Tecnovas Presentation for Italian Trade Agency Market Assessment

Tecnovas Presentation for Italian Trade Agency Market Assessment

Tecnovas Presentation for Italian Trade Agency Market Assessment of Food and Food Processing Industry in India Final Review 4 March 2014 Table of Contents India Macro-economic Overview Food Habits in India Processed Food Industry in India Processed Food Distribution Formats in India Processed Food Industry Overview Competition Analysis Developments in Processed Food Industry Regulatory and Custom Duties Analysis Presence of Italy in Indian Food Industry Food Processing Machinery Industry Overview Major Target Industries for Machinery Manufacturers Customer Concentration Cold Storage Overview Packaging Machinery Overview Conclusion and Recommendation 2 2

India Macro-economic Overview 3 3 The Indian Dimension Location North Area Climate East West Terrain South Natural resources Land use Capital State and territories Official languages Southern Asia, bordering Arabian sea and Bay of Bengal, between Burma & Pakistan Total: 3.3 Mn. Sq.Km (7th largest in the world) Land area: 2.97 Mn. Sq. Km Land boundary: 14,000 km Coastline: 7,000 km South: Tropical monsoon North: Temperate South: Upland Plain (Deccan plateau)

West: Dessert region North: Himalayan mountain range Rolling plain along the Ganges river Iron ore, manganese, mica, bauxite, rare earth elements, titanium ore, chromite, natural gas, diamonds, petroleum, etc Arable: 48.8%; Other: 48.37% New Delhi 28 States and 7 Union Territories Hindi and English 4 4 Indian Geographical Classification 1.2 Bn Population 8 Majority of packaged food consumption will be concentrated in the metros, cities and towns 5 5 The Story so Far Technological/Infrastructure Advancement Mobile penetration 61.4% (752M) International Airports 17

Internet penetration ~15% (~200M) * Proportion of dependent population (0-14, Above 65 age group) to working population (15-64 age group) Source: Census 2011 6 6 Indian Demographics Population classification by age group With 1.2B population, India is the second most populous country making it a huge market for processed food companies 65% of the population falls in the working age group of 15-65 years leading to rise in disposable income * As per Census 2011 (latest census available) Source: MOSPI 7 7 Metros of India Population (Mn, 2011) Literacy Ratio (2011) Mumbai 23.5

82.0% Delhi 16.8 76.2% Kolkata 4.4 81.3% Chennai 4.6 82.3% Bangalore 9.6 79.4% Hyderabad 4.0 72.5% Ahmedabad 7.2 77.0% Pune 9.4

77.3% Total (8 Metros) 79.5 78.5% Metro Delhi Ahmedabad Kolkatta Mumbai Pune Bangalore Hyderabad Chennai ~7% of Indias population lives in metros; a high potential segment for processed foods Source: NCEAR & Census 8 8 Major Cities in India City Amritsar Jalandhar Ludhiana Chandigarh Faridabad

Lucknow Kanpur Jaipur Bhopal Surat Nagpur Coimbatore Metros (8) Surat Kanpur Jaipur Lucknow Nagpur Bhopal Coimbatore Faridabad Amritsar Ludhiana Chandigarh Jalandhar All 20 Cities Population (Mn, 2011) Literacy Ratio (2011) 79.5 6.1 6.4 6.7 4.6 4.7 2.4 3.5

1.8 2.5 3.5 1.1 2.2 125 78.5% 76.5% 71.1% 66.0% 70.3% 80.3% 72.1% 77.1% 72.1% 68.9% 73.9% 76.8% 74.3% 76.2% Tier I cities will drive the demand for Ready-To-Eat (RTE) and processed foods as there is a steady increase in number of working women in these cities Source: NCEAR & Census 9 9 Income group classification Aspirers and Middle Class groups are expected to rise Population (% of total population) 25 million (2%) 164 million (13%) With majority of consumption

lying with the Middle Class and Aspirers, these two groups Above US$60,000 per annum are expected to play a critical role in the 4 Mn Households development of processed food Between US$12,000 industry in US$60,000 per annum India Annual Income 28 Mn Households 431 million (34%) Between US$5,400US$12,000 per annum 75 Mn Households 647 million (51%) Less than US$ 5,400 per annum 114 Mn Households Source: NCAER (National Council for Applied Economic Research); Average household size in India: 4.8 NCAER reports income levels at 2001-02 prices; to bring these to current prices (2010-11) income levels, a conversion factor of 2.7 has been taken to adjust the nominal per-capita income growth. 10 10

Rate of Inflation While WPI has been largely volatile, CPI has been increasing consistently indicating that consumption in India is increasing WPI: Wholesale Price Index; CPI: Consumer Price Index Source: Central Statistical Organisation (CSO) 11 11 International Agreements Joined by India India is a member of more than 65 international organizations. The predominant ones are listed below. ADB Asian Development Bank SAARC South Asian Association for Regional Cooperation BRICS UN United Nations (and those that come ASEAN under UN) Commonwealth of Nations WFTU World Federation of Trade Unions FAO Food and Agriculture Organisation WTO World Trade Organisation G-15, 20, 24, 77 ICC International Chamber of Commerce IMF International Monetary Fund IMO International Maritime Organisation ISO International Organisation for Standardisation ITUC International Trade Union Confederation For complete list, refer to the attached excel International Agreements India has been a founding member of a number of international organizations, and hence exerts significant influence on policy making

12 12 India currently has Free Trade Agreements (FTAs) with South Asian Countries (SAFTA) ASEAN (AIFTA) Bangladesh Brunei Darussalam Bhutan Cambodia Maldives Indonesia Nepal The Lao PDR Pakistan Malaysia Sri Lanka Myanmar Afghanistan Philippines Japan

South Korea (India-Korea CEPA) Singapore Thailand Vietnam FTAs are beneficial for companies with manufacturing facilities established in partner countries (above) making them entitled in import duties reduction The much talked about bi-lateral trade agreement between India and EU is still pending due to few last mile hurdles 13 13 Food Habits in India 14 14 Food Habits in Each Region Vary with Climate, Topography, Culture & Heritage India is a culturally rich & diverse nation having varied lifestyles, religions, art, culture, attire & food. North Weather & topography vary widely with region: North: Closest to the Himalayan range, hilly regions with extreme weather conditions; high fertility area with high wheat production West: Arid areas of Rajasthan and Gujarat which East West are dry and hot through most of the year. In some coastal areas of Maharashtra, fish is the staple diet South: Temperate climatic condition all through the year; high rice production & consumption area

South East: Hilly regions with varying weather conditions; East is the poorest regions of the country 15 15 Diversity of Food in India Indians take food very passionately Mealtimes are considered as occasions and time for families to get together and spend quality time. Fresh cooking is essential in most Indian homes, with limited preference for stocked food Most meals comprise of several dishes ranging from staples like rice and breads, to meat or vegetables, rounded off with a dessert A typical Indian meal includes Appetizers/ Starters Main Course Salad, Soup, etc. Curry & Dry Dish Vegetarian Lentils, Cooked Vegetables (Potato, Cauliflower, Okra, mixed vegetables, etc.) Non-vegetarian Egg, Chicken, Mutton, Fish, etc. Side items

Yoghurt/ Raita Papad (thin & crispy bread made of lentils/ wheat Chutney (Herb-based thick sauce accompanying breads) Dessert Indian Breads Roti/ Chapati, Parantha, Puri, Naan Rice Biryani, Pulao, Jeera rice, Plain rice Milk-based desserts like Kheer, Gulab Jamun, Halwa, etc. 16 16 Regional Food Habits North North Region Madhya Pradesh, Uttar Pradesh, Haryana, Punjab, Himachal Pradesh, and Jammu and Kashmir Wheat-breads are the staple diet which accompany all meals Largely meat-based diet characterized by tandoori-style cooking methods Fair amount of cooking is done using deep frying in oil High consumption of milk and milk-based products

