Contents of this Note :
Key Takeaways from the Report -- Industry Perspective
Page 3-4
Key Takeaways from the Report -- Company Perspective
Page 4-5
Industry -- Key Facts & Figures
Page 6-11
Marketsize, Value / Volume Breakup, YoY Growth - 2009-2013 ( Sweet & Savoury Snacks, Western Snacks )
Key Players of the Segment ( 27 Players Contributing 95 % of the Segment Sales )
Extruded Snacks ( Projected Value/Volume Growth – 2014-2018 )
Marketshare of Key Brands – Extruded Snacks ( Kurkure, Bingo, Yellow Diamond, CRAX, Cheetos, TakaTak, Peppy, Piknik )
Assessment of Competition
Page 12-19
Pepsico Marketshare Trend -- 2004-2013 Haldiram Marketshare Trend -- 2004-2013 Financial Profile of Nine Companies Constituting 71 % of Segment Sales ( Pepsico, Haldiram, Balaji Wafers, ITC, Bikaji Foods, Bikanervala, Prataap Snacks, Apricot Foods, DFM Foods )
Key Things to Note ( Haldiram & Bikaji Segmentwise Sales Breakup, 3 Years' CAGR in Sales, EBITDA Margins, PE-deal Valuations in the Segment )
Assessment of Competition specific to DFM Foods
Page 20-21
CRAX Brand Key Marketshare Figures ( Sweet & Savoury Snacks, Western Snacks, Extruded Snacks, Corn-Based Extruded Snacks )
Prataap Snacks – the Key Competitor ( Aggressive Marketing, Distribution Edge, Backed by Sequoia Capital )
Conclusion
Page 22-22
Page Intentionally Left Blank
Introduction : In continuation with our initial brief note on 'DFM Foods Ltd' dated 10th February 2014, we present here a detailed 'Industry & Competition Analysis' for the same company. This report is the result of an extensive on and off the field work done by our team over the span of last two months across each geography so asto remain as exhaustive as possible, and, while presenting the facts & figures, we have tried to remain as unbiased as possible in our analysis.
Key Takeaways from the Report – Industry Perspective :
•
'Indian Branded Sweet & Savoury Snacks' segment has grown at a CAGR of 26.2 % over 2008-2013 (in value terms) to become the third fastest growing segment of Indian Packaged Food Industry.
•
The segment is categorised into 'Western Snacks' and 'Traditional Snacks' which together give it a ( 2013 ) market size of ` 110.68 bn. 'Western Snacks' comprises of Chips/Crisps & Extruded Snacks (like Rings, Puffs, etc.) whereas 'Traditional Snacks' comprises of Namkeens, Bhujia, Papad, Khakhra, Nuts, Sweets, etc.
•
Only Twenty Seven organised players contribute to 95 % of the segment sales with Nine Players controlling ~71 % of the marketshare. These Nine players include :
Pepsico,
Haldiram,
Balaji Wafers,
Bikanervala,
Prataap Snacks,
DFM Foods
ITC, &
Bikaji Foods,
Apricot Foods.
[ Note :- Financial Profile of each of these nine companies is included in this report ]
•
Extruded Snacks as a category stands out amongst all other categories having registered highest volume growth over 2008-2013 ( CAGR = 21.9 % ) and its projected 16.9 % ( CAGR ) volume growth over 2013-2018 which is again highest in the segment.
•
Only Six companies control 82 % of the Extruded Snacks market. Pepsico is the leader in the space whereas Prataap Snacks, DFM Foods and Haldiram are noteworthy marketshare gainers over last ten years.
•
Opportunity is huge ahead of every serious player in Indian Branded Sweet & Savoury Snacks segment because of the fact that Indians are natural snacks' consumers, and entire 124 crore Indian public is served by only Twenty Seven major branded savoury snacks players atpresent. Rural markets are still unpenetrated and lower price points ( ` 2, ` 5 & ` 10 ) prevalent in the segment could drive aggressive sales in rural India.
•
Competition is likely to intensify going forward as more of the organised business groups enter into this space ( recent entry of Tobacco major Gopal Corporation is a case in point ) to grab their share of opportunity as also existing players make a dent in peers' stronghold by offering similar products with superior distribution and marketing reach.
