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Published on: March 22, 2021, 5:58 a.m.
Gemini Edibles' route to consolidation
  • GEF’s state-of-the-art plants can produce 2,800 tonnes per day

By Ritwik Sinha. Consulting Editor, Business India

‘Small is beautiful’ is what Pradeep Chowdhry will tell you, while explaining the evolution and journey of Gemini Edibles & Fats (GEF), Hyderabad (of which he is the MD), in the last 10 years or so. The obvious reference here is to the small, committed team which came together in 2010 to kickstart the firm. For Chowdhry (66), a veteran in the edible oil business in the country, his fling with this niche business is now well into its fourth decade. And, Gemini Edibles could well be the most engaging chapter of his illustrious career, signalling a befitting logical progression in the domain.  

In a country which meets most of its edible oil requirements through imports, the leading players in the nearly $22 billion game (estimated market share of 40 per cent) are mostly those who have robust international sourcing engagements. They have already built up a sizeable processing and packaging scale domestically and also have an expansive distribution network, especially in the pockets of their influence, selling their products (preferably) in all sizes.

With consumers in India equalling the tally from many European countries, their preference vis-a-vis edible oil consumables often varies with strong regional inclinations. And, therefore, the edible oil business here has a clutch of strong regional players, with just a couple of entities – Adani Wilmar, Ruchi Soya, Cargill or Emami – claiming to have a presence nationally, though they may not exactly be dominating the scene everywhere.

Gemini Edibles, a relatively new player, perfectly follows this regional prominence theory and has a score of interesting elements to its story. Leveraging on the experience of Chowdhry and his core team of professionals, Gemini Edibles has gradually snowballed into a strong regional player in the east coast of India. Its Freedom brand is a household name down south too. It mainly produces sunflower oil, which is the driving element of the business. The company has also expanded its portfolio. And though it had started its innings with a bulk trading stronghold, the consumer sales element has gradually taken over the show-stopper position.

The company has built a sizeable processing/production base in the east coast and is ready to shell out more capex in the coming years for newer units, as the demand mounts up. And it is clear that its priority will be to consolidate and expand its presence in its current stronghold markets and opt for a slow and steady approach in fanning out to unchartered territories, if the situation permits. And here comes the piece de resistance of the Gemini Edibles saga. The fast-growing company, which has reported brisk sales even in the ‘Corona’ year and a topline mark of Rs7,500 crore, is no longer owned by Chowdhry.

With the majority stake changing hands, it has now become a subsidiary of Golden Agri Resources (GAR), which, with an estimated revenue base in excess of $7 billion, is part of the Sinarmas group, a Singapore-based conglomerate, which is in control of the world’s second largest palm plantation fields. However, Chowdhry, even as a minority stakeholder in the entity, is comfortably placed in the saddle and is running the show.

Interesting origin

“Pradeep Chowdhry is a smart and astute businessman, who has a deep knowledge of the Indian edible oil business, thanks to his decades-long exposure,” observes BV Mehta, executive director, Solvent Extractors Association (SEA). “He understands the business in and out, which has made him a known business leader of the sector and helped him in his achievements.” That probably explains why, even within the short span of ten years, the company has become a regional force in its own right and the person who has made it possible continues to enjoy the pivotal position, even with a small stake of 12.5 per cent.

For the man from Dehra Dun who went on to become a chartered accountant, the exposure to the edible oil business happened almost accidentally. His second job in the mid-1980s was with Britannia’s finance department and, there, he had the opportunity to deal with ITC, which was interested in buying Britannia’s edible oil division. Though the deal did not work out, Chowdhry received a job offer in 1991 from ITC Agrovet, to be head of finance. “Within a year, I had moved to head their edible oil vertical,” he recalls. “There weren’t too many professionals in the edible oil business in India then. That’s where my learning curve started in terms of understanding the setting up of plants, sourcing oil from other countries, etc.”

The year 1996 turned out to be a defining point in his career as he decided to leave ITC Agrovert and float his own trading firm after the government allowed Open General Licence (OGL) for edible oil imports. “Oil imports had started happening in a big way because of growing demand and a shortage in domestic production. I was initially supported by Wilmar only for trading purposes. Around 2001, I formed a formal JV with Wilmar in association with two friends in Singapore. The company was called Acalmar Oils & Fats. Wilmar held 50 per cent stake, while the remaining was split among the three of us,” he says, while narrating the decisive elements of his entrepreneurial journey during the initial years.

