Vadilal Industries is a play on India's consumption story - of a product where there is large under-penetration and huge unexplored potential. Vadilal Industries having a market share of roughly 20% in the branded category of this fast growing industry; rubs shoulders with Hindustan Unilever in this product category and is a recognisable and visible product and is available at a market cap of just Rs.87 crores Vadilal Industries is India's third largest Ice Cream manufacturer - the largest being Amul and Kwality Walls (Of Hindustan Unilever) occupying the No.2 position. Infact, Kwality Walls and Vadilal are neck to neck in terms of market share. The company has two manufacturing plants located at Pundhra (Gandhinagar) and Bareilley (UP). Both Pundhra and Bareilly plants are well equipped with the latest world-class manufacturing facilities. The plants have been awarded several quality benchmarks. The company also has a food processing division and currently caters to the domestic and export markets with products such as frozen vegetables and ready to eat snacks. In the last 5 years, the company's revenues have grown at a CAGR of 18%. Investment Rationale
There are few factors which make us bullish on the potential of Vadilal Industries :- Indian Ice Cream Market - India's Ice Cream market currently has a market size of roughly Rs.2500 crores and is growing at around 16-18%. Out of the Rs.2500 crores, organised players account for Rs.1500 crores and the balance Rs.1000 is accounted for by the small regional and unorganised players. The healthy growth rate of the market is what excites us and this growth rate may become higher in the event of power situation in the country becoming better. Per Capita Consumption of Ice Cream in India - The per capita consumption of Ice Cream in India is just 300 ml/ year. For some, it may just be a statistic - we however see this as a big opportunity in a largely unexplored market. To give you a comparison, per capita consumption of Ice Cream in countries like US and some in Europe is about 20-25 litres/ year. Even China, which is primarily a cold country, has per capita consumption of 3 litres/ year. Ok, leave aside US, Europe and China, for Pakistan the figure is 750 ml/ year. So, we are less than half of per capita consumption of Pakistan. The reason for such low per capita consumption in India is under penetration of the product. Ice Cream is a product which requires refrigeration and with many big cities in India (leave aside villages) not get enough power, there is not enough penetration of ice creams. There is thus a huge unexplored potential. Vadilal's Manufacturing Facilities and Supply Chain - The biggest challenge in the ice cream business is building the supply chain and distribution network. Vadilal has over the years created a strong cold chain networks of 32 C&F agents and 550 distributors. It currently distributes its products through 50000 retail outlets, which I believe is a large number for a frozen food item that needs refrigeration facilities. Vadilal also sells ice cream through 170 Ice Cream parlours under the brand Happinezz and intends to increase its network to 300 outlets. Vadilal has state of the art manufacturing facilities in Gujarat and UP and has nearly doubled capacity to 325000 litres per day in the past 2-3 years. The company is planning to add capacity in eastern India as proximity to the market is critical to improve market share. Concerns
There are a few concerns though -
As per the family settlement agreement, Vadilal Industries is not allowed to sell Ice Cream in Maharashtra and 4 Southern States. This would limit the growth potential of Vadilal. The promoters have two companies, namely Vadilal Industries and Vadilal Enterprises, involved in similar business. Vadilal Industries is the manufacturing and supply chain arm company and marketing is handled by Vadilal Enterprises. We believe it...
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