in food emulsifiers, stabilizers, sweeteners, food enhancers and food preservatives, etc.
The Indian food ingredients market in most sub-segments has the Global MNC Companies (like Givaudan, IFF, Symrise, Firmerich etc. dominating the food flavours market in the country) operating at the high end of the market with focus on developing new products and perceived as providing consistent and reliable quality goods to large packaged food companies in the country. At the other end of the spectrum there are small Indian companies operating with revenues ranging from few lacs to low single digit crores. The market in the middle of this spectrum (companies producing value added products with revenues of over INR 10 cr) is largely non-existent and may be limited to 1 or 2 or maximum 3 Indian companies in that specific product category.
Given that a large part of this market is unorganized with small Indian companies operating, infrastructure on R&D to develop new products, flavours, textures, tastes is inadequate.
Limited interest from Private Equities and Public Market in the sector
The Food Ingredients sector in India has seen very few transactions and virtually no listed Indian Company, with the sole exception of the recently listed company, SH Kelkar. However, SH Kelkar is largely a fragrances company supplying to the personal care industry, with only 6% of its revenues from food flavours.
Below is a list of select transactions in the sector in the last 5 years or so.
|Date||Target Company||Investor/ Strategic Buyer||Type||Deal Size||Remarks|
|Jan 2017||OmniActive Health Tech||Everstone Capital||PE||$35 mn||OmniActive has emerged as the leading nutraceutical ingredient supplier to international markets from India|
|May 2015||Sonarome||Frutarom (UK)||M&A||$17 mn||Acquired 60 per cent stake in Bangalore-based fragrance and flavour maker Sonarome Pvt Ltd for $17.2 million|
|Dec 2014||Kancor Ingredients||V Mane Fils, France||M&A||NA||Kancor produces natural colours, essential oils, spice oils, mints and methanol|
|March 2014||Beloorbayir Biotech||Rabo||PE||$12 mn||The companies manufactures nutraceutical ingredients|
|Jan 2014||Saraf Foods||DSG Partners||PE||$1.6 mn||Saraf Foods manufactures freeze dried dehydrated food ingredients supplied to leading Food FMCG Companies|
|Nov 2013||Northern Aromatics’||Dabur India||M&A||$3 mn||Dabur India acquired Northern Aromatics’ Pantnagar manufacturing facility to manufacture its food products, Ayurvedic medicines and cosmetics|
|Jul 2013||VKL Seasonings, India||India Value Fund Advisors, India||PE||$40 mn||Funding will help VKL grow its domestic capacities and expand business development efforts in the Middle East & Africa|
|Sept 2012||SH Kelkar**||Blackstone||PE||$34 mn||Among players in India in the fragrance and flavour business|
|Mar 2012||Valentine Agro, India||Naturex, France||M&A||NA||This Indian company was created in 1994 and is specialised in the production of natural colours (annatto turmeric, etc.) and fruit and vegetable powders (tomato, beet, etc.)|
|Sep 2011||Tropilite||SEAF||PE||NA||Tropilite Foods Pvt Ltd. manufactures and distributes dairy and bakery ingredients|
Though the number of deals in the sector have been sparse, some of them have been sizeable and interesting like the recent $35 mn private equity funding of OmniActive Health Technologies. A company engaged in manufacturing and exporting of nutraceutical ingredients. It’s one of the few companies that have a dedicated R&D centre and have successfully developed nutraceutical ingredients for food fortification, dietary supplement and weight management. Their products are approved and well accepted by large nutraceutical companies in the US and Europe. The company had revenues of over INR 200 cr with EBIDTA of 20%+ in FY 2016.
Another interesting deal in the sector, we’d like to highlight is SEAF’s funding of Gwalior based Tropilite Foods. A company that manufactures food stabilizers for ice cream, cakes, jam stabilisers, and non-dairy whipped cream. Though this market in India is very small in size, the stabilizers and emulsifiers have been historically been supplied by MNCs like Danisco or small unorganized units operating in the country. Tropilite is amongst the very few organized Indian players in the market that have been able to grow. The company’s revenues have grown exponentially to nearly INR 100 cr in FY 2016 with healthy EBIDTA margins.
Falling commodity prices over the last few years have badly impacted the food ingredients industry. However, we believe it’s been a wake-up call for the industry to start to focus on value added products. For example, gaur gum prices had fallen sharply in 2015, and have further dropped by nearly 35-40% since then, leading to closures of several small gaur gum processing units. Despite downturn in the sector, some players have been able to sustain the top line and improve margins by substantially growing the gaur gum value added products like used in nutritional diet, as thickening additives or emulsifier or stabilizer agents in food production. Similarly, we see an increased emphasis on value addition in other commodities (including soya) where players that focused on just soya extraction have now started to produce soya lecithin liquid, lecithin powder, soya protein concentrate, texturized products, used in high protein food.
We think that the “change” in the Indian Food Ingredients sector has started and will gain momentum over time, as the industry – increases focus to develop new products, expand the basket of value-added products, grow exports, invest in R&D – all need to survive over the medium and longer term. Also, with this “change” in the industry, we are seeing a growing interest from the private equity community to invest in the sector, which will support and facilitate the sector to move to the next level.