Key Takeaways from the Report – Company Perspective :
CRAX Brand Key Marketshare Figures
Sweet & Savoury Snacks Segment
Western Snacks Segment
Extruded Snacks Segment
Corn-based Extruded Snacks Segment
2.03 %
2.79 %
5.61 %
9.19 %
CRAX MarketShare ( 2013 )
Source :- Exemplar Research, Channel Checks, Euromonitor International, Company Reports
•
DFM Foods Ltd. via its 'CRAX' brand is a key player in Extruded Snacks category of Indian Branded Sweet & Savoury Snacks segment.
•
Over last five years, company has gained significant marketshare of the category.
•
If we consider 3 Years' ( FY10-FY13 ) CAGR in Sales, then, DFM has outperformed industry as well as almost all of its peers quite handsomely :
3 Years' CAGR in Sales ( 2010-2013 )
Sweet & Savoury Snacks Segment
Pepsico
Haldiram
Balaji Wafers
Bikaji Foods
Bikanervala
Prataap Snacks
DFM Foods
25.26 %
19.93 %
25.82 %
33.15 %
28.39 %
17.29 %
30.56 %
46.13 %
•
Its main product offerings ( CRAX Corn Rings ) are targeted towards children of age group 6-12 years --- an isolation strategy which has done wonders for the company so far.
•
If we take into consideration DFM's key product offerings and its target audience, then, key competitors for it are Pepsico, Haldiram ( Extruded Snacks ), ITC, Prataap Snacks & Venkataramana Food Specialities.
Extruded Snacks Key Brands Marketshare ( 2013 ) Others 18.00%
Piknik 1.30% Peppy 1.40% TakaTak 4.30% Kurkure 51.00%
Cheetos 1.70% CRAX 5.60%
Yellow Diamond 5.90% Bingo 10.80%
Kurkure TakaTak
Bingo Peppy
Yellow Diamond Piknik
CRAX Others
Cheetos
Source :- Exemplar Research, Channel Checks, Company Reports, Rating Reports, Euromonitor International,
•
As per our analysis, Prataap Snacks ( via its brand YD Rings ), as a peer, poses an immediate threat to DFM Foods because of its almost similar marketing strategy, same target audience, identical product USP and low margin business model.
•
Prataap has recently ( in 2013 ) commenced its Rings manufacturing plant ( technology from American Extrusion ) and is going all out to make a dent into DFM's ( CRAX Corn Rings ) marketshare. Aggressive marketing strategy is adopted by Prataap by getting associated with popular children tv show 'Chhota Bheem' and Mr. Amitabh Bachchan starrer children-oriented supernatural movie 'Bhootnath Returns'.
•
Medium-term Revenue Growth is not under threat for DFM because of an aggressively expanding market size itself as also unsaturated nature of company's Western & Eastern Sales presence. However, for this to happen, company has to expand its manufacturing capacities intime, fill the many gaps prevalent in its distribution network as also design a wise consumer-pulling marketing strategy.
•
EBITDA margins of the company might not show a significant improvement considering the fact that all its peers ( except Balaji Wafers ) operate at a lower EBITDA margin as also likely intensification of the competition in the space.
Industry --- Key Facts & Figures :
•
'Packaged Food' segment is one of the fastest growing segment of Indian FMCG sector.
•
'Branded Sweet & Savoury Snacks' segment is the third fastest growing Indian Packaged Food segment. It has grown at a 5 Years' CAGR of 26.2 % over 2008-2013 ( in value terms ).
Indian Packaged Food Segment { Fastest Growing FMCG Segment }
Sweet & Savoury Snacks Segment { 3rd Fastest Growing Indian Packaged Food Segment } 2013 Market Size = ` 110.68 bn.
Western Snacks
Traditional Snacks
` 69.44 bn.
` 41.24 bn.
Chips / Crisps Extruded Snacks
Namkeens, Bhujia, Papad, Khakhra, Nuts, Sweets, etc.
Key Players :
Key Players :
Pepsico, ITC, Parle, Balaji Wafers, Prataap Snacks, DFM Foods, Venkataramana Food
Haldiram,
Bikaji Foods,
Bikanervala,
Pepsico
Source :- Euromonitor International, IBEF, Exemplar Research
•
'Western Snacks' and 'Traditional Snacks' are the two broad categories under Branded Sweet & Savoury Snacks segment. Although, in volume terms, both the categories' contribution is almost equal ( 50.73 % v/s 49.27 % ), but, in value terms, Western Snacks dominate the space with 62.73 % share as at 2013.
