Branded Spices Market - avendus.com

Branded Spices Market

HOT & SPICY

August 2021

Hot & Spicy: INR 50,000 Cr Branded Spices Market Page

Branded spices – An introduction

Significant deal activities

Spices category in India – A deep dive

Large category

High growth

Strong margins

Value creation potential

Top 20 Indian food companies

Valuation drivers

The winning formula

Potential for expansion

Driver for product innovation

Emerging trends

The Avendus advantage

About the team

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Avendus is India’s #1 Bank for Spices and Seasoning, having closed 7 deals in the space

Regional market leadership & high

share of blended spices, resulting in

superior margin profile & cash flow

generation

Huge expansion potential for regional

spice players to build a multi-state or

national play

Growth will be further fueled by

product innovation driven by need

for convenience

Despite a current low

branded penetration …

form the with an

High value add and

strong brand stickiness

has led to robust

material margins

MATERIAL

MARGINS

Indian market is dominated

by regional brands, given

that the Indian palate

varies by region, unlike

other F&B categories

where global MNCs have

significant share

… there has been a

noticeable shift with

expected growth from

traditional home-ground

masalas to branded

spice mixes

CAGR

3


M&A PRIVATE EQUITY

Deal Value

₹ Cr

(EV)

₹ Cr

(EV)

₹ Cr

(Primary fundraise)

₹ Cr

(Primary fundraise)

Stake

Majority stake

acquisition followed

by merger with MTR

100% stake 25% stake Minority stake

Acquirer

Year

Mar 20211 May 2020 Jun 2020 Oct 2019

ITC and Orkla paid a premium to expand / add

scale in the attractive spices market

4

Source: VCCEdge.

Note: EV: Enterprise Value.


-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

0% 5% 10% 15% 20%

Ca

tego

ry s

ize

(IN

R C

r)2

Value growth (2019A-24E)

Pasta &

Noodles

Breakfast

cereals

Ready

meals

LARGE CATEGORY

HIGH GROWTH

STRONG MARGINS

Unorganised to Branded shift

Convenience focus → Higher

adoption of blended spices

Every-day usage

Centre of the plate

High value-added

Brand stickiness

Most attractive category with

high growth prospects &

potential to expand

Sweet biscuits,

snack bars

and fruit snacks

Savoury

snacks

Confectionery

Spices1

Baked food

Within spices,

Blended

spices are

higher margin

(40%+ gross

margin) &

higher growth

of 24% CAGR

LARGE, HIGH GROWTH

CATEGORIES

6

Source: Euromonitor.

Note: 1. Avendus estimates.

2. Category size for 2019.

Hot & Spicy: INR 50,000 Cr Branded Spices Market Page Large category High growth Strong margins

All figures in INR Cr

24%

76%

65%

35%

Organised spices: 16% CAGR

Blended spices: 25% CAGR

Straight spices: 12% CAGR

Total spices market

Organised spices market

Organised (%)

Straight Blended

2020

2025

Increased need

for convenience

High brand stickiness

leading to higher

margins

Region-specific

blends

Various options

available across

cuisines

Accelerated adoption due to COVID

Improved quality

Introduction of smaller (Re.1/ Rs.5) pack

sizes, multiple SKUs

Increased shelf life

7

Source: Avendus estimates; Primary research.


BURGER ITALIAN PIZZA

FISH ‘N’ CHIPS INDIAN THALI

Mustard | Ketchup | Mayo Tomato paste | Pizza sauce | Pesto sauce

Pepper | Sauces for sidesChilli & turmeric | Coriander | Whole spices |

Blended curry masalas

Sauces & dressings Sauces & dressings

Sauces & dressings Sauces & dressings

Bun

Chicken/Beef

Vegetables

Potato/Peas

Fish

Gram flour/oil

Rice/Papad

Vegetables

Wheat flour/oil

Ham/shrimp/salami

Vegetables

Pizza base

Cheese

8

Source: Avendus estimates.


MARKET STRUCTURE –

TOP 5 BRANDS AND RETAIL VALUE SHARE1

Juices

29% 20% 18% 8% 1%

~45%

Ready

Meals 28% 29% 19% 8% 6%

~45%

Noodles &

Pasta 38% 18% 7% 5% 3%

~45%

Savoury

snacks2 30% 7% 9% 7% 6%

~20%

Spices2 15% 10% 8% 6% 4%

0%

Coca Cola Parle PepsiCo Dabur ITC

ITC

Nestle ITC Chaudhary Capital Foods

Local Brands MNC Brands

Large category High growth Strong margins

MNC BRANDED

MARKET SHARECATEGORY

PepsiCo ITC

Regional/ local companies

dominate → Different cuisine

and taste palate in every region.

