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VADILAL INDUSTRIES
UNRATED (RS92, MCAP: RS697M / US$16M)
• One of the most renowned ice-cream brands in India: Vadilal is one of the most renowned ice cream brands in India
with a market share of more than 8% of the Rs25bn organized ice cream industry. It is the second largest player by
volume (31m litres sold in FY10) and the third largest by value. Vadilal’s ice cream business has been growing by 18%
CAGR over the past five years (Rs2bn of sales in FY10). The group has marketing rights across India, barring
Maharashtra and four southern states. It also has a presence in the processed foods segment through export of frozen
foods. Vadilal Industries is the manufacturing and supply chain arm, while marketing is handled by Vadilal
Enterprises.
• Front end in place…: The biggest challenge in the ice cream business is building the supply chain and distribution
network. Vadilal has over the years created one of the strongest cold chain networks of 32 C&F agents and 550
distributors. It currently distributes its products through 50000 retail outlets (a large number for a frozen food item
that needs refrigeration facilities) and 210 ice cream parlors under the brand Happinezz. Vadilal intends to increase its
network to 300 outlets. It would also derive growth via more launches in impulse purchase segments like yogurt.
• …and also end-logistics: Vadilal has manufacturing facilities in Gujarat and UP and has nearly doubled capacity to
325000 litres per day in the past two years. It Vadilal is also planning to add capacity in eastern India as proximity to
the market is critical to improve market share. Vadilal has in the past year spent Rs550m on capacity expansion and IT
enhancement.
• Ice cream – long-term high growth potential: Despite being sweet and frozen, which gels well for the Indian taste
buds, the organized ice cream industry is only worth Rs25bn. The biggest hurdle to growth is the lack of refrigeration
facilities at the retail end and load shedding. Given they have to incur high losses even if there is no power for a few
hours, retailers in many cities do not store ice cream, which has led to inefficient distribution. As power supply issues
get resolved across the country and front-end retail infrastructure improves, we expect multifold growth of the
category. Higher volumes would also imply better margins.
• Negative cash flows in the initial years: Given the low asset turns (4-5x), high working capital and low margins, ice
cream is a negative cash flow business in the initial years. Vadilal has been on an aggressive capex mode and hence
has a debt of Rs1bn on its books. However, cash flow tends to improve in the long run as margins improve. Improved
cold storage facilities and storage at the retail end would also boost the working capital cycle.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
VADILAL INDUSTRIES
UNRATED (RS92, MCAP: RS697M / US$16M)
• One of the most renowned ice-cream brands in India: Vadilal is one of the most renowned ice cream brands in India
with a market share of more than 8% of the Rs25bn organized ice cream industry. It is the second largest player by
volume (31m litres sold in FY10) and the third largest by value. Vadilal’s ice cream business has been growing by 18%
CAGR over the past five years (Rs2bn of sales in FY10). The group has marketing rights across India, barring
Maharashtra and four southern states. It also has a presence in the processed foods segment through export of frozen
foods. Vadilal Industries is the manufacturing and supply chain arm, while marketing is handled by Vadilal
Enterprises.
• Front end in place…: The biggest challenge in the ice cream business is building the supply chain and distribution
network. Vadilal has over the years created one of the strongest cold chain networks of 32 C&F agents and 550
distributors. It currently distributes its products through 50000 retail outlets (a large number for a frozen food item
that needs refrigeration facilities) and 210 ice cream parlors under the brand Happinezz. Vadilal intends to increase its
network to 300 outlets. It would also derive growth via more launches in impulse purchase segments like yogurt.
• …and also end-logistics: Vadilal has manufacturing facilities in Gujarat and UP and has nearly doubled capacity to
325000 litres per day in the past two years. It Vadilal is also planning to add capacity in eastern India as proximity to
the market is critical to improve market share. Vadilal has in the past year spent Rs550m on capacity expansion and IT
enhancement.
• Ice cream – long-term high growth potential: Despite being sweet and frozen, which gels well for the Indian taste
buds, the organized ice cream industry is only worth Rs25bn. The biggest hurdle to growth is the lack of refrigeration
facilities at the retail end and load shedding. Given they have to incur high losses even if there is no power for a few
hours, retailers in many cities do not store ice cream, which has led to inefficient distribution. As power supply issues
get resolved across the country and front-end retail infrastructure improves, we expect multifold growth of the
category. Higher volumes would also imply better margins.
• Negative cash flows in the initial years: Given the low asset turns (4-5x), high working capital and low margins, ice
cream is a negative cash flow business in the initial years. Vadilal has been on an aggressive capex mode and hence
has a debt of Rs1bn on its books. However, cash flow tends to improve in the long run as margins improve. Improved
cold storage facilities and storage at the retail end would also boost the working capital cycle.
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