company profile of basmati rice
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Transcript of company profile of basmati rice
SUMMER PROJECT REPORT
BASMATI RICE INDUSTRY
Made by:Anil Kumar Singh
MBA 1st Sem.
TABLE OF CONTENTS
Sno. Particulars Page no.
1 Global rice industry
2 International trade of rice
3 Indian rice industry
4 Basmati rice patent
5 Basmati rice industry
6 How is Basmati rice produced?
7 Industry drivers
8 Supply side of Basmati rice
9 Positives for the industry
10 Research Methodology
11 SWOT analysis
12 New markets
13 Future outlook of the industry
14 REI Agro
15 Kohinoor Foods
16 KRBL
17 LT Foods
18 Analysis
19 Limitation
20 Conclusion
21 Bibliography
22 Questionnaire
Global Rice industry
Global paddy production over the 2009 season has been lifted by nearly 10 million tonnes
to 678 million tones (454 mn/t on milled basis), the second highest production on record.
World rice production is expected to increase by 4% to 710 million tons (474 mn/t on
milled basis) in 2010 (Source: FAO).
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2005 2006 2007 2008 2009
Mn Tonnes
China India Indonesia Bangladesh Vietnam Others
Global Rice Price
Global rice price have increased at a CAGR of 16% from $173/t in 2001 to $570/t in
2009. The major reasons behind increase in global rice price during 2007 to 2009 were:
1. Temporary export bans and restriction implemented by several major and mid-level
rice exporters,
2. Weather related problem in specific growing areas,
3. A sharp decline in the value of dollar in fall 2007 and winter 2008,
4. A shift of fund into commodities from stocks and real estate in 2007 and early 2008
that added to price volatility and may have temporarily boosted price.
World Rice Price (US$/t)
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International Trade of rice
The current forecast for international rice trade in the calendar year 2010, at 31.2 million
tonnes, points to a 2.7 percent, or 800 000 tonnes, increase from the 2009 estimate and
much higher than forecast last June. The revision reflects larger import requirements by
those countries that faced important crop losses in recent months. If confirmed, trade next
year would be the second largest after 2007.
Source: FAO
Much of the expected growth is expected to be driven by larger imports by Asian
countries, which are foreseen to reach 14.8 million tonnes on aggregate, almost 7 percent
more than last year. Part of the increase would stem from increased purchases by Near
East Asian countries, in particular Iraq, Saudi Arabia and the United Arab Emirates,
while rice flows into the Islamic Republic of Iran may be depressed by large domestic
availabilities and a recent increase in the basmati rice tariff. Among countries in the Far
East, imports by Bangladesh, Nepal and especially the Philippines are forecast to rise to
offset recent losses from natural disasters.
Indian Rice Industry
Rice is one of the most important food crop of India and 2nd of the world. It feeds more
than 50 % of the world population. Agriculture is the main source of income for families
in India. Farms cover over half the land and almost 1/3rd is used to grow the two major
grains i.e. Rice and Wheat. India is the second leading producer of rice in the entire
world, preceded only by China. Current production of Rice in India is 87.5 mn tones. In
2010, the total area under rice in India was 43mn hectares. Rice Production has increased
at a CAGR of 2.9% from 71mn tones in 2003 to 87.5mn tones in 2010. It is expected to
grow at 99mn/t in 2011(Source: USDA). With an ever increasing population, demand of
rice has been increasing in the country. Thereafter, various efforts such as use of High
Yielding Varieties of rice, Hybrid rice, System of Rice Intensification (SRI) method,
responsive to high dose of fertilizers coupled with improved package of practices have
been made to increase the production & productivity in the country through various
centrally sponsored schemes
Rice production & yield trend
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Basmati Rice
The name Basmati comes from the Hindi language, meaning 'Queen of Fragrance'.
Basmati Rice has been grown in the foothills of the Himalayas for thousands of years. Its
perfume, nutlike flavour and aroma can be attributed to the fact that the grain is aged to
decrease its moisture content. When cooked, it swells only lengthwise, resulting in long
slender grains that are dry, separate and fluffy. Due to the high amount of starch clinging
to the rice grains, Basmati rice should always be washed before being cooked. Basmati
rice is known as the queen of rice. It is long grained, non glutinous and particularly good
for formal rice cooking. Basmati Rice is a simple grain yet throughout history it has been
on royal menus of various cultures as the main dish.
The Basmati Rice Patent
Basmati rice was developed by Indian farmers over hundreds of years, but in September
1997 a Texas-based company, RiceTec Inc., won a controversial US patent for a cross-
breed with American long-grain rice. This company was granted a patent to call the
aromatic rice grown outside India `Basmati'. RiceTec was granted the patent on the basis
of aroma, elongation of the grain on cooking and chalkiness. Many have felt that the
patent should not be granted since basmati is Indian property. India contested the patent
for Basmati rice acquired by Rice Tec Inc, which had been challenged by the Agriculture
and Processed Food Products Export Development Authority (APEDA). The US Patent
and Trademarks office accepted the petition and had re-examined its legitimacy.
Contrary to misinformation in some sections of the media, India did not lose the Basmati
Patent Challenge. India has actually won and not lost the Basmati patent battle. In its
original patent on 'Basmati rice lines and grains' - granted by the USPTO on September 2,
1997 - Rice Tec had made as many as 20 claims. Extensive documentation was submitted
to establish that the various Basmati varieties cultivated over the centuries in the
subcontinent contained all the 'novel' grain attributes mentioned in the patent. As a result
of a worldwide citizen campaign against RiceTec Basmati patents, on Aug 14th 2001 the
U.S. Patent and Trademark Office struck down large sections of the Basmati patent. In
other words, the withdrawal of the grain-specific claims ensured that Rice Tec would not
be able to block the country's Basmati rice export to US; it could, however, produce
'similar or superior grains' outside India.
Basmati rice industry
As mentioned above India and Pakistan are the only producers of Basmati rice in the
world. The total production in the year 2009-10 was around 4 million metric tones (mmt)
of which India produced 75% and the rest 25% was produced by Pakistan. Out of the
production of 3 mmt in India, around 1.8 mmt was exported and 1.2 mmt was consumed
domestically.
Trade in coarse rice is spread in several countries, mainly located in Asia, with first five
importers making 25% of overall rice trade in 2007. Basmati rice trade is rather
concentrated. In 2007, the first five clients of India had a share of 84.9% and those of
Pakistan 68.5% of respective Basmati export (India: 616.7 million USD; Pakistan: 556
million USD). India mainly exports Basmati to Saudi Arabia, European Union, Kuwait,
UAE and USA, whereas Pakistan does the same with UAE, Iran, Oman, European Union
and Yemen.
Basmati export (MMTPA)
Particulars 2003 2004 2005 2006 2007 2008 2009India Quantity 0.71 0.77 1.16 1.17 1.05 1.18 1.56
Value (Mn $) 415.80 433.70 628.50 687.30 616.70 1079.10 1958.1
Pakistan Quantity 0.72 0.82 0.81 0.84 0.91 1.27 Value (Mn $) 267.7 308.4 439.2 479.6 556.3 1068.9
Basmati trade is also concentrated by demand side. The first five importers made 44.5%
of overall market in 2007. Main importers are almost located in Middle East, although
European Union is the third importer.
