Funding requirements and growth opportunities

MUKESH PAUL
Deal Origination Services
Information provided may assist in understanding the company, however, no claims are made for accuracy of the information and client is advised to conduct its own due diligence before making any investment decision

Content
Products & Markets Financials & outlook Business strategy

Conclusion

LAKSHMI GROUP AT A GLANCE

An emerging leader in food and energy
Founded in 1981 One of the largest producer of non basmati rice in the world 1.35 million MT per annum capacity of paddy processing Storage capacity of 300000 MT Own logistics setup with 50 running trucks North America

Operations across the complete value chain

Sales (2010): INR 11.676 billion ( $240 mn approx)

Middle east

Global Headquarters

Listed on BSE and NSE Committed to responsibility Employees: financial, environmental and social

449 (Year end Sep-2010)

Subsidiary: Punjab green field energy limited Associated company: Victor foods limited

Content
Introduction

Financials & outlook

Business strategy Conclusion

Products and markets

14000

Domestic
INR million

Share of different products in total sales

Oil 2% Power 6% Paddy Trading 6%

12000 10000 8000 6000 4000 2000 0 2007 2008 2009

Exports

INR 11,676.00 million

Rice 85%
Sales 2010

2010

Rice sales- domestic and exports

Essentially a rice producing company with majority of sales in the domestic market with growing exports Food corporation of India is the single largest customer accounting for more than 60% of total sales Oil, power and paddy forms other sources of revenue for the company All other revenue sources are integrated with the rice output as the waste from rice milling is used as a raw material for producing other products

Products and markets

Global paddy production 697.6 million MT in year 2010 Indian paddy production 80.41 million MT in year 2010 Indian market fragmented with many small inefficient players The slice in red in the adjoining pie chart is what Lakshmi consumes of total paddy production in India Lakshmi consumed 0.4063 million metric ton of paddy in 2010 Lakshmi is one of the largest in non basmati rice milling in the world

80.41 million metric ton

Indias paddy production year 2010

Products and markets

Excellent history of sales growth demonstrating procurement and milling capacity of the company in domestic rice market. However, sells more than 60% of its output to Food corporation of India Oh! Sales are moving sideways since after 2007 Company ventures into power sector in 2008 by utilising husk waste to convert into electricity And, wow! they have a growing exports segment (Pusa 1125 - essentially a form of basmati rice)
INR millions 14,000.00 12,000.00 10,000.00 8,000.00 6,000.00 4,000.00 2,000.00 2004 2005 2006 2007 2008 2009 2010

Wheat

Other Sales
Paddy Oil

Power

Turnover and contribution of each segment in total turnover

Content
Introduction Products & Markets

Business strategy Conclusion

Solid operating profit growth and strong investment in expansion

INR millions INR millions 2,500.00 2,000.00 1,500.00 1,000.00 500.00 30%
2298.03

2500 2000
1694.9

25% 20% 15% 10%

1500 1000

500
38.1 95.9

403.9

311.1

280.75

5% 0%

0
2004 2005 2006 2007 2008 2009 2010
2004 2005 2006 2007 2008 2009

2010

Operating Profit

CAPITAL EXPENDITURE

CAPEX as % of sales

Huge cash requirements as management got aggressive on expansion

INR millions
500 0 -500 -1000 -1500 -2000 800 600 400 200 0 2004 2005 2006 2007 2008 2009 2010

Free Cash Flow to Firm

INR millions
1200 1000

Net profit

-2500
-3000 -3500

2004 2005 2006 2007 2008 2009 2010

Earnings quality
Net profit > CFO Net profit < CFO
3.5 3 2.5 2 1.5 1 0.5 0 -0.5 -1 -1.5 5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 -500 2004 2005 2006 2007 2008 2009 2010

Is it aggressive accruals?

Excess of net income from operating cash flow to net income ratio

Aggregate Accruals
INR millions 4479.77 62%

70% 60% 50%

Accrual ratio

33% 32%

2862.25 40% 30% 21% 1068.63 10% 20% 10% 0% 2010

18% 714.8 264 -30.9 2004 2005 2006

1152.5

2007

2008

2009

Capital structure and liquidity

24.00 23.69

Debt burden on the rise as company uses debt for its expansion Current assets essentially being financed by long term loans Covers interest burden conveniently but things are deteriorating on the liquidity front

22.00 20.00 20.25

18.00
16.00 14.00 12.00 10.00 8.00 10.77 9.54 16.64

Interest coverage Debt equity Current ratio

5.86 2.66

7.06
6.00 4.00 2.00 4.49 3.91

6.37 3.99

0.54 0.68 0.66

0.90 0.86 0.93

2.68

2.27

1.19

2004 2005 2006 2007 2008 2009 2010

Liquidity and debt burden

Content
Introduction Products & Markets Financials & outlook

Conclusion

Competitive advantages
One of the largest players in the world in non basmati rice sector Excellent capacity to procure rice at competitive price from north Indian rice market Huge experience of the promoters in this sector ~30 years Controls less than 1 % of the total non basmati rice market in India, so there is huge potential for growth A very well integrated business model capturing maximum value right from rice milling to power generation from rice husk, rice bran edible oil and selling the de-oiled cake as cattle feed Huge capacity of rice milling in India with more than 1.35 million ton per annum Large number of small scale players exist in this sector, but no one matches Lakshmis scale

Exploring growth and managing risks

Key risk areas
Company exposed to significant risk of changes in government regulations in the procurement of rice and export of rice Climate and other factors impact on crop production Economic slowdown may impact export performance Competition in domestic market Rising expectations of customers

Companys plans to mitigate risks

Diversify into other agri-based products Diversify customer base by targeting retail customers, plans all-India launch of 32 varieties of branded rice Plans to have a very strong presence across the whole of Asia, Europe and U.S

Lack of storage shifted focus to PUSA 1125 basmati export and domestic sales
Expansion of storage capacity by 100000 sq. yards and logistics upto 100 trucks Owns a JV company in Dubai with a local partner to cater the middle east market, plans to develop storage capacity in Dubai Plans to modernize plant of 65 ton per hour capacity, to increase yield of rice per unit of paddy

Dependent on food corporation of Indias buying policies and limitations, especially warehousing capacity

Content
Introduction Products & Markets Financials & outlook Business strategy

Conclusion
The Company has developed excellent capabilities in procuring and milling paddy

It is in the process of developing strength across the value chain right from paddy procuring to waste ash used for brick manufacturing.
It is in the process of rediscovering itself from a company focused on supplying the wholesale market, to a company supplying the retail customers, enabling it to diversify its customer base and increasing its margins. It is in the process of developing infrastructure especially its logistics capabilities to grow further in its sector

For more such deals, contact Mukesh at mukeshpaul268@btinternet.com