Business Opportunity in Turmeric Processing

Posted on August 3, 2018 by Admin

Business Opportunity in Turmeric Processing

Turmeric (botanical name-Curcuma Longa), one of the most important spice crops in India, is used to colour and flavour the food products.The yellow pigmented fraction of Turmeric (Curcumin,)is used as a colourant in food products and also as an anti-inflammatory agent in medicinal formulations.

India is the largest Turmeric producer in the world, with an annual production of nearly 10 lakh tonnes, accounting for nearly 80 per cent of world’s production. In India, Telangana is one of the largest producers of Turmeric, followed by Andhra Pradesh, Tamilnadu and Maharashtra (see picture 1).

In FY 17, India produced 10.51 Lakh tonnes[1] of Turmeric, of which nearly 1.1 lakh tonnes valued at Rs. 1200 crores was exported. Additionally, India exported Turmeric based oleo resins and Turmeric oil, valued at around Rs. 400 crores.

Turmeric processing technology

Turmeric can be processed into two products Turmeric powder and Turmeric extracts including oleo resins and Turmeric oils.Turmeric oleo resins/oils are extracted through solvent extraction of turmeric powder. The solvent extraction plant can process a variety of spices including Capsicum, Pepper, Amla, Marigold etc. A plant of a capacity of 500 kg per day requires land of 20,000 square ft. and power load of 60 HP.

Since the extracts (oleo resins) are used in food preparation/pharmaceuticals and largely cater to exports, the oleo resin extraction operations have to be compliant with the USFDA, and European food safety guidelines. The companies that manufacture extracts usually obtain certifications such as HCAAP, Kosher, and Halal.

Key Players

Turmeric powder

The Turmeric power manufacturing is mostly done by micro enterprises and there are a number of players in each region. Additionally, most large spice powder manufacturers such as MDH spices, Everest Spices, Aachi Masala also sell turmeric powder.

Turmeric oleoresins and oils

This segment has a number of large players as well as SMEs. The large companies extract oils from a number of spices and their products are targeted at export market. (See table 1). These are mostly based in Kerala, due to easy availability of spices. In addition to these large players, there are a number of SMEs that are spread across spice growing states such as Tamilnadu, Andhra Pradesh, Karnataka, Gujarat etc.

Table 1: Spice Extract manufacturers in Kerala
S. No.	Company Name	Product Range	Location
1.	Synthite	Value added spice extracts and natural spice powder	Kolenchery, Kerala
2.	Universal Oleoresins	Spice Oils, Spice Oleoresins, natural colours	Kochi, Kerala
3.	Arjuna Natural Extracts	Formulations based on spice extracts	Aluva, Kerala
4.	VD flavours	Essential oils from spices	Kochi, Kerala
5.	Plant Lipids	Spice oils and oleoresins	Kochi, Kerala
6.	Kancor Ingredients	Oleo Resins, Essential Oils & Isolates, Mint, Menthol & Isolates, Floral Extracts, Speciality Ingredients, Organic Ingredients.	Ernakulam, Kerala,
7.	Plant Lipids.	Spices and other Essential Oils.	Kochi, Kerala
Source : FineTrain research

Key consumers of oleoresins in the domestic market include FMCG companies such as Hindustan Lever, Godrej, Colgate Pamolive, herbal products manufacturers such as Ayur Herbals, Dabur, Himalayan Drug Company, cosmetics product manufacturers such as Garnier Laboratories and pharmaceutical companies such as Dr. Reddys, Cipla etc.

Profitability and return on investment

The capital investment required for a Turmeric powder unit would be under Rs. 50 lakhs for a capacity of up to 2 tonnes per day. Since there is limited value addition in the powder manufacturing process and the manufacturer has to pay large commissions to distributors and retailers, the operating margins of such manufacturers would be thin and profitability would depend on their ability to sell large volumes.

Capital investment in Turmeric extraction capacity of 500 kg per day could be up to Rs. 2 crores. The profitability would depend on the spread between the oleo resin and Turmeric price and the yield of the extraction process. A tonne of turmeric can yield anywhere 4-5% of extracts. Assuming that a tonne of turmeric yields 40 kgs of Curcumin (95%) and 30 litres of oil, the gross margin calculation is as under

Table 2. Turmeric Oleoresin Processing: Profitability
	kgs	Price (Rs/kg)	Value (Rs.)
Turmeric	1000	93	93,000
Solvents			46,500
Total Raw material cost			1,39,500
Oleo Resin	40	4498	1,79,920
Oil	30	100	3,000
Total revenue			1,82,920
Spread (Oleoresin-Turmeric)			43,420
Spread (%)			24

Note: The prices of Turmeric and its Oleo resin are based on export data of 2017 provided by DGFT

The overall profitability and return on investment would depend on the producer’s ability to secure regular orders. Further, any value addition to the products by developing formulations based on the extracts can improve revenues as well as profitability.

Why Turmeric processing may be an attractive opportunity

Demand for Turmeric extracts is growing rapidly in foreign and domestic market. For example, India’s Turmeric extract exports have tripled over the past three years from Rs. 150 crores in FY 15 to Rs. 500 crores[2] in FY 18.

The infrastructure availability (cold storage, common infrastructure for grading and sorting of agri products) for food processing industry is improving as government is providing incentives for development of food parks/spice parks etc. Further, food processing units are also being given incentives in the form of capital subsidies to set up and expand their businesses.