•
Chips/Crisps & Extruded Snacks (like puffs, rings, etc.) form 'Western Snacks' category whereas Namkeens, Bhujia, Papad, Khakhra, Nuts, Sweets, etc. form 'Traditional Snacks' category.
Indian Branded Sweet & Savoury Snacks Segment Value
Volume
37.27% 49.27%
50.73% 62.73%
Western Snacks
Traditional & Other Snacks
Western Snacks
Traditional & Other Snacks
Western Snacks Value
Volume
45.79%
48.11%
54.21%
Chips / Crisps
Extruded Snacks
51.89%
Chips / Crisps
Extruded Snacks
( Value Growth YoY )
2013
2012
2011
2010
2009
Sweet & Savoury Snacks Segment
24.94 %
23.92 %
26.99 %
30.63 %
24.93 %
Western Snacks
25.75 %
25.15 %
27.42 %
32.79 %
22.99 %
Traditional Snacks
23.42 %
21.90 %
26.35 %
27.07 %
28.06 %
Chips / Crisps
23.37 %
23.06 %
29.14 %
33.62 %
29.63 %
Extruded Snacks Segment
28.69 %
27.83 %
25.29 %
31.78 %
15.71 %
Source :- Euromonitor International, Exemplar Research
•
Only Twenty Seven organised players constitute 95 % of the total Indian Branded Sweet & Savoury Snacks segment sales with Nine players dominating the space with 71 % of the marketshare.
•
Pepsico leads the race with 35.1 % marketshare (2013) with Haldiram ( all family fractions' geographies combined ) standing second at 23.5 % marketshare. Pepsico is a clear leader in 'Western Snacks' space whereas Haldiram dominates the 'Traditional Snacks' space.
•
Each of the two major players have seen their marketshare gradually decline because of the emergence of other strong players like ITC, Balaji Wafers, Prataap Snacks, Bikaji Foods and DFM Foods.
Key Players in Indian Sweet & Savoury Snacks Segment
( Note – These Players together control 95 % marketshare of the segment ) Pepsico Large Players
`
( by FY13 Annual Sales )
500 cr. +
Balaji Wafers Haldiram ITC
Parle Products Prataap Snacks Mid-Size Players
`
200 – 500 cr.
( by FY13 Annual Sales )
Bikaji Foods Bikanervala DFM Foods
Small Players ( by FY13 Annual Sales )
Parle Agro `
100 – 200 cr.
Cavinkare Venkataramana Food Specialities Agrotech Foods Apricot Foods
Perfetti Van Melle Micro Players ( by FY13 Annual Sales )
`
1 – 100 cr.
Samrat Namkeen Jabson Food Euro India Fresh Foods
Atop Food Products Zee Foodex Chheda Specialities SKB Food Products Advance Tech Energy Edibles Melar Healthcare Priniti Foods Krushi Corporation Grove Ltd. Source :- Onground Research, Channel Checks, Company Reports, Rating Reports, Exemplar Research, Euromonitor International,
•
'Extruded Snacks' as a category stands out amongst all other categories of Branded Sweet & Savoury Snacks segment not only because of the highest volume growth registered by it over last 5 years ( 2008-2013 CAGR = 21.9 % ) but also because of its projected volume growth over 2013-2018 at a CAGR of 16.9 % which is highest amongst the segment.
( Growth YoY )
2014
2015
2016
2017
2018
Volume Growth : Chips / Crisps ( Volume Growth )
11.64 %
10.82 %
9.19 %
8.22 %
7.96 %
Extruded Snacks ( Volume Growth )
19.54 %
17.92 %
16.42 %
15.49 %
15.10 %
Value Growth : Chips / Crisps ( factoring-in normal price increase based on price trend till 2013 )
20.78 %
19.38 %
17.21 %
15.90 %
15.10 %
Extruded Snacks Segment ( factoring-in normal price increase based on price trend till 2013 )
26.57 %
24.54 %
22.62 %
21.31 %
20.65 %
Source :- Euromonitor International, Exemplar Research
•
Six companies dominate Extruded Snacks category by controlling 82 % market as at 2013. They include Pepsico, ITC, Prataap Snacks, DFM Foods, Haldiram & Vekataramana Food Specialities.
