Big brands up the ante in dairydredge-india.nic.in/files/BM01022019.pdfPradesh and Parag Milk Foods...

VIVEAT SUSAN PINTO

Mumbai, 23 January

This week French majorLactalis made its thirdacquisition in India,

snapping up the dairy businessof Prabhat, in a transactionthat has caught the attentionof all. At ~1,700 crore, this isclearly a big deal in dairy andsignals the importance Lactalisis giving the Indian market.

However, it is not the onlycompany that is active in thedomestic dairy category. A yearafter exiting the space, rivalDanone re-entered India lastweek with an investment inyoghurt maker Epigamia. It didnot disclose the deal size, butsaid it was open to more invest-ments in India. Clearly, theFrench giant, which fightsLactalis globally, had realisedexiting India wasn’t in its bestinterest at all. It is now makingamends, one step at a time.

Britannia and Nestlé, on theother hand, who are already

present in the domestic dairymarket, are now fine-tuningtheir strategy, targeting morevalue-added products. ITC,meanwhile, has major plans forthe segment, including launch-ing an array of milk-based bev-erages and frozen desserts fromits Kapurthala plant in Punjab.It has already test-marketedregular milk, flavoured milkand dahi in select pockets.

Big players are clearlyupping the ante in dairy asgrowth beckons. “India is alarge market, where dairy inany form, whether milk,cheese, chaas, lassi or curd, isan essential part of the diet ofpeople. So, the growthprospects are significant forplayers. I am therefore not sur-prised to see companies want-ing a piece of the market,” saidR S Sodhi, managing director,Gujarat Co-operative MilkMarketing Federation(GCMMF), which markets theAmul brand of dairy products.

Sodhi isn’t wrong here. The

~1 lakh crore organised dairymarket while being the pre-serve of state cooperatives hasalso seen private players dotthe landscape as the demandfor products remains high.Industry estimates peg thegrowth rate of themarket at around15-20 per cent perannum. Apartfrom packet milk,which is an essen-tial commodity,value added dairyproducts are gain-ing ground inIndian homes, ledby higher dispos-able incomes andchanging habits.

Besides GCMMF in thewest, there is National DairyDevelopment Board (whichowns Mother Dairy) in thenorth, and Karnataka Co-oper-ative Milk Producers'Federation (which ownsNandini) in the south amongothers. Private players include

Hatsun Agro in Tamil Nadu,Heritage Foods in AndhraPradesh and Parag Milk Foodsin Maharashtra.

Foreign and Indian playerseyeing acquisitions though arealso having to contend withexpensive valuations in dairy.Prabhat’s exit out of its dairybusiness, which will be boughtby Lactalis’s subsidiaryTirumala Milk Products, iscoming at 1.1 times its FY18sales. On Tuesday, Prabhat’sstock price fell 16 per cent fromits previous day’s close on theBombay Stock Exchange, afterclimbing up 20 per cent in thefirst session, as investors react-ed nervously to the deal. Thestock was weak on Wednesdaytoo, closing 2.45 per cent downfrom its last close on the BSE.

At a broader level, the mon-ey, say experts, that Lactalis isparting with for the transactionis significant, since talks withthe Tata group earlier forPrabhat’s dairy business wasstuck at a valuation of ~400crore. The Tata group was notready to give more andPrabhat’s expectations werehigh, industry experts said.

“Companies buying assetsin dairy seek access to everyend of the value chain, fromprocurement to processing,distribution and marketing,”says Sachin Bobade, researchanalyst at Mumbai-based bro-kerage Dolat Capital. “A keyreason for the valuation of localplayers being steep is becauseof this factor,” he said.

Abneesh Roy, senior vicepresident, research, institu-tional equities, Edelweiss, says

that the gestationperiod in dairy,when setting up abusiness is long,pushing compa-nies who havedeep pockets totake the inorganicroute, even if valu-ations are steep.

Lactalis itselfpaid ~1,750 crorewhen acquiringHyderabad-based

Tirumala Milk in 2014, which was1.22 times the latter’s FY13 sales of~1,424 crore. It also coughed upnearly ~500 crore for the dairybusiness of Indore-based AnikIndustries, a small regional play-er, to make inroads in the north.The push and pull for localbrands will only grow.

