India: Exciting Times for the Consumer Market

India: Exciting Times for the Consumer Market

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

Boon Ling Yee has over 25 years of experience in the Retail sector across Asia, with a focus on Food and Beverages. She was a Commercial Consultant for Kimberly Clark China & Indonesia, Watsons Singapore, Reliance Retail India, CP Lotus China, and The Bakery Depot. In her professional career, she worked for Tesco Stores Plc as a Trading Director and Commercial Director with postings in UK, Thailand and China. Prior, she worked for PepsiCo Foods International in various roles. She was responsible for establishing Frito Lay presence in all the non-equity, export markets in the Asia Pacific region. Another role she had was the Regional Key Account Director for the Asia Pacific region. She serves as an Observer on the Board of Keventer Agro.

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Arcadia News: Arcadia and Ardent Mills Collaborate on Wheat Innovations

Arcadia News: Arcadia and Ardent Mills Collaborate on Wheat Innovations

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.

Read the full press release here. 

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Insights from the Food and Agriculture Investor Meet Symposium

Insights from the Food and Agriculture Investor Meet Symposium

NEW YORK, OCTOBER 5, 2018: Mandala Capital, in collaboration with The Chamber of Commerce and Industry, Invest India, the Government of India, and the Government of Gujarat hosted the first Food and Agriculture Investor Meet symposium at the Office of the Consulate General of India, New York.

The event was the first of its kind to bring together the perspectives of institutional investors, family offices and private equity with government officials and several of India’s leading companies across multiple segments of the food supply value chain. The Government of Gujarat and Avalon Consulting provided an overview of Indian food and agriculture as an investment destination, highlighting the compelling and unique intersection of demography, consumption habits, supply/demand imbalance, and public policy that make the sector a special opportunity, globally, for stable, scalable and sustainable medium and long term growth.

The food industry opportunity ranges across many sub-sectors, allied sectors, agribusiness and food services to include packaged food, fruits and vegetables, warehousing, food packaging, contract farming, and food ingredients. Demographic and lifestyle changes along with increasing purchasing power will drive growth in meat, poultry, dairy, and processed food.

Presentations from some of Mandala’s portfolio companies, including Godavari Biorefineries and Jain Farm Fresh Foods, as well as presentations from Amul and Nekkanti Seafoods illustrated how the dual demand drivers of population growth and food demand increasing between 8 and 10% pa have created a generational opportunity for companies in food and agribusiness to serve domestic and export markets.

These dynamics have been at the core of Mandala’s investment thesis since the firm’s founding. Mandala outlined how growth equity investments characteristic of its portfolio and private equity can capture this opportunity at an ideal inflection point where many of the risks associated with capital exposure during the early stages of investing have been obviated. Proceeds can be carefully allocated towards capacity building initiatives such as state of the art manufacturing and processing facilities that target the growth dynamics in the market and ensure the integration of state of the art technologies, systems, and processes that enable safe food delivery in an environmentally sustainable manner.

Commercially, Mandala’s experience has demonstrated how growth equity investments provide companies in the sector the opportunity to take advantage of local resources (eg, a large coastline in the case of seafood) to further develop a manufacturing platform to serve expansion to export markets, as well as domestic.

Mandala’s portfolio reflects only a fraction of a much larger multi-billion dollar private equity opportunity in Indian food processing and agribusiness that was the central theme of all presentations during the event. This opportunity is ripe now and is not expected to dissipate anytime in the next 20 years, if not longer. Private equity players who seek this exposure will benefit from more evolved capital structures and well vetted valuation metrics, which have been defining characteristics of Mandala’s investments.

Within the framework of larger scale growth equity investments, there was also discussion of the significant opportunity for the introduction of new product development and technology integration. Growth equity investments that deliver capacity to the sector will fuel the opportunity for technology—either homegrown in India or from overseas—to improve efficiencies within each segment of the food supply chain.

Barry Schiffman is a member of the Board of Directors of Mandala Capital and has been closely affiliated to Mandala since inception. Barry has been an advisor and actively involved across Mandala’s operations including fundraising, legal, ESG and organisational support. He was co-founder of Next Frontier Capital Ltd, an Emerging Markets private equity and investment advisory firm. He was also co-founder, COO, Director, and General Counsel at Viewdle (acquired by Google) and has worked at leading international law firms. He has served on the Boards of various private companies and philanthropies. Barry received a BA in government from Georgetown University, Magna Cum Laude, and a law degree from Georgetown University Law Center.

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Arcadia News: Argentina Approves HB4 Stack with Herbicide Tolerance

Arcadia News: Argentina Approves HB4 Stack with Herbicide Tolerance

Verdeca, a joint venture between Mandala Capital's portfolio company Arcadia Biosciences and Bioceres receives approval to integrate HB4® drought tolerant Soybeans with terbicide tolerance in Argentina. This allows Verdeca to incorporate both glyphosate and glufosinate-ammonium tolerance into the HB4 trait.

Read the full press release here. 

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Indian Agriculture on the Cusp of a Major Transformation

Indian Agriculture on the Cusp of a Major Transformation

This article was original published on VC Circle as a Guest Post by Uday Garg of Mandala Capital. See original article here.

