Sample  write-ups  
 Vidhi Specialty Food Ingredients   
Vol. No. : 19    Issue No. : 49                             Wednesday, May 12, 2021

Adds colour to foods

Strong exports with diversified global presence, trebling of capacity in next two year, improved capacity utilization and focus on value added products to drive growth going forward


Idea

Vidhi Specialty Food Ingredients

BSE Code

531717

BSE Group

B

NSE Code

VIDHIING

ISIN Demat

INE632C01026

Bloomberg

VSFI IN

Reuters

VIDH.NS

Par Value

Re 1

52-week High/Low

Rs 237/ Rs 56

Current Price

Rs 197 on BSE and Rs 197 on NSE (as on 12 May 2021)


Vidhi Specialty Food Ingredients (Formerly known as Vidhi Dyestuffs Manufacturing), is a leading manufacturer of Superior Synthetic and Natural Food Grade Colours used in Food & Beverage, Confectionary, Pharmaceuticals, Feeds, Cosmetics, Homecare, Personal Care, Inkjet Inks and Salt Free Colors.The company is the second largest food colour manufacturer in Asia and it products are being distributed and consumed in over 80 countries across 6 continents.

The manufacturing facilitieswith capacity of 3500 MT/annum located in Dhatav Village of Raigad District in the state of Maharashtra - India.The company is an ISO 9001:2000, ISO 22000:2005 and HACCP certified company. The manufacturing facilities have been audited and found satisfactory by the U.S. FDA. All products carry HALAL and Kosher certification. The company is steadfastly working towards adoptions of standards like CEDEX and GFSI compliance.

The company has a combination of highly experienced and dynamic force of qualified chemists dedicated towards partnering the efforts of discerning customers in developing superior colour solutions for their products. The company has a fully equipped & functional laboratory accredited by The Bureau of Indian Standards forms the core of Quality Control Department. Its technical team works closely with the end user, right from the stage of envisioning the product to commercial production and after sales support.

Stringent procedures and fail-safe methods of testing are adopted, right from the stage of sampling of all raw materials, in process checks at various stages of the reactions and thorough testing of all finished products is carried out by team of highly qualified and trained chemists.

Besides food colours the company is also engaged in sourcing and exporting high quality non food dyes as under Acid Dyes, Textile Dyes, Reactive Dyes, Basic Dyes, Pigments and other such items to provide a one stop solution to many of its customers by fulfilling their non food dye requirements also.

The aim of the company is to concentrate on 4 key factors - quality, timely shipment, technical backup and excellent after sales service, leading to complete customer satisfaction.

Wide range of food colour products

The company is a globally renowned player in the food colour industry and a leading manufacturer of Superior Synthetic and Natural Food Grade Colours including Synthetic Water Soluble Colours, Aluminum Lakes, FD&C Colours, FD&C lakes, D&C Colours, Blends, Co-blended Lakes & Co-blended Granules and Natural Colours. These are processed in tune with the set global quality parameters using best quality material which is sourced from reliable vendors. Its business is manufacturing of food colours as an ingredient for foodstuffs, pharmaceuticals, confectionery, pet foods, healthcare, dairy, soft drinks, cosmetic industries, etc. and trading of food colours and trading in chemicals.

Synthetic Water Soluble Colours: Full range of 14 water soluble colours available in Microfine Powder, Fine Plating Grade Powder & Granular Forms

FD&C Certified Water Soluble & Lakes: Full range of U.S. FDA Certified Colours in Microfine Powder, Fine Plating Grade Powder & Granular Forms & Lakes

Aluminum Lakes: Full range Of Aluminum Lakes used in Surface Coatings, Capsules, Dry Snacks Food Packaging Material etc.,

D&C Colours: Range of Certified D&C Dyes & Lakes for Drug & Cosmetic Applications

Blends: The company can develop and match any shade as per the customers specifications

Others: Co-blended Lakes & Granules

The Company is the third largest manufacturer of synthetic food grade dyes globally. Over the last 26 years, it has established strong relationships with global majors like Nestle, Mars, Pedigree and Sanofi among others.

The Company has unique in-house capabilities for the development and production of synthetic food grade colours backed by several decades of experience in the field. The Company efficiently caters to customers across the country and across the world. Approx 90% of goods manufactured by the Company were exported. The manufacturing capacity is elastic and is capable of meeting the expected sales growth for the next few years. The plants are modern, compliant with health, safety and environment norms, and the team is well trained to use the best manufacturing practices.

The company has built up on technical services, marketing capabilities and production in bulk quantities to face competition from domestic as well as global markets. In this way, the company enjoys a position of one of the leaders in food colour manufacturing Industry.

Diversified end-user base with marquee customers across industries

Food colours are ingredients that are added to food or beverage to enhance its appearance. Colours when added to food products imparts very bright and tempting effect. It improves the appearance of the product for consumption and consistency in the product appearance to influence the consumer to buy a product through visual perception. It enhances the visual appeal of a dish and introduces decorative colours to other foods. Colours of the food can influence the perceived flavor.

