Orkla India Limited. (Neutral)

Highlights

Orkla India Limited (ORKLA) incorporate in 1996, is a multi-category Indian food company that offers 2 brands MTR and Eastern, which are crafted with authenticity and tradition, and are deeply rooted in the South Indian culinary heritage. Their offerings are diverse and cater to every meal occasion, from breakfast and lunch to dinner, snacks and beverages and desserts.

The key product categories they offer are Spices (comprising blended and pure spices), and Convenience Foods (comprising ready-to-cook (RTC), ready-to-eat (RTE) foods and Vermicelli, among others). With product portfolio of ~400 products, ORKLA sold ~2.3 mn units daily.

The company through its brands, MTR and Eastern, have a deep understanding of local flavours and a strong commitment to quality that has resulted in the current scale, particularly in the core markets of Karnataka, Kerala, Andhra Pradesh and Telangana. In these market ORKLA commands 31.2 pct/41 pct market share in packaged spices/blended packaged spices segment in Karnataka. 41.8 pct/44 pct market share in packaged spices/blended packaged spices segment in Kearal and 15.2 pct market share in packaged spices segment in Andhra Pradesh & Telangana.

ORKLA has wide distribution network that comprises of 834 distributors and 1,888 sub-distributors across 28 states and six union territories. They also have a strong presence across emerging channels, with associations with 42 modern trade retail chains and six e-commerce and quick commerce channels.

Out of the total proceeds of approximately Rs. 16,675 mn, ~Rs. 16,675 mn would go to the existing promoter selling shareholders and other selling shareholders of the company. As the company expects that listing of the Equity Shares will enhance their visibility and brand image and provide liquidity.

Key Highlights

• The Indian packaged food market was estimated at Rs 10,180 bn in FY24, growing at a CAGR of 10.8 pct vs. FY19 and it is projected to reach at Rs. 17,120 bn, registering CAGR of 11 pct. The high growth is driven by rising disposable incomes, urbanisation, lifestyle changes, nuclearisation, and a growing workforce, particularly among women.
• ORKLA multi-category product portfolio is manufactured across their owned manufacturing facilities in India as well as contract manufacturing facilities in India and in the UAE, Thailand and Malaysia. They have nine owned manufacturing facilities in India, with a total installed capacity of 182,270 TPA and they partnered with 18 contract manufacturers in India and 3 contract manufacturers outside India, ensuring sufficient contracted capacity to meet the demand for products in a capital efficient manner.
• The company is category market leader with the ability to build and scale household food brands through an in-depth understanding of local consumer tastes. Their market position is further built on deep understanding of local tastes and products tailored to suit regional preferences.
• MTR and Eastern, are the most widely distributed brands in Karnataka and Kerala for spices. Out of the universe of approximately 300,000 retail outlets selling blended spices in Karnataka and approximately 74,500 in Kerala, their brands have a presence in 67.5 pct and 70.4 pct of the outlets, respectively versus an industry average of 30-40 pct.
• ORKLA operate a capital-light model by primarily utilising leased warehouse facilities. This enables them to allocate resources more efficiently and focus on core business activities without owning and maintaining extensive physical infrastructure.
• ORKLA’s key strategies includes (i) Drive household penetration and usage of their products in core markets. (ii) Expand presence in international markets through a robust growth strategy (iii) Selectively expand product portfolio to strengthen and extend core offerings (iv) Drive operational efficiencies to improve margins and cash conversion (v) Continue to enhance capital efficiency (vi) Strategically acquire leading brands and businesses.
• Sales of the company has grown by 5 pct CAGR over FY23-25 and EBITDA and EBT grew by 16.2 pct CAGR and 27.2 pct CAGR over same period. During FY25 the sales of the company grew by 1.6 pct YoY to Rs. 23,947 mn. While EBITDA of the company grew by 16.2 pct YoY to Rs. 3,968 mn and EBITDA margin expanded by 210 bps bps YoY to 16.6 pct in FY25. During FY25, the company posted profit of Rs. 2,557 mn, which grew 13 pct YoY.

Key Risk

• The company might face regional concentration risk as 70 pct of the company’s sales comes from South India.
• A third-party owned and operated restaurant chain has the right to use the trade name MTR for its business operations and any negative publicity or quality issues associated with the restaurant chain may adversely affect ORKLA business.

Financial Performance

Valuation

Orkla India Limited (ORKLA) Dominated Southern India market with its strong brand MTR and Eastern. With its Extensive distribution infrastructure with deep regional network and wide global reach, Efficient, large-scale manufacturing with stringent quality control and a robust supply chain, ORKLA well placed to penetrate ready to eat / ready to cook market. At the upper end of the price of Rs. 730, the issue quotes PE of 31.7x on FY25E post issue annualized earnings. The issue appears to be fully priced.

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