•
Pepsico is the leader with its Kurkure & Cheetos brands controlling 52.7 % marketshare ( 2013 ) of the category ; ITC, with its brand Bingo occupies second slot ( 10.8 % marketshare ) while Prataap, with its brand
Yellow Diamond ( 5.9 % marketshare ) and DFM Foods with its brand CRAX ( 5.6 % marketshare ) occupying third and fourth position respectively. •
If we talk of specific brands, then, over last five years ( 2008-2013 ), CRAX ( DFM Foods ), Yellow Diamond ( Prataap Snacks ) and TakaTak ( Haldiram ) have gained significant marketshare at the expense of Peppy & Piknik ( Venkataramana Food ) and other smaller players.
Extruded Snacks Marketshare Trend of Key Brands 2013
2012
2011
2010
2009
Kurkure & Cheetos ( Pepsico )
52.7 %
55.2 %
53.8 %
49.2 %
52.9 %
Bingo ( ITC )
10.8 %
10 %
11 %
11.9 %
11.5 %
Yellow Diamond ( Prataap )
5.9 %
4.7 %
4.6 %
4.9 %
4.8 %
CRAX ( DFM )
5.6 %
5.3 %
5.1 %
4.1 %
3.9 %
TakaTak ( Haldiram )
4.3 %
4.3 %
4.2 %
3.8 %
3.3 %
Peppy & Piknik ( Venkataramana )
2.7 %
3,3 %
4.0 %
4.8 %
6.0 %
Extruded Snacks Key Brands Marketshare ( 2013 ) Others 18.00%
Piknik 1.30% Peppy 1.40% TakaTak 4.30% Kurkure 51.00%
Cheetos 1.70% CRAX 5.60%
Yellow Diamond 5.90% Bingo 10.80%
Kurkure TakaTak
Bingo Peppy
Yellow Diamond Piknik
CRAX Others
Cheetos
Source :- Exemplar Research, Channel Checks, Company Reports, Rating Reports, Euromonitor International,
•
Key driver for robust growth of Extruded Snacks segment has been lower price points ( ` 5 & ` 10 ) which, coupled with innovative promotional activities, have made the segment extremely popular, especially amongst school going children.
•
Consumption pattern suggests that Brand Loyalty is absent in this segment ; however, brand preference exists to a certain extent. Product Loyalty is completely absent because of which companies need to continuously innovate to offer more flavours as also engage consumers in varied ways.
•
'Taste' & 'Price Point' are the key determinants of purchase decision of consumers in the segment. For products targeted at children, 'Gift' (bundled with each product packet) is the third most important determinant of the purchase decision.
Assessment of Competition :
•
Pepsico with its brands Lay's & Uncle Chipps in Chips/Crisps segment (Western Snacks) , Kurkure & Cheetos in Extruded Snacks segment (Western Snacks) & Lehar in Traditional Snacks segment is a clear leader in Indian Branded Sweet & Savoury Snacks segment. However, if we observe its overall marketshare of the segment over last 10 years, then, it seems to have lost considerable ground : Pepsico Marketshare Trend in Indian Branded Sweet & Savoury Snacks Segment
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
35.1 %
36.5 %
36.7 %
37.4 %
39.3 %
40.1 %
41.1 %
46.5 %
45.7 %
44.3 %
Source :- Euromonitor International, Exemplar Research
•
In contrast, Haldiram as a group has more or less maintained its marketshare to become the second largest player of Indian Branded Sweet & Savoury Snacks segment : Haldiram Marketshare Trend ( all family fractions' geographies combined ) in Indian Branded Sweet & Savoury Snacks Segment
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
23.5 %
23.7 %
24.1 %
24.1 %
24.2 %
23.0 %
21.5 %
20.8 %
21.3 %
21.4 %
Source :- Euromonitor International, Exemplar Research It is worthwhile to note here one important fact regarding Haldiram --- although for calculation of marketshare figures, 'Haldiram' as a brand is considered, but, the rights for 'Haldiram' brand are clearly demarcated amongst different family fractions with each family fraction's respective company/ies handling manufacturing, sales and distribution of 'Haldiram' brand of products for the respective geography : Geography
Family Fraction
Respective Companies
North India
Manohar & Madhusudan Agarwal
Haldiram Snacks Pvt. Ltd. Haldiram Manufacturing Co. Pvt. Ltd.
West & South India
Shiv Kishan Agarwal
Haldiram Foods International Pvt. Ltd. Komal Foods Pvt. Ltd.
East India
Prabhu Shankar Agarwal
Haldiram Bhujiawala Ltd.