Global Rice
Basmati Rice Other Varieties
India (75%)
Pakistan (25%)
Mostly ExportsDomestic
(40%)Exports (60%)
Full Grain BrokenMiddle East
(75%)USA/UK
(10%)ROW (15%)
Market Share in 2007-08 (% of total Export)
6%
10%
16%
46%
13%2%
3%
4%
Saudi Arabia UAE Kuwait United KindomYemen Republic USA Netherland Others
How is Basmati Rice produced?
The first and foremost step for the industry player to produce good quality Basmati rice is
to procure the best quality of paddy from the mandis. In India there are a total number of
220 mandis, which are highly diversified. Therefore the procurement skills of the
industry players play a significant role and make a vital difference among the
counterparts. There is a particular process by which paddy is purchased from the mandis.
It consists of the farmer’s (seller’s) commission agent (Kaccha aratya) and the company’s
(buyer’s) commission agent (Pakka aratya).
The company’s agent goes and buys paddy from the farmer’s agent. The company’s
agent needs to possess the required skills to determine whether the quality of paddy is
good or not. If he has a fair idea of the quality of paddy he will quote his price to the
farmer’s agent and the trade will take place. To develop good procurement skills one
needs a learning curve which comes through a lot of experience.
Farmer’sCommission agent
Kaccha aratya (Farmer’s agent)
Commission agent Pakka aratya
(Companies agent)
Trade Take place
Organized & Unorganized
players
Maturing
The key ingredient to produce full grain Basmati rice is the maturing period of the rice.
To have good quality Basmati rice it needs to be properly matured. A good maturing
period is generally from 12-14 months. For maturing of the rice proper infrastructure and
maintenance is required throughout the maturing process. There are a number of risks
involved in the maturing process of Basmati rice.
The biggest challenge of maturing Basmati rice is the money involved in it. As the
companies are operating at very high inventory days of almost a year the working
capital needs of a company is very high. Therefore a lot of capital is required in this
business.
Besides the challenge of working capital there are a lot of risks associated with the
insects that can hamper Basmati rice when it is stored in the godowns for about a
year. Insects, rodents, mites and fungi cause considerable damage to stored rice.
There are a total of 18 species of insects that infest stored rice in India. Some of them
are lesser grain borer, rice weevil and rice moth.
To overcome the challenges in maturing Basmati rice one can go to the intermediaries
who keep the rice for a particular period of time. But it increases the cost of funding for
the company. This will also result in increase in the price of Basmati rice and lower
margins to the companies as the intermediaries would eat out the margins of the
companies.
Milling
The processing and milling of rice is another important aspect of producing good quality
Basmati rice. The process of milling involves De-husking and grading which are the most
critical processes.
De-husking
This is one of the most critical processes of Basmati rice production because it decides
the price and the length of the Basmati rice. The full grain Basmati rice commands the
best price in the export and domestic market which is the ultimate focus of every
company.
Grading
When the paddy is processed we get various sizes of Basmati rice. Full grain, half grain,
three-fourth grain and so on. But the number of varieties of Basmati rice that we get from
the processing depends on the processing facilities used by the company. If the company
has a good processing facility it will get more varieties of rice, while if the company has a
sub standard processing facility the quality of rice will also be substandard.
One can also outsource the milling process but the disadvantage of it is the handling. But
then one does not have any control on the milling process. Moreover, the person to whom
one has outsourced might not have the facilities which grade rice in a number of different
varieties and this will result in less realization for the company.
Selling and Distribution
All the processes become irrelevant if the product does not reach the ultimate consumer.
Therefore like every business the distribution channels play a vital role in this business.
Different companies follow different types of distribution channels to reach their
customers.
REI Agro mainly supplies its products through wholesalers and its retail arm Six Ten
domestically. While on the other hand when we talk about the export market it supplies
its products through its owned brand and also through the brands of the companies
located in the foreign markets.
On the other hand the other companies such as Kohinoor Ltd., KRBL and LT Foods
supply their products through the branded route domestically as well as internationally.
Domestically they supply their products through kirana shops, wholesalers, retail chains
such as Reliance retail, Big Bazaar etc. These three companies are more into the branding
business as compared to REI Agro which is more into the private labeling segment.
In this regard Kohinoor Ltd., KRBL and LT Foods have an advantage that they have an
established brand which commands higher price in the markets as compared to REI Agro.
But due to the higher working capital cost and higher procurement costs, the margins of
these three companies are lower as compared to REI Agro.
Basmati Rice Industry Drivers
Domestic Drivers
India is one of the fastest growing economies of the world. With the advantage of the
demographics, India is poised to become one of the developed economies in the next 2
decades.
The following are the reasons which will drive the growth of Basmati rice industry in
India:
Increasing affordability
India is the fifth largest country in purchasing power parity and the tenth largest in sheer
quantum terms. In year 2008-09 India’s per capita income was estimated to be more than
$653 and is expected to rise to $2000 by the year 2016-17 (Source CSO). The average
household disposable income would reach Rs 3, 18,869 by the year 2025 at a CAGR of
5.3% resulting in an increased demand for Basmati. The average Indian is earning higher
than ever before. The estimated cumulative liquid wealth of the Indian affluent class is
poised to grow at 50% over the next three years.
Rising consumerism
India is expected to graduate from the 12th largest in the year 2007 to world’s fifth largest
by the year 2025 among consumer markets. There is a subtle shift occurring in the Indian
spending habit. Expenditure in life style and premium goods, rather than spending on
necessities, is projected to account for 70% of all consumers spending by the year 2025.
(Source Mckinsey report) By 2020, urban consumers are likely to represent 37% of the
population and still account for 62% of consumption.
Urban population in India, % of Total
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Change in taste & preference
The rise in per capita income has also resulted in increase in the demand for Basmati rice.
This is because more people can now afford to buy Basmati rice. The domestic
consumption of Basmati rice has increased from 0.35mn/t in 2003 to 0.78mn/t in 2009 at
a CAGR of 14.3%. The expansion of retail stores and hyper markets has significantly
contributed to the increase in the demand for Basmati rice. The share of branded Basmati
rice in total basmati consumption has seen an exceptional rise. With the increase in the
standard of living, consumers are shifting towards packaged rice and becoming brand
selective. Some brands of Basmati rice which have become household names are
Kohinoor, Daawat, Lal Quila and Charminar etc. The branded rice category is expected
to grow significantly over the next few years.
Increasing availability
The production of Basmati rice has more than doubled from around 1 mn/t in 2003 to 2.3
mn/t in 2009 respectively. This will continue to grow as the demand from both domestic
and international markets is constantly increasing. Moreover, the farmers are increasing
the production of Basmati rice, because the production cost of Basmati rice is marginally
higher compared to production cost of non-Basmati rice. But the realization from
Basmati rice is higher compared to non-Basmati rice. Moreover, it is a premium variety
of rice, which generally sells at premium prices in the domestic as well as international
markets. Basmati rice paddy sells at around Rs 28-32 per kg, while the normal rice paddy
sells at around Rs 10-13 per kg. But there is a huge difference in the selling price of
Basmati rice (average Rs.70-75/Kg) and normal rice (Average Rs.25-30/Kg), which is
forcing the farmers to increase the production of Basmati rice.
