Sunday, October 16, 2016

Can we build a large market capital with dairy portfolio only ? (23rd DP) 1 to 15 Oct,2016

Dear Friends,
Research is a continuous process at Suruchi. While analyzing some current numbers for the Registered companies in food sector we found an interesting  insight. Against a total Market cap of around  Rs 219527.00 Crores for the food processing sector, the share of listed companies in dairy segment accounts for around 55% at Rs 122756.00 Crores. However the moment we remove Nestle and Britannia then this market capitalization drops down to around 7.24 % at 15,912.00 Crores.
Following four questions came to my mind with these figures :
a. Is dairy not the right industry from market capitalization perspective in India?
b. Can't we have higher market capitalization without having other non dairy component in the portfolio like Nestle and Britannia ?
c. Is it mandatory to have a multinational backend to get higher market capitalization ? Or
d. Are listed Indian dairy companies unable to perform or leverage higher market capitalization due to their financial strategies or practices ?
I leave the stalwarts from the industry to look deep into it. I am not sure on what kind of market capitalization could be foreseen with Amul and Mother dairy getting listed and traded. I do not know why at least Mother Dairy is shying away from the same. I do not find anything bad in Amul also entering into market with its share by changing the structure and acting as a true corporate ( which they are indeed). I won't be surprised if Patanjali under the aegis of Baba Ramdev may create history by becoming largest food cum dairy conglomerate in times to come by surpassing all existing players.
Let us talk about the last fortnight in Indian and global dairy sector. Most of the news were around Cow milk launches and even Verka joined the bandwagon after Mother dairy, Saras and Vita. 
Earlier this month, the Food regulator FSSAI released draft standards for fortification of staples that includes milk, edible oil, vansapati, atta and maida, rice and salt, and plans to make them operational soon.
Fortification means increasing content of essential mico-nutrient in a food product to improve its nutritional quality to provide public health.
ShriPawanAgarwal, CEO, FSSAI, said that several states such as Karnataka are keen to include fortified food in their public schemes such as mid-day meal programs, and therefore, the regulator will operationalize these draft standards soon to facilitate the same. At a two days National summit on fortification Mr Siva Nagarjuna from Mother dairy committed to fortify their milk with Vitamin A and D as per FSSAI guidelines.
This news will prove to be a milestone in the history of health and child welfare for a country like India where over 46 % children under the age of 5 years are malnourished irrespective of their social class.
Somewhere we will have to pay penalties for paying premium for taste rather than health in all of our food purchases.
I am observing a large number of small time players/farmers/middleman selling desi cow milk or A2 milk or organic cow milk anywhere from Rs 50-150 per liter and ghee in the name of desi cow ghee from Rs 600-Rs 2000.00 per Kgs. It is hight time for regulator to establish some norms of conformity through testing for the milk sold as A2 or organic. This initiative of market linkage direct to home is not bad provided the farmers are directly getting benefitted out of the whole process. The regulator may introduce some separate scheme for farmer registration to sell their milk along with farm registration. Such initiative would be able to churn out intermediaries with vested interest to be out of the game and it would protect customers against false claims by such people.
Last but not the least Economic times published an insightful story on feed and fodder status in India and highlighting the key challenges. A dairy vision report which we published in 2014 on Indian dairy industry vision 2030 has been quoted in the same.
Wishing you a purposeful reading of our enclosed 23rd Dairy Pulse edition. Please share your suggestion and views to make this newsletter more meaningful.
with warm regards

Kuldeep Sharma
Chief Thinking Officer
Suruchi Consultants (ISO 9001:2008 Company)
C-49 Sector-65
Noida 201307
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