High consumption of fresh fruits such as apples, cherries, Punjabi Food plums and strawberries which are unique to this region due to its cooler climate. Increasing number of households are shifting toward replacing traditionally made food items such as curd and cottage cheese with packaged items (packaged curd or cottage cheese) Food served with milk-based beverage (Lassi) 17 17 Regional Food Habits South Southern India Andhra Pradesh, Karnataka, Goa, Tamil Nadu, and Kerala Primarily vegetarian population barring coastal areas where fish is a staple diet Rice is abundant & appears in almost every dish during a meal & are eaten in multiple forms Tamarind and coconut form the base for most preparations, with Food served on a banana leaf

most curries based in coconut gravy Hot spicy foods are cooked, with chettinad cuisine being one of the most fiery Food is often eaten on banana leaves Major shift is seen in people moving towards ready-to-use packaged food items for idlis and dosas, rather than going through the relatively longer process of preparing the batter in-house Idli, Dosa 18 18 Regional Food Habits West Western India Rajasthan, Gujarat, and Maharashtra High demand of dairy products, including yoghurt, buttermilk, cow's milk, and goat's milk Rice is the staple food grain Goan cuisine is dominated by rice, coconut, fish and Goan Fish curry seafood

Gujarati cuisine is largely vegetarian, with a hint of sugar or jaggery in every preparation Peanuts and coconut are widely used Other popular cereals include gram flour, bajra and corn Gujarati Thali 19 19 Regional Food Habits East Eastern India - Orissa, Bihar, West Bengal, Assam, Meghalaya, Tripura, Mizoram, Manipur Nagaland, and Arunachal Pradesh Relatively more simplistic and less elaborate food Characterized by a variety of different types of rice Predominantly fish eating population in coastal areas Common practice to eat steamed food, e.g.: momos

Curries include lot of poppy, mustard and cumin seeds, Rasagolla Sandesh cumin seeds World famous for sweets Momos 20 20 Changing Trends in Consumer Preferences for Food Growing middle class population and household incomes are driving people to spend more on food Increasing cases of lifestyle diseases have resulted in shift towards healthier food options such as fruit juices, pro-biotics, cereals and oats Shift in consumption preferences & increasing demand is driving the food companies to introduce innovative products such as digestive biscuits, fortified dairy products, etc. Increased demand for processed & packaged products with high shelf-life Willingness to pay a premium for value-added products such as cheese, butter, flavoured milk

Overall change in palate and preference for newer varieties of food due to western influence 21 21 Key Markets and Product Preferences (1/2) West Being the key port region, majority of players have a presence in this region Market is led by Modern retail channels and HORECA segment, also has a significant grey channel Product Preference Biggest market for candies and confectionary Key market for fruit based flavours, especially strawberry and orange North Second most important market Market led by wholesalers, but large volume of sales through grey channel; large number of Modern Trade food & grocery outlets Product Preferences Wheat based products 22 22 Key Markets and Product Preferences (2/2) South Highest penetration of Modern Trade, having high sales per outlet High levels of consumer awareness Product Preferences Biggest market for chocolates and bakery products Highest incidence of diabetic population in India leading to consumer awareness about healthy breakfast choices Fastest emerging market for RTE/RTC foods East Lowest sales volume by channels

High presence and consumption of mass/regional products Product Preferences Preference for non-oily and less spicy food products Beef and pork products are heavily consumed 23 23 Processed Food Distribution Formats in India 24 24 Distribution Formats for Food Products in India Retail Formats Modern Format Super Marts Hyper Marts Convenience Stores Food Gourmet Stores Petro- Convenience Stores Cash and Carry Traditional Format Neighborhood general store Bakery Shops Institutions Railways and Airlines Hotels, Restaurants and Catering (HORECA)

Canteen Store Department Others (Schools, Colleges, Offices and Hospitals) 25 25 Modern Trade Formats in India Hypermarts Large retail store offering wide range of products and brands Average size between 4,000 10,000 sq. mtr. E.g. Big Bazaar, Spencer Hyper etc. Supermarts Smaller version of a Hyper marts with a average size of 300 to 1,000 sq. mtr. Mainly offers food items like groceries along with non food items (1/2) Convenience Stores Small store (average size of 100-150 sq. mtr.) Mostly stock essential items such as groceries, food items and daily need items E.g. Big Apple, LM 365 E.g. Food Bazaar, Reliance Fresh etc. 26

26 Modern Trade Formats in India Food Gourmet Stores Store size of ~300-1,500 sq.mtr. Targeting SEC A population with assortment of fresh food and grocery High focus on imported food products E.g.: Lemarche, Nature Basket, Modern Bazaar Cash and Carry Wholesale store with a size b/w 5,000 to 10,000 sq. mtr with focus on staples and food items Sell to Distributors / Dealers (B-2-B transactions only) (2/2) Petro Convenience Stores Stores located at petrol pumps Generally having an assortment of impulses purchase & utilities Recently, many international players entered in Indian market e.g. Carrefour, Walmart, Booker, Metro 27 27 Traditional Trade Formats in India Neighborhood/General Stores Traditional small shops located in residential areas Stocks daily groceries and sundries Bakery/Sweet Shops

Gaining popularity in the ready-to-eat food segment which tops-up as consumption points for Juices, Candies, Flavored Milk & other milk-related products, etc. 28 28 Key Institutional Segments in India Railways and Airlines Work on contract based arrangements Contracts are based on volume & price negotiations/tenders CSD Canteens CSD (Canteen Stores Department), run by the Ministry of Defense catering to the Armed forces Assortment of food and non food products at subsidized rates and differentiated packaging Work on Tender based arrangements Hotels Indian Hotel and Restaurant industry is growing @ 20-25% due to increase in foreign tourists and business-related travel Multiple consumption points (Breakfast Buffet, Restaurant, Gym, Bar, Mini-bar) Others (Schools, College, Offices & Hospitals) Products such as yoghurt, juices etc.. are gaining popularity on back of its health proposition Companies are tying up with institutions such as Schools, Hospitals, Offices etc. to club their products along with meals 29 29 Processed Food Industry Overview 30 30 India Food Production Key Facts Varied agro climatic zones 2nd largest arable land (161 M ha) in the world Largest irrigated land (55 M ha) in the world Largest producer of Wheat, Pulses & Milk

Largest producer and exporter of Spices Second largest producer of Tea, Rice, Fruits & Vegetables Second largest producer of Sugarcane Largest exporter of the world's best rice (Basmati) Third largest producer of Coarse grains and Edible Oilseeds 31 31 Food Industry Market Size Indian food industry was estimated at US$241 billion in 2010-11 Growing at a CAGR of 5.1% (2003-11) Higher disposable income resulting in 1% : 5. R CAG greater spending and consumption is driving the growth of food industry in India Expected to reach US$300 billion by 2015 Food processing industry represents ~43% of the total food industry; expected to grow to 50% by 2015 Spending on food constitutes the largest share of consumer wallet; as the overall economy grows, spend on food is expected to grow Source: FICCI, Tecnova analysis 32 32 Industry Segmentation The Indian Food and Food Processing

industry (FPI) primarily comprises of the Relative Share of Various Food Segments in Food Processing (2011) following segments Fruits & Vegetables (F&V) Dairy Meat, Poultry and Marine Grains and Seeds Packaged Foods (including Beverages) Source: MOFPI 33 33 Food Processing Industry Market Size The size of the processed food sector in India was Processed Food Industry organization approximately US$105 billion in 2011 Includes both the organized and unorganized sector where organized forms 50-55% of the overall market Organized 45-50% Unorganized 50-55% Sector is growing by 13-15%, but is expected to grow by ~25% in the coming years to reach size of US$530-550 billion by 2020 Within the food processing sector, segments like meat, and packaged foods are expected to witness high growth rates

Historically, food processing industry has contributed around 1.5% to Indian GDP Source: MOFPI, Tecnova analysis 34 34 Processing Levels for Key Segments in the FPI Indias food processing levels are significantly low compared to other developing nations such as Brazil, Malaysia and China Source: Ministry of Food Processing Industry 35 35 Processing Stages for Various Products Primary processing Secondary processing Tertiary processing Fruits & Vegetables Cleaning, sorting and cutting Slices, pulps and paste Ketchups, jam, juices and pickles

Milk Grading and refrigerating Cottage cheese, cream, simmered & dried milk Processed milk, spreadable fats, yoghurt Meat & Poultry Sorting and refrigerating Cut, fried, frozen and chilled Ready-to-eat meals Marine products Chilling and freezing Cut, fried, frozen and chilled Ready-to-eat meals Grain and seeds Seeding and grading Flour, malt and milling Beverages