[1] Source: report on state wise/spice wise production by Spice Board Of India

[2] DGFT data base: http://commerce-app.gov.in/eidb/ecomq.asp

How we can help

We can help you start a “Turmeric Processing Unit” through a number services including business viability assessment, market landscaping, technical consultation and project execution support.

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Business opportunity : Natural gums and Resins

Posted on May 12, 2018 by Admin

Introduction

Natural gums are plant products, formed by the disintegration of plant cellulose. These are typically extracted from seeds of plants like Guar, Tamarind, Cassia tora, etc. These are polysaccharides that increase the viscosity of solutions even when added in very small quantities. Natural gums are preferred over synthetic gums in food applications.

The natural resins, gums, gum-resins (NRG) and balsam’s global market are estimated to be about 1358.44 million USD. India is the second largest supplier of natural resins & gums in international market, with a share of 16.8%, next to France, which has a market share of 26%[1]. In India, the Guar gum has a lion’s share in total NRG production as well as in exports. Therefore, the focus of this blog is on guar gum.

Guar gum-Industry at a Glance

India enjoys monopoly in the Guar gum industry with a market share of over 80%, as it has the most suitable climate for Guar gum cultivation. The Guar industry is driven by the export market, as more than 70% of domestic production is exported. The major export destinations are USA, China, Canada, Germany & Russia. Rajasthan is the largest guar producing state followed by Gujarat, Haryana and Punjab. Rajasthan alone accounts for 70% of the total production in India.

Guar Seed Cross – section and Process flow

The guar seed has 3 parts – Germ (40-45% of the weight), Endosperm (38-45%) and Husk (14-16%), as shown in figure – 1. The gum powder is produced from endosperm in a two stage process. In the first stage, the guar splits are produced and the by-product is Guar Meal (67%) (Korma – 37% & Churi – 30%). The splits are then pulverized into gum powder, and the powder is further processed into various derivatives.

Figure 1: Guar gum seed break up

Derivatives of Guar Gum & Industry specific application

Guar gum has wide range of applications in Food Industry, Textiles, Oil well drilling, Cosmetics & Pharmaceuticals, Paper, Mining, Construction and Explosives. The derivatives of guar gum powder are grouped into Non-ionic, Anionic and Cationic.

Figure 2: Derivatives of Guar gum

The applications in various industries are listed in Table1.

Table 1: Applications of Guar Gum
Industry	Uses
Food	Thickening, gelling, emulsifying agent and stabilizer
Textile	Sizing & Finishing agent
Oil well drilling	Fluid loss controlling agent, additives in fracturing fluids. Fast Hydration Grade is used
Pharmaceuticals	tablet binders, disintegrants, emulsifier, suspending agent, gelling agent, stabilizing agent, thickening agent, film forming agent, sustaining agent and coating agent
Cosmetics	Conditioner and viscosifier, thickener in toothpastes & shampoos
Paper	To get better finish, improved sheet formation, increased bursting & fold strength and denser surface for printing

Demand & Supply

Guar consumption was been around 22.7 lakh tonnes in the year 2016-17. The consumption is volatile and varies depending on the export market, which accounts for more than 70% of the domestic production. The graph depicts the trends in consumption of guar seed in the past decade.

Chart 1: Consumption of Guar seed in export and domestic markets from India

Globally, oil and gas industry is the biggest user and domestically food industry is the largest consumer of Guar gum. (See chart 2&3). The sector wise demand of guar gum powder in international & domestic market is shown below in Chart 2 & 3.

Chart 2 & 3: % application across industries in Domestic & International markets

On the supply side, there are more than 600 guar processing units in India with an installed capacity of around 10 lakh tonnes. The present capacity utilization of the industry is less than 50%, due to weak demand from the export markets. However, the demand is expected to increase due to increasing oil prices, which result in higher capital expenditure on oil exploration related activities.

Price Volatility of Guar Gum

The prices of guar gum powder is highly volatile (see chart 4) and are a function of factors such as crop cultivation, shale oil and gas exploration, availability and price of substitutes, etc. The users shift to the substitutes based on price competitiveness. But guar gum has its own advantages, for example: Guar gum is soluble in both hot and cold water as against Tamarind Kernel Powder (TKP), which is soluble only in hot water. The various substitutes to guar gum are discussed in Table 2,

Table 2: Substitutes to Guar gum
Industry	Uses
Textile	CMS (Carboxy Methyl Starch), CMTKP (Carboxy Methyl Tamarind Kernel Powder) and Sodium Alginate
Paper	TKP, Potato Starch, etc
Food	Xanthan Gum, Agar , CMC (Carboxy Methyl Cellouse)
Cosmetics	TKP
Shale Oil& Gas Exploration	Synthetic Polymers

Chart No.4: Per kg [2] variation of Guar gum prices over a period of years

Guar Gum v/s TKP

Among natural gum, Guar gum faces competition from TKP. TKP is derived from the tamarind seed. It has excellent water absorption property and high viscosity as well. The application includes, thickening agent in sizing process of textile & printing industry and binding agent in pharmaceutical industry. The detailed comparison of Guar Gum & TKP is shown in Table No.3,

Investment

The minimum viable capacity is 6TPD (6 tonne per day) and the investment required to setup guar gum powder from Guar splits is INR 4 Cr, including the civil structure, machinery and working capital. The capital cost would increase by INR 2-3 Cr, if one is manufacturing the powder directly from the seed due to the additional investment in plant & machinery and working capital. The Breakeven period is more than 5 years.

