Sensex 27457.58 -654.25 -2.33%
Nifty 8342.15 -188.65 -2.21%
Sai Ramakrishna Karuturi is the Founder and Managing Director of Karuturi Global Ltd, is widely regarded as the pioneer of cut flower revolution in the World. Under his dynamic leadership, Karuturi Global has become the world’s largest producer of cut-roses by identifying Kenya & Ethiopia as a hub for cultivation and export of roses. Ram Karuturi Ram Karuturi was instrumental in acquiring 3, 11,000 Ha of land in Ethiopia for strategic foray into Agriculture production. Mr. Sai Ramakrishna Karuturi holds a Bachelors’ degree (Rank Holder) in Mechanical Engineering from Bangalore University and an MBA (Dean’s Honor) from Case Western Reserve University, Ohio.
Karuturi Global Ltd, was incorporated in 1994, it is today the largest producer of cut roses in the world, with are area of over 239 hectares under Greenhouse cultivation and an annual production capacity of around 555 million stems. An integrated production model encompassing in-house plantation, cultivation and distribution capabilities coupled with a series of green initiatives make us one of the lowest cost producer of cut roses in the world. Almost our entire produce is exported to high-value markets such as Holland, Germany, United Kingdom, Italy, Singapore, Hong Kong, Taiwan, Bahrain, Muscat, Dubai, Australia, Japan, New Zealand, Brunei and North America, with a small portion sold in India. Equipped with a robust and de-risked business model, Karuturi Global’s other fast-growing business realms are food processing, floriculture retail including a flower auction portal and information technology.
Replying to Jasmine Kohli, of India Infoline, Mr. Sai Ramakrishna Karuturi says, "We are targeting COMESA (The Common Market for Eastern and Southern Africa) market, which is a preferential trading area stretching from Libya to Zimbabwe."
Your company is closely associated with roses. What would you describe is your core business model?
Our core business model is Agricultural Arbitrage between the Southern and Northern Hemispheres with Delta Cost of labour weather control minus the cost of freight. Exploiting these synergies, we emerged as the world’s largest rose company with production bases in Kenya, Ethiopia and India. Today, we are expanding our product basket by extending our core business model into Cereals, Edible Oils and processed foods to become a Complete Agriculture Production Company. With a land bank of 311,000 hectares in Ethiopia. We have commenced development of 100,000 ha in 1st Phase, to cultivate 800,000 mt per annum of Cereals on (80000 Ha) and 100,000MT per annum of Oil Palm on 20000 Ha.
From an export-led market to growth domestically, tell us about the change in India as a market for floriculture?
In the early 90’s it was an export lead growth but today most of the production is sold in the ever expanding local market, which continues to grow YoY at a rate of 40% p.a. From the global perspective, India is a fringe player with Kenya being the biggest exporter followed by Ethiopia.
Brief us about your various business activities globally? How much of your business comes from Agriculture and floriculture?
Floriculture is the corner stone of Karuturi’s Agri business and contributes around 95% to the company’s top line with a healthy PBIT Margin (PBIT/Sales) of 35% in 2008-09. KGL entered into the floriculture business in 1994 with an annual capacity to process 7mn premium cut roses at its facilities in Doddabalapur on the outskirts of Bangalore.
Following its gradual expansion in India and Ethiopia and acquisition of the Kenya-based Sher Agencies Ltd, the company has now become one of the leading rose growers in the world. The company has three main low-cost production bases, namely, India, Ethiopia and Kenya. Its Indian facility serves markets in Australia, Japan, Middle East and South East Asia; its Ethiopian and Kenyan Facilities cater to markets in Europe (including Russia), Middle East and North America. KGL sells roughly 50% of its output through auctions and the rest directly to various customers.
We have kick started agricultural operations on the 11000 Ha land parcel in Bako for the cereal crop. This land will be primarily used for maize & rice cultivation (2 crops in an year). By the turn of the FY 11, we would execute the entire 11000 Ha in Bako. In Gambela for the land parcel of 3,00,000 Ha, Phase 1 agricultural operations would initiate on 80000 Ha for cereals crop and Oil Palm 20000 Ha. In FY 10, we have kick started the operations for 2000 Ha for Maize cultivation and by FY 11, we would be able to start the operations in full swing & effective land under cultivation would be on 50000 Ha by then. We expect to harvest well over 25,000 MT in the first half of the year and over 50,000 MT by the second half of the year.
In the Palm Business we initiated the cultivation since Jan 09. Currently we have developed 6000 Ha of palm in the Primary Nursery. We are adding 700 Ha every month in this nursery and would bring 50,000 acres of land under palm Oil plantation in the next 2 years.
Brief us on your financials.