Global market drivers
Basmati rice can only be produced by 2 countries in the world i.e. India and Pakistan. No
other country can produce Basmati rice as these 2 countries hold the patent to produce
Basmati rice. The following are the reasons which will drive the growth of Basmati rice
industry globally:
Increasing affordability
The Middle East accounts for 75% of exports of Basmati rice from India. Due to the
better quality of rice, aroma, flavor and taste there is a huge demand of Basmati rice
globally. Theses countries are developed and cash rich, therefore they are able to pay the
premium for Basmati rice over the non basmati rice. The realization on exports of
Basmati rice is more than the domestic sales, so it is incentive to export Basmati rice.
Moreover India and Pakistan enjoy a kind of monopoly in this business which further
helps them to command a greater price from the global market.
Supply side of Basmati rice
Increasing farmer awareness
Nowadays, with the help of the various social campaigns and advertisements from the
fertilizer and seed companies, farmers are shifting towards high yielding production
methods. Some of the techniques like High yielding variety (HYV) of seeds, hybrid rice
and various new methods such as system of rice intensification (SRI) are being used by
the farmers to produce high yielding rice. The production cost of Basmati rice is
marginally higher compared to non-Basmati rice. But there is a huge difference in the
selling price (average Rs.70-75/Kg) of Basmati rice and normal rice (Average Rs.25-
30/Kg), which is forcing the farmers to increase the production of Basmati rice. Due to
the awareness of the various production techniques farmers will make more profits by
producing it. So a farmer is shifting his focus from the production of non-Basmati rice to
the production of Basmati rice.
Assured off take of Basmati rice
The demand for Basmati rice is constantly increasing in both domestic as well as
international markets. On YoY basis the exports of Basmati rice have increased
tremendously. It is evident from the fact that in the last 10 years the exports of Basmati
rice have never reduced. The export market of Basmati rice has increased tremendously
over the last few years. Similarly the domestic consumption is also increasing because
more and more people are shifting towards Basmati rice due to its quality, aroma, flavor
and taste. Players in both organized and unorganized market are increasing the
procurement of Basmati rice, as the demand in both domestic and international markets is
increasing. Indian basmati rice will shortly enter the kitchens in China and Mexico. At
present, basmati is exported to over 130 countries, and the government hopes to tap the
huge markets of China and Mexico in a couple of years. Therefore the farmers are
assured that whatever they will produce will be consumed either domestically or
internationally.
Positives for the Basmati industry
The major paddy growing states of Punjab, Haryana and Uttar Pradesh, are likely to see
20-25 percent decline in non-basmati rice production this kharif season on account of
decrease in the crop sowing area due to low rain and shift towards basmati rice, an
Assocham survey said.
In 2008-09 - Basmati Rice Production 35 lacs Tons and In 2009 - There was 50 percent
increase in the basmati rice area in Punjab and Haryana, the study said. Moreover, it
was observed that a large proportion of cultivation area has been shifted from non-
basmati rice sowing to basmati rice sowing (PUSA 1121 variety of basmati rice) in
Punjab and Haryana.
It is the inclusion of the PUSA 1121 variety in basmati rice category which gives better
returns as it yields about Rs 65,000 per acre against Rs 30,000-35,000 per acre that one
garners from the non-basmati varieties.
A tremendous demand for basmati rice in the international markets has seen the
country's basmati rice exports increased from about USD 470 million in 2000-2001 to
about USD 1900 million during 2008-09.
Owing to the government of India's decision to reduce the minimum export price
(MEP) of basmati rice, the country's basmati rice exports are expected to surge by a
whooping 33% during the season starting October. India's Food and Agriculture
Minister Sharad Pawar had announced lowering of MEP of basmati to $ 900 PMT
from the level of $ 1,100 PMT.
In the new season starting October, almost half of the 2.5 million tonnes labeled
basmati leaving India will reach Iran. When 50% of your eggs are in one basket, you
tend to watch it rather carefully. That is what Indian industry is doing.
Iran also pays top-notch prices for India’s Pusa Rice 1121. Who ever imagined that the
variety Pusa 1121, fetching around $200/t.
Saudi Arabia still buys up to 750,000 tonnes basmati from India, it is a tough bargainer.
SWOT analysis of Indian Basmati Rice industry
PUSA 1121 – New addition to the Basmati rice family
Pusa 1121 is an evolved variety of Pusa Basmati rice developed by Indian scientists. This
variety of rice is known for its extra ordinary length and after cooking elongation. It has a
milder aroma, but scores equally, if not more, on other basmati traits. Having yield of
13.7 quintals per acre, it possesses extra long slender grains with good cooking quality
and it has longest cooked rice length among all the aromatic rice varieties. The length of
grain of Pusa 1121 rice can be as long as 9.5mm. The area under cultivation of Pusa 1121
is the maximum in the states of Punjab and Haryana. In the year 2009, an estimated one
million hectares was sown under Pusa-1121 in Punjab and Haryana alone – more than
twice the area in 2008. During 2009-10, the country exported around 2.6 mt of basmati
rice, of which 1.3 mt is believed to have been constituted by Pusa-1121. The export
realizations averaged $1,100 a tonne for parboiled and $ 1,400 for white rice, translating
Weaknesses
Lower net marginsdue to littledifferentiation
High workingcapital requirement, reducing return on capital
High dependenceon monsoons
High dependenceon Middle East
Opportunities
Consumer’sAbility and willingness to payfor better qualityproducts
Increaseddomesticconsumptionto drive due to favourabledemographics
Greater access to global markets
Threats
Emergence oflow cost substitutes by Pakistan exporters
Improvedperformance by Pakistan exports
Significant change in govt. policies could disrupt the business
Strengths
Our global dist. network consists ofboth exclusive andnon exclusivedistributors
Our portfolioconsists of all kinds of Basmati rice
Advanced surveytechnologies help us in optimizing our procurement process
into revenues of over $ 1.5 billion from a single variety. Besides the 1.3 mt exports,
roughly 0.15 of Pusa-1121 was also consumed within the country. But that was still
insufficient in relation to the sheer size of the produce.
Most of the people related to the industry are talking about the ill effects on traditional
basmati rice due to higher production of Pusa 1121. Even the farmers are switching
towards Pusa 1121 because of its higher yields and lower cost. Industry is also expecting
the production of Pusa 1121 to be roughly around 1.6 mt by the year FY11. As Pusa 1121
had been accorded Basmati status by the centre and state government last year, the
overall basmati production (including Pusa) will increase in future. Currently the average
selling price of traditional basmati rice is around Rs 70-75 per kg which is higher
compared to average selling price of Pusa which is around Rs 45-50 per kg. Due to
higher production and supply in the market at a reasonable price domestic consumption
of Pusa will increase in the future from current level of 0.15 mt. So going ahead we might
see a pricing pressure in the branded segment which will affect the overall profitability of
the players like REI Agro, Kohinoor, KRBL and LT Foods. But we believe it will benefit
the industry in the long term.
New markets
State run Agricultural and Processed Food Products Export Development Authority
(APFPEDA) said that Mexico has contracted for the basmati rice and China is expected
to open a market for premium rice soon. Existing buyers are aiming to raise their
purchases. The South Asian nation is also aiming to push sales in relatively new markets
such as Japan and Australia. Currently, the United Arab Emirates, Saudi Arabia, Iran and
the U.K. are the top four buyers of the premium rice from India.
