Riddhi Siddhi Gluco Biols Ltd is the starch and glucose manufacturing plant of the Riddhi Siddhi Group and is the largest wet milling plant of the Indian Sub Continent having the highest crushing capacity with mills located at prime locations ? Gokak (Karnataka) and Viramgam (Ahmedabad) and Pantnagar (Uttarakhand) . The company?s core strength lies in strong customer focus and rich expertise in the field of production and quality control which underlines the organizations ongoing commitment and quest for quality products and services.
Ganpatraj L.Chowdhary, Managing Director, Riddhi Siddhi Gluco Biols Ltd, has been instrumental in the timely completion of the project and subsequent growth of the company. He played a key role in the successful take-over of K G Gluco Biols Ltd., an integrated maize processing complex promoted and set-up by Glaxo India Ltd. He successfully negotiated with Hindustan Lever Ltd to acquire its functional biopolymer unit situated in Pondicherry, in August 2005.
Ganpatraj Chowdhary tells Anil Mascarenhas of India Infoline that Maize starch and its products find application in wide spectrum of industries in varying quantity and thus reduces market concentration risk.
Give us a brief overview of the starch industry.
Indian starch industry is over 50 years old with concentration for supply to textile industry in the initial period. Over the years it started focusing on producing starch varieties for other industries. As textile and paper industries were dominant consumers, the starch units, in the initial years were located in the western part of the country. With the increasing transportation cost, the later units started locating near the maize growing areas.
At present, there are more than 16 units in this industry with 6 players in the lead and the market size based on March 2007 sales is estimated at around Rs18bn. Indian starch industry produces about 40 different products, whereas in the international market more than 1000 different products are produced from the maize starch.
Maize production in India ranges between 13-15mn MT for the last several years and it is the 7th largest producer of maize in the world. Production in kharif season is much larger compared to rabi crops. The yield per hectare, when compared with other countries is far lower. With the rising prices of maize in the recent past, it is expected that the farmers would gradually adopt better seeds and cultivation practices, which would result in higher yield and better quality.
Per capita consumption of starch products in India is the lowest one. The consumption in US is the highest. We expect this to increase over the period.
What are the changing trends? What are the factors that could trigger growth?
India today is on the threshold of phenomenal growth and is expected to sustain GDP growth of 9% p.a. for many more years. The user industries are on growth path with substantial additions in capacity. This in turn would spur demand for starch products.
There have been gradual changes in the life style and food habits of our people. As starch products are widely used in food, confectionery and energy drinks sectors, there would be increasing demand for the products.
As mentioned earlier Indian starch industry produces about 40 products whereas more 1000 products are produced from maize starch in the advanced countries. With the increasing economic activity, there is scope for introduction of new products in the country.
What are the key reasons investors should include this sector in their portfolio?
Maize starch and its products find application in wide spectrum of industries in varying quantity. It touches every person's morning to bedtime activities. Thus it reduces market concentration risk. Further with focus and emphasis on the agro-food sector by the Government, starch industry could witness sustainable growth for many years. This industry offers great potential for developing many new products such as bio-degradable plastics, ethanol etc which are futuristic products. Introduction of these products would substantially increase the profitability.
Brief us on your business activity.
The company is engaged in the manufacture maize starch and its derivatives. It commenced its activities in 1994 at its unit in Viramgam near Ahmedabad, with maize crushing capacity of 75 tpd. In 1996, it took over the maize processing unit at Gokak, Karnataka from Glaxo. As this unit is situated at the heart of maize growing area of Karnataka, the largest maize producing state in the country, the company took up various expansion schemes to increase the production capacities of starch and other derivatives in this location. Gokak plant is the largest maize processing plant in the country with maize grinding capacity of 750 tpd.
In September 2005, the company acquired the bio-polymer division of Hindustan Unilever Ltd situated at Pondicherry. This unit specializes in the manufacture specially modified starches for Paper industry. This acquisition benefited the company in gaining access to the guarded know-how for manufacture of this speciality patented/ branded products and would also as R&D hub for the company.
In March 2006, Roquette Freres of France, a leading manufacturer of starches and allied products in the world with consolidated turnover of over Euro 2 billion, joined hands with the company, by entering into comprehensive equity subscription and technology agreement. Pursuant to this agreement, Roqutte had taken 14.95% equity stake in the company at a price of Rs.200/ per share. Roquette produces over 650 products from its plants located in 8 nations and converts 6mn tons of agroproducts such as maize, wheat, potato and peas into essential industrial products. It has presence in 100 nations through its marketing network and is the world leader in the Polyol business.
In early 2006, the company has taken up the implementation of a new unit at Pantnagar, Uttrakhand, with maize processing capacity of 500 tpd with a view to providing effective service to the customers in Northern and eastern parts of the country. The plant, set up at a cost of Rs1.10bn, would focus on the production of value added starches. Simultaneously the company expanded the maize processing capacity of its Viramgam unit to 250 tpd, thus making the total maize processing capacity to1500 tpd i.e. 5 lakh ton per annum.
Your production suffered on account of fire. To what extent was it insured. What steps have you taken to prevent recurrence of such incidence?
All our plants have been fully insured including Loss of Profit policy. After due consultation with machinery suppliers and our strategic investor Roquette, we have taken all precautions as per their suggestions to avoid recurrence of such incidence in the reconstruction of starch drying plant.
What is your capacity and utilization level?
As on March 31,2007, the total finished goods manufacturing capacity of the company was 1,87,000 tons and production was 1,64,871 tons.