Big brands up theante in dairy

“India is a largemarket, wheredairy is anessential part ofthe diet ofpeople. So,growth prospectsare significant for players“R S SODHIMD, GCMMF

Lactalis, Danone, Nestlé, Britannia and ITC are gettingaggressive. But valuation of local players is steep

MUMBAI | THURSDAY, 24 JANUARY 2019 BRAND WORLD 19. <

PSBs put ~1-trnbad loans on sale

IDBI Bank has put its exposure of ~29,000crore to Alok Industries and ~3,900 crore toJayaswal Neco on the block.

UBI has put accounts from the list of 40companies recommended by the ReserveBank of India for referral to the NCLT in itstwo lists. The accounts include UBI's expo-sure of about ~650 crore to three Amtekgroup companies and about ~1,200 croreto Lanco group firms.

Dena Bank, Bank of India and PunjabNational Bank too have put their bad loanson sale. State Bank of India (SBI) announcedauctioning its ~15,431 crore loan to EssarSteel last week with an e-auction slated forJanuary 30. SBI has quoted a reserve priceof ~9,587.64 crore, which has been calculat-ed on the basis of the net present value ofminimum recovery, with an 18 per cent dis-count and a time factor of a year. The Essarcase has been dragging for more than 500days now.

Central Bank of India, which is underthe Reserve Bank of India's prompt correc-tive action, is also contemplating offloadingits exposure to Essar Steel and many moreNCLT cases. "We will sell our exposure inBhushan Power & Steel too," a senior bankexecutive said.

Many other banks are in wait-and-watch mode and see how NCLT cases panout. "While the management will haveits own considerations if it plans to sellthe assets to asset reconstruction com-panies, at the same time, SBI's views willbe one of the considerations while takingany decision on the matter," saidMrutyunjay Mahapatra, MD and chiefexecutive officer, Syndicate Bank. Banksthat have made adequate provisioningfor NCLT cases say they have the time towait and can take a further hit on the out-standing loan. On the other hand, bankswith less provisioning would prefer toexit loans before they slip further, theIDBI official added.

Public sector bank (PSB) executives sayselling loans at this stage is the right deci-sion, and it should have happened threemonths ago. "There is the time value ofmoney. Even if the NCLT gives orders infavour of the bidder approved by the com-

mittee of creditors, the other party is mostlikely to approach legal forums includingthe Supreme Court," said a senior PSB exec-utive. Ahead of the SBI auction, public sec-tor banks are slated to meet officials of theDepartment of Financial Services in thefinance ministry to discuss the non-per-forming asset (NPA) situation.

On Monday, officials of PSBs met InjetiSrinivas, secretary, Ministry of CorporateAffairs, and M S Sahoo, chairman,Insolvency and Bankruptcy Board, forreviewing the progress of the first 12 casesreferred to the NCLT.

With most NPA accounts referred to theNCLT exceeding the 270-day limit, severalbanks are required to step up provisioningif they remain unresolved by the end of thisfinancial year. If the Essar Steel accountremains unresolved by the end of the finan-cial year, SBI will have to make an addi-tional provisioning of ~6,000 crore, accord-ing to sources.

Conclude Essar Steelcase by Jan 31: NCLATSince Essar Steel Asia Holding was not aparty at that time, it could not be allowednow to place any settlement bid.

The SC had on October 4 allowed bothArcelorMittal and Numetal to bid forEssar Steel,

provided they had cleared their respec-tive dues. Once that was done, the CoCwould have to consider all bids.

If within six weeks the committee wasnot able to find any resolution plans viable,Essar Steel was to go into liquidation, thetop court had said.

For ArcelorMittal to become eligible foroffering a resolution plan, it had to clear~7,000 crore in debt of its former sub-sidiaries, Uttam Galva and KSS Petron.

Numetal had to similarly pay nearly~49,000 crore in dues' before it was eligibleto bid again as Rewant Ruia, son of erst-while promoter Ravi Ruia, was part of VTBBank-backed Numetal.

Though Rewant Ruia had later left hisshareholding in Numetal, the SC had decid-ed this 'corporate veil' could not hide thefact that he was a connected person to thepromoter of the corporate debtor.