New markets
China Mexico
Japan Australia
Future outlook of the industry
Exports of Basmati rice from India is likely to rise this year with production slated to
increase by at least 10 lakh tonne.
According to industry estimates, export of Basmati rice this fiscal is likely to touch 20
lakh tonne against 16-17 lakh tonne last fiscal. Export of Basmati rice from India has
been growing at a rate of 50-60%, according to estimates.
Production of Basmati rice in the country is likely to go up to 50 lakh tonne this year
from 40 lakh tonne last year, pulling down procurement price of the crop.
Faced with competition from the Super variety of rice from Pakistan, Indian Basmati
prices in the international market have also come down. The prices of Pusa 1121 this year
is between $1,100 and $1,300 per tonne. Super variety of Basmati, which tastes similar to
Pusa (a lower variety) from India, has a price of $1000 per tonne.
Last year, India exported 8 lakh tonne of Basmati rice to the country after which Iran
suddenly put restrictions on Indian exports on alleged presence of heavy metals in the
Indian crop.
Earlier, Iran used to buy rice from Thailand and Pakistan before shifting to the Indian
crop a few years ago after 1121 was introduced in the country.
Moreover India will get the advantage of its demographic changes. Presently the Basmati
rice consumption domestically is very low because of the premium prices. But with the
addition of the low price Pusa 1121 variety to the Basmati rice family the consumption of
Basmati rice will increase in the domestic market. As shown in the graph below the
maximum growth of population will take place in the age group of 15-64 i.e. the working
class. As the working population of the country will grow, changes are bound to occur in
the standard of living and taste and preferences of the people. Therefore, the demand for
Basmati rice is poised to increase in the next few years.
Population in millons
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REI Agro
Company background
REI Agro was established in the year 1994 by Mr. Sundip Jhunjhunwala. The company
was formed with a vision to consolidate the fragmented basmati rice industry. In a short
span of time it has risen to the position of an undisputed leadership in the industry. A
unique business model, out of the box approach of the management, and the goodwill of
the customers have enabled the company to consolidate on its leadership position. In the
beginning the company focused more on processing rice rather than the sale of branded
basmati rice. But as the company has comfortably established itself in the industry it has
started sale of branded basmati rice as well. Lately the company has entered in wind
power generation as well with a total generation capacity of 46MW wind farms, located
in Rajasthan, Maharashtra, Tamil Nadu and Gujarat.
The company processes rice with the state of the art rice processing unit supplied by the
world leaders in food processing equipments. Today the company caters to the domestic
and international markets through its branded and indirect sales.
Brands
REI Agro offers a wide range of brands in Basamati rice. It offers various brands under 3
heads namely Premium, Midrange and Economy.
6Ten Retail
REI Agro launched 6Ten chain of retail outlets in the last quarter of the fiscal of 2006-07.
Currently 6Ten is operating 344 stores in the NCR, Chandigarh, Mohali, Panchkula,
Jalandhar, Ambala etc. Some part of domestic sales of Basmati rice is done by 6Ten
though it is a separate company from REI Agro.
Production and capacity utilization trend
REI has increased its processing capacity on YoY basis over the last few years with the
total processing capacity of 902280mn/t p.a. The capacity utilization of the company has
increased from 62.5 % in the year 2003 to 75 % in 2009. The production has also
increased from 194000mn/t to 430000mn/t in the same period. There was a fall in the
Brands
Premium
Kasauti
Mid-range
Mr. Miller, Hungama
Economy
Hansraj, Raindrop
capacity utilization in the year 2007 due to substantial capacity ramp up during the year
but after that it has only increased and touched new highs.
Production and Capacity utilization trend
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Production of Basmati rice at REI
REI Agro processes Basmati rice to make it excel for the quality conscious market. The
production of Basmati rice goes through a series of processes:
Procurement of Paddy
The first and foremost step in producing good quality Basmati rice is the procurement of
the best quality of paddy. The quality of paddy will ultimately determine the premium it
will command. REI’s huge presence in 170 mandis out of 220 mandis in Northern India
gives the company first mover advantage and allows it to procure the best quality of
paddy for the production of Basmati rice. Due to the huge presence REI procures around
17% of the total basmati rice paddy produced in India.
Processing and maturing
There’s a common saying for Wine that “the older it is, the better it is” and therefore it
commands a premium price over the other wines. The same holds for Basmati rice as
well. At REI before starting with the processing of Rice, paddy is kept for around 18
months which is the longest ageing period of any company in the industry. The matured
paddy is then processed with the help of the state of the art facilities at the company.
Utmost care is taken by the experts who make sure that each grain of rice produced
conforms to strict corporate policy.
Distribution and consumption
REI Agro has a huge network of distribution with around 500 distributors across the
country. The company also supplies to its subsidiary company Six Ten which is an
alternative vehicle to access the domestic customers. The sorting of rice is done at 6
different points which gives the company an advantage to offer Basmati rice at various
price-points with various varieties. This helps in increasing the revenues for the company.
Maturity period
02468
101214161820
2003 2004 2005 2006 2007 2008 2009 2010e
Agein
g (
month
s)
On YoY basis the company has increased its maturing period of the basmati rice by
holding more inventory than the previous period. This has helped the company in getting
a higher yield of the full grain rice from paddy. Due to the higher yield of the full grain
rice the margin and head rice yield of the company has substantially increased over the
last 5 years.The following is being represented by the EBITDA margins of the company
which have increased from 8% to 18% over the last 5 years. But higher maturing period
also increased the company’s financial leverage ratio.
Head Rice yield
As the company has increased its maturing period of rice to around 18 months it has
enabled to produce more of full grain rice, which will definitely command a premium
over other rice. Over the last 7-8 years the company’s yield of head rice has increased
from 30% to around 54%. The other players in the industry are still operating at 40%
head rice which gives an enormous advantage to the company.
Head Rice yield
30 36 39 43 47 49 49 54
37 31 28 24 20 18 18 13
33 33 33 33 33 33 33 33
0
20
40
60
80
100
120
2003 2004 2005 2006 2007 2008 2009 2010 E
Head rice % Broken rice % Others %
Kohinoor Foods
Company background
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.
To be a globally competitive organization, Kohinoor Foods Ltd. has strategic bases in
US, 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.
Brands
Kohinoor Foods Ltd. is more into the branded segment so it offers a wide range of brands
in Basmati rice. Some of the leading brands are as follows:
Production capacity
The rice factory at Murthal, Haryana is one of the largest in the country with an
unbelievable milling capacity – 50 metric tonnes per hour. Not only that, the plant is ISO
9001:2000, HACCP and BRC certified along with being EUFSA and USFDA compliant.
Fully automated through the entire chain of processing and final packaging, the factory
uses the world’s best technologies and equipment for churning out rice grains that can
only be described as impeccable.
365
Charminar
KohinoorSilver
KohinoorGold
KohinoorPlatinum
KohinoorSuper
Brands
Also, the manufacturing facility has a strong scientific procurement system. The
company has contract farming to ensure consistency of agri produce and control on the
entire value chain of basmati. In addition to that, an able, technical team of procurement
personnel takes care of what is sourced for produce. The entire chain is documented to
the minutest detail ensuring 100% traceability as per international norms.
Facts about the Rice Factory:
Area of about 36 acres with a production capacity of 1000 metric ton per day.