Sorting, bleaching and grading Leaf, dust and powder Biscuits, noodles, flakes, cakes, savory Tea bags, flavored coffee, soft drinks, alcoholic beverages Source: Ministry of Food Processing Industry 36 36 Export from FPI sector In 2012-13, total exports from FPI sectors reached US$36 billion, growing at a CAGR of 21.9% since 2008-09 The major markets for Indian processed food are Europe, the Middle East, Japan, Singapore, Thailand, Malaysia and Korea Source: Ministry of Commerce, DIPP 37 37 India Total Food Imports Total Food Imports from Italy 16.3% India Total Food Imports 16.5%

Top 5 Food Imports from Italy, 201213 Italian food imports are growing at a similar rate as that of total food imports by India Top 5 imports account for more than 73% of total Values in $ M food imports from Italy Source: DGFT 38 38 India Total Food Exports Total Food Exports from Italy 7.8% India Total Food Exports 12.1% Top 5 Food Exports to Italy, 2012-13 Food exports to Italy are growing at a relatively slower rate as compared to Indias total food exports Top 3 exports account for more than 81% of total food Values in $ M exports to Italy *Mollusc and Crustacean Source: DGFT 39 39

Food Processing Demand Drivers Increasing spending on food products Increasing urbanization lifestyle and aspirations Changing demographics Rise in disposable incomes Food Processing Demand Drivers Growing nuclear families and working women Rising demand for functional food (oatmeal, etc) Increasing modern trade formats and private label penetration 40 40 SWOT analysis of Food and Food Processing Industry in India Strengths Huge domestic consumption market

Large production base of raw material Breadth in crop base offering scope for varied processing activities Weaknesses Inadequate infrastructure facilities High upfront capital investments Lack of adequate quality control & testing protocols Large number of intermediaries resulting in inefficient supply chain and increase in prices Seasonal variability of crops Low packaging aesthetics 41 41 SWOT analysis of Food and Food Processing Industry in India Opportunities

Government incentives (priority sector, tax relief, R&D support, etc) Increasing western influence on Indian palate (cheese, pasta, sauces, cereals, aerated drinks, juices, yoghurt, etc) which is driving the demand for processed foods Increase in nuclear families and working women who prefer ready-to-use food items Threats Traditional preference for freshly cooked food especially in rural areas Affordability (e.g., processed fruits are significantly higher than fresh fruits) High supply chain costs 42 42 Distribution System in Food Processing Industry End users Intermediaries Companys Warehouse or Importer-Distributor 3 - 5% Rate contract

Carrying and Forwarding Agent/ Super stockiest 8 - 15% Distributors Modern trade Distributors CSD contractor Modern Trade Chains/ Stores CSD canteen Rate contract Institutions Sales Agents 25 - 35% Retailers Institutions/ Foods services * The figures mentioned are trade margins of channel partners. These are taken as an approximate value and vary depending on company, distributor and industries 43 43 Competition Analysis 44 44

Competition in Dairy Processing Dairy market is largely dominated by regional cooperatives in Gujarat, Karnataka, Maharashtra, Tamil Nadu, Rajasthan and Punjab; Amul (Gujarat Cooperative) has ~26% pan-India market share in liquid milk; Nandini (Karnataka Cooperative) has significant presence in South India Amul captures nearly 85% of the butter market and ~70% of the cheese market, while other players such as Nestle manage rest of the market; Unilever has strong presence in ice cream segment Company name (Brand) Country India presence Major products Gujrat Cooperative Milk Marketing Federation (Amul) India Pan-India Milk, cheese, butter and other valueadded products Karnataka Milk Federation (Nandini) India South India Milk, ghee, whitener, butter, milk power, and ice cream National Dairy Development Board (Mother Dairy)

India Pan-India Milk, cheese, butter, ice cream, buttermilk, pro-biotic products Nestle (Milkmaid, Everyday) Switzerland Pan-India HUL (Kwality Walls) Danone (Danone) Anglo-Dutch France Pan-India Metros Pro-biotics, Raita, condensed milk, milk powder, ghee, infant nutrition Frozen desserts Yoghurt, value added products Value-added products such as cheese, yoghurt, pro-biotic drinks, flavored milk, and infant nutrition products are the key growth segments for international companies 45 45 Competition in Fruits & Vegetables Processing Processed forms of fruits & vegetables in India include jams, juices, pickles, chutney, and fruit concentrates

While the fresh fruits & vegetables market in highly unorganized with local farmers, wholesalers, and intermediaries selling directly to customers, the processed F&V market is somewhat organized with presence of national and international players Company name (Brand) Country India presence HUL (Kissan) Anglo-Dutch Pan-India Mother Dairy (Safal) Priya Foods (Priya) India India Pan-India Pan-India Cremica (Mrs. Bectors) India Pan-India Namdhari Fresh India South-India Adani Agri Fresh Heinz India

USA Pan-India Pan-India Major products Jams, ketchup, sauces, spreads, fruit juices Frozen F&V (peas, carrots, etc) Pickles, chutney, fruit pulp Sauces, condiments, spreads, dips, syrups Packaged fruits and vegetables, exotic vegetables Fresh and processed fruits Ketchup With the potential to become one of the largest producers of F&V, coupled with abysmally low levels of processing, India offers huge potential for international companies 46 46 Competition in Meat, Poultry and Marine Processing Highly fragmented industry with only a handful of large players Uttar Pradesh, Andhra Pradesh, Maharashtra, Delhi are the key areas of processed meat and poultry production Within this industry, poultry is the fastest growing segment owing to strong domestic consumption Company name Country

India presence Major products Frozen buffalo meat, marine products, canned corned beef, tropical fruits and vegetables, etc Allanasons India Pan-India Hind Agro India Pan-India Venkys India Pan-India Godrej Agrovet India Pan-India Frozen boneless buffalo meat, offals and processed buffalo meat Ready-to-cook and Ready-to fry products Poultry Al Kabeer UAE

Pan-India Beef and poultry, ready-to-fry products Suguna Foods India South India Broiler chicken, value added eggs As European and western cuisines expand in India, demand for processed meat products such as sausages, hams, steaks and fillets has been increasing consistently 47 47 Competition in Grains & Seeds processing Grain processing includes milling of rice, wheat and pulses; seed processing include extraction of oil for edible and industrial purposes A highly fragmented industry with thousands of rice hullers, flour and pulse mills, and ghanis and oil refineries operating in every part of the country; competition in the organized segment is intense Though primary processing is the most important activity in this segment, secondary and tertiary processing limited to few large players Company name is(Brand) Country

India presence Major products HUL (Annapurna) Anglo-Dutch Pan-India Kelloggs (Kelloggs) USA Pan-India ITC (Aashirvaad) India Pan-India Wheat flour Oats, bran wheat flakes, corn flakes, RTE breakfast cereals, Muesli Wheat flour, multi-grain flour ConAgra Foods (Sundrop) USA Pan-India Sunflower oil, corn products Cargill (Nature Fresh) USA Pan-India Edible oils, flour,

REI Agro (Raindrop) India Pan-India Rice (Basmati) As one of the worlds largest agricultural base, India offers huge potential for international companies in grain and seeds processing; however, domestic competition is intense 48 48 Competition in Consumer Foods Processing Consumer foods is a highly competitive industry in India with presence of large national and international companies Britannia, Parle and ITC capture ~90% share of biscuit industry, while Perfetti has over 70% market share in confectionery market; Nestle, with its Maggie brand, is a market leader in noodles segment, while Coca Cola and Pepsi has over 90% market share in aerated beverages segment Company name (Brand) Country India presence Major products HUL (Kissan) Anglo-Dutch Pan-India Nestle (Maggie, Nescafe) Switzerland Pan-India

Parle Agro (Parle) Perfetti Van Melle Britannia Industries (Britannia) Mondelez International (Cadbury) PepsiCo (Pepsi, Frito-Lay) Coca-Cola India Italy India USA USA USA Pan-India Pan-India Pan-India Pan-India Pan-India Pan-India ITC (Sunfeast) India Pan-India Soups, bakery, RTC Pasta, RTC, cooking aids (masalas), coffee and tea, chocolate powder, Biscuits, beverages Confectionery Biscuits, bakery and dairy Chocolate Snack food, beverages Beverages Biscuits, noodles, snack food, confectionery, RTE RTE and RTC segments have large untapped potential; with modern trade formats

growing at a rapid pace, RTE offers huge scope for investment 49 49 Key Players Profiles Company name Employees Turnover (INR Crores) CAGR (2008-12) Operating Margin Britannia Industries 2,000 6,254 12.6% Year end: Mar13 15.9% 6.7% HUL 16,000# 28,167 18.8% Year end: Mar13 7.1% 14.5%

