Increasing food consumption and the disposable incomes of Indian consumers are attracting greater private equity (PE) investments in India. In April, 2011, the food sector, especially Basmati rice processing firms, received PE investments worth $55 million. Food expenses, on an average, constitute about 30 per cent of the Indian consumer’s total expenses.
According to an Ernst & Young (E&Y) study, the Indian domestic food market is expected to grow by nearly 40 per cent and touch $258 billion by 2015. An extremely high growth was recorded in the Indian food industry between 2004 and 2008 --- from $141 billion to $181 billion.
International Finance Corporation (IFC), in first week of April, had announced its plans to invest $30 million through a mix of equity and debt in Haryana-based Dunar Foods, which is involved in procuring, processing and supplying basmati rice. Last week, Standard Chartered Private Equity invested $25 million in India's Bush Foods Overseas, which processes and sells Basmati rice. Mayank Rastogi, partner (private equity), E&Y said, “The emergence of Tier-1 and Tier-II cities will also present key opportunities for future growth, owing to rising incomes, increased awareness and limited availability of products in these markets. Incrementally, products such as Basmati have a significant export market and its growth among the Indian diaspora and the spread of Indian cuisine outside India provide further growth avenues for Basmati companies.
According to data from VCCedge, 15 deals coavering private equity and venture capital funds worth $285 million were recorded in 2011 in the food sector, compared with 11 deals worth $78 million in 2009 and 11 deals worth $123 million in 2008.
An 8 per cent rise in per capita disposable income over the last five years also led to an increase in per capita consumption expenditure on food by 20 per cent. E&Y data suggest a large part of the rise in income would be expenditure on food. Last year, private equity giant Blackstone invested about $63 million in Basmati exporter REI Agro to pick a minority stake. Rajesh Srivastava, chairman & managing director, Rabo Equity Advisors, said, “The $70-billion Indian food processing market is growing at double digits, with a few sectors growing at over 15 per cent per year. Basmati rice is growing at over 12 per cent per annum, owing to exports and, more importantly, domestic demand.”
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In 2009, Rabo Equity Advisors, the private equity arm of Rabo Bank, invested $10 million in LT Foods, a leading Indian exporter of Basmati rice cereals. Rabo Equity Advisors owns India Agri Business Fund Ltd, a fund with a committed capital of $100 million, with focus on investments in food& agriculture space in India.
Other major investments include the $49-million investment in Ruchi Soya and the $35-million investment in KS Oils Ltd by Siva Ventures.
Currently, as much as 70 per cent of food spending by the Indian consumer is on agricultural products and in this, about one-fourth is solely on grains and cereals. Srivastava said, “In general, higher income levels, lifestyle changes and other demographics are driving the growth of process foods which, coming on a small base, assures potential upsides.”