Profitability & Governing factors

The profitability depends on the conversion margins, or the spread[3] between the guar gum and guar seed price. The spread has been volatile and has ranged between 1.4 times to 3 times over the past decade. The profit margin can be increased by having control over the seed price, by engaging with farmers in contract farming. The profits/high returns can also be improved by making value added products for specific industry such as dairy/oil.

Why Guar Gum is an interesting opportunity?

The international demand for Guar Gum from oil and gas sector is likely to increase following higher oil prices. The demand from food sector from both domestic and international markets is likely to remain strong.

Given the availability of idle domestic capacity, one could look at purchasing or leasing existing units, thereby reducing the initial capital investment. Instead, the investment could be made towards research and development to develop new derivatives for food and other applications.

How Can We Help?

If you are interested in starting up natural gum manufacturing unit, we can assist you in the following:

Identifying potential markets including domestic as well as international.
Detailed project report preparation – Financial analysis, Profit & Loss statements for a period of 7 years, calculation of ROI, etc.
Identifying existing units that are available for sale and in valuation of such units

[1]As per ICAR – Indian Institute of Natural Resins & Gums report

[2] In the year 2012-13, the price of guar gum hit all time high, this is due to the huge demand from the oil exploration companies.

[3] Spread is the ratio of guar gum to guar seed prices

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BUSINESS OPPORTUNITY – TABLE SAUCES

Posted on January 18, 2018 by Admin

Table sauce is a common condiment for a number of products such as bakery, Chinese food and fast food. It is typically used to add flavour or texture while cooking or dipping. Broadly, there are four categories of sauces

Tomato Ketchup & Sauce
Chinese Sauces
Pizza, Pasta & Barbeque Sauces
Mayonnaise and other bread spreads

Industry

The table sauce category in India, estimated to over INR 1000 crores is growing at over 20 per cent per annum[1]. Tomato sauce accounts for over 65% of the table sauce consumption, other categories (such as Chinese sauces, Mayonnaise), while relatively smaller in size are also growing rapidly.

Innovation in variants and packaging is the key driver for the growth of this industry. For example Nestle has introduced a number of variants of its tomato sauce (no onion tomato sauce, hot and sweet tomato sauce, masala sauce, tamarind sauce) over the years. The company has also launched pichkoo, where the sauce is packaged in flexible packaging material, thus allowing it to be squeezed easily. Similarly, Dr. Oteker, India (manufacturer of Fun food brand of products) offers a large variety of products including mayonnaises, sauces, spreads, salad dressings, cakes, dessert toppings. For its mayonnaise range alone, the company sells 8 flavours.

Sauce manufacturers have two business models: Business to Business (B to B) and Business to Consumer (B to C). Small and medium enterprises typically start with supplying to businesses and then go retail. For example, Fun foods has been associated with subway in developing customized variants of sauces. Veeba foods, a recent entrant in the market which supplies sauces and dips to restaurants and fast-food chains, recently raised $6 million and forayed in retail segment through its own VEEBA brand[2].

[1] http://www.hindustantimes.com/business/catch-up-with-ketchup/story-aGK6GS2v14sgCWbQEb3t7O.html.

[2] http://www.livemint.com/Companies/caIm09B3bTK9bLkVuhppKI/Veeba-Food-raises-6-million-from-Verlinvest-otheINRhtml.

Why is table sauce manufacturing an attractive opportunity?

Increasing customer appreciation for western cuisine has resulted in a growth of sauces, dressings and condiments industry. International cuisines such as Italian, Mexican and Thai are gaining popularity which in turn act as demand drivers for specialised sauces and dressings. Given the market growth, many multinational fast food chains (Wendy’s, Taco bells) have entered India in the past five years. India is the second largest market for Domino’s Pizza after the US.

Besides consuming the sauces as part of eating out, consumers are also purchasing these sauces to use them for food preparation. The cooking sauce (soya sauce, pasta sauce) category makes up around 33 per cent of the sauce market. Supermarkets and convenience stores have become popular channels for purchase of such products.

Where is the table sauce manufacturers located?

The industry can be categorised into two types of players: large FMCG multinational companies such as HLL, Nestle that dominate tomato ketchup market and other players (see Table 1) such as Dr. Oetker, Delmonte specialising in specific category of sauces. Most of the manufacturing units are located in Maharashtra, Haryana and New Delhi.

Down south, post bifurcation, both Andhra Pradesh and Telangana have been focussing on developing food processing sector by offering financial incentives to the food processing industry and developing industrial infrastructure. Although these two states together account for almost 20 per cent of food processing factories in the country, they don’t have many table sauce manufacturing units, thus making it an attractive opportunity to set up a sauce manufacturing unit here.

