Tanvi Foods (India)
Profile of the company
The company was incorporated as Tanvi Foods Private Limited on March 30, 2007 under the Companies Act, 1956 with the Registrar of Companies, Hyderabad. Over the years the company has grown organically as well as inorganically and today it along with its subsidiaries operate over four exclusive point of sales; three Cold Room Facilities aggregating to 8,728 sq. ft., one food processing and packaging unit spread across 495 sq. yards, around 28 logistics vehicles dedicated towards F&B distribution making it one of few select organized players in this highly unorganized segment.
The company currently specializes in products such as Fresh Corn, Frozen Corn, and Green Peas in loose as well as packed form. Further, it also prepares and sells corn based eatables such as Corn Samosa’s, Corn Patties and Spring Roll, in loose / semi-finished form to caterers as well as packaged from to Retailers and Wholesalers. All of these packaged products are sold under its own brand name “Frozen Kings”. In addition to its own brand products; it operates a diversified F&B product distribution and trading business wherein it plays the role of an intermediary between other branded product manufacturers/marketers and end point of sales such as Retailers (including Kiranas and Modern Trade Outlets) and Institutional buyers (such as Hotels, Caterers, Multiplexes etc.).
The company also operates an independent Logistics/Infrastructure services business which in addition to supporting its F&B distribution business also provides Pan India Logistics services to other distributors and players. The company’s logistics/infra services business vertical includes providing transportation services as well as Cold Storage / Warehousing facilities on per ton and per pallet basis respectively.
Proceed is being used for:
Maize / Fresh Corn is grown throughout the year in India. It is predominantly a kharif crop with 85 per cent of the area under cultivation in the season. Maize is the third most important cereal crop in India after rice and wheat. It accounts for 9 per cent of total food grain production in the country. Maize production in India has grown at a CAGR of 5.5 per cent over the last ten years from 14 Million Metric Tone (MnMT) in 2004-05 to 23 MnMT in 2013-14. During 2009-10 there was a decline in production primarily due to drought that affected production of kharif crops in the country.
The area under maize cultivation in the period has increased at a CAGR of 2.5 per cent from 7.5 million hectare in 2004-05 to 9.4 million hectare in 2013-14, the remaining increase in production is due to increase in yield. Factors such as adaptability to diverse agro-climatic conditions, lower labour costs and lowering of water table in the rice belt of India have contributed to the increase in acreage. Productivity of maize (yield) has increased at a CAGR of 2.9 per cent from 1.9 MT/hectare in 2004-05 to 2.5 MT/hectare in 2013-14. Introduction of Single cross hybrid (SCH) seeds coupled with adequate rainfall in 2007-08 contributed to 20 per cent increase in yield.
Maize consumption in India has grown at a CAGR of 4 per cent over the last ten years from 14 MnMT in 2004-05 to 19 MnMT in 2013-14. There was a decrease in domestic consumption in 2009-10 primarily due to the drought that lead to decline in production. Maize consumption in India has grown at a CAGR of 4 per cent over the last ten years from 14 MnMT in 2004-05 to 19 MnMT in 2013-14. There was a decrease in domestic consumption in 2009-10 primarily due to the drought that lead to decline in production.
Most of the maize in India is used in the poultry feed industry. Poultry industry is heavily dependent on maize as it forms 50-60 per cent of the input required for broiler feed and 25-35 per cent of the input required for layer feed. Maize is the preferred source of energy in feed when compared with other substitutes due to availability, higher energy and price economics. Poultry feed’s share has remained around 45-50 per cent of the total demand for maize in the country over the past 4-5 years.
Pros and strengths
Well established brand name: The company operates in a brand sensitive market. Over almost a decade the company has tried to ensure sustainable growth and hence have developed an established brand name, acceptance & recall value in its operating markets (i.e. Andhra Pradesh and Telangana). Sale of products under its brand name (Frozen King) from 35% part of its total sale of branded goods which includes brands such as McCain, Haldiram’s, Baskin Robbins etc. The company has earned goodwill & competitive edge through its consistent quality oriented service. Further, the company has developed goodwill amongst market participants including farmers, other intermediaries forming part of the corn supply chain, large MNCs as well as local vendors. The company’s sector is not an easy to enter sector given that substantial portion of the business is carried out through trust and hence having a developed goodwill would help the company to compete with new entrants in this sector in the future.
