Harvard Business School recently released a comprehensive case study on Jain Irrigation, analysing the long-term growth strategy adopted by the family business, fuelled by its mission of improving the living conditions of Indian farmers and creating a legacy in drip-irrigation technology.
Access the full case study to learn how Jain grew from a door-to-door kerosene business to the global Jain brand owning over 60 sub-companies in 2018.
Our recent c. $30 million investment in Keventer Agro and the subsequent launch of the first and largest UHT milk processing plant in East India has confirmed a few of our themes:
• There remain incredible growth opportunities in the food sector that can thrive with vision, leadership and capital
• Billion-dollar market segments, such as East India dairy in the case of Keventer, remain largely untapped by investors and corporates alike for various reasons
• Non-technology disruption is still possible in traditional business through pricing, packaging, quality and distribution strategies
• Sustainable impact – one that can benefit all stakeholders and grow year on year - can be achieved through scale investments with quality partners
• Alignment of interest between investors and management teams can create true value that is greater than the sum of its parts
East India today constitutes c. 30% of India’s UHT milk consumption and has been growing at CAGR of 23% for the last 5 years. Despite this, the major dairy processors have chosen to import milk from corners of India into the East. They have also priced their products as per national standards, not accounting for different per capita income in the east or taste differentials.
The common theme has been that the East is milk deficient and GDP/capita is lower than the rest of the country – so the focus has always been on other areas. Keventer is designed FROM THE EAST, FOR THE EAST. The aim is to deliver higher quality local milk, fortified with vitamins and at the cheapest price possible.
Using decades of expertise and relationships with the combined teams of Keventer and Mandala, we have managed to construct a state of the art plant – the most efficient and highest quality in the country today – on budget and ahead of time. Our distribution network in the East is one of the best in the FMCG space with a distribution reach of 100,000 retailers. The net result is a “magic price” on 160 ml double toned (or skimmed) milk in a tetra pak for Rs. 10! This is the lowest price in India and one of the cheapest in the world. And all the while with a focus on the bottom line.
We akin this disruption to what Jio has done for the telecom space. We are not simply trying to take market share from competitors. We are bringing in non UHT milk users into the market due to our price point. Tea sellers – traditionally buyers of pouch milk – are now using Keventer Agro UHT milk for their daily needs. Similarly, we expect mothers to use the Rs. 10 pouch in their child’s lunchbox. All our milk is fortified, thus also addressing nutrition needs of the malnourished and increasing health and well-being across consumers of all income brackets.
Mandala Capital has contributed strongly to this vision in various forms ranging from roll-out strategy to corporate governance. The net result is a world class company which is a good corporate citizen.
The needs of all stakeholders are considered and we hope to create wealth not just for investors but also for our distributors and retailers as the brand grows in volumes. Best quality, employee welfare, stakeholder benefits, social impact, corporate governance and the bottom line are always on top of our minds at Board discussions.
It is worth touching on one of the other businesses under Keventer Agro, namely its banana business. We are now the largest branded banana business in India with a volume of 25,000 tons per year. As per our calculation, we are over 1% of Chiquita’s global business (spread across 70 countries) simply in one state in India! The potential for this business is very large and we must credit the teams working on this for transforming a commodity item like a banana into a branded play.
The company has dedicated itself to making a significant impact in improving the lives and livelihoods of the 15,000 banana farmers that it works with. Due to extremely small land-holdings (less than 0.3 acres on average), farmers in the state of West Bengal do not have access to the latest technology or knowledge required to improve yields and reduce mortality.
Keventer has started the “Keventer Assisted Farming program” wherein it provides farmers with multiple benefits – free agronomic advice, access to best agri-inputs in partnership with global leaders like Bayer and Syngenta, and most importantly guaranteed buy-back of their produce. The company is also collaborating with Govt. sponsored Farmer Producer Companies (FPCs) as well Clusters” at various locations.
Uday Garg is the founder of Mandala Capital and has since 2008 been exclusively focused on investments in the food value chain. Prior to Mandala Capital, he worked at Altima Partners focusing on private investments in global Emerging Markets across sectors (including agribusiness). He began his career in the Investment Banking division of Deutsche Bank (New York), followed by Portfolio Manager roles at Amaranth Advisors (Connecticut) and Duet Group (London).
Very few will dispute that after China, the next big emerging market is India. With 1.3bn population and possibly surpassing China in population by 2025, India will be in the next big market to watch in Asia.