Table 1: Manufacturers of Table Sauces (other than ketchup)
S. No.	Company Name	Brand and Product Range	Remarks
1	Field Fresh foods Pvt Ltd, Gurgaon, Haryana	Delmonte:Pasta Sauces, mayonnaise & Ketch up	A joint venture between Bharti enterprises (Telecom major) and Philippines-based Del Monte Pacific Limited, turnover over INR 500 crores
2	Capital Foods Limited, Mumbai, Maharashtra.	Ching’s Secret & Smith & jones: Soups, pastes & sauces	Manufactures Chinese sauces, revenue of around INR 500 crores[1]
3	Dr. Oetker India Pvt Ltd, New Delhi	Fun foods: Mayonnaise, Italian sauces, sandwich spreads, Chinese sauces, salad dressings	A German company that acquired Fun Foods, an Indian manufacturer of table sauces in 2008, current revenue of over INR 150 crores [2]
4	Cremica Food Industries Pvt. Ltd, Ludhiana, Punjab	Cremica: Ketchup, Pizza & pasta sauce, salad dressings	Started as a homebased enterprise, current turn over more than INR 200 crores[3].
Source: FineTrain Research

[1]https://timesofindia.indiatimes.com/business/india-business/capital-foods-targets-rs-500-cr-revenue-this-fiscal/articleshow/57250985.cms

[2]https://brandequity.economictimes.indiatimes.com/news/business-of-brands/dr-oetker-eyes-rs-1000-crore-sales-by-2020/55659035

[3]http://www.livemint.com/Companies/Hac0C64hqGcuBbGmzuU40N/Cremica-Food-Industries-raises-15-million.html

Manufacturing process and capital requirements

Sauces can be prepared from varied range of items such as eggs, vegetables, fruits, beans, milk etc. as shown in Figure1.

Figure 1: Sauce Manufacturing Process

In addition to the processing machinery discussed above, the manufacring facility needs to have infrastructure including cold storage, waste water treatment facilities and a strong R&D team. The budget required for an entry level capacity of around 1 tonne per day would be over INR 2 crore.

Key Success factors

Critical success factors for this business include:

Nimbleness in identifying variants
Good relationships with exiting suppliers and customers
Building up a niche segment
A strong R&D team that can develop new products
Adequate financing to meet large working capital needs

How we can help you

If you are interested in setting up a table sauce manufacturing unit, we can assist you in the following:

Competitive landscape
Financial viability
Location analysis
Market entry strategy
Regulatory issues and government incentives
Detailed project report preparation
Support in project execution

Call us/reach us

Call us: 800 888 4932

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ECONOMICS OF DAIRY FARMING

Posted on November 21, 2017 by Admin

India is world’s largest producer of milk, with a production of around 155 million tonnes per annum, contributing to 20 per cent of the world’s milk output. The dairy sector is one of the fastest growing sectors in India, growing at a CAGR of over 15-20 percent, largely driven by the growth of value added products such as yogurt, cheese, ice-cream etc.

The demand growth in dairy industry has also spurred an interest in dairy farming by entrepreneurs from rural as well as urban India. This blog discusses factors that influence profitability and sustainability of a dairy farm. These include macro factors such as international and domestic prices of milk, and farm level factors such as size of the dairy farm,its cattle management practices and its marketing strategies.

How are local milk prices linked to international milk prices?

While milk is a perishable commodity mostly sold locally, Skimmed Milk Powder (SMP) is traded in the global market and international prices of SMP influence India’s SMP exports. SMP is a large end user of milk, asalmost 11 tonnes of milk is needed to make 1 tonne of milk powder. Since SMP has a long shelf life as compared to milk, dairy companies keep their surplus milk stock as SMP, and also use it to manufacture milk based products such as ice-cream and yogurt. Adecline in international prices of SMP reduces the export of SMP from India and therefore increases domestic milk availability. Increased domestic availability can sometimes impact the prices at which dairies procure milk from farmers.

For example, India’s SMP exports declined to 15,930 tonnes (INR 293.01 crore) in 2015-16 from a peak of 1.3 lakh tonnes (valued at INR 2,717.56 crore) in 2013-14 due to a steep decline in global SMP prices. During the same time, milk procurement prices declined by as much as INR 10 per litre in North India and Maharashtra.

As can be seen from Figure 1, the prices of SMP tend to fluctuate, which can lead to volatility in the domestic milk prices as well.

Source: https://www.globaldairytrade.info/en/product-results/skim-milk-powder/

Why is marketing strategy for milk so crucial to the profitability of my milk farm?

Dairy farmerstypically sell their milk to a number of customers including public and private sector dairies milk traders, milk processors and directly to consumers. Dairies are the largest bulk buyers accounting for over 20 per cent of milk procurement. They currentlyprocure the milk at around INR 25-35 per litre across the country and the product is sold at a retail price of INR 35-45 per litre. However, the retail prices for branded, farm fresh milk are higherINR 60-70 per litre.Over the past decade, there has been a spurt in dairy farms that sell their milk as farm fresh milk, desi cow milk, chemical free milk or A2 milk etc. directly to the customers. Some of these players are shown in Table 1

Table 1: Dairy farms selling branded fresh milk
Company name	Product	Value proposition
Vrindavan Milk, Bangalore	Pure Natural cow milk, Desi A2 milk	Delivered directly from farm, no chemicals used to inject cows.
Klimom, Hyderabad	Cow milk, A2 milk	Delivered in eco-friendly glass bottles within a few hours of milking
Astra Dairy, Chennai	Cow milk and dairy products	From farm to your home in 12 hours
Pride of cows, Pune (aventure of Parag Milk Products)	Pasteurized cow milk	Farm to home fresh milk, completely untouched by human hands

As a dairy farmer, you have many choices; you can choose to find an assured market in a large dairy or milk processing companies, sell fresh milk under your brand name or sell value added products such as flavoured milk, yogurt etc.Therefore, market related choices should be made first and then you can work backwards to make decisions related to animals, location, investment and farm automation.