REI Agro NA 9,462 48.1% Year end: Mar13 63.2% (2 year) 15.7% Nestle 5,500 8,457 11.9% Year end: Dec12 17.8% 21.6% ITC 25,000# 8,352* 37.9% Year end: Mar13 12.1% -- Vadilal Industries 600

340 16.0% Year end: Mar13 20.9% 10.6% # Y-o-y growth employee data for entire company; *only for food division Source: Company Annual Reports 50 50 Developments in Processed Food Industry 51 51 Infrastructure Development in FPI (1/3) Vision-2015 plan of MoFPI aims to double the size of food processing industry to US$ 200B, Funds allocated for infrastructure development in FPI increase processing of perishables to 20%, increase value addition to 35% (from 20%), and enhance Indias share in global food trade to 3% (from 1.5%)

Scheme for Infrastructure Development, implemented by MoFPI, during 11th Five Year plan (2007-12) include Mega food parks Funding in 12th Five Year plan (2012-17), $M Modernization of abattoirs Cold chain, value addition and preservation infrastructure Cold chains Mega food parks Setting up / modernization of abattoirs Source: MOFPI Annual Report 2011-12 52 52 Infrastructure Development in FPI (2/3) Mega Food Parks (MFPs) It aims to bring together farmers, processors, and retailers to link agricultural produce to the market place and to ensure maximum value addition, minimum wastage, increase farmers income and create employment in rural sector These parks will have state-of-the-art processing facilities and well-established supply chain

Under the scheme, a total of 30 MFPs will be established in a phased manner (10 parks in phase I, 5 in phase II, and 15 in phase III)* * Refer to Appendix for list Source: MOFPI Annual Report 2011-12 53 53 Infrastructure Development in FPI (3/3) Cold chain, value addition, and preservation infrastructure The infrastructure scheme will provide financial assistance in setting up integrated and complete cold chain facilities, preservation infrastructure facilities, value addition facilities, and irradiation facilities Financial assistance of up to 75% of the total project cost is provided by the government Total of 49 projects have been planned across the country, of which 10 are in progress These projects are expected to add 232,628 MT of cold chain to the existing infrastructure Setting up / modernization of abattoirs Lack of basic infrastructure facilities such as water, electricity, and carcass handling mechanism result in tremendous wastage and contamination / deterioration of meat The FPI infrastructure scheme plans to set up 10 new abattoirs and modernize several existing facilities in the coming years

An amount of US$6.8 million have been disbursed to set up the 10 new facilities So far, 2 abattoirs have been completed at Dimapur, Nagaland and Ahmednagar, Maharastra Source: MOFPI Annual Report 2011-12 54 54 Government Incentives for FPI Sector (1/2) The Ministry of Food Processing has taken several initiatives to promote the growth of the industry Incentive Description Tax relief 100% tax exemption for first 5 years followed by 25% tax exemption for the next 5 years for food & vegetables processing businesses Preferred tax exemption for companies operating in perishable food items such as milk, meat and poultry Investment-linked tax incentive to businesses setting up and operating cold chains or warehouse facilities Full excise duty exemption for goods that are used in installation of cold storage facilities Excise duty waived on fruits & vegetables processing from 2000 01 Income tax holiday for fruits & vegetables processing from 2004 05 Customs duty reduced on freezer van from 20% to 10% from 2005 06 Central sales tax reduced from 4% to 3% Relaxed FDI norms 100% FDI under automatic route, except for items reserved for micro, small and medium enterprises Easy funding

Assigned food processing industry as priority sector for easy securing of bank funding Source: MOFPI Annual Report 2011-12 55 55 Government Incentives for FPI Sector (2/2) Incentive Description Focus on infrastructure Strong focus in infrastructure development (as discussed in earlier slides), particularly on setting up Mega Food Parks, Agri Export Zones (AEZ), cold chains, warehouses and modernization of abattoirs Push for R&D Weighted deduction on expenditure incurred on in-house R&D has been increased from 150% to 200% Weighted deduction on payments made to R&D laboratories increased from 125% to 175% Private sector friendly 100 per cent export-oriented units are allowed to sell up to 50% of their produce in the domestic market Export earnings are exempted from corporate taxes Apart from these, the state governments have also taken initiatives such as lowering of VAT rates to promote the industry in respective states Source: MOFPI Annual Report 2011-12 56

56 Regulatory and Custom Duties Analysis 57 57 Foreign Direct Investment Policy FDI is permissible for all the processed food products under 100% automatic route, except for items reserved for micro, small and medium enterprises where FDI is permissible under automatic route up to 24% FDI under automatic route is approved at Reserve Bank of India (RBI) level and does not require approval of Foreign Investment Promotion Board (FIPB) FDI in food processing industry (cumulative) During April 2000-13, the total FDI in the food processing industry reached US$1.8 billion, which was under 2% of total FDI inflows Source: Ministry of Commerce 58 58 Import Regulations Related to Food Products (1/2) Due to free trade agreements with ASEAN countries, products imported from these countries attract substantially lower (or zero) basic duty. For example, basic duty for HS code 0204 10 00 (meat of

sheep or goats) under normal circumstances is 30%, however, if it is manufactured and imported via ASEAN route, the basic duty reduces to 0% Excise duties are reduced significantly (completely exempted in some cases) on all such products that cannot be produced in India (such as olive oil) Import of beef and derived products in any form are prohibited All consignments of edible oils and processed food products imported in bulk shall carry a declaration from the concerned exporter on the shipping documents that the consignment does not contain beef in any form; all consignments imported in consumer packs shall carry a declaration on the label of the package that the product is free from beef in any form Import of all such edible/food products (which are governed by Prevention of Food Adulteration Act) shall be subject to condition that, at the time of importation, the products have a valid shelf life of not less than 60% of its original shelf life 59 59 Import Regulations Related to Food Products (2/2) Import of meat and meat products of all kinds (fresh, chilled, frozen, etc) shall be subject o sanitary import permit to be issued by Department of Animal Husbandry and Dairying Import of alcoholic beverages shall be subject to compliance of various mandatory requirements as stipulated by various state governments

Import of meat and poultry products will be subject to the compliance of conditions regarding manufacture, slaughter, packaging, labeling and quality conditions as laid down in Meat Food Products Order, 1973 Import of all such edible/food products including tea shall be subject to conditions laid down in the Prevention of Food Adulteration Act, 1954 60 60 Food Safety and Standards Authority of India (FSSAI) The Food Safety and Standards Authority of India (FSSAI) has been established under Food Safety and Standards Act, 2006 (FSS Act) which consolidates various acts & orders that have hitherto handled food related issues in various Ministries and Departments It is responsible for Laying down science based standards for articles of food Regulating the manufacture, storage, distribution, sale and import of food to ensure availability of safe and wholesome food for human consumption Introduction of the FSS Act repealed a number of individual regulatory acts such as Edible Oils Packaging Order and Milk and Milk Products Order

The Act aims to establish a single reference point for all matters relating to food safety and standards FSSAI also collects and collates data regarding food consumption, incidence and prevalence of biological risk, contaminants in food, residues of various, contaminants in foods products, identification of emerging risks and introduction of rapid alert system Source: FSSAI 61 61 Impact of Changes in Labelling Laws Over 200 MT of imported gourmet chocolates from around the world, including brands such as Godiva, Guylian, Lindt and Mars, are stuck at various Indian ports due to non-compliance with new Indian labelling laws Several other food categories such as French artisinal cheese, American crisps, Thai condiments, and Italian pasta sauces have also been held up for non-compliance FSSAI is especially wary of labelling violations on chocolate products as tests reveal that many of them contain very high level of vegetable fat, which is not permissible under the Indian law Small-scale importers who primarily depend on a single food category have been badly affected with many of them already closing the business Indian packaging and labelling regulations have been in place since 2011 and ample grace period

was given to importers to align themselves with new regulations Since November 2013, FSSAI has stopped allowing imported products that do not comply with the new laws Source: Secondary Search and Interaction with FSSAI 62 62 Labelling Requirements A Currently required points in Primary Labelling (Non Rectifiable) B Rectifiable Defects (on sticker) 1 Generic Name of Product 1 2 Net Weight in Grams Indian Importing Company Name and Contact Details 3 Ingredients 2