Indian Agriculture: Ripe for a Transformation?

Indian agricultural growth and the related sectoral investment opportunities have always held a promise of greatness that has, until now, remained an elusive destiny. For the year that ended March 2018, agriculture GDP grew by 2.1% as compared to industry GDP and services GDP which grew by 4.4% and 8.3% respectively. Despite the relatively lower sector GDP growth, Agriculture still represented 16% of India’s latest annual GDP figures. Perhaps more than any other sector of the Indian economy, agriculture is inextricably tied to India’s long-term growth story. But where can the value in this opportunity be captured and cultivated?

Historically, the complexity of investing in agriculture globally combined with the heightened political sensitivity of the sector in India has left the sector starved for innovation and investment, with participants eager for a more robust program of reforms and varied sources of investment. But we see several dynamics at play today which are inadvertently working in unison to create an environment and circumstances with the potential to awaken Indian Food and Agriculture from its slumber. More importantly, these dynamics are pushing the food value chain to evolve, modernize and innovate, the net result of which will be the emergence of several large scale national champions.

Demand Drivers: Evolving Consumer Habits

India has typically had a small percentage of the total population that has followed consumption trends and trajectories similar to those in developed economies. Over time, technology and education have enabled the expansion of this demographic to include India’s middle and lower income consumer. The speed and adoption of this change has been significant. Coupled with the more well documented consumer food demand trends of protein consumption, lifestyle, and working parents, the net result is a consumer that is increasingly and consistently demanding more of everything: more food, more choice, more safety, more quality and an overall awareness of personal health, nutrition and environment. It could be argued that this dynamic has already evolved from being a trend to a fixture of consumer demand in the food and agriculture sector.

Regulatory Drivers

Historically, government policies alone, especially those focused on agriculture, have not been able to reverberate across the sector to generate meaningful and substantial change. Ironically, the gap between government policy and real sector change has recently narrowed with the help of policies in non-agriculture areas that have created the right ingredients to develop higher quality companies across the food value chain.

For example, GST, Ind-AS, NCLT and others have expedited the move from unorganized to organized across the food value chain and increased corporate governance, civic compliance and transparency across companies. Consumer focus on health and safety in food and the environment has resulted in stronger enforcement by the Pollution Control Board and the FSSAI. In addition, the wide open regulatory environment for online retail has created a competitive environment at such a large scale that this could finally be the push food retail and food logistics need to create large scale service providers.

Supply Drivers: Farm Level Changes

Small farm holding, low mechanization, poor technology and low yields have traditionally characterized farm level activities in India. These dynamics have tainted the perception of the overall sectoral investment opportunity. Several drivers are now pushing changes at the farm level and thwarting the inertia of the past. Labor shortages at farms are forcing technology adoption and mechanization. Climate change in the form of uncertainties around weather disruptions caused by floods, earthquakes, El Nino, La Nina, droughts and other weather patterns have further driven farmers towards technology adoption. Smarter fertilizer use and delivery systems, more efficient use of water, better quality seeds, soil conservation are now being readily adopted. Contract farming and closer partnerships with larger food processing companies will drive these changes faster and reduce inefficiencies across the value chain.

What is the Role for Private Equity and Venture Capital?

Deep sector knowledge is key to successfully investing in food and agri. The sector requires a unique core of deep industry knowledge and the ability to work closely with experts and promoters in the sector. Category leaders across the sector are typically multi-generational family businesses that require insight and trust from prospective investors. This will remain the key differentiator in the sector. When I formed Mandala Capital in 2008, no institutional private equity fund manager had exposure to the sector; today almost every major fund has one or two investments that would be classified as directly within this sector. This signifies the market’s recognition of the shifting tide of opportunity and growth in favor of the agricultural sector.

It is a foregone conclusion that private equity and venture capital will continue to pursue investment opportunities in the sector. The main challenge alongside sector knowledge and relationships will be identifying the correct inflection point in the supply chain for structuring meaningful investments. India’s supply-demand gap is an opportunity that necessitates scale and innovation to meet immediate and long-term growth dynamics. Early stage venture capital investors may struggle to find scale for the innovations they are bringing to the market. Direct consumer facing investors may find growth from the consumer but will struggle with the risks accompanying the consumer and marketing spend associated with it. Farmland investors will be unable to invest in Indian farmland due to public policy and the nature of farmland holdings. So where does this leave a prospective investor?

Businesses that reside in the supply chain either with respect to farmer inputs or delivery of products and services that are destined for the consumer through retailers or through FMCG companies are best poised for scale. These companies will necessarily need to build capacity for the sectoral opportunity and consumer demand drivers. Investments structured to allocate proceeds towards meaningful programs of capacity expansion in the supply chain will, in our view, unlock value for the consumer and investor at the critical inflection point of producing affordable and accessible food at scale and in tandem with demand.

The three forces outlined above – consumer behavior, regulatory effects and farm level changes – will inevitably propel a switch from unorganized to organized. The growth curve will favor sector champions with size and scale. As these companies look to increase capacity, expand into new states within India, launch new products and strive for greater compliance, governance and transparency, there is a real opportunity for Private Equity investors to play a defining role in fuelling the trajectory of this story.

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).

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