Even national players have to

modify their blended spices

recipe to suit the tastes of

different regions.

Specific spices have been

used for generations in

households → High brand-

stickiness for local brands

Global MNCs have a significant share in a few packaged F&B categories, whereas spices

comprise only of local Indian players due to its regional/local nature

9

Source: Euromonitor, Avendus research, news articles.

Note: 1. Latest available market share (CY20/FY21) except snacks (FY19).

2. Ready meals, noodles & pasta, Spices & snacks market share is calculated based on Avendus estimates.


FRESH HEALTHY CONVENIENT QUALITY

Preference for using

fresh ingredients

Healthier & more

nutritious than

restaurants

Through usage of

cooking aids such as

blended spices

Guaranteed hygiene/

cleanliness

Branded spices Blended spices

100g

INR 15/-

Home ground spices

100g

INR 20/-

100g

INR 60/-

Monthly HH1 Premium Paid INR 38 - 50 INR 90 - 112

Monthly Household Consumption 750g - 1kg 200 - 250g

Packaged dosa batter

1kg

INR 30/-

Local dosa batter

1kg

INR 75/-

Monthly HH1 Premium Paid INR 90 - 180

Monthly Household

Consumption 2 - 4 kgs

Packaged curd

1kg

INR 50/-

Home-made curd

1kg

INR 100/-

Monthly HH1 Premium Paid 200 - 250

Monthly Household

Consumption 4 - 5 kgs

10

Source: Euromonitor, News articles, Bigbasket, Avendus estimates; Primary research.

Note: 1. HH: Household.


Staples

(Rice/Oil/Pulses)

Large category High growth Strong margins

STRAIGHT SPICES BLENDED SPICES

300

140 - 150

90 - 100

450

260 - 270

130 - 140

33 - 35%

Material margin

~3.0x

Material multiplier

Chilli powder1 Chilli masala powder1

48 - 50%

Material margin

~3.5x

Material multiplier

Amounts in INR per kg Amounts in INR per kg

MRP Realisation Material cost

Blended spices command higher margins

• High value-add / impact on taste

• Regional preferences & tastes

• High brand stickiness & pricing power

Brand enters new households through straight

spices, brand recall through blended

Straight spices → adds volume but price

sensitive

Blended Spices → Stickiness & high margin

STRAIGHT SPICES MATERIAL MARGIN (%)

Dairy

(Polypack Milk)

Straight Spices

Biscuits

Savoury snacks

50:50 Blended &

straight spices

Blended spices

10-20%

15-20%

33-35%

35-40%

35-45%

40-45%

45-50%

11

Source: Avendus estimates.

Note: 1. Chilli powder and chicken masala have been used for illustrative purposes only.

Material cost = Raw material cost + Packing material cost.


WEST

Spicy but not very pungent

Major spice brands:

SOUTH

Hot, more roasted spices, high usage of coconut

NORTH

Hot & spicy; more cumin

EAST

Hot, coastal and sweet

Major spice brands:

Major spice brands:

Major spice brands:

The spices market in India is a highly regional and segmented category with the

top 5 players constituting only about 45% of the branded spice market

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Source: News articles, Bigbasket, Avendus primary research.


Source: Bloomberg; Note: The grade/type of commodities considered in the chart above are indicative.

Note: 1. Made for representation of commodity price movements with proportions 43:37:20 for chilli, turmeric & coriander (CTC).

RM: [ ].

• Consumer is more price sensitive; however stronger

brands can pass on raw material price increase to the

customers with minimum lag.

• Most large players procure in bulk during season time

(have cold storage infrastructure), to protect against

RM price volatility.

• Despite availability of same masala at various price

points across brands, there is high stickiness to

trusted brands, in line with other value-added

categories like snacks & biscuits.

• With large number of ingredients in the masala recipe,

players can retune the recipe products to maintain

pricing without impacting taste.