In this report, for assessing financial and segmental positioning of 'Haldiram', figures of all the above-mentioned five companies are taken as one single consolidated entity.
•
All the other players in the segment command a marketshare in single digits ; however, their relative growth over the years is noteworthy and exceptional which suggests : an expanding overall marketsize, gradual shift towards organised from unorganised, & also explains the marketshare-loss suffered by the leader of the segment (Pepsico). Key players that have gained significant marketshare over last ten years include ITC, Balaji Wafers, Prataap Snacks, DFM Foods, Bikaji Foods, Parle & Apricot Foods.
•
Let's now assess the financial profile of nine companies which together control 71 % marketshare of Indian Branded Sweet & Savoury Snacks segment. Here we will look at : Actual Revenue & YoY Revenue Growth for each fiscal over FY10-FY13, 3 Years' CAGR in Sales (Revenue) achieved by each player, and EBITDA & PAT Margins – 4 Years' Average as well as of FY13.
Comapnies covered are : Pepsico, Haldiram (all family fractions' gepgraphies combined), Balaji Wafers, ITC, Bikaji Foods, Bikanervala, Prataap Snacks, Apricot Foods, DFM Foods.
FY13
FY12
FY11
FY10
14.13 %
23.94 %
21.92 %
N.A.
( 2546.81 cr. )
( 2231.46 cr. )
( 1800.33 cr. )
( 1476.54 cr. )
22.36 %
29.29 %
25.89 %
25.88 %
( 2936.48 cr. )
( 2399.74 cr. )
( 1856.01 cr. )
( 1474.29 cr. )
YoY Growth
28.19 %
31.36 %
40.18 %
N.A.
( Actual Revenue )
( 913.58 cr. )
( 712.67 cr. )
( 542.53 cr. )
( 387.01 cr. )
N.A.
N.A.
N.A.
N.A.
Pepsico [ Snacks ] YoY Growth
( Actual Revenue )
Haldiram [ All Geographies Combined ]
YoY Growth
( Actual Revenue )
Balaji Wafers
ITC YoY Growth
( Actual Revenue )
( 500 cr. )
Bikaji Foods YoY Growth
32.54 %
31.38 %
21.53 %
33.91 %
( Actual Revenue )
( 325.50 cr. )
( 245.57 cr. )
( 186.91 cr. )
( 153.79 cr. )
YoY Growth
25.23 %
24.93 %
3.13 %
N.A.
( Actual Revenue )
( 350.25 cr. )
( 279.68 cr. )
( 223.86 cr. )
( 217.05 cr. )
YoY Growth
33.41 %
35.93 %
22.72 %
54.16 %
( Actual Revenue )
( 343.80 cr. )
( 257.69 cr. )
( 189.57 cr. )
( 154.47 cr. )
YoY Growth
36.04 %
N.A.
N.A.
N.A.
( Actual Revenue )
( 107.81 cr. )
( 79.25 cr. )
YoY Growth
32.94 %
41.37 %
66.02 %
35.34 %
( Actual Revenue )
( 225.24 cr. )
( 169.42 cr. )
( 119.84 cr. )
( 72.18 cr. )
Bikanervala
Prataap Snacks
Apricot Foods
DFM Foods
3 Years' CAGR in Sales ( 2010-2013 )
Sweet & Savoury Snacks Segment
Pepsico
Haldiram
Balaji Wafers
Bikaji Foods
Bikanervala
Prataap Snacks
DFM Foods
25.26 %
19.93 %
25.82 %
33.15 %
28.39 %
17.29 %
30.56 %
46.13 %
50.00%
46.13%
DFM Foods
45.00%
40.00%
35.00%
33.15%
17.29%
Bikanervala
Sweet & Savoury Snacks Industry
Pepsico
15.00%
19.93%
Haldiram
20.00%
Bikaji
25.82%
25.26% 25.00%
30.56% 28.39%
Prataap
Balaji Wafers
30.00%
10.00%
5.00%
3 Years' CAGR Industry
Pepsico Balaji
Bikanervala
Source :- Company Reports, Rating Reports, Exemplar Research
Haldiram Bikaji
Prataap
DFM
4 Years' Average
FY13
EBIT Margin
4.52 %
2.93 %
PAT Margin
N.A.
N.A.
10.61 %
10.03 %
5.79 %
5.36 %
18.55 % 12.07 %
19.45 % 12.41 %
EBITDA Margin
N.A.
N.A.
PAT Margin
N.A.