For the year ending March 2009, the company has generated US$ 92mn in revenues with an EBITDA margin of 31% and PAT margin of 26 %. The YoY growth is 11%.
Which is the best season? Do you face any seasonality in the business?
Being into Floriculture Business, our second half of the year (Oct – May) is better than the first half. This is in view of the various festive occasions like – Christmas, New Year, Thanks Giving, Valentine Day, Mother’s Day etc.
However, demand in Europe is not only occasion driven/gifting but also there is a 365 day consumption. This makes the industry fairly "Recession Resistant", as cut-roses are relatively price inelastic.
In Agriculture, we are following Kharif & Rabi (2 crops) in a year by virtue of which we do not face any seasonality in business.
What is your market capitalization?
Market Capitalization is 7.20bn on a paid up capital of 450mn. On a fully Diluted Equity the Market Cap is around 12.80bn.
What are some of the threats and challenges to your business?
Threat faced with respect to global commodity and economic cycles and Macro level pestilence like SARS, Bird Flue etc. In terms of challenges which we face is the financing the execution of agriculture initiative on 300000 Ha in Ethiopia and also operational challenges.
Give us brief idea about floricultural business? What is your share in the market? You derive most of your demand from organized and unorganized market?
For the floricultural Business, US, EU and Japan are key consuming markets. Western Europe is the largest market with more than 50% consumption. This is because European culture requires large supply of flowers for gifts, occasions and everyday life. International trade of cut flowers is US$ 6.1 bn in 2006. Although, countries in Europe have more than 60% share of world exports, they are largely intra-European with only about 16% exported to other countries. Netherlands is the largest exporting country of cut flowers with 54% share. However, it has been experiencing a decline in revenue and market share because of increasing exports from countries like Ethiopia, Columbia, Ecuador, Kenya and Israel. Germany, U.K, US and France account for about 70% of imports. Japan is the main importer (4% share) in Asia. Netherlands both imports and re-exports flowers.
We are the world’s largest producer of cut roses with a capacity of 555 mn stems p.a and with a European market share of around 9%.
What is your marketing strategy?
For the floriculture business , The European Union, Japan and the United States are the largest cut rose-consuming markets, accounting for two-third of the world market. The auction market is the most preferred route because of price competitiveness; in Europe, around 40% of the trade is through the auction route.
In the agriculture business, with an Ethiopian domestic market of around 85 million people there is ample scope for local sales. We would also be targeting the COMESA (The Common Market for Eastern and Southern Africa) market, which is a preferential trading area with nineteen member states stretching from Libya to Zimbabwe. Its population base of around 400 million and annual import food bill of around US$19 billion provides for ample opportunity.
Further, there are Bilateral treaties of Ethiopia with most developing and developed nations including India, through which goods products in Ethiopia have duty-free access into destination countries.
Who are your main competitors?
The global floriculture industry is highly fragmented. A number of small farms exist all over Europe and Latin America. Further, KGL specializes only in roses and thus, there is no direct competition for the company. However, in terms of the broad industry, KGL faces competition from African growers like Homegrown and Oserion as also growers from Ecuador and Columbia, Esmeralda from Latin America & Finlay Flower.
In the Agriculture space, we would compete with Archer Daniels Midland Company, Bunge Ltd., Cargill Inc, etc. etc..
How has the monsoon impacted your business?
As far as the monsoons are concerned, we are not affected by it, because we are under irrigated conditions. Most of our projects are next to perennial water sources and we don’t depend on the monsoons for our agricultural operations be it floriculture or agriculture.
How are you placed in the retail space? Any tie up with retail clients?
We have flower retail through shop-in-shops and stand alone branded retail to tap the potential of modern retail format improve margins, visibility and superior branding. Presently, we have 25 such outlets in Bangalore and has plans to open a total of 200 outlets across India in the next few years through a franchisee model.
Brief us on your client base?
The direct customers are primarily large distributors, bouquet manufacturers and large retail chains. KGL has an efficient value chain, which is very critical in the cut rose business. The auction market is the most preferred route because of price competitiveness; in Europe, around 40% of the trade is through the auction route.
Any plans for inorganic growth?
Yes we may explore the opportunity in the near future.
Typically what kind of people would you look for from the B-Schools?
We typically recruit BSc/MSc Agricuture/Horticulture and also MBAs with plantation /Agri/Commodity focus. Project management skills are also desirable.
What do you think B-Schools need to do to make their students ready for the job?
They should encourage Hands on apprentice-ship in large Agri companies to groom future managers.
What are your hiring plans?
There is a huge need for talented and energetic youngsters in areas of Agri production, Project Management, Finance, MIS, Inventory management, etc in Ethiopia and Kenya.