STRAIGHT SPICES BLENDED SPICES

Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20

64.1

CTC derived index1

Index prices in INR/kg

64.1

Steep drop in

coriander prices

81.5

104.4

All time high for all 3 commodities Players with

high blended share were able to maintain

margins; straight spices focused players had a

gross margin decline

42.0

Blended focused players were able to benefit

more vs. straight focused players, who had to

pass on price benefit to customers

78.4

84.6

Steep increase in

chilli prices

Large category High growth Strong margins13

Volume discounts and working

capital strength to purchase in

bulk during season time helps

larger players improve gross

margins by a couple of 100 bps.

Purchasing and pricing has been

more organized over the past few

years with the development of

mandis, spot markets and tech

enablement across the value chain.

Each of India’s top 5 spice companies are expected to grow over 6x in valuation over the next 10 years.


Revenue in INR Cr

#

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CATEGORY

Diversified (#1 in Noodles)

Diversified (#1 in HFD)

Biscuits

Biscuits

Diversified (incl. spices)

Tea/ Coffee

Savoury snacks

Chocolate confectionery

Savoury snacks

Savoury snacks

Spices

Confectionery

Spices

HFD

Chocolate Confectionery

Spices

Savoury snacks

Edible Oil, RTC

Tea

Spices

FY20

REVENUE

12,369

12,232

c. 12,000

11,600

10,969

9,637

c. 8,200

7,168

4,046

2,336

c. 2,000

1,846

1,651

1,488

1,473

c. 1,450

1,394

1,347

1,282

c. 1,200

COMPANY

SIGNIFICANT SHARE OF THE TOP 20

FOOD COMPANIES IN INDIA AND HIGHER

GROWTH VS MOST PLAYERS

15

Revenue share of 5 spices companies in

overall top 20 Food companies

We estimate it to increase to by FY30

Revenue – 15 spices companies are

estimated to cross

4 spices companies will become INR 5,000

Cr+ by FY30

MASSIVE OPPORTUNITY FOR VALUE

CREATION IN SPICES

Valuation of top 4 spices companies by

FY30

Growth in valuation to INR

combined for top 5 spices companies

Source: Avendus estimates & Annual Reports of Companies, Top 20 food companies list excludes staples (rice, atta, etc.), dairy (pure dairy plays),

alcohol/ carbonated beverages; Includes food revenue above for all players - Britannia, Tata includes some dairy/ tea/ salt; HFD: Health

Food Drink, RTC: Ready-to-cook products


• #1 or #2 player in the region

MARKET LEADERSHIP & BRAND DOMINANCE

• Faster than market; capture disproportionate

market share & keep competition at bay

HIGH GROWTH

• Results in brand stickiness & higher margin

profile → superior ROCE

HIGH PROPORTION OF BLENDED SPICES

• Provides ability to command better (i.e. lower)

channel margins & drive procurement efficiencies

LARGE SCALE

• Ability to leverage the brand and distribution

to add ‘In The Kitchen’ product offerings1

PLATFORM FOR FUTURE GROWTH

16

Note: 1. ’In-The-Kitchen’ Categories include staples, edible oil, tea, coffee, cooking aids such as sauces, cooking paste etc, noodles & pasta,

RTC/ RTE etc; There exist significant distribution synergies with these categories & potential usage of product know how


BRAND

MARKET

POSITION

BLENDED

SPICES (%)

MATERIAL

MARGINS (%)1

EBITDA

(%)1

REPORTED

REVENUE (INR CR)

PAN

INDIA#1 in India ✓✓✓ ~50%+ ~35%+

c. 2,000

(FY20)5

RE

GIO

NA

L

Strong brand

in North India✓✓✓ 51% 37%

c. 1,450

(FY20)5

#1 in Tamil

Nadu✓✓ 44% 12%

c. 1,200

(FY20)5

#2 in Tamil

Nadu✓✓ NA3 8%

900

(FY19)5

(Spices - c.80% rev)

#1 in Kerala ✓✓ 40% 11%4

881

(FY20)


#1 in

Karnataka✓✓✓ 48% 17%

833

(FY20)


#1 in Uttar

Pradesh✓ 29% 13%

738

(FY20)

#1 in West

Bengal✓✓ 35% 17%

592

(FY20)


Strong brand

in North India✓✓✓ 50% 8%

500

(FY20)

#1 in Gujarat ✓✓ 35% 7%411

(FY20)

2

MARKET

LEADERSHIP

HIGH

PROPORTION

OF BLENDED

SPICES

HIGHER

MARGINS

17

Source: Industry Research, Avendus estimates.