Veg/Non-Veg Symbol 4 Nutritional Information 3 Maximum Retail Price (MRP) 5 Best Before Date 4 6 Country of Origin FSSAI Logo and Importer License No. This is only till June '14 after which it has to be on primary packaging label 7 Production Date 8 9 10 Traceable Batch No. (this cannot be same as best before date. It must be stated on the pack separately Manufacturers Name, address and contact details Additive caution declaration Source: Primary research

63 63 Packaging Requirements 64 64 Duties Applicable on Imported Products Duty Description Basic Customs Duty Is the duty levied on imported goods at prescribed standard rates Countervailing Duty (CVD) As the name suggests, CVD is equivalent to Central excise duty levied on a like article manufactured in India; some of the packaged consumer goods are charged this duty based on their MRP (Maximum Retail price) Education and Additional CESS Education CESS of 2%+1% is charged on the total customs duty (except special CVD) Special CVD/ ACD The 4% special CVD or additional customs duty (ACD) is applicable to all imports (except for few exemptions), this duty is not included in the accessible value for levy of educational CESS on imported goods. Also, manufacturers can take credit for payment of excise duty on their finished products. 65

65 Custom Duty and Price Build-up (1/3) HS Codes: 1806 (Chocolate and other food preparations containing cocoa) Benefit of doing local sourcing IMPORTS CIF Value Basic Customs Duty Sub-Total for Calculating CVD CVD (with 30% abetment) Sub-total for calculating Edu. Cess on Customs Education Cess on Customs Sub-total for ACD ACD Landed Cost Indian Importer Margin Price to Distributor/ Wholesaler Distributor Margin Price to Retailer Retailer Margin MRP before VAT VAT (Value Added Tax) MRP (Maximum Retail Price) 30% 12% 1.00 0.30 1.30 0.35 0.65 3% 4% 0.02

1.67 0.07 1.74 30% 2.48 10% 2.76 25% 3.67 13.1% 4.16 LOCAL SOURCING CIF Value Basic Customs Duty Sub-Total for Calculating CVD CVD (with 30% abetment) Sub-total for calculating Edu. Cess on Customs Education Cess on Customs Sub-total for ACD ACD Landed Cost Indian Importer Margin Price to Distributor/ Wholesaler Distributor Margin Price to Retailer Retailer Margin MRP before VAT VAT (Value Added Tax) MRP (Maximum Retail Price) 0% 12% 1.00 0.00 1.00 0.27 0.27

3% 4% 0.01 1.27 0.05 1.33 30% 1.89 10% 2.10 25% 2.80 13.1% 3.17 66 66 Custom Duty and Price Build-up (2/3) HS Codes: 19059030 (Extruded or expanded products, savory or salted) Benefit of doing local sourcing IMPORTS CIF Value Basic Customs Duty 30% Sub-Total for Calculating CVD CVD 0% Sub-total for calculating Edu. Cess on Customs Education Cess on Customs 3% Sub-total for ACD ACD

4% Landed Cost Indian Importer Margin 30% Price to Distributor/ Wholesaler Distributor Margin 10% Price to Retailer Retailer Margin 25% MRP before VAT VAT (Value Added Tax) 13.125% MRP (Maximum Retail Price) 1.00 0.30 1.30 0 0.30 0.01 1.31 0.05 1.36 1.94 2.14 2.85 3.23 LOCAL SOURCING CIF Value Basic Customs Duty 0% Sub-Total for Calculating CVD CVD 0% Sub-total for calculating Edu. Cess on Customs Education Cess on Customs 3% Sub-total for ACD

ACD 4% Landed Cost Indian Importer Margin 30% Price to Distributor/ Wholesaler Distributor Margin 10% Price to Retailer Retailer Margin 25% MRP before VAT VAT (Value Added Tax) 13.125% MRP (Maximum Retail Price) 1.00 0.00 1.00 0.0 0.0 0.00 1.00 0.04 1.04 1.49 1.63 2.18 2.47 67 67 Custom Duty and Price Build-up (3/3) HS Codes: 0204 (Meat of sheep or goats, fresh, chilled or frozen) Benefit of doing local sourcing IMPORTS

CIF Value Basic Customs Duty 30% Sub-Total for Calculating CVD CVD 0% Sub-total for calculating Edu. Cess on Customs Education Cess on Customs 3% Sub-total for ACD ACD 4% Landed Cost Indian Importer Margin 30% Price to Distributor/ Wholesaler Distributor Margin 10% Price to Retailer Retailer Margin 25% MRP before VAT VAT (Value Added Tax) 13.125% MRP (Maximum Retail Price) 1.00 0.30 1.30 0 0.30 0.01 1.31 0.05 1.36 1.94 2.14 2.85 3.23

LOCAL SOURCING CIF Value Basic Customs Duty 0% Sub-Total for Calculating CVD CVD 0% Sub-total for calculating Edu. Cess on Customs Education Cess on Customs 3% Sub-total for ACD ACD 4% Landed Cost Indian Importer Margin 30% Price to Distributor/ Wholesaler Distributor Margin 10% Price to Retailer Retailer Margin 25% MRP before VAT VAT (Value Added Tax) 13.125% MRP (Maximum Retail Price) 1.00 0.00 1.00 0.0 0.0 0.00 1.00 0.04 1.04 1.49 1.63 2.18 2.47

68 68 Import Duties for Food Sector (indicative list) HS Code 02.03, 04, 08 (Meat) Basic Special CVD / Countervailing Education and Customs Additional Customs Duty (CVD) Additional CESS Duty (BCD) Duty (ACD) Total 30% 0% 3% 4% 36.136% 30% 0% 3% 0% 30.9% 03.02, 04* (Fresh fish)

30% 0% 3% 0% 30.9% 03.05* (Dry fish) 30% 0% 3% 4% 36.136% 03.06 (Crustaceans) 30% 0% 3% 4% 36.136% 03.06.21,22,23,29 30% 0%

3% 0% 30.9% 30% 0% 3% 0% 30.9% 07.10, 11, 12 30% 0% 3% 4% 36.136% 09.01 (Coffee) 100% 0% 0% 4% 108% 100%

0% 3% 4% 111.12% 100% Re. 1/kg -- 4% -- 02.03.11, 12, 19 07.02, 04, 05, 06, 07, 08, 09* (Vegetables) 09.01.12, 21, 22, 90 09.02* (Tea) With local sourcing, companies stand to eliminate the basic customs duty (BCD) which may go up to 100% in some cases * All sub-codes under this code have same duty structure 69 69 Benefit of Local Sourcing HS Code 1905 3100 (Sweet biscuits)

Product Imported price McVities Digestive INR 186 Light (400g) Hobnobs (300g) INR 109 Total duties if imported Basic customs: 30% CVD: 6% ACD: 4% Edu. Cess: 3% Locally Total duties if manufactured manufactured price locally INR 155 INR 75 Basic customs: 0% CVD: 6% ACD: 4% Edu. Cess: 3%

70 70 Presence of Italy in Indian Food Industry 71 71 Italian Presence in India FDI Equity Inflows from Italy1 (from Apr 2000 to Nov 2013) With US$ 1.24B, Italy is the 14th largest investor in India Among the European countries, Italy is the 6th largest investor From representative offices to fully owned subsidiaries, Italian companies are present through all modes of operation Select Italian companies operating in India include Benetton, Comua, Fiat, Luxottica, Denso, Galvi Engineering, Lombardini, Mainetti, New Holland Italys presence in Indian food industry can be predominantly felt in chocolate & confectionery, olive oil, wine and pasta industries

1 Represents total FDI (not only in food sector) Tractor, Pirelli, and Piaggio Vehicles Italian cuisine and Italian fashion has seen tremendous growth in India in the recent years Source: Primary research 72 72 Italian Companies in Indian Food Industry Olive Oil Pasta Wine Chocolate and Confectionery Other Food Products 73 73 Italian Companies in Indian Food Industry Company name India presence Market presence Perfetti van Melle

