Cargill India may acquire 57% stake in NK Proteins

Cargill India may acquire 57% stake in NK Proteins

Ahmedabad: Cargill India Pvt. Ltd, the Indian arm of the Minneapolis-based firm with worldwide sales of at least $105 billion ( 4.73 trillion), is close to acquiring a majority stake in Ahmedabad-based NK Proteins Pvt. Ltd (NKPL)—a closely held, family-owned edible oil company with revenue of at least 1,500 crore in 2009-10.

Cargill is looking at acquiring a 57% stake in NKPL— which owns edible oil brands such as Tirupati—for a valuation of at least 1,150 crore, according to a person with direct knowledge of the deal. At this valuation, Cargill will have to spend around 655 crore to buy the stake.

A senior NKPL official, who did not want to be identified, confirmed that talks are at a very advanced stage. He refused to divulge details as the deal is not finalized yet, but said there will be fresh infusion of equity.

“We do not completely refute or confirm this. Cargill India has a pan-India presence and we do keep looking forward for organic and inorganic growth," said Ishteyaque Amjad, director (corporate communications) at Cargill India. “However, as of now, this is mere speculation as we have not signed any agreement as we speak."

Acquisitions have been central to Cargill’s growth in India, having bought out its initial joint venture partner Parakh Foods Ltd in 2005. At the end of last year, Cargill India bought the Rath edible oil brand of Agro Tech Foods Ltd, a subsidiary of ConAgra Foods Inc.

While Cargill has grown in Gujarat and Maharashtra, it hasn’t made much headway elsewhere.

The latest deal will help Cargill India expand its presence in the country’s edible oil market, said Kavita Chacko, assistant vice-president (commodities) at Angel Broking Ltd.

“It will also enable Cargill to meet the future demand for edible oils," she said. “India’s per capita consumption of edible oils is growing at over 6% per annum and the country is the second largest importer of edible oils after China."

India’s share in oilseed production and edible oil consumption stood at 9%, according to 2009-10 estimates by the Central Organization for Oil Industry and Trade. The country is the second largest consumer of edible oils after China.

The country’s edible oil market is worth about $12.5 billion and 18-19 million tonnes, and is growing at 5-6%, according to the Solvent Extractors’ Association of India, which represents edible oil firms. The market for branded oil is 40,000 crore, according to the grouping.

Ernst and Young India Pvt. Ltd is the investment banker advising NKPL on the deal.

NKPL, with a focus on branded products, has got 400 tonnes per day (tpd) of its own capacity and 900 tpd that it leases. All of this is located in Gujarat, except for a 100 tpd leased plant in Maharashtra.

In addition to this, last year, the company acquired 400 tpd capacity of castor oil from Gujarat Ambuja Exports Ltd.

In a recent investor presentation, NKPL said it was the largest producer and marketeer of cottonseed oil in Gujarat with a 60% market share. The company was the largest exporter of castor oil from India in the first quarter of last year, having sold 50,000 tonnes overseas.

The company is likely to clock a turnover of 2,500 crore in the current fiscal, another senior official of NKPL said. NKPL aims to double this turnover in the next three years by setting up new refining capacities in West Bengal, Maharashtra and Tamil Nadu. It also aims to get into castor oil derivatives.

Founded in 1993, NKPL, led by chairman Nimish Patel and managing director Nilesh Patel, has interests in producing and marketing edible oil in the domestic market. The company sells cottonseed oil, groundnut oil, sunflower oil, corn oil, palm oil and soya bean oil under the brand name Tirupati.

Apart from this, NKPL also promotes brands such as Malaya and Sunpride.

NKPL also produces castorseed oil, which it sells in the domestic and overseas markets.

The company has a marketing network of 350 distributors and 800 wholesalers with a transport fleet of 100 tankers.

Traditionally, India has been a net importer of edible oils despite domestic production of oilseeds. “Around half of our domestic requirement for edible oil is being met via imports from Malaysia and Latin American countries like Brazil and Argentina," said Chacko of Angel Broking. “Our total edible oil consumption is estimated at around 18-19 million tonnes, of which almost half is being imported."

According to figures provided by the Solvent Extractors’ Association, India imported a record 9.24 million tonnes of edible oil worth 38,000 crore during the 2009-10 oil year, which runs from November to October.

Cargill started its India operations in 1987 and currently operates a number of businesses, including trading and marketing of refined oils, grain and oilseeds, sugar, cotton, and animal feed. It sells refined edible oil under the brand names Nature Fresh and Gemini in the Indian market. The firm’s global sales revenue in 2010 stood at $107.9 billion, down 6% from 2009, while net profit stood at $2.6 billion, down 22% from the previous year.

Cargill India expects a 15-20% growth in sales volume in its packaged oil business in the country, the Business Standard reported on 26 November, citing Siraj Chaudhry, chairman of the local unit. Edible oil constitutes about 60% of Cargill India’s business, or 2,500-3,500 crore per year, he said.