Note: 1. Material & EBITDA margins are for FY20 except for MDH (FY18), Sakthi (FY19) & Avendus estimates for Everest.

2. Even though it has state leadership, margins are low due to focus on more low utility products.

3. Material margin of spices portfolio not known.

4. EBITDA adjusted for non-recurring items.5. Avendus estimates.


Everest is the only player which has built Pan India presence in

this category. Most other players including MDH, Eastern,

Catch have expanded across few states but with limited

presence outside the home market

Regional players have Heritage (trusted brands built

over 30 years), resulting in a sticky and loyal

customer base

TOP 5 BLENDED SPICES IN EACH REGION

KERALA MAHARASHTRA NCR KARNATAKA TAMIL NADU

Chicken masala Garam masala Garam masala Sambhar masala Chicken masala

Meat masala Chaat masala Meat masala Chicken masala Sambhar masala

Sambhar masala Chicken masala Chicken masala Garam masala Rasam powder

Garam masala Pav bhaji masala Chana/chole masala Meat masala Curry masala

Fish masala Sambhar masala Chaat masala Puliogare masala Columbo chilli

• Pan India/multi state players (e.g., Everest, MDH, Eastern) have launched common spice blends in multiple states with

some modifications

• They have been successful in launching region-specific spice blends too

Additional opportunity to capture market for international cuisines modified for Indian taste palates

such as Chinese, Pasta masala, etc.

Huge opportunity for regional spice players to leverage the brand and

deepen consumer understanding → Build a PLATFORM and SCALE

Expand into multiple states and add ancillary categories (incl. RTC, cooking aids, condiments)

18

Source: Primary research, News articles.


10 YEARS BACK

10 YEARS

FORWARD

CONVENIENCE

+ Shift towards

branded spices

+ Variety /

Experimentation

+ Strong R&D →

newer formats

PRESENT DAY

• Home ground spices

• Unbranded straight spices

• Transparent packs

• Branded straight spices

• ‘All purpose’ blended spices e.g., Garam

Masala, Kitchen King Masala

• Limited variety of popular “Dish-specific”

blended spices such as Pav Bhaji, Chole &

Sambhar masala

• Gravies, RTC / RTE

• Recipe/cuisine specific spices such as pasta

masala, Mexican seasonings, piri piri masala &

Indian spices such as paneer tikka & biryani

masala

19

PRODUCT

HOURS

HOURS

HOURS

HOURS

TIME IN

KITCHEN

PER DAY


ADOPTION OF A NEW CATEGORY OF INTERNATIONAL/

WESTERN BLENDS (EG SCHEZWAN MASALA, PASTA

MASALA)

• Niche category with potential to grow at 18% in the

next 5 years driven by increased experimentation,

huge variety, accelerated push due to Covid

• Dominated by Nestle currently with its flagship Magic

Masala, several other new age/cooking aids players

have entered this segment such as Keya, Capital

Foods, etc.

• Conventional brands have not entered this segment

yet due to niche market & their traditional brand

identity but can consider entering with gaining

popularity

MULTIPLE VARIANTS UNDER BLENDED MASALA:

EVERY URBAN HOUSEHOLD HAS 15+ MASALAS IN

THE KITCHEN, WILL INCREASE AT LEAST THREE-FOLD

• Introduction of ‘Dish-specific Blended Masala’ such as

Chole Masala, Rajma Masala, Jodhpuri Kachori

Masala, driven by convenience and achieving

restaurant like taste with significant potential for

increased adoption in future

• Spices companies have introduced numerous options

to cater to a host of “local cuisines” for every region

STRATIFICATION OF THE SPICES MARKET: GOURMET

SPICES TO MASS, CATERING TO VARIOUS TARGET

GROUPS

• Increasing trend of gourmet spice mixes with better

quality & packaging to cater to the demand for high

end/urban consumers (top 3-5% of the households)

• With rising health consciousness, organic spices has

also been gaining some traction in India

INCREASED DEMAND FOR CONVENIENCE BASED

PRODUCTS: WET SPICES - GRAVIES, CURIES, READY

TO COOK (RTC), READY TO EAT (RTE)

• Woman workforce participation has led to decline in

time spent in the kitchen → higher demand for RTC

across different formats such as gravies, dry cooking

aids, etc.