What are other profitability drivers?

The success of a dairy farm is aligned with the productivity of its animals and the following elements play an important role in determining a farms profitability:

Milk yield: Milk production over the productive life of the dairy animals is one of the most important drivers of the profitability of a dairy farm. It depends on many factors such as animal’s age at first calving, number of lactations and yield per lactation. Further, milk production can be enhanced by providing adequate amount of green fodder and keeping animals disease free.
Self-sufficiency in Fodder:The cost of feed accounts for majority (about 70%) of the costof running a dairy farm. The fodder can broadly be divided into three parts: Green fodder, Dry Fodder and Concentrated Feed. Of the three, Green fodder, which is needed in large quantities, remains most scarce, due to gradual reduction in the green cover of our landscapes. Further, the fodder prices can be volatile and do not move in line with the milk prices. Therefore, in order to be sustainable, a dairy farm must be self-sufficient to meet its green fodder needs. The fodder requirements for a farm with 20 cows are illustrated in Figure 2.

Figure 2: Fodder Requirements of a dairy farm

Since fodder cultivation requires a lot of space, several dairy farmers have now shifted to silage, which refers to green fodder preserved under anaerobic conditions. Silage provides benefits similar to that of fodder but is needed in lesser quantities. Feeding your animal silage, lowers the area needed for fodder cultivation and frees up the land, which can be used to generate income through cultivation of grain/horticulture crops.

Best practices in animal management: Good farm management practices that improve animal productivity are shown.

Figure 3: Best Dairy management practices

How much investment is required for a dairy farm?

A dairy farm requires investment towards land, construction of shed, milking equipment and purchase of animals.Land and animals are the two largest investment heads.

Land: The land is needed for the cattle shed and milking operations and also for growing fodder. Minimum 2-3 acres of land would be required for a 20 animal farm.
Animal: The cost of animal depends on its age, milk yield, breed etc. As per NABARD’s dairy entrepreneurship development scheme (DEDS), the cost of 10 animals of desi cows is INR 6 lakh.
Civil construction: Shed for animals to provide them protection from heat/rain etc. and storage room for feed and housing for labour if needed
Equipment:Milking machines, chaff cutter, tipper for cutting the crop.

As such, the investment in animals should be about INR 12 lakhs for a 20 cow dairy farm. Assuming that investment in animals is about 50% of the cost of the farm (excluding land), the investment in the dairy farm with 20 animals should be about INR 25 lakh.

Why is dairy farming an attractive opportunity?

The Indian dairy market is expected to continue grow at a rate of over 15%, over the next five years, mostlydue to a growth in the consumption of value added products such as cheese, curd, flavoured milk etc. Anticipating the growth, Indian dairy companies have planned significant investments in capacity expansion as given below in table 2.

Table 2: Capacity expansion plans of Indian Dairy majors
Company	Capital expenditure plans	Brand	Budget(INR crore)
Heritage Foods Ltd.	Addition in the existing capacities in curd and whey products segment	Heritage	70 – 75(for FY18)
Gujarat Cooperative Milk Marketing Federation Ltd (GCMMFL)	Additional capacities in cheese and chocolates	Amul	3000(Upto 2020)
Kwality Ltd.	Additional capacities in value-added product categories like Cheese, Paneer, UHT Milk, Flavoured Milk and Table Butter	Dairy Best	520(forFY18 and up to mid FY19)
Parag Milk Foods Ltd.	Expansion and modernization of existing plants and improvement in marketing and distribution infrastructure	Go, Gowardhan, Topp Up	64.5(for FY18)
Prabhat Dairy Ltd.	Upgradation of plant and machinery	Prabhat	40
Source: Indian Dairy Industry – driven by value added products, a report by CARE Ratings

Also, there have been a number of acquisitions in the dairy sector by large private equity companies, and multinationals who are acquiring local dairy companies to strengthen their operations in India.

Table 3:Acquisitions in the dairy sector
Acquired Company	Investing Company	Year
Kwality Limited	KKR India(a private equity firm)	2016
Tirumala Milk	Lactalis , a France based multinational dairy corporation	2014
Anik Industries	Lactalis	2016
Creamline Dairy	Godrej Agrovet Limited	2015
Dairy business of Reliance Retail	Heritage foods	2017
Source:Indian Dairy Industry – driven by value added products, a report by CARE Ratings and FineTrain research

In order to meet the demand growth of the dairy industry, a strong and sustainable dairy farming sector needs to be developed. Dairy farming is currently dominated by a small farmer who has two animals and uses dairy income to supplement his/her agriculture income. Given the bright prospects of dairy sector and lack of professionally run dairy farms, there is an opportunity for entrepreneurs who can set up dairy farms with scientific feed management practices. These farms can also forward integrate into manufacturing of milk based products.

How can we help?