Manufacturer, distributor and marketer of sugar confectionery products With more than 15 brands, Pefetti has close to 25% market share in organized confectionery business making it the market leader Key brands include Center Fresh (chewing gum), Alpenliebe (sugar Subsidiary candy), Chlormint and Happydent (mouth freshener) Perfetti Van 2012 sales totaled US$260 M* Melle India Pvt. Manufacturing units in Gurgaon and Chennai Ltd. (PVMI) Has a network of 4,000+ distributors across 1,500 towns and extended network of 10,000+ sub-stockists covering 7,000+ towns PVMI, in 2011, became the first PVM group company to diversify into snacks business with Stop Not brand Lavazza Acquisition of Barista chain Entered India in 2007 by acquiring the second largest espresso bars in India Has more than 180 bars; its Frest&Honest Caf company is a key player in the HORECA# segment 2009 revenues totaled US$33 M* Opened a new plant in Andhra Pradesh in 2011 * 1 USD = 61.5 INR; #Hotels, Restaurants, and Catering 74 74 Italian Companies in Indian Food Industry Company name Ferrero SpA India presence Market presence

Subsidiary Ferrero India Entered India in 2010 With ~6% market share, Ferrero India is the 3rd largest player in Indias chocolate industry; however Ferrero enjoys 60% share in premium chocolates segment 2012 sales totaled US$55 M*; 31% y-o-y growth Key brands include Nutella (chocolate spread), Ferrero Rocher (chocolates), Kinder (children chocolate toys) and Tic Tac (mouth freshener) Manufacturing unit in Maharastra * 1 USD = 61.5 INR 75 75 Italian Companies in Indian Food Industry: Olive Oil Italy is the second largest supplier of olive oil to India; 40% of olive oil imported in India comes from Italy Second largest olive oil brand in India, Leonardo Olive Oil owned by an Indian company Dalmia Continental, is manufactured by Nicola Pantaleo in the Puglia province of Italy All olive oil brands in India are present through Importer-Distributor model Total Olive Oil Market (Volume) 2012-13 : 11,916 MT Rest of World 10%

Italy 40% * Indicative list Spain 50% Leading Brand* Indian Partner Leonardo Dalmia Continental Pvt. Ltd. Bertolli Unilever (till 2013); currently Consumer Marketing Colavita Manisha International Pvt. Ltd. Olitalia Olive Tree Trading Dolce Vita Chenab Impex Pvt. Ltd. Basso Suresh Kumar & Impex Sasso Rai & Sons

Cirio United Distributors Inc. Source: DGFT, Primary research 76 76 Italian Companies in Indian Food Industry: Wine Italy is the third largest supplier of wine to India; ~10% of wine imported in India comes from Italy Wine industry in India is growing at 25-30% per year with current consumption reaching 1.2 million cases, of which ~15% is imported; by 2017, this is estimated to reach 10 million cases of which imported wines will account for 20% Currently more than 2 million people in India consume wine and are primarily located in Mumbai, Leading Brand* Indian Partner Delhi, Bangalore, and Goa Fratelli Wines Indo-Italian JV (Secci brothers, Sekhri brothers, and Mohite-Patil brothers) GAJA Brindco Ltd. Garofoli

Sonarys Co Brands Pvt. Ltd. San Simone Wines Hema Connoisseur Collections Allegrini Brindco Ltd. Cesari Wines Hema Connoisseur Collections equipped with 58 multi-capacity tanks Casa Girelli Global Tax Free Traders Inc. all imported from Italy Antinori Sonarys Co Brands Pvt. Ltd. Fratelli Wines, a INR 40 crores JV between three families from Italy and India, has seen tremendous growth since its inception in 2010; the winery in Solapur district has production capacity of 600,000 liters and is Source: DGFT; * Indicative list 77 77 Italian Companies in Indian Food Industry: Pasta

After Indian and Chinese, Italian cuisine is the most popular cuisine in India Pasta imports from Italy 16% 42% Italy is the largest supplier of pasta to India; 42% of pasta imported comes from Italy The share of Italy in pasta imports has increased from 16% in 2008-09 to 42% in 2012-13 Despite growth of Indian pasta brands (such as Bambino), with ~5,200 tons, imported brands (particularly from Italy) still have a large demand Dalmia Continentals Leornado pasta is imported from Italy % share of Italy in total pasta imports Ready-to-cook pasta variants are seeing The growth and popularity of pasta has given rise to a parallel market for pasta

sauces in India tremendous growth in the Indian market Source: DGFT 78 78 Entry into India: Importer-Distributor Model Majority of the Italian processed food companies have entered India through the Importer-Distributor model Depending on the complexity of the product and the presence of distributors, Italian companies may choose a single pan-India distributor, or go for multiple regional distributors Some key Importer-Distributors include Chenab Impex, Olive Tree Trading, R R Oomerbhoy, Tree of Life, Fortune Gourmet Foods, etc Forwarding agents Manufacturing company in Italy ImporterDistributor Subdistributors End customers (retailers, food services, modern trade stores, etc) CSD

contractors 79 79 Entry into India: Greenfield Setup Formation of India Entity Basic Regulatory Approvals Location and Site Company incorporation (Pvt Ltd / LLP) IEC / PAN / TAN / VAT / CST (required without manufacturing) Analyzing specific locations & sites Securing land in select industrial zone Regulatory: Manufacturing Vendor Selection Business Plan Over 25 approvals required to construct & operate the factory Environmental clearances Shortlist vendors for complete package EPC requirements (HVAC, Electrical) Equipment local sourcing

Budgetary analysis of plant Capex, P&L, BS, Break even perspective Recruitment Project Management Evaluation of candidates Recruit start of positions at plant level Recruit management & Clevel positions Coordinate with all vendors Monitor timely completion Liaison with all government & private agencies Perfetti successfully set up its green field project in India in 1994 and has since then grown to become a market leader in confectionery segment 80 80 Food Processing Machinery 81 81 Food Processing Machinery Market Size INR55,000 crores (~US$ 9B) is the total market size of food processing machinery in India

Agro processing machinery market 100% = 40,000 crores (US$6.5B) Dairy processing machinery Other food processing machinery market market 100% = 4,000-5,000 crores (US$813M) Imported 30% Domestic 70% 100% = 10,000 crores (US$1.6B) Imported 40-50% Domestic 50-60% Imported 40-50% Domestic 50-60% More than 40% (US$3.5B) of the machinery in food processing industry is imported 1 USD = 61.5 INR Source: Primary research 82 82 Market Dynamics and Trends Food processing machinery market has been growing at 15% over the past 5-8 years

Growth rate expected to increase to 15-20% in the coming years on back of food processing industry which is expected to grow at 30% With hundreds of players operating in India, machinery manufacturing is a highly fragmented industry Food processing industry in general is moving towards modernization in India; players are looking towards automation, energy efficient, and water saving equipment Existing players are replacing old machinery with hi-tech imported machinery, while new entrants are already buying latest technology equipment Alfa Laval is the market leader in the equipment industry; other players include L&T, Heat and Control, American Extrusions, GEA, and Goma Source: Primary research 83 83 Food Machinery Imports and Exports Imports from Italy Of the US$ 4.7B machinery imported from Italy, Exports to Italy Less than 1% of total machinery exported to food processing related machinery accounted

Italy in 2012-13 was related to food processing; for only US$ 377M (8%) however, they have been consistently Food machinery imports witnessed a spike in 2011-12 due to significant increase in import of industrial ovens and pumps for handling liquid increasing over the past 4 years Filtering and purifying machinery contribute to the majority of exports to Italy Source: DGFT 84 84 Food Processing Triangles Food processing industry is largely concentrated in three regions usually referred to as the three Delhi triangles Noida Gurgaon Other concentrations depend on the type of food processed

Ahmedabad Snack food North and West of India Mumbai Pune Hyderabad Bangalore Chennai Dairy Rajasthan/Gujarat/UP Meat UP/Hyderabad/Maharastra F&V West Bengal/Kerala/ Bihar/Jharkhand Grapes Pune/Nashik Apple Jammu/Shimla Source: Primary research 85 85