One of the largest storage capacities – 20,000 metric ton of rice; 50,000 metric ton of
paddy
5 milling lines with milling capacity of 6 metric ton per hour
Mechanical Dryers with paddy drying capacity of 1000 metric ton per day
Silos attached with dryers for safe storage of paddy (8 silos with 300 metric ton
capacity and 3 silos with 500 metric ton capacity)
Parboiling capacity of 500 metric ton per day
Semi-automated packing plant with imported metal detectors and check weigher
systems
Most versatile packaging offered, ranging from Jute & Cotton Bags to Laminate
Pouches, Pet Jars, Paper & Tyvek Bags to Non-Woven Fabric Bags
Paddy Procurement
Kohinoor Foods Limited does the procurement of paddy in a very scientific way, with a
lot of research work behind it. The company gives the farmers all the help they need in
bringing up their crop with good vigor and health. R&D teams regularly visit the farms
and advise the farmers with the status of their crop and remedies of diseases, if any. This
is done right from sowing to transplanting and harvesting of the crop.
Before the harvesting happens, Kohinoor Foods Limited draws samples from different
zones and tests them in the laboratory. They are tested under various parameters of the
company. The zones that conform to the quality standard norms of the company are
selected for the procurement of the paddy. The paddy is received and stored in controlled
atmosphere with tight pest control measures.
Organic Basmati rice
Looking at the stressful life and heightened awareness of health among the consumers,
Kohinoor Foods Limited conducts contract farming for growing Organic Basmati Rice.
This is done in Dehradun, India – one of the places where Basmati Rice originated. The
company procures Organic Basmati Rice by coming in direct contact with the farmers,
helping them in production and by using the required technology. The company’s
‘Organic Basmati Program’ is in collaboration with Uttarrakhand Government of India
under their ‘Organic Basmati Export Program’.
Kohinoor Foods Limited has contracts with 8 big groups of farmers comprising a total of
1128 farmers. What started with a small area of about 110 hectare in 2005 is today
extended to around 750 hectare. The total area of farming Organic Basmati Rice is
intended to cross a target of 1200 hectares soon.
KRBL
Company Background
India's first integrated rice company, they are also the world's largest Basmati rice
exporters and leaders in innovation across the value chain, from seed development and
multiplication (QSDIP program) to contact farming and marketing. KRBL is the largest
exporter of Basmati rice in India (Basmati sales account for 85% of KRBL's total
revenues) & its packaged Basmati products have gained a brand image of their own.
Today, the Company holds 11 % market share of the total Basmati exports from the
country and has strong presence internationally in markets like Saudi Arabia, Kuwait, US
& Middle East, which account for 80-85% of KRBL's total export revenues.
Energy Division
The Company has three power plants as shown above. In 2008-09, the Company's energy
division constituted 0.56% of the total revenues. The total divisional sales accounted for
Rs. 740 lacs.
Manufacturing Capacity
KRBL acquired an integrated rice processing plant at Dhuri (in the state of Punjab) in
FY06 at a cost of Rs. 1,580 lacs. With this acquisition, KRBL became the largest rice
miller in the world with a total capacity of 195 MT/hr, including 150 MT/hr capacities at
Dhuri & existing 45 MT/hr capacities at Ghaziabad. The plant also has rice bran oil
capacity of 42 MT/day. The Dhuri facility is expected to be a major catalyst for future
growth of KRBL. The facility also enjoys mandi tax exemption (4% tax exemption upto
August 2015) that could enable it to market its produce at a more competitive price. Also,
Energy Division
10.5 MW power plant in Punjab
3.5 MW plant in Ghaziabad
12.5 MW plant in Maharashtra
most of the paddy requirement for this plant would be met by procuring it from Punjab,
thus leading to savings in the logistics cost.
The Ghaziabad plant is currently working on 90% capacity utilization. The Company is
in the process of commissioning a state-of-the-art packaging plant, with hands-free,
imported machines, at an investment of Rs. 1,500 lacs. Focusing on extensive health and
hygiene, the high-end packaging plant caters to the needs of modern retail in US, Europe.
Both the Ghaziabad and Dhuri units have world-class milling facilities that enable the
Company to produce quality rice and better head rice quantity. The Delhi-based Grading
plant separates milled rice (mixture of different sizes: whole grain, head rice and broken
rice).
Expansion plans
Going ahead, the Company plans to earmark investments to the tune of more than Rs.
7,500 lacs in capital assets during fiscal 2009-10, mainly in storage, packaging and
finishing of rice for exports.
Revenue Model
Value added products make a difference
KRBL has achieved significant success in deriving and marketing of by- products from
the milling of rice. KRBL is has also set up a husk fire power plant. The company will
use husk to generate power at very low cost. Approximately 50 % power will be used for
internal consumption thus reducing the power cost substantially. The balance will be
sold. Ash from the process will be converted into amorphous silica used in cosmetics &
cement industry. All these activities will help the company to improve on its bottom line.
LT Foods
Company background
In 1965, Bhikiwind, in a little village in Amritsar (Punjab, India); Shri Raghunath Arora
started a small trading company which grew from being a commissioning agent to a
partnership firm by 1977, as Lalchand Tirathram Rice Mills. In 1978 Mr. V.K.Arora
joined the family business with his father, with a clear vision of taking his company to a
global level. In 1980, the company started exporting Premium Rice.
Simultaneously, the company decided to face the challenges in domestic markets by
setting up a modern, state-of-the-art rice factory in Sonepat, Haryana in 1984.
Unorganized players with inconsistent quality products were crowding the market. In this
scenario, Mr. V K Arora felt the need to promote branded and packaged products. In line
with this vision, the company started the business of milling, processing and marketing of
branded basmati rice and manufacturing of rice food products in the domestic and
overseas market.
About the Company
The milling capacity of the capacity as on July, 2008 was 50 million tonne per hour. The
company exports Basmati rice to almost 40 countries worldwide. The exports contributed
around 48% to the total revenues of Rs. 695 crores in FY 2007-08. Exports are growing
at a CAGR of 15% over the last 4 years.
LT Foods is ranked among the top 10 food processing companies in Northern India. It
is ranked among the top 50 companies by Dun and Bradstreet 8th Edition of India’s
Top 500 companies 2007. Daawat is registered as one of the premium and top basmati
rice brands in the country.
It bought US based $20-million Kusha Inc. in Dec 2007, post which Daawat group’s
share in the US retail market increased from 7% to about 51%, making it the largest
basmati rice retailer in the country. First time in the Industry, an Indian rice player had
acquired a US Company.
In the last two years Country’s top line has grown by 20% while net profit has gone up
by 2.5 times
In 2007, LT Foods set up State-of-the-art plant set up in the Mandideep, Bhopal (MP)
for Parboiled Rice, which has huge demand in export markets.
Profit after Tax, INR Crores
0
5
10
15
20
25
30
35
2005 2006 2007 2008 2009
Indian Subsidiaries:-
Dawaat Foods (P) Limited
The wholly owned subsidiary of LT Foods Ltd. (formerly known as LT Overseas Ltd.)
was set up with state of the art technology, milling unit in Mandideep, Bhopal, for
production of parboiled rice. Rice processed here caters to the institutions and
requirements of Middle East markets as well. The company has made an investment of
23.5 crores in this subsidiary.