On a macro level, about half of India’s population is under the age of 26; by 2020, the country’s median age will only be around 29 years whereas the median age in China will be 37 in the same year. Currently, the working-age population in China is already in decline. Every year, the labour pool shrinks by 0.5%. Meanwhile, 250 million people are set to join India’s workforce by 2030. The rise in the working population in India could lead to higher disposable income and consumption thus giving the Indian economy a real boost.
India’s consumption story will be shaped by its 440 million millennials and 390 million Gen Z (those born after 2000). With a young, tech-savvy population, improved education and rapid growth, India is creating a consumer market that could rival some of the biggest markets in the world. The growth in China in the past two decades is driven by an emerging Urban Middle class; whereas in India, opportunities is in the much larger Urban Mass. Urbanisation is driving consumption growth. The rural populations are also starting to seek the lifestyles of those in the cities, as they become more exposed to these trends and are increasingly targeted by consumer goods companies.
Urbanisation leads to smaller family nucleus: dual income and higher consumption of packaged goods. Decision makers in these nuclear household are younger, more modern and tend to make consumption decisions more on lifestyle consideration rather than on functional necessities. Currently, India’s Urban Mass will trade up into brands that offers the most incremental value; however, with raising incomes, they may move on to more aspirational brands. Maximum consumer spending is likely to occur in food, housing, consumer durables, and transport and communication sectors. The growing purchasing power and rising influence of the social media have enabled Indian consumers to splurge on more branded and packaged goods.
Rising affluence will make India the third-largest consumer market by 2025, making it imperative for companies to adapt their business models to meet the changing customer needs. Consumption expenditure will increase three times to hit $ 4 trillion by 2025, according to a report by the Boston Consulting Group.
The India consumer market is now at this pivotal point… almost the coming of age. In the next few decades, we will see some exponential growth in India. India consumer companies who are poised for this growth will benefit the most from the taking off of the Indian economy. It is with this in mind that Mandala Capital started investing in the India agro-processing sector in 2016. Mandala Capital’s portfolio is spread across the spectrum of food related businesses such as seeds, biotechnology, sugar, biochemical, irrigation, food processing, solar, agro-financing, logistics and cold chain, dairy, beverages and fresh produce.
One of Mandala’s investment is in Keventer Agro Limited (KAL), a leading Dairy & Beverage company in East India. KAL is present across categories like dairy, bananas, frozen foods, export of food commodities and franchisee for beverages. KAL owns Metro Dairy, a 22 year-old dairy company that holds 22% share in the pouch milk segment and around 40% share in ice cream in West Bengal. In addition, they are also the franchise bottler for Parle Juice for more than 30 years. Over the years, KAL has built a robust distribution network of distributors, C/F agents and more than 150,000 retail outlets across the Eastern region. With Mandala investment, KAL will invest in Value Added Dairy (VAP) and expand their distribution reach to the rest of East India. With the growing population in East India ( >250mil population; roughly the size of Indonesia) and renewed direct investments in the region, KAL is poised to be a major FMCG player in the Eastern region.
Another of our portfolio companies which is bigger in the Food-Agro FMCG space will be Jain Farm Fresh Foods Ltd (JFFFL), the agri-food unit of Jain Irrigation Systems Ltd. JFFFL is a leading fruits and vegetables processor and the world’s largest mango processor and onion dehydrators. The company sells its products under the Jain Farm Fresh brand, besides being a leading supplier of raw materials to global consumer companies including Coca-Cola, Frito-Lay, Nestle and Unilever, among others. JFFFL just started their B2C push this year with a frozen fruit dessert, ambient smoothie, dehydrated onions and will be launching a retail spice range towards end of this year. With their strong and established backend operations, it is a natural progression to forward integrate and move into the growing end-consumer market.
Another company we have invested in is Gati Kauser (GK), a one-stop service provider for cold storage solutions. With barely 5 percent of India’s USD 5 billion cold storage industry being organised. There is huge potential in the cold storage and logistics business. With improving macro-economic conditions, cold storage companies are moving towards becoming integrated service providers to capture this growing market for enhanced margins.
Sources: World Bank, The Economist, KPMG India, Times of India, Livemint, BCG India
Mandala Capital's portfolio company Arcadia Biosciences is collaborating with Ardent Mills, North American’s leading flour-milling and ingredient company, to develop and commercialize innovative wheat traits. Their first project focuses on extending the shelf life and improving the flavor of whole wheat products.
Ardent Mills is a leader in wheat flour sales in North America and is well-known as an industry innovator. In recent years, they have introduced a variety of products to introduce whole grains into foods like white whole wheat and restaurant offerings to encourage whole grain consumption, and we believe they are an ideal partner to help us bring this technology to market.