N.A.
7.39 % 3.71 %
7.49 % 4.07 %
8.33 % 4.02 %
8.53 % 4.26 %
EBITDA Margin
8.83 %
7.99 %
PAT Margin
4.63 %
3.72 %
EBITDA Margin
9.51 % *
8.95 %
PAT Margin
5.13 % *
EBITDA Margin
11.94 %
10.58 %
5.42 %
2.80 %
Pepsico [ Snacks ]
Haldiram [ All Geographies Combined ]
EBIDTA Margin PAT Margin
Balaji Wafers EBITDA Margin PAT Margin
ITC
Bikaji Foods EBITDA Margin PAT Margin
Bikanervala EBITDA Margin PAT Margin
Prataap Snacks
Apricot Foods
* 2 Years' Average
4.90 %
DFM Foods
PAT Margin
20.00% 19.00% 18.00% 17.00% 16.00% 15.00% 14.00% 13.00% 12.00% 11.00% 10.00% 9.00% 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00%
19.45%
12.41% 10.58%
10.03% 8.95%
8.53%
7.99%
7.49% 5.36% 4.07%
4.90%
4.26%
3.72%
2.93%
Pepsico
2.80%
Haldiram
Balaji Wafers
Bikaji
FY13 EBITDA Margin
Bikanervala
Prataap
Apricot
DFM Foods
FY13 PAT Margin
Source :- Company Reports, Rating Reports, Exemplar Research
Key things to note from above :
•
Haldiram's revenue figures optically seem higher than Pepsico because, they include sales from other sources like Dairy items, Milk, Ghee, Syrups, Squashes, Dry-Fruits as well as Restaurant sales which are not part of 'Sweet & Savoury Snacks' sales. To cite here an example, given below is the segmentwise sales breakup of Haldiram for FY13 : Haldiram Segmentwise Sales Breakup ( FY13 ) Segment
Savoury Snacks
FY13 Revenue
1879 cr.
`
Sweets
`
602 cr.
Others
`
455 cr.
Total
`
2936 cr.
Source :- Approximate Breakup Data derived from Company Reports, Rating Reports If we go further down into the breakup of 'Savoury Snacks' segment sales, then, Haldiram's dominance in 'Traditional Snacks' segment becomes evident :
Haldiram Savoury Snacks Sales Breakup ( FY13 ) Sub-Segment
FY13 Revenue
Western Snacks
191 cr.
`
Traditional Snacks
1688 cr.
`
Total
1879 cr.
`
Source :- Approximate Breakup Data derived from Company Reports, Rating Reports This is in sharp contrast to Pepsico which derives majority of its sales from 'Western Snacks' segment.
•
Similarly, Bikaji & Bikanervala revenue figures also include sales from other sources, albeit to a smaller extent ; a segmentwise breakup of Bikaji's FY13 revenue is provided below for reference :
Bikaji Segmentwise Sales Breakup ( FY13 ) Segment
FY13 Revenue
Savoury Snacks Sweets
`
Others Total
280 cr.
`
`
`
33 cr.
12.50 cr.
325.50 cr.
Source :- Approximate Breakup Data derived from Company Reports, Rating Reports
•
Balaji Wafers has emerged as the strongest player over last 5 years by growing aggressively and eating into Pepsico & ITC's marketshares. Balaji atpresent commands 8.3 % marketshare in the segment and has a very sound financial profile which could enable it to continue to outperform peers in future too. Balaji operates at highest EBITDA & PAT margins amongst the peers.
•
Prataap Snacks with its 'Yellow Diamond' brand and DFM Foods with its 'CRAX' brand have also made a dent in Pepsico's marketshare by growing ahead of it over last five years. Prataap commands 3.1 % marketshare while DFM commands 2.03 % marketshare as at 2013.
•
DFM Foods has registered highest 3 Years' CAGR in Sales over FY10-FY13. It has outperformed all the peers quite handsomely.
•
EBITDA margins of DFM are at par with Haldiram & just second best to Balaji Wafers which is a very satisfying thing. Its important to note here that Haldiram's major sales come from Namkeens & Sweets ( 78 % as at FY13 ) and Chips & Extruded Snacks forms only a small portion of its sales ( 6.5 % of FY13 Sales ). Similarly, Balaji Wafers' major Sales contributors are Chips (Wafers) & Namkeens. Its only Pepsico & Prataap which have major contributions coming from Extruded Snacks.