Machinery Distribution System Direct Purchase Model Agent / Distributor Model Equipment Equipment manufacturing manufacturing company company ImporterDistributor / Agent 5-10% margin Purchasing company Purchasing company Buyer company and supplier company Machinery is imported in the name of the buying establish a direct contact between each other company; agents organize meetings, test equipment, and negotiate on behalf of buyers Exhibitions and expositions are the prominent channels for showcasing state-of-the-art products and technologies; millions of dollars of contracts are signed during these events Source: Primary research 86 86 Select Importer-Distributor / Agents Distributor Name

Location Segment Contact Information Kanchan Metals Kolkata Snack Food [email protected] +91 983 174 4709 Standard Machinery Bangalore All segments Marketing Co. Menon Technical Services ACE Technologies +91 80 2549 5844, +91 80 2549 5845 [email protected] Bangalore Mumbai F&V and Snack +91 80 4113 3783; +91 80 4127 8554 Food [email protected] Food and Beverages +91 22 2870 0281; +91 22 2870 4108 [email protected]

Heat & Control India (sales Chennai Snack Food office) Repute Engineers Pvt. Ltd. Pune +91 44 4210 3950/51; +91 44 2621 2943/44 Dairy +91 20 27481687; +91 94220 20943 [email protected] Distributors / Agents exert significant bargaining power over manufacturing companies as they place bulk orders from multiple clients Source: Primary research 87 87 Recent Investments by Players Invested in its mega food park; 50-60 crores worth machinery bought from Alfa Laval (US$16.3M) Invests ~100 crores every year in biscuit machinery Invested in beverages and snack machinery Invested 25 crores in ice cream machinery and 20 crores in frozen foods machinery Replaced all its local-made machinery with imported machinery from Germany, Japan and US Invested in snack machinery in Greater Noida Expanding businesses and growing revenues are enabling large and medium-sized players to invest heavily in machinery Source: Primary research

88 88 International Companies in Machinery Industry in India Leading Companies Country Segment Alfa Laval Sweden All segments GEA Farm Technologies Germany Dairy Buhler Switzerland Agro processing Heat & Control USA Snack food Fen Italy Snack food

SPX USA Dairy American Extrusion USA Snack food AC Horn USA Coated snacks Isolteck Cusinato Srl Italy Pasta, snack pellets Florigo International Netherlands Snack food Alfa Laval is by far the largest company providing comprehensive range of machinery equipment across processing segments; it is the largest player currently offering turnkey solutions to processing players Source: Primary research 89 89 Key Machinery Supplier Countries

Dairy Snack Food Meat Beverages F&V Chinese equipment is used in every segment because of its cost advantage; replicas of high-end models are available from China at a fraction of cost Huge demand exists for international companies who can offer turnkey equipment and technological solutions to Indian processors Source: Primary research 90 90 Major Target Industries for Machinery Manufacturing Players Meat Processing Major Target Industries With 25% growth rate, meat processing is the fastest growing segment for equipment manufacturers Packaged Foods

Ice Cream (Dairy) Snack food, biscuits and RTE processing machinery is witnessing strong growth Ice cream segment in the dairy processing industry is witnessing a robust growth of 15-20% year-on-year Source: Primary research 91 91 Snapshot of Meat Processing Industry Meat processing (including poultry and marine) is the fastest growing segment with 25% growth rate, of which buffalo meat processing is the biggest segment; India exported 1.8 million tons or US$ 3.2B worth beef in 2012-13, up from US$ 1.9B in 2011-12 Unlike the restrictions on cow slaughter, buffalo slaughter does not have any restrictions; however, domestic consumption of buffalo meat is very less in India and majority of it is exported Meat processing machinery market is estimated to be around 300-400 crores and is growing at a much faster rate of 30-40% Imported machinery use is currently less; however, it is growing at a very strong pace

~25% of the machinery in meat segment and ~35% of machinery in poultry segment is currently imported in India Upgradation and replacement demand is pushing the growth of imported machinery Investment in buffalo meat processing industry is required to tap the export market, while investment in poultry industry is required to address the domestic demand and exports In 2012-13, India exported 796 MT of processed meat in the form of sausages, canned meat, meat extracts and preserved poultry meat Source: Primary research, APEDA 92 92 Meat Processing Customer Concentration 48 abattoirs-cum-meat processing plants in India Primarily concentrated in Delhi/NCR region, UP, Maharashtra, and AP Hyderabad is home to several small-tomedium scale meat processors Largest meat processing players include Allanasons, Al Hind, and Al Kabeer

Leading poultry processing players include Godrej Agrovet, Suguna, and Allanasons Al Hind Al Kabeer Godrej Agrovet Suguna Venkys Venkys Several medium sized players who aspire to join the league of Allanasons and Al-Hind are replacing their existing less efficient equipment with high quality imported machinery Source: Primary research, Company websites 93 93 Expansion Plans in Meat Processing Industry Suguna Foods, one of the largest players in poultry processing, has huge plans for expansion To become a 10,000 crores company by 2017; planning to invest Rs 150 crores annually To expand its Suguna Daily Fresh retail outlets, which offers fresh and RTC poultry products, to 500 from the current 150 by 2016

To set up a RTE processing plant in North India by 2015; plant will have slaughtering and processing facilities To set up 2,000 QSRs (which will compete with McDonalds and KFC) in the next 5 years Allana Group, one the largest players in meat processing, has been consistently investing in world class integrated food processing infrastructure To invest US$20M in setting up a meat processing plant in Ethiopia which will be operational by September 2014; 75 MT of processed meat products will be exported daily from this plant Godrej Agrovets subsidiary Godrej Tyson Foods, which recently upgraded its chicken processing plants in Karnataka and Maharashtra, plans to expand its RTC poultry products to 60 cities (from its current 50 cities) by end of 2014 Source: Primary research, News articles 94 94 Snapshot of Ice Cream Industry Ice cream market in India is estimated to be around 3,500 crores, and is growing at a rate of 15-20% year-on-year By 2015-16, the market is expected to double to 7,5008,000 crores Ice cream Industry in India, 2012-13

100% = 3,500 crores (US$570M) Highly seasonal industry with almost all the sales (retail) HoReCa, 35% happening in the summer period (April-August); institutional sales provide cushion during lean periods Presence of 7,000-10,000 players Small unorganized players go off market during the Unorganized 45% Organized 55% Retail, 65% lean periods Indian consumers are actively storing ice creams at home which is leading to higher consumption Ice creams as desserts during marriages and innovative products (such as Ice cream Sandwich) are boosting sales Per capita ice cream consumption is only 300ml (2011-12) which is expected to double by 2015-16

Source: Primary research 95 95 Ice Cream Industry Key Players Top 5 brands have pan-India presence ~80% of ice cream market is captured by top 5-7 players Regional players have strong presence in respective regions Leading players market share Baskin-Robbins is the biggest foreign player in India Source: Primary research 96 96 Ice Cream Machinery Industry Ice cream machinery is primarily imported from China; high end equipment comes from Germany and Netherlands; 60% of machinery is purchased directly from the equipment manufactures, 40% through brokers/distributors

Backed by healthy growth, all major players are expanding aggressively Hatsun Agro acquired Jyothi Dairy as part of expansion plans; Amul is adding 5,000 outlets every year to its existing 80,000+ outlets; Unilevers premium brand Magnum is doing exceptional business in India Domestic machinery players include VCS India, Goma Engineering, Sriram tools, etc Refrigeration market is growing at strong pace; in 2012-13, 3 lakh refrigeration units were sold in India (in the organized segment only) Vadilal and Mother Dairy are investing in frozen food category (which is growing at 25% rate); Vadilal bought machinery from Italy recently Italian companies will face tough competition from China in ice cream equipment market as Chinese machinery is relatively inexpensive Source: Primary research 97 97 Ice Cream Machinery Customer Concentration Ice cream/Frozen Dessert manufacturing units are primarily located in the west and north of India Largest 4 players have 17 manufacturing units

Regional players have one or two manufacturing units in respective Amul Mother Dairy Cream Bell Vadilal regions/states Replacement demand is very high as players are going for more efficient and power saving machinery Source: Primary research, Company websites 98 98 Snapshot of Packaged Food Industry Snack food1, biscuits and RTE machinery segments within the packaged food industry are growing at a strong pace With 20% y-o-y growth rate, snack food processing industry is one of the fastest growing segments Packaged Food (excl. Beverages) Machinery Market in India 100% = ~1,000 crores (US$160M) Potato processing (potato powder and potato byproducts) and corn processing are witnessing huge

demand within snack processing ~25-30% of the machinery is imported from USA, Japan, Netherlands, etc Key machinery imported include conveying systems and Snack Food, 200 crores RTE, 500 crores Biscuit, 300 crores ovens Heat and Control and American Extrusions are the key suppliers of snack food machinery in India; Italian company Fen s.r.l, is also a key player with seven plants in India 1 Snack food include all chips and extruded snacks Source: Primary research 99 99 Packaged Food Customer Concentration