The food colour industry is highly regulated niche market with diversified end-user market. The colour solutions have varied applications in Food & Beverage, Confectionary and bakery, Pharmaceuticals, Feeds, Cosmetics, Homecare, Personal Care etc.

The Company has established strong relationships with global majors like Nestle, Mars, Pepsi, Kraft, Pfizer Kerry, Coca-Cola, Pedigree, Sanofi, ITC, Cipla, Cadila, Mondelez, Parle G, Rasna, Mala’s etc and many more MNCs across the globe.

Diversified geographical presence

The company products are being distributed and consumed in over 80 countries across 6 continents. Continent wise, North America contributed 30% of sales in 9MFY2021, South America 20%, Europe 19%, Asia 21%, Middle East 7% and Africa 4%.

The company meets all the specific regulatory requirements for each country and continent. It has continued to add new customers, while increasing wallet share in existing customers enhancing the growth for the years to come. Top 10 countries contribute 40% of the revenues and Top 10 customers contribute 41% of the revenues.

Planning huge capacity expansion of 3 times for next two years

The company has continuously expanded its capacity through Brownfield as well as Greenfield expansion over the years. The production capacity of the company has jumped from 35 tonnes/month in 1996 to 55 tonnes/month in 2000, 90 tonnes/month in 2005, 150 tonnes/month in 2011, 250 tonnes/month in 2015 and 325 tonnes/month in 2019. The company has also made progress in implementing planned key initiatives to better its performance and improve manufacturing efficiency and capacity utilization over the previous year.

The company is currently embarked on more than treble its capacity to about 1000 MT/month by 2023 in two phases. The additional capacity is created by setting up two new greenfield projects. As a part of phase I of expansion plans, the company is setting up 360 MT/month (300 tonnes/month of Synthetic Water Soluble Food Colours and 60 tonnes /month of Synthetic Foodgrade lakes) at Dahej SEZ, Gujarat. The capex is Rs 30 crore to be funded largely from internal accruals. The civil construction has already commenced and the commercial production is expected to begin in the next 12-15 months.

As a part of phase II of expansion plans, Arjun Foods, a wholly-owned subsidiary of Vidhi in Roha MIDC is planning to install 350 tonne /month capacity for manufacturing of new high margin products. The expansion site is 200 meters away from the current manufacturing site bringing operational synergies. Terms of reference from Maharashtra Pollution Control Board have been received. The expected time line is 12-18 months. The project capex stands at Rs 30 crore to be funded largely from internal accruals.

High entry barriers in the food colour industry

The food colour industry is highly regulated with multiple regulatory approvals required. Technical know-how with years of experience is needed for continuous development of new products & colours. Customer approval takes as long as 10 years. Average single product approval cycle for customers is between 4-5 years for the first set of orders. End users have internal specifications which are often more stringent than the regulations to which they adhere to.

The company has undertaken various approvals backed by an appropriate lab testing facility and among the very few USFDA approved manufacturers of food grade colours in India. It follows stringent quality control norms on batch wise before delivery to the customer. With strong controls and processes in place, the company has able to deliver quality products to customers. The high cost of change in vendor due to stringent norms & approval cycle enhances customer stickiness.

Healthy performance in Q3FY2021 and 9MFY2021

Vidhi Specialty Food Ingredients has recorded strong 47% growth in sales to Rs 79.28 crore in Q3FY21 compared to Q3FY20. The company operating margins declined 189 bps to 19.61% and thus the operating profit increased 34% to Rs 15.55 crore. Other income was nil in Q3FY2021 compared to Rs 0.08 crore in Q3FY2020. Interest cost declined 9% to Rs 0.60 crore. Depreciation eased 1% to Rs 0.70 crore. PBT surged 38% to Rs 14.25 crore. Effective rate of taxes moved up 107 bps to 26.46%. PAT reported surged 36% to Rs 8.40 crore.

For nine months ended December 2020, sales increased 6% to Rs 168.61 crore. The operating margins of the company eased 106 bps to 21.1%. The operating profits rose 1% to Rs 35.65 crore. Other income jumped 143% to Rs 1.02 crore. Interest cost was down 43% to Rs 1.15 crore. Depreciation rose 1% to Rs 2.13 crore. PBT moved up 5% to Rs 33.39 crore. Effective tax rate was up 127 bps to 26.03%. PAT reported has moved up 4% to Rs 24.70 crore in 9MFY2021.

Outlook

Colour is a key component to enhance the ultimate appetizing value and consumer acceptance towards foods and beverages. There is upsurge in demand for food colors from various end-use industries, including food & beverages, bakery & confectionery, dairy products, meat & poultry, and seafood. Synthetic food colours have been increasingly used than natural food colours by food manufacturers to attain certain properties such as low cost, improved appearance, high colour intensity, more colour stability, and uniformity.

Food colour market across the globe has been on a rise with more demand upsurge from the emerging markets and is expected to be higher than projected 6% CAGR. Every year incremental demand of Rs 1500 to Rs 1700 crore is expected to generate globally for Food colours.