•
DFM Foods' Scale of Operation (FY13) is smallest amongst all the companies mentioned (except Apricot Foods) with Pepsico & Haldiram at 2500+ cr. and Balaji at 913 cr. with ITC, Bikaji, Bikanervala and Prataap at 500 cr., 325.5 cr., 350.2 cr., and 343.8 cr. respectively.
•
Out of these nine companies, Prataap has got Sequoia backing (51 % stake), Bikaji recently got Lighthouse PE backing (12.5 % stake), DFM got Westbridge backing (24.90 % stake) and Balaji is in final talks with Capital International PE (15 % stake). Pepsico and ITC are capable conglomerate while Haldiram has each family fraction catering to respective region. Its only Bikanervala which is the weakest amongst the lot that is looking for a funding partner since last many years but has not got anyone yet.
•
Since four out of nine companies have got ( or about to get ) PE investors, its worthwhile to note here the valuations at which each respective PE-investment deal was stuck :
EV/Sales TTM
EV/EBITDA TTM
PE Deal Happened in Year
Prataap Snacks
1.05
15.47
2011
Bikaji Foods
2.27
30.29
2014
DFM Foods
1.41
13.32
2014
Balaji Wafers
4.37
22.50
Most Likely in 2014
Source :- Company Reports, Rating Reports, VCCircle Data, Company News, Media Articles, Exemplar Research
Assessing Competition specific to DFM Foods :
CRAX Brand Key Marketshare Figures
CRAX MarketShare ( 2013 )
Sweet & Savoury Snacks Segment
Western Snacks Segment
Extruded Snacks Segment
Corn-based Extruded Snacks Segment
2.03 %
2.79 %
5.61 %
9.19 %
Source :- Exemplar Research, Channel Checks, Euromonitor International, Company Reports
•
Since the company of our concern is DFM Foods, let's evaluate competitive scenario with that regards.
•
DFM Foods over last many years sustained and outpaced competition by adopting a sound strategy of targeting a specific age group and concentrating on marketing & distribution strategies circling around only that age group. Entire competition's products were targeted to all age groups ( with majorly being adults above 15 years of age ) while DFM targeted children with age group 6-12 years.
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DFM was the first company to include 'Free Gift' with every CRAX Corn Rings pack of ` 5 and this isolation ( i.e., catering to only specific audience ) strategy enabled it to distinguish itself from competition as also sustain and grow amidst strong financial power of Pepsico & ITC.
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Since last year or so ( 2013 ), competition has become intense with Pepsico introducing similar ( to CRAX ) product 'Corn Cups' targeted at children and Yellow Diamond ( Prataap Snacks ) introducing 'YD Rings' – a replica of CRAX Corn Rings.
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If we talk specifically for CRAX Corn Rings ( which contributes 84 % + to DFM's FY13 revenues ), then, Pepsico's 'Corn Cups' price point is higher while other players like ITC and Balaji cater to general audience rather than specific age group whereas Haldiram has a more diverse offering which is not in strict competition. Hence, the player which could threaten the market position of CRAX in real sense is Prataap Snacks and as per our analysis, it is this player which DFM will find it hard to compete with.
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Prataap Snacks is taking on DFM Foods in-and-out by striking on every corner. It has introduced almost identical shaped product which is a replica of Crax Corn Rings and has offered it in almost every flavour in which CRAX is available ( except Pudina & Chatpata ).
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In addition to offering similar product with similar flavours, what Prataap has done is it has targeted the same age group with same strategy of including 'Free Gift' with every pack. Prataap, in recent past, got associated with one of the most popular children tv show 'Chhota Bheem' and has introduced free gifts revolved around the main character of the show in its every YD Rings pack. In continuation with the same strategy, only recently, in April'2014, it got associated with Mr. Amitabh Bachchan starrer 'Bhootnath Returns' – a supernatural comedy movie and launched YD Rings promos with the trailer of the movie.
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On distribution front, DFM & Prataap are almost neck-to-neck if we consider regionwise-spread, but, if we go into detail and talk specific, then distribution reach of Prataap is almost double that of DFM ( Prataap reaching ~ 5 lakh retail outlets v/s DFM's reach of ~ 2.15 lakh outlets ). However, each company has its strength and weaknesses in each region, with DFM far stronger in North India while Prataap a clear leader in West India. Visibility and availability of Prataap's Yellow Diamond is far better in West India ( relative to CRAX ) while in North India, DFM's CRAX is slightly ahead than Prataap. What Prataap has done is, in whichever areas it is present, it has covered as many retail outlets as possible which gives it great visibility ( only second to Lay's & Kurkure ) in respective areas. In contrast, DFM has focussed on covering more areas which gives it relatively low visibility relative to Prataap, especially in Western India.