What are your expansion plans. What target do you have for capacity in the coming years?
We have just completed major expansions and reached sizeable capacity. Our present focus is stabilization of the expanded capacities, introduction of value added products and improvement in operational parameters. Necessary capex for these would be finalized and planned in the coming years.
What is the progress with your crushing plant at Uttarakhand?
We have successfully completed the trial production and normal production has commenced. The capacity build-up being a gradual process, there would be gradual increase in the production in the coming months.
You had some value added products like Malto Dextrine and Dextrose Monohydrate. How much do you these products adding to your topline and bottomline?
Besides Gokak plant, Uttrakhand plant would also produce these products. With the increasing production of value added products, the ratio of production of value added starch to ordinary starch would increase in the coming years. As these products have higher sales value compared to ordinary starches there would be a big jump in the topline with corresponding increase in the bottomline.
What are the entry barriers in this business?
High initial investment, knowledge on rawmaterial (maize) procurement and technology are the major entry barriers in this business.
What does it take to be a leader in this business. Who are your domestic and global competitors.
Capacity for maize grinding and process knowledge with geographical presence at right locations are essential to be business leader in this industry. Our domestic competitors are Sayaji Industries (Maize Products), Anil Products Ltd., Sukhjit Starch, Gujarat Ambuja Exports and Universal Starch.
Globally there many large players, but none has presence in the country. As the domestic market being large and growing, exports are nominal. With the US, the largest country in this industry, focusing on more ethanol production from maize, it is perceived that export potential from our country would grow in future.
What is the size of the industry and your market share?
The size of the industry is around Rs18bn based on FY2007 sales. Our market share is about 18%.
Brief us on your financials. What is the outlook going ahead. Which are the segments that will contribute to your growth.
The company, in the past decade has been growing at a CAGR of 25%. For FY 2007, we achieved gross turnover of Rs3.56bn as against Rs2.43bn in the previous year. PAT increased to Rs270mn against Rs110mn in the previous year. The networth of the company (net of revaluation reserve) stood at Rs1.18bn as on March 31, 2007 and the book value was Rs.112 per share.
Due to the unfortunate fire accident in the starch section of the Gokak plant, performance for the current financial year would be flat. But, with all the units functioning at normal capacity, we expect substantial growth in FY2009 with sales touching around Rs5bn. As the production of value added starches would increase in the coming years we expect steady growth in turnover in the coming years. At the same time with cost saving measures being contemplated, we expect improvement in the bottomline. Key drivers of our growth would food, confectionery, pharmaceutical and paper industries.
What is your export turnover? What are the prospects here?
Due to strong domestic market, presence in export market is limited. Exports turnover for FY 2007 was Rs116.1mn. But we are gearing up to increase our exports in the coming years. We have recently expanded the Viramgam unit?s capacity keeping in view the export market, as it is logistically closer to major ports. Further all our units (except Uttarakhand) have ISO certification. Our aim is to achieve export income of 10% of sales by FY 2010.
Brief us on your procurement process. To what extent are you backward and forward integrated?
Our major plant is situated at Gokak, in the heart of maize growing areas of Karnataka. During the season we open procurement centers (currently at 13 locations) and procure maize from farmers and also other aggregators. Besides we also procure maize from agents for the Viramgam unit. The maize procured are stored in own and hired godowns.
How do you manage your logistics. Is it out sourced or in-house?
We have combination of both in-house and outsourcing.
Do you have any Joint ventures?
We do not have any JV. Ms. Roquette Freres is a strategic partner with 14.95% equity stake.
What synergies and products does Roquette bring?
Roquette would help us in achieving improved productivity. Any new products when finalized would be on parameters mutually discussed and agreed between the two companies.
What is your growth strategy, organic and inorganic?
We have successfully adopted organic and inorganic methods of growth to achieve leadership in this industry.
Any acquisition plan
We do not have any at present. We are always open to acquisition if the unit is suited to our requirement.
Tell us about your operating margins. How is it likely to pan out going ahead?
There has been improvement in the EBIDTA margins due to gradual increase in the Value Added Products and reduction in operating costs. With the gradual increase in the production of Value Added Products combined with measures taken for the cost reductions, we are hopeful of steady increase in the margins.
What margins do you command in Value added products? Do you get a premium to the market?
Margins depend on the product specifications, which are application dependent. In certain products we do get premium to the market.
With changing lifestyles, sugar-free products are in vogue. What plans do you have here?
We are studying a host of new products including this. Introduction of the products would however depend on extensive market study on the feasibility of introduction of any such new product.
How many downstream applications of maize starch are available with you?
We have over 40 different products for downstream applications. Though these are broadly classified into five groups, the variants depending on product specific applications make the product numbers more.
Your dividend policy.
Dividend distribution would depend upon the quantum of cash required for reinvestment into the business. Taking into account future capex and cash requirement for normal activities, the Board approves dividend payment. However, we are hopeful that the dividend percentage would increase with the increasing profits in the future years.
Your message to shareholders.
Riddhi Siddhi could become the leader in this industry in shortest span and it owes its success to the shareholders? continued support and faith. Though the current financial will be a flat one due to unforeseen fire accident at the starch plant in Gokak, which was not in the hands management?s control, measures and steps taken would ensure no-occurrence of such accident in future.
The company is now poised for exploiting the potential of its large capacity and goodwill of customers and future prospects look very promising. We are striving hard to increase the shareholders wealth with constant growth that would translate into higher sales and profits.