The global food colour market is primarily driven by the increasing demand from beverage industry and bakery and confectionary. The high demand from flavored drinks, fruit juices and nutritional drinks drives the global food colour market. For commercial adoption, synthetic food colours are in high demand because of the high stability under light, cheap in cost and less microbial contamination. However, natural food colours are expensive in comparison to synthetic ones.

Due to trade conflicts erupted around the world, especially among China, the United States and Western Europe. Large chemical markets that remain accessible in this scenario could present opportunities for chemical Companies in India.

The structure of China’s chemical industry is changing due to stricter environmental norms, tighter financing and consolidation, which could present opportunities for India’s chemical Companies in certain value chains and segments, especially in the short term.

Coming on stream of additional capacity post expansion, maximization of capacity utilization post capacity expansion with multiple customer on board, continuous development of highly specialized niche products to enhance revenues and margins and penetrating the untapped markets as well as increasing the wallet share of existing customers to drive growth going forward. Further the lower share of trading business and backward integration are expected to improve earnings.

The outlook for the business is stable in current year in view of COVID-19 however, the Company continues to work on manufacturing and distribution expansion and strengthening of supply chain. The Company is confident to meet the challenges posed globally due to COVID with its strength in marketing network, its strategic planning, productivity improvement and cost reduction exercise.

As vaccination are happening at accelerated phase in European countries, USA and other developed countries and majority of the company’s revenue come from exports with North America, Europe and Middle East together account more than 55% of the revenue, the company is expected to see strong demand growth post completion of vaccination and normalcy in economy in second half of current calendar year. Further the topline is also expected to have the benefit of exchange benefit with Rupee depreciate against Euro etc.

Valuation

We expect the company to register consolidated EPS of Rs 7.7 for FY21E and Rs 9.5 for FY22E. The scrip is trading around Rs 197, which discounts the FY22 EPS by around 20.7 times.


Vidhi Specialty Food Ingredients: Consolidated Financials

 

1903 (12)#

2003 (12)

2103 (12P)

2203 (12P)

Income from Operations

228.35

224.62

253.27

298.85

OPM (%)

20.18

22.46

21.76

22.50

OP

46.07

50.45

55.12

67.24

Other Income

0.59

0.64

1.13

1.36

PBDIT

46.66

51.09

56.25

68.60

Interest (Net)

3.44

2.94

1.61

1.13

PBDT

43.23

48.15

54.64

67.47

Depreciation / Amortization

2.38

2.98

3.02

3.17

PBT before EO

40.85

45.17

51.62

64.30

EO

0.00

0.00

0.00

0.00

PBT After EO

40.85

45.17

51.62

64.30

Tax Expenses

11.79

11.25

13.43

16.72

PAT

29.06

33.92

38.19

47.58

MI

0.00

0.00

0.00

0.00

Profit/Loss of Associate Company

0.00

0.00

0.00

0.00

Net Profit

29.06

33.92

38.19

47.58

EPS *

5.8

6.8

7.7

9.5

* Annualized On current Equity of Rs 4.99 crore of face value of Re 1 each, Figures in Rs crore, # figures are on standalone basis, Source: Capitaline Corporate Database



Vidhi Specialty Food Ingredients: Consolidated Results

 

2012 (3)

1912 (3)

Var %

2012 (9)

1912 (9)

Var %

2003 (12)

1903 (12)#

Var %

Income from Operations

79.28

54.00

47

168.61

159.50

6

224.62

228.35

-2

OPM (%)

19.61

21.50

 

21.14

22.20

 

22.46

20.18

 

OP

15.55

11.61

34

35.65

35.41

1

50.45

46.07

10

Other Income

0.00

0.08

-

1.02

0.42

143

0.64

0.59

8

PBDIT

15.55

11.69

33

36.67

35.83

2

51.09

46.66

9

Interest (Net)

0.60

0.66

-9

1.15

2.02

-43

2.94

3.44

-15

PBDT

14.95

11.03

36

35.52

33.81

5

48.15

43.23

11

Depreciation / Amortization

0.70

0.71

-1

2.13

2.10

1

2.98

2.38

25

PBT before EO

14.25

10.32

38

33.39

31.71

5

45.17

40.85

11

EO

0.00

0.00

-

0.00

0.00

-

0.00

0.00

-

PBT After EO

14.25

10.32

38

33.39

31.71

5

45.17

40.85

11

Tax Expenses

3.77

2.62

44

8.69

7.85

11

11.25

11.79

-5

PAT

10.48

7.70

36

24.70

23.86

4

33.92

29.06

17

MI

0.00

0.00

-

0.00

0.00

-

0.00

0.00

-

Profit/Loss of Associate Company

0.00

0.00

-

0.00

0.00

-

0.00

0.00

-

Net Profit

10.48

7.70

36

24.70

23.86

4

33.92

29.06

17

EPS *

8.4

6.2

 

6.6

6.4

 

6.8

5.8

 

* Annualized On current Equity of Rs 4.99 crore of face value of Re 1 each, Figures in Rs crore,

# figures are on standalone basis

Source: Capitaline Corporate Database


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