Capitalising on health

Aarati Krishnan

THE difficult times in the industry have forced large, listed companies to explore new opportunities within the sector.

The players have redirected their efforts to explore niche categories, adding value through better packaging and launching products of different price points.

Capitalising on the increased health consciousness of urban consumers, players in the branded oils market are positioning their premium products on the health plank. The high growth rates and price premium commanded by Marico Industries' `Good for the heart' Saffola kardi oil is indicative of this trend. Blended oils combining health benefits from two or three variants are also making an appearance. The bulk user market, comprising institutions, canteens and hotels, also appears to hold potential. Godrej Foods has a dedicated team of vendors supplying oil in 15-litre tins to institutional buyers, thus saving on promotional costs.

Since the value-addition offered by the branded players is limited, players have tried to deliver better value-for-money improved packaging. Tetra packs, Easy-to-pour sachets and taps on 15-litre containers are some of the packaging innovations being used by major players.

Investment outlook

Given the potential for weaning consumers away from loose oils, listed players in this market could continue to report substantial volume growth over the next few years. The recent alterations in duty structure are likely to reduce the threat of substitution by cheaper oils and aid volume growth. However, the scope for margin expansion is limited. Over the past year, domestic refiners derived substantial advantage from soft raw material prices on imported crude oils. After reducing maximum retail prices of the premium brands by 15-20 per cent, marketers of branded oils managed to retain some of the gains from soft raw material trends. With global agencies predicting a significant tightening of the global sunflower oil market over the second half of the oil year 2000-01, this advantage could diminish next year. Agro Tech Foods and Godrej Foods are currently recovering from losses in the previous years. Investments in these stocks can be avoided at present. The Marico Industries stock, currently trading at around 11 times the expected earnings for 2000-01, appears to hold potential for reasonable long-term capital appreciation due to the strong performance of its hair oils business.