We can help you set up a dairy farm or a milk product business through a number of services including:

Market feasibility assessment
Development of project proposal for loans/credits
Technical consultation
Project execution support

Call us/reach us

Call us: 800 888 4932

Write to us: bchhatre@finetrain.com, admin@finetrain.com

Visit us: www.finetrain.com

[1] Source: India’s milk production in 2015-16,

[2] Source: Indian Dairy Industry-driven by value added products-by Care Ratings, June 30, 2017

[3] Source: http://indianexpress.com/article/india/india-news- india/global-dairy- price-recovery- to-benefit- indian-
farmers-3019391/

[4] Source: http://indianexpress.com/article/india/india-news- india/why-milk- prices-have- fallen-by- rs-10litre- for-
farmers/

BUSINESS OPPORTUNITY – FLAVOURING ADDITIVES

Posted on October 30, 2017 by Admin

Flavouring additives are used in Ready-to-eat, Ready-to-cook products and beverages to enhance or modify their taste. Broadly, there are two types of flavouring agents:

Powdered flavouring additives that are extracted from vegetables, fruits and meat. These are used across a number of products such as instant noodles, pizza, snacks, etc. They are low in moisture and thus are more stable and have greater shelf life. The common process of manufacturing these additives involves roasting, extracting, blending, drying, pulverizing, and sieving followed by packaging. Some of the examples of powdered flavours include noodle masala mix, dried vegetable powder, chicken extract powder.

Liquid flavouring additives that are typically extracted from plants and herbs. The process of extraction involves solvent extraction, distillation, filtration, sterilization, and concentration followed by packaging. Oleoresins, Aloe Vera extract etc. come under this category.

Products that typically use flavouring additives include bakery, dairy, fruit juices & other fruit based beverages, soups, salads and dressings (see Figure 1).

Industry

The Indian food flavour market is estimated at around INR 15.5 billion and has been growing at around 10 per cent per annum . The market has about 100 players , including large international and domestic players as well as many small and medium enterprises. Top international players and large domestic players account for around 70 % of the market share – these comprise Givaudan (Switzerland), International Flavours & Fragrances (IFF, US), Firmenich (Switzerland), Symrise (Germany), Takasago International Corporation (Japan) and MANE (France) and SH Kelkar (Pune), Sachee Aromatics (New Delhi), Oriental Flavours & Fragrances (Valsad, Gujarat). The main customers of these are large FMCG companies, tobacco manufacturers, ice cream manufacturers and pharmaceutical companies.

Why is flavour manufacturing an attractive opportunity?

The expenditure on food accounts for 43 per cent of house hold expenditure and is growing at an annual rate of 12-13 per cent . A steady rise in consumer spend on eating out and groceries is helping packaged food (ready to eat products, biscuits, and beverages) and the food service market (quick service restaurants, home delivery of food) , which are also experiencing growth in double digits . All these factors point to a growing demand for flavour additives.

Also, flavour manufacturing is a niche business, with entry barriers such as sustained R&D efforts, long customer acquisition time and access to raw materials.

Such businesses are likely to enjoy higher profitability vis-à-vis typical food processing businesses (juice extraction, snacks manufacturing etc), where bulk volumes are needed to generate profits.

Where are the domestic flavour manufacturers located?

Most of the flavour manufacturing units are located in Maharashtra, Gujarat and Kerala as these states offer proximity to end users and easy access to raw materials such as aroma chemicals and spices/herbs.

Down south, Post bifurcation, both Andhra Pradesh and Telangana have been focussing on developing food processing sector by offering financial incentives to food processing industry and developing industrial infrastructure. Although, these two states together account for almost 20 per cent of food processing factories in the country, they don’t have many flavour manufacturing units (see Table 1), thus making it an attractive opportunity to set up a flavour manufacturing units here.

Table 1: Flavour Manufacturers from South India
S. No.	Company Name	Product Range	Location
1	Aromatic Chemical & Oil Company	Flavours, Powder & Liquid Colours, Fragrances, Emulsions, Essential Oils.	Visakhapatnam, A.P
2	BOS Natural Flavours.	Crystals, Dehydrated Products, Essential Oils, Floral Extracts, Fruit Extracts, Spice extracts.	Kochi, Kerala
3	Flavours India	Flavours for Beverages, Dairy & Tea, Ice Creams, Pharmaceuticals	Pondicherry
4	Florale (India)	Food Flavours & Additives, Fragrances	Bangalore, Karnataka
5	Food Ingredient Specialities	Flavouring essences & essential oils for biscuits & other bakery products, Ice Creams, Aerated Water, Liquors & Beverages, Flavours for pharmaceutical Products.	Chennai, Tamilnadu
6	Kancor Ingredients	Oleo Resins, Essential Oils & Isolates, Mint, Menthol & Isolates, Floral Extracts, Speciality Ingredients, Organic Ingredients.	Ernakulam, Kerala
7	Lux Flavours	Flavours for Dairy & Bakery products, Essential Oils, Beverages and Flavoured Water, Confectionery, Savoury, Pharmaceuticals, Alcohol, Animal Feed and Meat Industry.	Chennai, Tamilnadu
8	Oror Flavours & Chemicals	Flavours & Seasonings in Bakery, Confectionery, Pharma, Milk & Milk products, Beverages & Snack Foods.	Madurai, Tamilnadu
9	Symega Flavours India	Flavours for Dairy and Bakery, Beverages, Confectionery, Pharmaceuticals & Savoury.	Cochin, Kerala
10	Plant Lipids.	Spices and other Essential Oils.	Cochin, Kerala
Source: From Fragrance and Flavour Association of India

Typical operating requirements

The cost of machinery and working capital needs for an entry level capacity of around 1 tonne per day would be around INR 2 crore. The machinery depends on whether the extract is in powder or liquid form. For extracting a powder, solvent extraction method is used, whereas for extracting a liquid (oil), apart from solvent extraction, distillation or super critical fluid extraction methods are also used. Table 2 shows the typical machinery required for an entry level plant.