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To give a brief background of Prataap Snacks, it is a company backed by PE player Sequoia Capital which invested in it in 2011 and has so far invested ~ ` 180 cr. in the company. As per sources, it holds ~51 % equity stake in the entity as at FY13. It is worthwhile to note here the growth attained by Prataap over last seven years :
( fig. In ` cr. )
FY13
FY12
FY11
FY10
FY09
FY08
FY07
Prataap
343.80
257.69
189.57
154.47
100.20
66.60
35.50
DFM Foods
225.24
169.42
119.84
72.18
53.33
31.66
23.88
Sequoia invested in the company in May'2011
Three things to note here is that : –
first, DFM started focussing aggressively on its Snack Food segment only from FY09,
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second, Prataap aggressively introduced Rings in the market only from FY13 as previously its main focus was competing with Lay's, Kurkure & Cheetos ( by introducing YD Chips, Chulbule & Puffs ),
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third, as at FY13, Extruded Snacks segment contributes ` 199 cr. to Prataap's Revenues as against ` 194 cr. to DFM's Revenues.
Conclusion :
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Opportunity is huge ahead of every serious player in Indian Branded Sweet & Savoury Snacks segment because of the fact that Indians are natural snacks' consumers, and entire 124 crore Indian public is served by only Twenty Seven major branded savoury snacks players atpresent. Rural markets are still unpenetrated and lower price points ( ` 2, ` 5 & ` 10 ) prevalent in the segment could drive aggressive sales in rural India.
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Sweet & Savoury Snacks Food Industry in itself is likely to grow handsomely at a CAGR of 19.4 % over 2013-2018 with its sub-segments like Extruded Snacks likely to outperform industry growth rate by growing at a CAGR of 23.1 % over 2013-2018.
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Shift towards organised from unorganised segment is projected to continue, albeit at a gradual pace.
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These factors combined, offers immense opportunity for each of the organised player in the segment to grow aggressively as they have done in the past. However, competition is likely to intensify going forward as more of the organised business groups enter into this space ( recent entry of Tobacco major Gopal Corporation is a case in point ) to grab their share of opportunity as also existing players make a dent in peers' stronghold by offering similar products with superior distribution and marketing reach.
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If we look at last four years, then DFM Foods has outperformed almost all its peers, including Prataap Snacks as far as revenue growth is concerned.
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DFM Foods is unlikely to face strong threat in the medium term as far revenue growth is concerned, provided it can expand manufacturing capacities intime. However, EBITDA margins could remain under pressure until a new product success is met on the lines of CRAX Corn Rings. This is because, all the efforts towards any sort of significant improvement in EBITDA margins will be met by cut-throat competition, especially from Prataap Snacks ( YD Rings ) which will put-in its every effort to fully utilise its Rings manufacturing plant which commenced operations in 2013.
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DFM Foods definitely has a first mover advantage in the space and has a strong brand credibility amongst its target audience ( majorly in North India ). However, to counter Prataap's aggressive low margin model, DFM will need to innovate more on the product front and fill the many gaps prevalent in its distribution network as also design a wise consumer-pulling marketing strategy.
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With a good PE player like Westbridge entering into DFM Foods by acquiring 24.90 % equity stake in it and promising an active involvement into formulating company's growth strategies by taking a board seat, DFM might be able to identify gaps more proactively and fill them with ease.
Disclaimer : This Research Note should only be taken as a direction for further research and should, in no way, be construed as an advice to Buy/Sell concerned Company. While preparing this note, we have used all publicly available information as also information from other sources which are thought of as most reliable. However, although we have tried to be as genuine and as accurate as possible in publishing the data(s), still, reader of this note is advised to cross-check the information and we should not in any way be held liable for any incorrect information. Its safe to assume that we have the concerned company as part of our portfolio and so the views expressed in this note should be seen in that backdrop. The reader assumes the entire risk of any use made of this note and we should, in no way, be held liable for any loss arising out of the contents or action taken by the reader because of this note. This Research Note should not be interpreted as a recommendation of any kind but is only for the information purpose.