Newrule will givesurplus Sebi reservesto CentreHowever, this does not include the IDBIBank's building purchase, for which theregulator shelled out nearly ~1,000 crore. Anemail sent to Sebi remained unanswered.

Access to capital reserves from Sebiand others has been a long-pendingdemand of the government, which gainedmomentum when the Comptroller and

Auditor General of India recommendedthe Centre to do so in its 2017 report.

According to the CAG report, 14 regula-tors and autonomous bodies together holdsurplus cash of ~6,064 crore as of March2017. These funds are generated throughfees charged by these bodies, unspentgrants received from the government, orBudget surpluses. Surplus funds, which getaccumulated over a period of time, providefinancial flexibility to these autonomousorganisations.

Typically, these funds are used forcapacity building, developing infrastruc-ture, and expansion of the organisation. Onmany occasions in the past, the Centre haseyed these funds to shore up its resources,only to face resistance from them.

"In the past, regulatory bodies, includingSebi, have been reluctant to share their sur-plus revenue with the government. As thelegal provisions around such transfers arenot clear, the government requests havegot lost in consultations. Recently, afterextensive discussion with the regulators,ministries and other parties involved, theissue is set to see closure," said the source.

The matter has come at a time whenthe Reserve Bank of India (RBI) is contest-ing the government demand of giving awaythe capital reserve of ~3.6 trillion. The gov-ernment has even appointed an expertcommittee to decide the central bank's cap-ital requirement, which would give clarityon dividend flows to the government.

At present, the RBI is the only regulatorthat transfers its surplus to the Centre atthe end of its financial year, but the gov-ernment is now demanding more.

The Centre has been facing constraintson the fiscal front on account of dwin-dling collections from both direct andindirect taxes.

The issue of retention of surplus fundswas first highlighted in 2008 by the CAG.

In 2009, the finance ministry proposedto open accounts in the non-interest bear-ing sections of the public account of Indiato move these funds. These accounts werefinally opened in 2013-14. However, nofunds have been deposited in it so far.

Two-wheeler salesskid on rural distressLow volumes are an indicator of poor ruralsentiments, wrote Soumya Kanti Ghosh,group chief economic adviser at State Bankof India's Ecowrap 21 January. "There is asignificant decline in sales and registrationof two-wheelers, which further suggestsrural sentiments are quite low in the pastseveral months due to falling rural demandled by low farm income," said Ghosh.

The overall registration of automobiles,including passenger vehicles, heavy andlight goods vehicles and two-wheelers,dropped 21.8 per cent in December com-pared to the previous month.

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Banks with less provisioning wouldprefer to exit loans before it slips further

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CMD, NHPC delivers keynote address during ‘16th Annual Conference on Hydro power in India’Balraj Joshi, CMD, NHPC, India’s premier hydropower company deliv-

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J&K Bank Chairman inaugurates one-of-a-kind digital banking lobby

Chairman and CEO J&K Bank, Parvez Ahmed inaugurated a one-of-a-kind digital banking lobby- the Apex Digital Lobby in the corporate

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ITEC Programme organized by HUDCO’s HSMI

Six Week Training on “Planning & Management of Sustainable UrbanInfrastructure”, under ITEC Programme organized by HUDCO’s HSMI.

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Team Barodians participate in Tata Mumbai Marathon 2019

Senior management from Bank of Baroda, one of India’s largest andmost trusted public sector banks, geared up and joined in the 16th

edition of the prestigious Tata Mumbai Marathon 2019 held on 20thJanuary, 2019. Bank of Baroda participated in TMM 2019 through anNGO – Shrimad Rajchandra Love and Care (SRLC), the highest fundrais-ing NGO for the last 8 years. P.S. Jayakumar - MD & CEO, Bank of Barodasaid, “Year after year, the Mumbai marathon celebrates the indomitablespirit of the City by putting together a stellar line up of athletes, seniorcitizens and members from the corporate world. We at Bank of Barodaare extremely thankful to the organizers of this event that gives us a plat-form to engage as employees, bond as a team and off course, createhealth awareness.” Amongst other participants from the Bank wereExecutive Directors – Smt. Papia Sengupta and Shri S L Jain, GeneralManagers, other Top Executives and staff members, that totaled 100 plusin numbers.

NMDC restarts production from its Sponge Iron Unit

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