• Dry RTC/spices provides consumers the flexibility to

create their own recipe, while keeping the core taste

intact

• Innovation in RTC space in the form of dry gravies &

sauces through spray dried technology

20


deals worth in value since 2007

closures of value:

Boat, Eastern Condiments, Delhivery, Eurokids, VKL Seasonings, Ujjivan, Metropolis, Mankind, TCNS Clothing Co. (“W”)

Member dedicated team with more that years of collective IB experience

Food & Beverages | Services | Apparel | Personal Care | Consumer Durable

CONSUMER GOODS & SERVICES / RETAIL

Third Party Logistics | Multi-modal Transportation | Freight Mgmt. | Facilities Mgmt. | Security/Cash/Allied services

LOGISTICS

Preschool / K-12 | Higher Education | Vocational Training

EDUCATION

Publishing | TV Broadcasting & Production

MEDIA

22

Note: CFB (Consumer, Financial Services & Business Services) Vertical which is one of the 6 Investment Banking Verticals within Avendus.


Has invested in

Advisor to the Company &

Existing Shareholders

Jan 2021

Has acquired



Sep 2020

Has invested in

Advisor to the

Company

Dec 2019

Has acquired



Sep 2019

Has acquired majority stake



Sep 2019

Has invested in

Advisor to the

Company

Jan 2019

Has acquired

Advisor to

Zydus Wellness

Jan 2019




Jul 2019

Has invested in

Advisor to the

Company

Dec 2018

Have invested in

Advisor to the

Company

Dec 2018

Has invested in

Advisor to the

Company

Jul 2018

Have invested in

Advisor to the

Company

Jun 2018

Has invested in

Advisor to the

Company

Jul 2017

Has invested in



Aug 2016

Have invested in

Advisor to the

Company

Jul 2016

Have invested in

Advisor to the

Company

Jul 2016

Has acquired

Advisor to

Jabong

Jul 2016

Has invested in

Advisor to the

Company

Mar 2019

23


Has acquired

Advisor to the company and

existing shareholders

Sep 2020

A leading fresh meat company

Ongoing

Has invested in

₹ Advisor to

Sapphire Foods

Dec 2018

Have invested in

₹ ₹ Advisor to

Swiggy

Dec 2018 | Jun 2018


₹Advisor to the company and


Jul 2019

Has invested in

₹Advisor to

Raw Pressery

Jan 2019

Has acquired

₹ Advisor to

Zydus Wellness

Jan 2019

Has Acquired

Advisor to

Kancor

Nov 2014

Has invested in

Advisor to

Nilon’s

Jun 2014

Have invested in

Advisor to company &


May 2014

Have invested in

₹Advisor to

VKL

April 2013

Has invested in

Advisor to

Blue Foods

Dec 2011

Has acquired assets of

₹Advisor to the

VKL

October 2011

Has acquired 26% stake in

Advisor to

Eastern

Jul 2010

Highlighted deals

in spices &

seasonings

Closed 7 deals in the Spices & Seasonings segment; Strong relationships & deep

understanding of the industry + value drivers

24


Executive Director, Co-head CFB

[email protected]

• 15+ years of experience in executing Investment

Banking transactions

• Worked with Accenture Management consulting prior

to Avendus

• MBA from S.P Jain Institute of Management Research

& C.A.

Executive Director, Co-head CFB

[email protected]



• Worked with Rothschild prior to Avendus

• MBA from IIM Calcutta

Vice President, CFB

[email protected]



• Worked with MAPE Advisory, J.P. Morgan and Lehman

Brothers prior to Avendus

• MBA from IIM Indore

Vice President, CFB

[email protected]



• Worked with Kotak Mahindra, Barclays & Lehman

Brothers prior to Avendus

• MBA from ISB

25

Note: CFB (Consumer, Financial Services & Business Services) Vertical which is one of the 6 Investment Banking Verticals within Avendus.


This document is being furnished to you by Avendus Capital Private Limited for itself and its affiliates strictly on a confidential

basis. The document is for informational purposes only and should not be regarded as an offer to sell, or offer for

subscription, or as a solicitation of an offer to buy the securities or other investments mentioned in it. This information p rofile

has been provided to its recipient upon the express understanding that the information contained herein, or made available

in connection with any further investigation, is strictly confidential and is intended for the exclusive use of its recipient . It shall

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investment, or a solicitation for any product or service. The information herein is subject to change without notice. Avendus

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