Wilmar, during those days, was quite eager to firmly position itself in the edible oil business in India and it had made strategic moves by way of a JV with Adani in the west coast and with the Chowdhry-driven venture in the east coast. Two refineries were set up in the east coast – at Kakinada and Krishnapatnam – and Acalmar successfully floated a brand called Aadhar Oils.

Another twist in the tale came in 2008-09. In 2006, Wilmar merged with the Kuok Group’s oils, grains and palm oil plantation business, which made it the largest merchandiser and refiner of palm oil and the largest integrated agri-group in Asia. And it also redrew its operational strategy in several geographies. In India, it sought the merger of Acalmar with Adani Wilmar, while committing to retain the operational team of the former. “I refused the offer because we were small in size and we would have lost relevance. And I chose to exit in August 2009. We had an amicable settlement and sold out our stake to Adani Wilmar. That’s where the journey of Gemini started,” he recalls.

And, considering his track record, he again managed to get support from a bigger player – this time from Ruchi Soya (a leading edible oil player, now controlled by Patanjali). Chowdhry underlines that Ruchi Soya came on board purely as an investor with 50 per cent stake, while he himself held 40 per cent and the remaining 10 per cent went to one of his friends from the trade in Singapore. “Gemini edibles then primarily meant serving old wine in a new bottle,” he elaborates. “The biggest advantage was: distributors did not take us as a new company and we received phenomenal support in our region. We were quick in launching our Freedom brand in 2010 and then subsequently bought an oil refinery in Kakinada and set up a modest scale plant in Krishnapatnam.”

He adds that the company also made the right moves on other fronts. For instance, aligning with the sunflower oil market, which had just begun growing (its market has trebled between 2009 and today), eventually turned out to be a major plus. Even the choice of the brand name Freedom and catchy punch lines – freedom to eat, freedom from cholesterol, etc – built around it helped the company catch the fancy of a consumer class, which was increasingly veering towards healthy consumables.

In 2014, the growing firm received another major boost, when the Singapore Stock Exchange-enlisted palm oil major Golden Agri approached Chowdhry and proposed to buy a majority stake (nothing less than 75 per cent) in the company. When the company was formed, all the stakeholders cumulatively had put together a small capital of Rs75 crore. But the valuation of the firm in four years had trebled and Ruchi preferred to exit after booking profit. And, as part of the deal, Chowdhry also divested 20 per cent of his stake, while being allowed to continue to run the show. Another significant push to the company came in 2019, when PE firm Pretora invested in the company, picking up over 25 per cent stake at a book valuation of Rs1,920 crore. This created a new equity dynamic, while leaving scope for professional management.

“GAR, an entity listed on the Singapore Stock Exchange and one of the largest Indonesian palm oil-based edible oil and fats manufacturers, through its subsidiary, holds 56 per cent stake in Gemini, followed by private equity funding of 32 per cent stake. The majority of the board comprises members from investing companies, who are independent of the management and thus implement high standards of corporate governance,” observed India Ratings, the credit rating agency, in its outlook report on the company released in late 2019.  Chowdhry and his family hold 12.5 per cent stake in the company.

Creating a firm base

As industry analysts point out, the 2011-20 decade saw an increasing preference on the part of consumers for packaged edible oil and even new players like Gemini Edibles seem to have been quite aggressive in reaping the benefits of the changing tide. The steep jump in valuation – from Rs225 crore in 2014 (when GAR had bought 75 per cent stake) to over Rs1,900 crore in 2018 (when Pretora came on board) – is probably reflective of the market’s acknowledgement of Gemini Edibles’ formidable emergence on the scene and faith in its future. And this stems from its more than ordinary performance on several key parameters. 

Gemini’s sales volumes have been consistently growing since FY16 with a CAGR of 19.37 per cent over FY16 (440,836 metric tonnes)-FY20 (895,030 metric tonnes). Its revenue increased to Rs6,556 crore in 2019-20 (2018-19: Rs5,531 crore), backed by volume growth in both manufacturing and trading businesses coupled with an increase in realisations,” commented India Ratings’ latest report released in December last year, while upgrading the company’s long-term issuer rating to Ind A+ from Ind A.      

In precise terms, on the key performance parameters of revenue and sales, the company has come out with flying colours. Between 2015-16 and 2020-21, its revenue shot up by three times from Rs2,492 crore to about Rs7,500 crore, while the sales volume nearly doubled. There has been a slight dip in sales volume in 2020-21 owing to the Corona impact but that has not impacted its revenue growth, thanks to a price rally in edible oil prices. And one of the major satisfying factors for the company’s top brass is the increasing penetration of its consumer sales, as against bulk trading, which was the major sales driving channel when it started.

