Agro Tech to exit commodities trading

Acting in tandem with its parent company, ConAgra Inc's derisking strategy, Hyderabad-based Agro Tech Foods has decided to move away from commodities trading, while sparing some exposure to its institutional business.

Announcing the company's unaudited results for the quarter ended September 2007, (Q2FY08) here today, Utpal Sen Gupta, president & CEO, Agro Tech, said it was a planned and graduated move to do away with the low-margin business and shift focus to value-added differentiated products in the edible oils and foods portfolio.

"The earlier 50:50 split between our branded foods business and commodities trading business is expected to be in the ratio of 75:25 during this financial year. The disintegration exercise, which was started 12 months back, would be completed by December 2008. Our institutional business, however, will continue," he said.

The decision is significant in that margins from commodities trading are a meagre 1 to 2%. ConAgra, whose revenues stood at $28 billion while fully engaged in commodities trading around five years ago, became a $12-billion company last year after exiting the line of business.

"However, ConAgra is still maintaining profit margins with its sole focus on branded products. We intend to grow in similar lines and enhance shareholder value," Gupta added.

For the year ended March 31, 2007, net sales of Agro Tech's branded foods division stood at Rs 542.6 crore, while sourcing and institutional business posted sales to the tune of Rs 495.5 crore. Of this, institutional business contributed a little over Rs 100 crore.

In line with its new branded product-specific strategy, Agro Tech Foods is expanding its product basket. The company is currently test marketing  two products - Hunt's Snack Pack, the country's first shelf-stable pudding, and Swiss Miss, a chocolate drink - in Hyderabad.

"The two products, which were introduced on October 15, are currently being imported from the US and will remain as imported ones for some time. We intend to assess the response for these two products in Hyderabad, before going for a pan-India launch," he said, while not ruling out any possibility of manufacturing them here.

Agro Tech Foods reported a 27.58% growth in net profit for the quarter ended September 30, 2007, at Rs 3.7 crore, compared with Rs 2.9 crore during the corresponding quarter last year. Its total income stood at Rs 252.5 crore, as against Rs 281.3 crore, representing a decline of 10%.

Segment-wise, the company net sales of branded foods increased by 18% to Rs 161.9 crore for the quarter under review, compared with Rs 137.3 crore during the same period last year, while net sales of sourcing and institutional business plummeted 37.2% to Rs 90.6 crore, as against Rs 144.4 crore.

"The derisking of the business continued, which was reflected in the lower net sales of the sourcing and institutional business by 37%," Gupta said.