Key success factors

Critical success factors for this business include:

Nimbleness in identifying new segments such as ready-to-eat foods, branded snacks, fruit-based/energy drinks for growth
Good relationships with exiting suppliers and customers
Building up a niche segment
A strong R&D team that can develop new products
Compliance with any changing regulatory requirements

Table 2: Typical machinery needs for a Flavour Manufacturing Plant
S. No.	Machinery	Capacity	Value (Lakh INR)
1	Solvent extractor / distillation unit/super critical fluid extraction unit	5 ton/ day	30
2	Extract mixing tank	2 ton	3.5
3	Automatic filling and packaging machine for powder		3.2
4	Pulveriser	1 ton per hour	1.5
5	Liquid extractor		10
6	Recovery Unit	5 ton per day	5
7	Spray drier		50
8	Shaking sieve	1 ton per day	0.8
9	Powder mixer	2 ton per day	5
10	Automatic filling & packaging machine for liquids		5.5
	TOTAL		114.5

How we can help you

If you are interested in setting up a flavour manufacturing unit, we can assist you in the following:

Competitive landscape
Financial viability
Location analysis
Market entry strategy
Regulatory issues and government incentives
Detailed project report preparation
Support in project execution

Reach Us

Call us @ 800 888 4932

Write to us- bchhatre@finetrain.com

Visit us- www.finetrain.com

Rise of B2B E-commerce: Opportunity For Small and Medium Enterprises

Posted on January 17, 2017 by Admin

The competition among B2B ecommerce portals has been heating up with the entry of several new players who are looking to expand their presence across products and geographies. These portals are wooing small and medium enterprises to transact on their platforms with offers to support them with marketing, logistics and even credit. The rise of B2B ecommerce presents an interesting opportunity to SMEs who can leverage it to enter new markets and gain more insights on their customers.

Table 1: Leading Indian B2B e-commerce platform

With the advent and increasing use of e commerce platforms, some of the issues faced by small businesses in selling online have eased, as these portals provide much needed marketing and logistics support. SMEs can harness the power e-commerce opportunity through the following strategies.Small businesses find it difficult to sell online as the competitive landscape for selling goods online is very different from offline market place, where the sale is relationship based and competition is mostly local. As such, to sell online, the product should be searchable, able to compete with local as well as national products and should be delivered in a timely and efficient manner.

Key strategies for Small and Medium Enterprises

Document the sale process

Since sale of industrial machinery part is a consultative process, a SME owner typically spends most of his/her time consulting with the clients to customise machinery to client’s requirements. For example, a ghee machine supplier needs to understand the manufacturing process (manual or automated), raw material (milk, cream or butter), and capacity and cold storage facilities of the client before designing the machine.

SMEs need to document the sales consultation process in detail, which can then be used to design automated systems that can accommodate different buyer requirements and provide ballpark pricing.

Enable product comparison

In order to differentiate itself among a number of products available online, the SMEs need to provide detailed information on the product quality, raw material, manufacturing process and testing infrastructure available with the company. For example, the quality of a plastic product would depend the manufacturing process (injection moulding machine, extrusion machine or a hand layup process), polymer used and quality control measures adopted by the manufacturer. Precise product description and comparison would also reduce product return, a major pain point for small businesses.

Segment your market

SMEs must ensure that ecommerce doesn’t cannibalize their sales from existing sales channels (sales representatives and distributor channels). Therefore it’s important to segment the products into different categories depending on the business size, complexity of the product, buying cycle, discounts offered, geography, demography etc. Thereafter, the portfolio could be clearly demarcated into segments that would be sold through both the e-commerce and traditional platforms/channels.

There is no better time to start selling industrial goods online. Small businesses should have a strategy in place to select the products to be sold through e commerce route, build capacity to meet the requirements of new customers and to choose the right ecommerce platform.

How can we help you?

FineTrain is a consulting firm for entrepreneurs, we help our clients grow their businesses. We can assist you in getting your business ready for e commerce and in planning your ecommerce strategy.

Contact us

bchhatre@finetrain.com

800 888 4932

How to decide if you should stay put in your business

Posted on June 6, 2016 by Admin

You have built a successful business and are looking for growth opportunities. You can either invest in your existing business or consider new ventures. The following five parameters may help you decide if your business is attractive enough for you to put in additional resources.

Market size: If you want to grow fast, the market has to be big enough for you to sell your goods to large volume of customers. Sometimes, you may discover that your market is too small to be worth pursuing.

Say you are providing an online platform to hire domestic help in a particular city. The city has 10 lakh households, of which 10% or 1 lakh households are your target customers. If you can convert 10% of that eventually, you can get 10,000 customers. Assuming you earn a commission of Rs. 1000 per customer, your revenue could be at best Rs.1 crore and profit perhaps 10 lakh. That may be too small, but if you are able to replicate the same model in other cities, the business may be worth pursuing.