“When we started, about 90 per cent of the business was bulk trading.  And today, 50 per cent of our business is in branded sales, 20 per cent in sales of fats to industrial clients and 30 per cent is bulk trading. Here, I must point out that we have benefited from rapid change in the packaged edible oil sales trends, which have gone up from 35 per cent 10 years back to over 60 per cent now, in the country,” says Akshay Chowdhry (37), group VP and son of Pradeep Chowdhry, who is a key functionary in the company’s management today. 

Market observers confirm that the business tide has been favourable for edible oil companies in the packaged category and has resulted in the emergence of a select bunch of strong regional players. “Five years back, the combined share of the top five players in the branded oil business (Adani, Ruchi, Emami, Cargil and Marico) was close to 80 per cent. But, now, it has come down to 60 per cent, even as their respective businesses have grown. Some regional players have emerged strongly and cornered a sizeable chunk of the pie for themselves,” points out Ankur Bisen, senior VP, retail & consumer products, Technopack Advisors.

Aligning heavily with the sunflower oil category, which today accounts for nearly 90 per cent of Gemini Edibles’ branded sales, has probably turned out to be a master stroke, since this category has become popular only in the last decade. When the company started, the total consumption of sunflower edible oil in the country was not even one million tonnes; this has now shot up to 2.5 million tonnes (domestic production is only 100,000 tonnes and, therefore, 99 per cent of the country’s requirement is sourced from the Ukraine, Russia and Argentina). 

And like any other committed player determined to grow big, Gemini Edibles has also subtly added more categories since a multiproduct portfolio is a must in the business. “When we started, we realised that sunflower oil is quite popular in South India and so, we focussed on that. In 2015, we introduced rice bran oil for Telangana and AP, followed by mustard oil in 2016 and, then, groundnut oil. However, sunflower oil has been the clear winner for us. It is now also fetching a higher price. Its pre-Covid price was Rs100 per litre, which has now gone up to Rs160,” points out P Chandra Shekhara Reddy, vice-president, sales & marketing, GEF India, who has been associated with Pradeep Chowdhry since his ITC days. 

With brand Freedom as the flagship entity, Gemini Edibles’ portfolio includes Freedom Refined Sunflower Oil, Freedom Physically Refined Rice Bran Oil and Freedom Kachi Ghani Mustard Oil as well as Freedom Groundnut Oil. Furthermore, the company also has the brand for B2B sales called First Class (for Palmolein Oil and B Rite), while Magik and Fabula are the other institutional offerings for bakery fats. It sells its branded edible oils & fats to domestic and commercial consumers, primarily in Telangana, Andhra Pradesh, Karnataka, Odisha and Chhattisgarh. Its value-added fats cater to confectioneries, biscuits, chocolates, ice-cream and the ready-to-eat-food industry, with ITC, Britannia and Nestle being some of the top-notch clients for the company in this category.

For its growing operational scale and size, Gemini Edibles has subtly created and increased its processing capacity in the form of three port-based plants in Andhra Pradesh – one in Krishnapatnam (near Nellore) and two in Kakinada – and these units boast of high-grade certification like Food Safety System Certification 22000. “Our plants are truly state-of-the-art and we have brought in technology inputs from the best service providers. On a cumulative basis, our capacity is 80,000 tonnes per month or 2,800 tonnes per day,” says G Prathap, VP, operations, who has also been with Chowdhry senior for more than two decades. 

“We bought Kakinada refinery for Rs10 crore in the initial years and then spent Rs50 crore on its modernisation. We spent another Rs150 crore on the new plant in Krishnapatnam, followed by Rs350 crore investment in a fresh unit in Kakinada two years ago. Our combined expenditure in the setting up of plants has been to the tune of Rs600 crore,” Chowdhry elaborates. 

The company has carved a leadership position in most of its focussed geographies. Citing Nielsen’s state-wise market share report for Q4 2020 for healthy cooking oils, a senior company official underlines that the company has a commanding market share of 53 per cent in Andhra Pradesh, 31.5 per cent in Telangana, 51.5 per cent in Odisha and 4.8 per cent in Karnataka. And, in the sunflower oil category, Freedom is placed at number two nationally.

“In South India, we do see brands such as Freedom, Gold Winner & Sunrich being key parts of consumer choice. In the Andhra Pradesh and Telangana markets, Freedom and Gold Winner are the leading brands while, in Karnataka, the pack is led by Gold Winner with Sunrich, Freedom and Sunpure being the other prominent players. In Kerala, the leading players are: Sunrich, Gold Winner and Aditi, while the market in Tamil Nadu is dominated by Gold Winner,” says Akshay D’Souza, chief marketing officer, Bizom.