Nature Bio Foods Limited
The company recognized that organic food is the future of the world and in the same
direction, company initiated steps few years back. For the same, the wholly owned
subsidiary of the company was incorporated to cater the need of organic market which is
approximately a market of 22 billion dollar world wide and growing with the peace of
10%.
Staple Distribution Company Ltd.
Looking at the potential and boom in retail business, Staple Distribution Company, a
wholly owned subsidiary of the company has been incorporated to play and establish
itself as a backend player for Modern retail.
LT International Limited
LT International Ltd., a subsidiary of the company is engaged in trading of varied
merchandise.
Overseas subsidiaries
Kusha Inc.
Kusha Inc. is the largest distribution company in U.S. with the brand name “Royal” and
the said company have been acquired in December 2007 by LTO North America Inc. - a
wholly owned subsidiary of LT Foods Limited. This acquisition has increased our market
share from 7% to 52% appx in U.S. market.
LT Foods North America Inc.
LT Foods North America Inc., a wholly owned subsidiary has been formed in California,
to capture market share as well as to strengthen our presence in U.S.
Sona Global Limited & Nice International FZE
Middle East market has a potential and to capture market share and strengthen our
presence Sona Global Limited Dubai and its subsidiary Nice International FZE, Dubai
were formed and these are engaged in trading of rice and rice products in the Middle
East.
Value chain
The value chain of the Basmati rice industry is being summarized in the following
diagram. The Pucca Artiyas or the agents of the companies purchase raw paddy from the
farmers and keep it with themselves for 2 months. The stockists or the company if incase
the company is fully integrated like REI Agro keeps the paddy for 4 months before the
raw paddy is properly milled and graded. The milled rice is again kept by stockists for 4
months before it is disbursed to the distributors. Before distributing to the wholesalers
and exporters the distributor matures the rice for 2 more months. Finally fully matured
rice reaches the retailers who sell it to the ultimate consumers.
Since it is a very long value chain a player can enter and exit at any point. But the entry
or the exit of a player is very important as it will determine the margin and the working
capital requirements for that particular player. A company like REI Agro who is a fully
integrated player from purchase of raw paddy to finally selling it to the ultimate
consumer will have a higher margin. It will also have the highest working capital
requirement in the industry as it will perform each and every function from procuring of
raw material to finally selling the finished product. As we can infer from the diagram the
money will be blocked for around 18 months, so the fully integrated player will have the
maximum requirement of working capital.
EBITDA margins
0%
5%
10%
15%
20%
LT Foods KRBL Kohinoor REI Agro
2007 2008 2009
As against this if a player wants to enter at a later stage he will have less requirement for
working capital. His margins would also shrink as the intermediaries would eat out the
margins for providing the relevant services of storage or maturing on behalf of him. That
is why players like LT Foods, KRBL and Kohinoor Foods who are more into the
branding segment have fewer margins as compared to REI Agro which is evident from
the graph given above. They focus more on brand building and rely on trading as well
because they are not fully integrated as REI Agro. This also means that the pressure of
working capital requirements is less on these companies.
Ultimately it’s the decision of the player to enter or exit at anytime as the value chain is
very long in case of this industry. But pros and cons are also associated with the timing of
the entry or exit by the company.
ANALYSIS
Paddy purchase
REI Agro has an advantage over the others when it comes to procurement of paddy from
the mandis. It purchases paddy from 170 mandis out of 220 mandis of India which gives
him a first mover advantage. It buys almost 17% of the Basmati paddy produced in India.
Bulk purchase of paddy and prompt payment to the farmer’s agent by REI also allows
him to get a discount of 6-10% as compared to other players of the industry. Because of
the huge participation in the market i.e.17%, REI agro sets the price of paddy which
others follow.
Being a fully integrated player, REI Agro purchases the paddy directly from the mandis
through its agents and performs all the functions from milling to distribution on its own.
On the other hand the other players do not have the required skills, facilities, working
capital and infrastructure to produce all of the Basmati rice on their own so they also rely
a bit on trading of Basmati rice. These players purchase paddy in small quantities and
sometimes they purchase from REI Agro or other agents as well which drags down their
margin because of the higher cost of procurement.
Processing facility
REI Agro has an advantage as it has the best processing facility in the industry which has
a good grading process that enables it to get 6 varieties of rice, when compared to its
counterparts who get only 2-3 varieties of rice. Moreover the company also has the Ultra-
violet machine which removes the rice, which consists of the black spots and other
damages. This enables it to get greater realization as compared to other players. The
details of the Gross Block of the top players are given below which shows the amount
spent by companies on their processing facilities and other infrastructure. The following
chart clearly depicts that REI Agro has spent the maximum amount on building its
infrastructure and other facilities to get the better product with good quality, which gives
them the best realization and margin in the industry.
Gross Block (in million Rs)
0
1000
2000
3000
4000
5000
2005 2006 2007 2008 2009
LT Foods KRBL Kohinoor REI Agro
Maturity period
Inventory days
0
50
100
150
200
250
300
350
400
2005 2006 2007 2008 2009
LT Food KRBL kohinoor REI agro
Among the industry players, REI Agro has the longest inventory days of 344 days
compared to industry average of around 266 days. Due to its backward integration of the
business from procurement to selling the product, company has all the facilities and
capacity, which requires the higher no. of days for maturing process. Other players are
not fully integrated, they either purchase paddy from the farmers & matured it till 240-
260 days or they outsource some of the paddy from the REI agro. Lesser no. of maturing
days affects the quality, size and realization of the basmati rice, which ultimately reflects
in the profitability and margin of the company. Hence, higher maturing days gives REI an
edge over the others in terms of quality, quantity, size and realization, which resulting in
better margin compare to industry players.
Financials
Working capital to balance sheet ratio
65%
70%
75%
80%
85%
90%
2005 2006 2007 2008 2009
LT Foods KRBL Kohinoor REI Agro
Because of the higher inventory days, the requirement of working capital is huge in this
industry. REI Argo’s working capital to balance sheet ratio is 87% in 2009 which is
highest as compared to its peers which are averaging at around 79%. As the company is
fully integrated from procurement to selling, the working capital need for the company is
the maximum in the industry. On the other hand, other players of the industry outsource
some of their work to the intermediaries which reduces the working capital requirement
for them.
Similarly the debt-equity ratio of REI is 4.9 in the year 2009 as compared to other players
such as KRBL, Kohinoor and LT Foods which are at 1.43, 3.48 and 4.1 respectively.
Although the working capital to Balance sheet and debt equity ratio is very high of REI
Agro the margin of the company is also the highest in the industry. This is because it has
a very long maturity period with the help of which it produces the best quality rice in the
industry. Therefore, the price of rice produced by it commands premium over the rice of
others which ultimately helps in increasing the margin of the company.
Return on equity
-10%
-5%
0%
5%
10%
15%
20%
25%
2005 2006 2007 2008 2009
LT Foods KRBL Kohinoor REI Agro
Return on capital employed
0%2%
4%6%
8%10%12%
14%16%
18%20%
2005 2006 2007 2008 2009
LT Foods KRBL Kohinoor REI Agro
The inventory days of the companies in the industry are very high due to which they
require huge working capital to run the business. As mentioned above, not all the players
are fully integrated as REI Agro, which has all the facilities from procurement to selling
in place. The company has the highest processing and maturing capacity compared to its
peers which requires huge capital. Due to higher working capital debt and huge capex,
interest and depreciation costs of REI Agro drags down the overall profitability of the
Business. While other players do not have all the facilities in place so they outsource
some of their work to the intermediaries which requires lesser working capital and capex.
