Basmati rice producer and exporter Kohinoor Foods Ltd has recently signed an agreement with the US-based spice seller McCormick & Co to market Kohinoor brand basmati rice and ready-to-eat food products along with McCormick’s own products in India. The Indian markets require specialised marketing efforts, which will come only through such global experts, says Gurnam Arora, the Joint MD of Kohinoor Foods Ltd, in an interview with Dilip Kumar Jha. Edited excerpts:
What is the proposed structure of the SPV?
Kohinoor Foods Ltd (KFL) has entered into a joint venture with McCormick to market Kohinoor brand basmati rice, ready-to-eat (RTE) products and McCormick’s own proprietary products in India through a special purpose vehicle (SPV) i.e. Kohinoor Speciality Foods India (KSFI). McCormick will hold 85 per cent stake in the SPV while we will have 15 per cent. Overall investment in the new venture will be made by McCormick.
What is the synergy between the two partners?
KFL had originally been an exporter of rice. In fact, that is our core strength. However, over the years we have entered the distribution of rice locally as a logical extension and, in the process, changed the rice industry. There are a number of ‘firsts’ to our credit such as small consumer packs, nitrogen flushing, etc. Along with rice, we also forayed into RTE food products. Today, we feel the domestic market for both products requires expertise and technical refinement to take it to the next level. We felt that McCormick with its portfolio of over 100 products and expertise of operating in over 100 countries was ideally suited to take the businesses forward. McCormick has always been looking for a suitable vehicle in India and had been in discussions with us for quite some time now. McCormick is likely to raise the bar and KSFI is set to establish a benchmark for the food industry in India.
Does this mean KFL would transfer rice distribution activity to the new venture?
We are transferring only the manufacturing arm of the RTE and the distribution of rice domestically to the SPV on a “slump sale” basis. KFL would continue to own all its rice mills, production capabilities and all of its assets both in India and abroad. It would continue to own its subsidiaries as well as its stake in the joint venture in Dubai. The right to export rice and RTE is unfettered. Additionally, it will now have an exclusive arrangement to process/manufacture rice for the SPV. So it’s business as usual for KFL. For the “slump sale”, however, KFL will be paid a sum of Rs 315 crore in cash, more than twice of KFL’s current market capital. In addition, KFL will get 15 per cent of the equity in the SPV.
How will the company utilise the funds?
Primarily, it will help us reduce our debt and interest burden to close to Rs 30-35 crore, which would go directly in increasing the bottom line. Thus, the effect on the EPS will be substantial. Besides, the company will be free to focus on its core strength i.e. exports. We have already targeted several countries in West Asia for a major thrust and we expect the results in the coming season. Also, we are planning to strengthen our European operations through our wholly owned subsidiary in London, for which we have very ambitious plans, overseas listing being one.
When is this deal likely to be completed?
Everybody is working to ensure closure as early as possible, however, it could take as much as 3-4 months.
What about McCormick’s proprietary products? Will you export them?
McCormick will help KFL in identifying products, improving the quality of our existing products and generally adding products to enlarge our range. This will not only increase the volume of our sales, we are confident it will also increase the value i.e. the net realizations. It is thus a win-win situation for both of us.