Organized approach and ready infrastructure: The market it operates has been dominated by unorganized participants. The supply of F&B products in India is a market which lots of large corporations and MNCs are looking to enter as well as partner with, considering the size of the consumption markets in India. The company is one of the select few who have own / in-house cold room facilities, logistics set ups as well as multiple point of sales. Going forward; if a large MNC or corporate wants to distribute its products in its region; the company has the correct mix of service quality as well as organized and stable infrastructure to become their first choice.
Healthy banker relations: The company has enjoyed cordial relationship with bankers since its first credit facilities got sanctioned in 2012. The company’s accounts have been serviced to the bankers’ satisfactions and it should be able to scale up its borrowings as business needs and equity of the company grows. Further; the company’s business of corn supply is full of unorganised players who would not have easy access to bank finance and hence this provides it a competitive edge over other players in the segment. Further, sectorally, F&B or any consumption based sector has lately been better performing for banks as compared to traditional industrial sectors and hence this too would be in the company’s favour, once it looks to scale up its bank borrowings portfolio.
Risks and concerns
Seasonal nature of business: The company deals in agro commodities; mainly fresh corn and green peas. Such perishable products require certain season or weather conditions to grow and the same are consumed in certain other seasons also. Further, some of third party distribution items may also be seasonal in nature. Also, the company’s cold storage business is seasonal due the above mentioned reasons. Due to perishable nature of the products it deals in, seasonality and weather conditions do affect its business. Inability to manage these aspects could result in losses and affect its results of operations and financial conditions.
High working capital requirements: The company’s business requires a substantial amount of working capital for its business operations. The company would require additional working capital facilities in the future to satisfy its working capital need which is proposed to be met through the IPO proceeds. In case of its inability to obtain the requisite additional working capital finance, its internal accruals/cash flows would be adversely affected to that extent, and consequently affect its operations, revenue and profitability.
Stiff competition: Demand and supply dynamics are always active in perishable items. With regards to its trading business, much of the market in which it operates is unorganized and fragmented with many small and medium-sized entities. The company faces substantial competition for its products from other traders / dealers in domestic market. The company competes with other traders / dealers on the basis of product range, product quality, and product price including factors, based on reputation, needs, and customer convenience. Some of its competitors may have longer industry experience and greater financial, technical and other resources, which may enable them to react faster in changing market scenario and remain competitive. Moreover, the unorganized sector offers their products at highly competitive prices which may not be matched by it and consequently affect its volume of sales and growth prospects. Growing competition may result in a decline in the company’s market share and may affect its margins which may adversely affect its business operations and its financial condition.
Tanvi Foods (India) is involved in trading, distribution, and processing of Food and Beverages primarily operating in the states of Andhra Pradesh and Telangana. Over the years the company has grown organically as well as inorganically and today it along with its subsidiaries operate over four exclusive point of sales. The company prepares and sells Corn Samosa’s, Corn Patties, Spring Roll, in loose / semi-finished form to caterers as well as packaged from to Retailers and Wholesalers under its own brand name ‘Frozen King’. The company has its unique corn samosa and spring roll recipe which acts as a differentiator and provides an advantage to it in frozen food market. On the concern side, the company has not entered into any long-term agreements with its suppliers for corn and other agro commodities and accordingly may face disruptions in supply from its current suppliers. Moreover, the company has high working capital requirements for its business operations.
On performance front, the company’s total income increased 42.80% to Rs 4,908.98 lakh in FY16 as compared to Rs 3437.66 lakh in FY15. The increase in sales represents increase in trading as well as processing business. Other income of the company increased Rs 91.85 lakh from Rs 0.51 lakh in fiscal 2015 to Rs 92.36 lakh in fiscal 2016. The major factor for such increase was increase rental income derived from renting out of vehicles. Moreover, the company’s profit after Tax increased by 15.41% to Rs 100.66 lakh in fiscal 2016 from Rs 87.22 lakh in fiscal 2015. The company is planning to increase presence of its branded food products ‘Frozen King’ which will result in increasing the brand value. It also plans to monetize its brands in future either through authorised sales tie-ups or franchise model. Investments made towards developing its branded food products business would yield long term shareholder wealth creation.