Customer acquisition cost and customer life time value: Customer acquisition cost refers to costs incurred in obtaining new clients. These include salaries of marketing staff, advertising spend and discounts offered.

Say, to attract 1000 customers, you spend Rs. 50,000 in advertising, deploy one sales manager at a monthly salary of Rs. 30,000 and offer discounts worth Rs. 10,000. Your customer acquisition expense then is 90,000 or Rs. 900 per customer. Your revenue per customer should be at least 4-5 times the acquisition cost for your business to be profitable. However, revenue can be spread over 5-10 years of your engagement with the customers and need not be from just one transaction. So, the more repeat customers you have, the customer life time value would be higher and so would be your profitability.

Fixed versus variable costs: Businesses have two types of costs: fixed costs and variable costs. While fixed costs such as rents, salaries, and interest do not change with the increase or decrease in sales volumes, variable costs such as raw material, transport charges vary with the number of units produced or sold.

Higher fixed costs implies that it would take you a long time before you can start making profits, but profits would grow sharply once you achieve critical mass (breakeven point).

Get to know your fixed and variable costs and breakeven point. If you have already achieved the critical mass, it’s time to stay put and enjoy better profitability.

Operating profits: Refers to profits that remain after meeting all operating costs (i.e., all above mentioned costs except interest, depreciation). If your operating profitability is declining, you would need to conduct a thorough diagnostic assessment of your business.

Return on capital employed: Operating profit alone is not enough; return has to be analysed in the context of the capital that is deployed in your business. For instance, if your average annual operating profit is around Rs. 25 lakh and the total capital deployed in the business is Rs. 5 crore, then your return on the capital is only 5%. This kind of return can also be generated by simply putting your money in a fixed deposit.

How can we help?

FineTrain enables entrepreneurs to assess and understand new business opportunities. Our services include market research, business feasibility studies and business diagnostics. We can help you assess your market, determine customer acquisition and lifetime value costs, your operating profits and return on capital, and recommend ways to improve profitability or expand your business.

You Can Reach us:

Call us @ 800 888 4932,

Write to us- bchhatre@finetrain.com

Visit us- www.finetrain.com

Startup India: Action plan

Posted on February 2, 2016 by Admin

Startup India Action Plan was launched on 16th January, 2016 at Vigyan Bhavan, New Delhi by the Government of India (GOI), with a mission to unleash the startups from administrative obstructions and to foster innovation and entrepreneurship.

What is a startup?

For availing incentives available under startup action plan, government has defined startup as an entity that is not more than 5 years old, is registered and focused on innovation.

Startup definition
Parameters	Eligibility criteria	Remarks
Company type	Either a LLP, registered partnership firm, private limited company	Proprietorship firms are not eligible
Years in business	The company should be less than 5 years old.	The company’s age is measured from date of incorporation
Turnover	Less than Rs. 25 crores
Product	New product, service or process(Or)a significantly improved product, service or process (This is difficult to ascertain, therefore, the government has defined the eligibility parameters, explained in the adjoining column)	The startup should: Be endorsed by an incubator established in a post graduate college or by an incubator that is funded/recognized by government Be funded by a Venture Capital fund/angel fund/PE fund that endorses the innovative nature of its business. Have a patent from Indian Patent and Trademark office

Key measures: The Startup India Action Plan can be broadly divided into three parts as shown below.

Ease of doing business

Easy registration: Company registration through an app
Self-certification:

Startups will be allowed to self-certify compliance with nine labor laws; no inspection will be conducted for three years
White startups (i.e., software startups) will be allowed to self-certify compliances with environment laws
Startups do not have to pay income tax for first 3 years

Easy exit:

Startups allowed to close within 90 days of submitting the application for closure

Funding

The government plans to set up a INR 10,000 crore fund to invest in startups, of which INR 500 crore corpus is towards a Credit Guarantee Fund, which will make it easier for startups to obtain a bank loan
Exemption on long term capital gains, if capital gains are deployed in a fund that invests in startups, or if these gains are used to purchase assets in a startup
The GOI plans to set up a specific fund for investing in bio-technology startups

Fostering Innovation

Industry-Academia Partnership

Incubators at engineering and management colleges to support technology driven innovation
Research parks in IITs, so that research based companies could be housed there and benefit from their research expertise
Funding support for setting up new incubators by both government as well as private institutions
Incubators for bio-technology startups

Government to hold startup fest to facilitate exchange of ideas between incubators, investors and entrepreneurs
Innovation focused programs for school and college students

How Finetrain Can Help:

The startup mission couldn’t have come at a better time: The business environment in India is becoming more entrepreneur friendly, as also reflected in the World Bank’s recent report on ease of doing business across countries.

If you are thinking about a new venture, now is the time to start. Finetrain can assist you in identifying locally available opportunities that can be converted into viable businesses. We can help you with:

Comprehensive, real-time information on local opportunities
Assessing viability of specific opportunity
Facilitating connections to sector experts and/or professionals who can help you in implementing your plans

Contact:

Write to us: bchhatre@finetrain.com

Call us: 800 888 4932

Visit us: www.finetrain.com