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KLRF Ltd

Established flour milling business to ensure steady stream of revenues…

  • but less power means less flour

CRISIL Equities

Flour milling – steady state ahead KLRF has a roller flour mill with installed capacity of 74,000 TPA. The main products include atta (wheat flour), maida (refined flour) and sooji (semolina), which are supplied in bulk to bakeries, parotta makers, etc. The company’s flagship brand is “Kuthuvilakku”, a premium brand in specific parts of Tamil Nadu and Kerala. As wheat flour is a low margin business, it can cater to markets within 150 kms of the plant location, beyond which high transportation costs renders it uneconomical. There are about 35 roller flour mills in Tamil Nadu with a cumulative installed capacity of 1.68 million TPA.

Wheat flour milling - Industry snapshot

Statistics Estimated industry size

Estimated industrial production of flour milling products Market concentration

1,000 roller flour mills having capacity of around 20 Million TPA per annum) 12-14 Million TPA

  • 20% organised.

  • Balance wheat flour distributed through small chakki

(unorganised) players

Industry characteristics

Key market for roller mill products in Tamil Nadu and Kerala

Revenue drivers

Key competitors

  • Low value adding, volume-driven business

  • Addressable market for a flour mill remains concentrated

  • Cost of freight over distances longer than 200 km renders the product uncompetitive on pricing

  • Demand for a particular variety of wheat flour product varies according to local tastes

  • Limited entry barriers

  • Limited pricing power

  • Bakeries (for bread and biscuits)

  • Parotta makers

  • Hoteliers

  • Confectioneries

  • Steady market growth

  • End market of wheat flour is price elastic in rural southern markets

Other small and medium sized regional players

The demand for bread and biscuits is expected to grow at a CAGR of 10-15%, translating into growing demand for wheat flour. The company’s current capacity utilisation is 70% and can operate at a maximum utilisation of ~80%, as switching between products necessitates a pause in production. To improve utilisation rates, the company has identified institutional sales to FMCG players such as Parle and Britannia. However, KLRF may have to be content with lower margins in this segment as it will have no pricing control over the FMCG giants. We expect the flour milling business to grow at a two-year CAGR of 9% to Rs 889 mn in FY12. We anticipate the segment will have EBITDA margin of about 5.5-6%.

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