Key customers in the packaged food industry are primarily concentrated in the northern and western parts of the country as well as along the eastern coast line PepsiCo Nestle Parle Backed by strong growth, mid-sized players in the snack food and RTE segments are emerging as front runners in acquiring high-end imported machinery Britannia ITC Priya Foods Haldirams Demand for high efficiency conveyer systems is driving the packaged food machinery segment MTR Balaji Wafer Illustration does not include contract manufacturing facilities Source: Primary research, Company websites 100 100 Expansion Plans in Packaged Food Industry By 2020, PepsiCo to invest 33,000 crores (US$ 5.5B) in India It intends to make Andhra Pradesh a national hub for sourcing mango pulp for its soft drinks

ITC to set up a 50 crores noodle manufacturing plant in Kolkata in partnership with Keventer Group Balaji Wafers, the market leader in snack food in Western India, plans to enter North and South of India by setting up two manufacturing plants with an investment of 200 crores by 2015 Coca Cola to invest US$ 5B by 2020 across its beverages and bottling lines Source: Primary research, News articles 101 101 Cold Storage An Overview Cold storage infrastructure in India is highly inadequate for the countrys requirements About 40,000 crores worth of food (F&V, dairy, meat, grains etc) is wasted primarily due to lack of cold storage India currently has about 30 million MT of cold storage capacity which is only half of what is actually required 75% of the cold storage network is concentrated in 5 states of Gujarat, Uttar Pradesh, West Bengal, Punjab and Himachal Pradesh Majority of this cold storage network supports only potato storage; there is not adequate

infrastructure for other vegetables Though cold storage and refrigeration requirements are required across all food processing segments, they are required most in meat processing, diary processing and F&V processing segments Danfoss and Alfa Laval are leading players in cold storage, and Voltas, Carrier, Blue Star and Rinac are prominent in the refrigeration segment Source: Primary research 102 102 Cold Storage Opportunities There is a huge scope for development and investment in this sector Frozen foods segment is growing at 20-25% year-on-year Dairy segment is growing at around 10-15% year-on-year Replacement demand is very high as a number of companies are using old equipments which consume high amounts of power; smart power saving cold storage equipments market is seeing an uptrend International companies arent keen on building the cold storage network per se, but are focusing primarily on selling and marketing refrigeration equipment

Government is trying to help players who are interested in investments by providing subsidies and tax incentives In addition to an immediate need for development of a strong cold storage network, there is a huge demand for specific products in the value chain, such as compressors, insulation products, and heat exchangers; in the short term, Italian companies can take advantage of this market Source: Primary research 103 103 Packaging Industry in India INR20,000 crores (~US$ 3.3B) is the total market size of food packaging machinery in India Food packaging machinery market Industry is growing at a rate of 8-10% per annum, and with strong growth in processed food industry, the growth of packaging industry is also expected to Imported 30% accelerate Replacement demand is driving the packaging industry as large number of companies are going for more efficient machinery

Domestic 70% With growth in the packaging machinery, packaging materials such as oil tins and beverage cans are also growing at healthy pace Among various segments within the processed food industry, packaged goods segment contributes the most to the growth of packaging machinery industry 1 USD = 61.5 INR Source: Primary research 104 104 Packaging Industry Key Product Categories Weighers and Drives form the two largest product categories, accounting for more than 40% of the Food packaging machinery Key Product Categories packaging industry Nearly 100% of the weighers and a significant portion of drives are imported Filling Lines is one of the fastest growing product categories in Indian packaging industry as large consumer foods companies are opting for highspeed filling equipment A significant portion of packaging machinery is imported from Italy; pouch making

machines in the snack food industry come largely from Italy 1 USD = 61.5 INR Source: Primary research 105 105 Packaging Industry Key Players Majority of the machinery that is imported comes from Germany, Italy, Japan, China, and USA Bosch and Uflex are the two dominant players in India Leading Companies Country Segment Bosch Germany All segments Uflex India Packaging films and other machinery Toshiba Japan Drives

Omron Japan Drives Krones Germany Filling lines Shimadzu Japan Weighers Schneider USA Case Packing Propack Italy Safety packaging Ishida Japan Weighers OMAG Italy Bag sealing machines

Altech Italy Labelling Source: Primary research 106 106 Conclusions and Recommendations 107 107 Conclusion and Recommendations Food Processing India is one of the largest food producers in the world and offers vast opportunities to food processing companies; the sector has been growing at ~15% CAGR and is expected grow at a much faster rate of 25% in the coming years. Its priority sector status and significant support from the government (setting up mega food parks, etc) makes it a very attractive sector for investment. Apart from catering to domestic demand, Italian companies can make India an exporting hub for its competitive advantage in production and exports (Nestle has been successful in doing so) As most of the segments within food processing sector are exempted from the provisions of industrial licensing1 making it easier for Italian companies to set up operation in India; moreover, with 100% allowance in FDI in food processing sector (except in beer and alcoholic drinks, and items reserved for small scale sector, like vinegar, bread and bakery), Italian companies may enter the Indian market through any mode of operation (joint venture, partnership, acquisition, representative office, etc) 1

Under Industries (Development and Regulation) Act, 1951 108 108 Conclusion and Recommendations Food Processing As food industry in India evolves, food norms are changing rapidly and are becoming more stringent than before, especially in terms of labeling and packaging requirements; Italian companies planning to set up operations in India should thoroughly understand the implications of these changes before deciding on the entry strategy Competition within the food processing sector is intense with few large players in each segment competing for organized market share, however, companies with robust and innovative product offerings, customized to suit Indian palate, have good potential to become leading players in the Indian market 109 109 Conclusion and Recommendations Machinery Italian machinery has significant presence in the fruits & vegetables processing segment, and beverages segment; however, meat processing, packaged foods (snack food, biscuits and RTE), and ice cream industry offer high growth potential for machinery manufacturers There is substantial demand for companies offering turnkey solutions; currently except Alfa Laval, hardly any other company is offering such high-end solutions; Italian equipment manufacturing companies can enter India with a focus on providing end-to-end solutions to food processing companies

Solutions for small and medium companies: small and medium players currently have very limited options when it comes to cost effective solutions; Italian machinery manufacturers may expand their presence by acquiring equipment manufacturers who provide solutions to small scale companies In 2011, Heat and Control acquired Indore-based Flavorite Technologies, a company that provides equipment and solutions to the local food processing industry. Since then, market share of Heat and Controls have increased significantly, and a large portion of its India revenues come from Flavorite 110 110 Thank You 111 111 Appendix 112 112 List of Importer-Distributors List of Importers and Distributors Specified HS Codes Duties Specified HS Codes Duties Marketing Events Listing Marketing Event

Listing 113 113 List of Mega Food Parks Implemented in Phase I and II Name State Location Investment ($M) Patanjali Food & Herbal Park Uttarakhand Haridwar 17.4 Srini Food Park Andhra Pradesh Chittoor 23.2 North East Mega Food Park Assam Nalbari 13.9 Jharkand Mega Food Park

Jharkaand Ranchi 20.9 Tamil Nadu Mega Food Park Tamil Nadu Dharmapuri 24.5 Jangipur Bengal Food Park West Bengal Jangipur 20.4 Integrated Food Park Karnataka Tumkur 26.5 International Mega Food Park Punjab Ferozpur 28.2 Keventer Food Park Infra

Bihar Bhagalpur 28.2 Sikaria Infra Projects Tripura Agartala 15.6 Anil Mega Food Park Gujrat Vadodara 32.9 Shaktiman Mega Food Park Uttar Pradesh Sultanpur 31.0 Paithan Mega Food Park Maharastra Aurangabad 22.2 MITS Mega Food Park Orissa

Rayagada 21.4 Madhya Pradesh MFP Madhya Pradesh Khargon 29.7 Source: MOFPI Annual Report 2011-12 114 114

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