“The good thing about the strong regional players in the edible oil business is that they not only focus on urban centres in their stronghold pockets, but also semi-urban and rural pockets, by launching their products in smaller SKUs,” points out Bisen. And Gemini Edibles' officials also buttress this point by emphasising that their products are now available in all sorts of packaged sizes – ranging from 200 ml pouches to convenient two-litre PET bottles and 15 kg tins as well as 15 litre HDPE jars.    

Major priority  

“We are excited and confident about the continuing growth prospects of Gemini’s businesses in India. With the Indian economy on a strong growth trajectory and, with its demography favouring increasing consumption, the potential is immense, both in the quality edible oils space, as well as the consumer food space in general,” says Hemant Bhatt, chairman, Gemini & executive, management, Golden Agri-Resources. However, Chowdhry, the man in command, provides an elaborate response to pointers on the company’s future. And, here, the major priority is to further consolidate in existing markets. 

“The six states where we are present, have a population of 300 million-plus. It’s a huge population and constitutes 70 per cent of the sunflower oil market (AP, Telangana, Chhattisgarh, Karnataka, Kerala, and TN). Sunflower is one oil category which is sold 100 per cent in branded form and the market is still growing by 10 per cent for us. We are looking at further expansion in the east coast of India,” says Chowdhry, while adding that Gemini Edibles could also be established in two new state markets, one of which would be West Bengal and the other one in the north, in the next five years. 

He further emphasises on the east coast-centric expansion plans by pointing out that the company has identified two spots where it could set up new plant facilities in response to the mounting demand – one each in the east and the south. These units will be part of the company’s medium run plan and mainly greenfield propositions with each one of them estimated to cost in the range of Rs400-500 crore.

Furthermore, within its pocket of influence in the east coast, the company is particularly keen to have a better positioning in Karnataka. “Karnataka has turned out to be a difficult market; we had launched our products there five years ago. It has three to four strong brands and we are keen to enhance our current market share of around five per cent,” Chowdhry underlines.

Having crossed the Rs7,500 crore topline mark and with the continuing growth momentum in the packaged edible oil business, the obvious question for Gemini Edibles is the expected dateline for touching the Rs10,000 crore milestone. Pose this to Chowdhry and he has a different tack. “More than revenue level, my focus is the volume. Rs10,000 crore may happen this year, given the recent escalation in the oil prices across the category. But the critical element for my business is the sales growth which we have to consistently grow,” he asserts.

 Escalation in global edible oil prices, however, is one factor, which is expected to provide a major cushion to branded companies like Gemini Edibles in the coming years. There is clear evidence to suggest there has been a tremendous growth in the production of edible oil across various categories (in 1994, global palm oil production was nine million tonnes, which has now shot up to 80 million tonnes), which has kept prices in a narrow range, because of the not so robust corresponding demand. But in the last two years, the production cycle has plateaued. This has pushed up prices considerably, especially of the oil categories which are considered to be good for health (demand shooting up after Corona). 

The trend is expected to be sustained in the medium term. According to a report, the average import price of crude palm oil had increased to $873 per tonne in November – the same was quoting at $558 in May last year. Similarly, the import price of crude sunflower oil in November was $1,148 per tonne, a steep increase over the $720 level registered in March. “There has been an average increase of 40 per cent in edible oil prices globally in the last one year. And, while we are expecting prices to soften a bit in the coming months, the drop this year may not be to the tune of more than 10 per cent. The point is: there will be a new floor price which will be substantially higher than what it was in the pre-Corona days,” observes Mehta of SEA.

Meanwhile, branded edible oil companies, after reaching a sizeable scale, have often shown a tendency to build a supplementary non-oil edible portfolio or businesses with better margins (four to eight per cent is believed to be the average margin in the edible oil business). Is Gemini Edibles also planning to take this route in the medium run? “At the board level, we have discussed foraying into the pickles and spices space. But, somehow, we have stuck with our basic strength and rather opted to add more products to our edible oil portfolio,” responds Chandrasekhar. 

But even as the existing dynamics seem to be favouring Gemini Edibles’ modest growth in the medium run, Akshay Chowdhry highlights a series of issues which the company may have to grapple with in the near to medium run. “The real challenge for us would be when the branded market saturates, which may take another three to five years. Our immediate challenge though is to crack the Tamil Nadu and Karnataka markets. A much broader issue, however, would be to tweak our management style as we are attuned to running medium size business but we are becoming big now,” he points out. The company, which almost quietly created a mark on the east coast, seems to be ready with its checklist of challenges it has to deftly encounter to make its second decade’s journey more eventful.

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