Therefore, the other players have an edge over REI Agro which has better return ratios
which follows outsourcing business model.
Similarly when we talk about the advertising expenses of various companies REI Agro is
far behind its peers. It is not even visible if we look at the chart below. KRBL and
Kohinoor Foods are the ones that incur maximum expenditure on advertising and
promotion. This shows how REI Agro is different in terms of its business model when
compared to its peers. REI Agro is more into the volume and private labeling business
while the rest of the players are into the branded and packaging business. The brands of
the companies such as LT Foods, Kohinoor and KRBL have become household names.
Examples: Charminar, Daawat and India gate etc. The advertising expenses incurred by
the companies show that exactly. While REI Argo’s brands such as Real Magic and
Kasauti are never heard by a common man.
Advertising expenses, INR million
0
50
100
150
200
250
2005 2006 2007 2008 2009
LT Foods KRBL Kohinoor REI Agro
The business of Basmati rice is such that a lot of debt is involved as a lot of capital gets
blocked in the maturity period of rice. Therefore, the Debt equity ratio of all the players is
relatively high. KRBL has the lowest Debt equity ratio among all the players because the
company is more into branding business. On the other hand in 2009 the ratio was highest
for REI Agro because it is more into the volume business in which everything from
production to distribution is done by the company itself.
Debt equity ratio
0.00
1.00
2.00
3.00
4.00
5.00
6.00
2005 2006 2007 2008 2009
LT Foods KRBL Kohinoor REI Agro
Financials of all the companies in the organized market
KRBL 2005 2006 2007 2008 2009EBITDA 8.1% 11.4% 12.5% 14.4% 14.9%
EBIT 6.6% 9.8% 10.6% 12.0% 13.1%
PBT 5.1% 6.7% 6.3% 6.6% 7.0%
APAT 3.2% 4.4% 5.4% 5.5% 5.0%
RoE 10.0% 13.3% 15.9% 15.2% 15.6%
Debt- Equity ratio 1.8 1.9 1.6 2.1 1.4RoCE (EBIT on TCE) 7.1% 10.8% 12.8% 10.9% 17.2%
Days
Inventory 220.4 190.1 232.4 305.8 219.2
Debtors 64.0 71.7 36.1 66.2 19.7
Creditors 31.1 14.4 72.1 69.5 40.3
L T Food 2005 2006 2007 2008 2009EBITDA 6.4% 7.8% 9.5% 11.6% 14.8%
EBIT 4.4% 5.7% 7.8% 9.5% 12.9%
PBT 1.8% 3.0% 4.3% 4.8% 3.4%
APAT 1.4% 2.8% 3.8% 4.2% 2.8%
RoE 9.8% 18.6% 17.5% 22.0% 17.0%
Debt- Equity ratio 3.93 3.67 2.43 3.87 4.09RoCE (EBIT on TCE) 6.3% 8.4% 10.8% 10.4% 15.4%
Days
Inventory 175.9 166.2 169.5 242.4 217.7
Debtors 63.0 40.7 52.1 53.5 48.3
Creditors 199.0 178.7 189.2 226.2 214.2
Kohinoor Food 2005 2006 2007 2008 2009EBITDA 7.4% 8.1% 9.9% 10.6% 13.3%
EBIT 6.1% 6.4% 7.9% 8.6% 11.6%
PBT 4.1% 4.4% 4.8% 0.7%
APAT 3.0% 3.1% 3.4% 0.7% 6.0%
RoE 15.8% 15.3% 15.7% 3.4%
Debt- Equity ratio 3.0 3.6 3.8 4.1 3.4RoCE (EBIT on TCE) 8.0% 7.3% 7.7% 8.1% 9.5%
Days
Inventory 205.3 219.8 247.3 259.5 284
Debtors 34.3 37.7 52.4 61.7 57
Creditors 33.2 32.2 42.1 34.7 34
REI Agro 2005 2006 2007 2008 2009EBITDA 10% 16% 18% 18% 18%
EBIT 10% 15% 17% 16% 17%
PBT 6% 11% 10% 7% 4%
APAT 4% 7% 8% 6% 2%
RoE 20% 20% 20% 19% 10%
Debt- Equity ratio 2.70 2.31 2.79 4.02 4.94RoCE (EBIT on TCE) 12% 12% 10% 11% 12%
Days
Inventory 222 227 312 331 344
Debtors 63 91 153 79 88
Creditors 86 22 23 33 45
Conclusion
Basically there are 2 types of models which are followed by the companies in this
industry. One is the fully integrated which is followed by REI Agro in which each and
every thing from procurement to selling is done by REI itself. This model is more of a
volume driven which is followed by REI Agro. The other model is followed by rest of
the 3 companies whereby these companies produce less and also rely a bit on trading.
Moreover these companies focus mainly on brand building and selling.
The benefits to REI Agro are as follows:
Being a fully integrated player REI Agro has the best processing facility and therefore
it commands better margins because it does not have to pay anything to the
intermediaries unlike its peers.
It also gets discount on purchase of paddy as it makes bulk purchases as compared to
other 3 players.
Being the largest producer of Basmati rice it also has the advantage of economies of
scale.
It also has its own retail chain in the form of 6TEN through which it sells its products
directly to the customers and thereby eliminating the costs incurred on the
intermediaries.
It has the longest maturing period among the industry with the help of which it makes
good quality rice which commands premium over its competitors.
The company can also benefit in case of an economic downturn as it is a volume player
and not a branded segment player.
The ill effects of the following Business model are as follows:
Being a volume player the company cannot command a premium price unlike a
branded segment player who can easily command premium from its customers.
The requirement of debt and working capital is immense as a lot of money gets blocked
during the maturity period.
A company needs a very strong balance sheet to follow this kind of model.
The company cannot establish rapport with its customers as it is not following the
branded segment model.
The other business model is followed by 3 companies namely KRBL, Kohinoor and LT
Foods. The players in this model focus more on brand building and selling. The benefits
of this model are as follows:
The players following this model are into the branded segment and can therefore
command premium price from the customers.
The retail industry is all set to grow at a rate of 9% every year which will ultimately
benefit these players.
A customer when buys a brand and is satisfied makes repeat purchases. This leads to
brand loyalty which ultimately benefits the company.
These companies are also known by the customers as these companies repeatedly
advertise themselves which leads to brand recognition by the customers.
The ill effects of the following Business model are as follows:
The following companies do not have their own distribution network and have to rely
on suppliers and distributors and thereby reducing the margins.
As these companies also rely on a bit of trading as the production is less, the margins
are further reduced due to the intermediaries present in the value chain.
These companies are more likely to lose out incase of economic downturn as they will
have to reduce premium prices charged through their respective brands.
Therefore both the business models have their pros and cons and it is ultimately the
decision of the player to follow whichever business model he likes.
Particulars REI Agro LT Foods Kohinoor KRBL
Fully integrated √ × × ×
Premium price × √ √ √
Branding/Advertisement low high high high
Working capital requirements
high low low low
EBITDA margins high low low low
Financial cost high low low low
Maturity period high low low low
Varieties of Rice produced
5-6 2-3 2-3 2-3
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basmati-rice-import-and-opportunities-1233358.html
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mexico_10066425.html
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http://www.eurosa.in/index.php?option=com_content&task=view&id=77&Itemid=107
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www.ltoverseas.com/AboutUs/CorporateProfile.aspx
RESEARCH METHODOLOGYFor any fmcg company to have efficient distribution channel needs to have satisfied
intermediaries, so that they hold with company products and provide them to end user.
Thus I selected my research objective as:
RESEARCH OBJECTIVES
Research Objectives are as under:
To identify the Marketing Strategy of Basmati Rice.
To know the Consumer Behavior towards product.
To identify the area of service in which company needs to Improve?
To help the Company in designing proper strategies for rural area.
To know the price of the product.
To know the positioning of Basmati Rice in the market.
To know the promotional Strategies.
To know the advertising strategies
research design
Purpose of study: - Descriptive
The study focuses on the satisfaction level for different products. As well as on other
parameter's such as Commission, Delivery mechanism, Sales Force, Credit Period. etc.
Degree of research question crystallization: - Exploratory study
As per my objective of the research, the research questions would try to find out the
current situation in the market regarding the satisfaction level. Moreover, the hypothesis
is not pre-defined here, but it would be define during the study. Here research problem
is also general.
Method of data collection: - Interrogation & Personal Interview
Based on my initial observation, I have prepared a questionnaire to collect the response
from retailers and whole sellers as primary data. Versatility of the questionnaire will help
to cover almost all related factors impacting the satisfaction of the target sample.
Interrogation takes less time than observation and gives information that is more
purposeful
Research environment: Field study.
Survey is the main part of the study and primary data collection. So that the study will be
carried out in field, I have gone to the market and interviewing retailer's and
Wholeseller's in the area of Sagar.
DATA COLLECTION & DESIGN
Data source: Primary source
To satisfy the objective of the research it is necessary to get the response from the
respondents, which act as primary source of data. I have collected Primary data by
personally surveying Retailer's & Wholeseller's in the sampling area specified.
Approach: Interview (Personal Contact)
Instrument: Questionnaire
Questionnaires Designing:
It is the most crucial part of any market research. I have taken a due care in designing
the Questionnaire for my research. I have meet more than 50 retailers during my
training period in order to learn the Order taking Mechanism, POP Displays,
Competitive Products, Retailers Attitude towards sales force etc. Even from Area
Sales Manager I identified various Parameters to be listed in my questionnaire's have
taken utmost care in deciding right question, correct sequence, what should be
wording of each & layout of questionnaire as a whole.
Type of Questionnaire: Structured Non Disguised
I have arranged the questions in a specific order to get the facts and the interviewer be
asked to response strictly in accordance with a pre-arranged order. The objective of
the survey was disclosed every time before getting the response from the respondent .
Type of Question: Close Ended
Number of questions: 40
SAMPLING PLAN
Sampling Area :Sagar
Sample Population : Customer’s, Retailer's and wholesalers of Sagar Area.
Sample Size : 40
Method Of Data Collection : Questionnaire
Sampling technique : Convenience Sampling
LIMITATIONS
Limited Time available for interviewing the respondent. As a result of this
it was not possible to gather full information about the respondent.
Some time the problem which I face is language problem for which I have
to make them understood.
The time constraint face in my project might have affected the
comprehensive of its findings.
Some time the retailers & customer do not respond rightly to the
questionnaire.
Sample size was very small as compare to the population of Sagar city.
People did not give full response and they are bias in some personal
questions.
QUESTIONNAIRE
Name : ----------------------------------------------
Address: ----------------------------------------------
Contact No. : ----------------------------------------------
Q.1 Which Rice Brand do you use?
(a) LT Foods (b) KRBL c) Kohinoor (d) REI Agro
Q.2 You purchase the above brand because of the?
(a) Price (b) Quality (c) Packaging (d) Others
Q3. You buy the Basmati Rice on basis of ?
(a) On you’re one (b) Advised buy the friends (c) Advertisement
(d) Demonstration of the Product
Q4. Taste of this Rice is?
(a) Excellent (b) Good c) Better (d) Same as other
Q5. What is view about packaging?
(a) Highly Satisfactory (b) Satisfactory (c) Not Satisfactory
Q6. Do you get any, Discount or other schemes while purchasing the
products?--------------------------------------------------------------------------------------------
Q7. Are you aware of any sales promotion schemes?---------------------------------
Q8. Why are you using this Brand?
(a) Cheap (b) Tasty (c) Brand Image (d) All
Q9. Offer your suggestion to the dealer?
-------------------------------------------------------------------------------------------
Date: Signature
Thanks for your Co-operation
CERTIFICATE
DATE: __________
The project report titled “MARKETING
STRATEGIES OF INDIA GATE BASMATI RICE” in
Sagar City Prepared by ANIL KUMAR SINGH
(MBA 1ST Sem), under the guidance and
supervision of MISS. NEHA DUBEY (Lecturer of
MBA Deptt., SVNIT) for the partial fulfillment of the
degree of Master of Business Administration is
satisfactory in respect of :-
Comments By Supervisor Head of Deptt. Examiner
1. Contents and presentation of the subject matter2. Language3. Embodies the original work of the candidate.4. Submission within due date
Signature of Examiner Signature of Supervisor
Signature of H.O.D.
DECLARATION BY CANDIDATE
I declare that the project report on
“MARKETING STRATEGIES OF INDIA GATE
BASMATI RICE” , in Sagar City is my own work,
conduct under the supervision of of MISS. NEHA
DUBEY (Lecturer of MBA Deptt., SVNIT)
affiliated by Dr. Hari Singh Gour University, Sagar
(M.P.).
To the best of my knowledge the report does not
contain any work which has been submitted for the
award of any degree, anywhere.
Signature of the Candidate
ACKNOWLEDGMENT
I would like to pay my sincere thanks to Dr. Pramesh
Gautam Head of the MBA Dept., SVNIT. Sagar
for providing me the opportunity of doing the project
report.
I would to express my deep sense of gratitude to
Miss. Neha Dubey, Lecturer for her valuable
guidance, advises, Cooperation & Constant
encouragement during the project preparation. She is
very supporting and without her help I would not have
completed my project report successfully.
I express my heartful thanks to Miss. Preeti Shukla,
Mr. Ashish Tiwari & Mr. Chaitanya Kaushikya and to
ANIL KUMAR DUBEYMBA 1st SEM.
the staff of SVNIT, Parents and friends for their kind
support and suggestion.
I am very thankful to retailer and customer whom I
had approached for collection of necessary data and
who give their valuable time and comments, which
were the inputs for my survey.
Date:
Place:
Anil Kumar
Singh
MBA 1ST Sem.
PREFACE
The project report has an objective to get the MBA student
familiar with real life business situation and gives an
opportunity to the student of understand the theoretical
concepts of marketing and finance in practical way.
In today’s world “Consumer is the King” consumer test and
preference go alone way in the actual sales of the product.
Every research work has to deal with various people in
concern organization and each of them have their own
opinion and thinking about various topics.
The main aim of the survey report was to determine the
Marketing Strategies of India Gate Basmati Rice in Sagar
City.
I tried my best to express the report through satisfactional
representation, graphs, pie diagrams etc. and it helped me to
enhance my knowledge I am extremely happy to place
before our esteemed teachers.