EID Parry (India) Ltd: All Sugars are not Same-2nd Part

EID parry was advised around 170 at this blog in Oct-2015 (Click here for earlier study). Its CMP is 300 but i feel major growth is yet to come. Today i invested more at 300 and I’ll be investing much more in days to come. Apart from one of India's largest and most efficient producer of Sugar, it is the holding company of Coromandel international with 62% shareholding. But EID is investing big in diversifying its business to overcome the cyclical nature of its Sugar business. In sugar,  due to its high quality and ethical standards,  it is the preferred supplier to FMCG giants like Coca cola, Pepsico etc.  it is getting 32% of sugar business from these biggies. Sugar business is at 1800 cr out of 2500 cr. Sugar sector is out of the woods as global supply glut is ending but main factor behind the revival is much needed Government policies and focus on Ethanol blending. I have covered its sugar and Ethanol business in my earlier post. So in this post I’ll try to cover some more details about its other businesses.

Its other businesses have huge growth prospectus and these are in Niche areas. It has big ethanol business which is growing fast (300 cr turnover, with Op margins more than 20%). In Bio Pesticides, (Turnover 100 cr) it is one the largest global producer of Neem based pesticides. There is growing demand for organic pesticides across globe. But the most interesting part is its Nutraceutical business under which it produces Algae based new age super foods-Spirulina, chlorella, Astaxanthin. EID is the only company in the world producing these 3 algae based super foods.

Spirulina: An Incredible Super food

Demand for Spirulina is growing fast globally as it provides amazing health benefits.  It  is an incredible  source of high quality protein, vitamins, antioxidants, and other nutrients. As one of the oldest life forms on Earth, the use of spirulina as a food source dates all the way back to 9th century.  It does not need fertile land for cultivation, grows very fast in just 20 days, needs lower energy and water. It produces more oxygen than trees per acre by consuming carbon dioxide (Photosynthesis). So it is incredibly environment friendly. It even beats eggs (which are a global benchmark for protein) in protein concentration as it contains 65-70% protein as compared to 50% of whole dried egg (not our normal shell egg). But Eggs still win the race here as Spirulina is very costly (around 20-30 times) so it shouldn’t be taken as source of protein but for other great nutrients. It is better to stick to other sources of protein like fish, eggs or other veg sources.

Consumption of Spirulina have shown amazing health benefits like lowering of Blood pressure, prevention and recovery from cancer, energy boost, weight reduction etc. It improves eyesight and reduces the effects of age-related eye disease. Even NASA is using it for their astronauts in space. Spirulina has an extraordinarily high antioxidant count, which may help to fight free radicals that enter the body. Some animal studies suggest that spirulina lowers blood sugar to a great extent. In some cases, results show that spirulina has outperformed some of the most popular diabetes drugs, including Metformin. According to some evidence, spirulina can be effective not only on animals but humans as well. One study had 25 patients with type 2 diabetes take two grams of spirulina per day for two months, which significantly reduced their blood sugar levels.

Spirulina was used to treat those suffering from radiation sickness after the 1986 Chernobyl disaster. Doctors found that radioactivity levels in children were reduced by 50 percent in 20 days of dosing them with five grams of spirulina a day.

Two USA Subsidiaries: Never factored in by Market

So far EID is getting around 86% from export market where there is stiff competition so it is just like another company. But it has now shifted focus to India and its organic Spirulina is available under Parry's brand at Amazon in India. The standalone turnover of this vertical is around 70 cr and with growing demand for healthy foods in India, i think this one can witness huge growth in India. EID has two subsidiaries in USA for its Nutraceutical business: Valensa International (Based in Florida, USA) and Alimtec SA. Valensa is into Astaxanthin based formulations for cardio, joint and Eye health with turnover of around 170 cr. Alimtec is basically a supplier of Astaxanthin to Valensa with turnover of around 5 cr. Valensa is not a small company but it can be another potent force. Its formulations are using Astaxanthin which is a rage in western world due to it being regarded as the most potent Antioxidant nature has offered. It is known to cure joint problems, such as rheumatoid arthritis, BP, liver diseases, heart , cancer. It improves athletic performance because it is 550 times stronger antioxidant power than vitamin E, and is 6,000 times more potent than vitamin C!!!

                                               Astaxanthin Farming

There was a thought behind the acquisition of Valensa by EID. Valensa is a potent force in algae based formulations in USA along with Cyanotech. Currently Valensa is the distributor of Parry’s organic Spirulina in USA. There is a growing tendency in Americans towards meat substitutes and Spirulina is one of the best source of high quality protein. I can’t remember any veg protein source except Spirulina containing all the essential amino acids (Types of proteins).

The only factor hindering the growth of Algae based food supplements like Spirulina is awareness of people about it. I haven’t met anybody who has ever heard about it. So here I feel the responsibility is on companies like EID Parry to carry on big brand promotion wave to make people aware about it. But worldwide demand for algae based products is growing big and fast and it is only the matter of time when this will catch the attention of India just like Cod liver oil. Although i feel that these algae based veg supplements will replace Fish oils (for Omega 3) as it is not logical to use massive amount of fish for minute supply of fish oil.

Also, algae super foods are not an easy product to master and produce in bulk quantities. The demands for nutraceutical purity and set standards of nutrients needs highly sophisticated technological expertise. That's why the growth of algae was slow even in USA due to these quality factors as products of so many producers were lacking quality. Acceptance of Spirulina produced by EID in USA points towards high technical prowess.

Further, EID is working on developing natural food colors from Algae like Spirulina. Demand for natural food color is growing fast amid concerns regarding the harmful effects caused by synthetic food colors. So any positive outcome in this area will pave the way for further growth.

Branded Sugar: India is waiting for it

Further there is not any established Sugar brand in India whereas we have super brands in other staples like Salt (Tata), Floor (Ashirwad), Rice (India Gate, Daawat), pulses (Tata Sampann) etc. So EID has ventured into this area and its Parry's sugar brand (sulphur free sugar) is growing fast. It is spending big on brand promotion these days. It has also launched Parry Amrit sugar brand last year in Chennai and Bangalore which is 100% natural cane sugar (just like Jaggery) with all the goodness of essential nutrients. As I have mentioned many times brand loyalty for life essential products like food staples are very strong as we usually don’t want to play with our health whereas brand loyalty for sensory foods like Soft drinks or Maggie is relatively weak as we always love to try something new.

Moreover with rise in income and awareness levels, Indians are also going after premium quality products whether it is food or fashion. People are ready to pay more for a premium and high quality product like Parag Milk Foods's organic same day fresh milk (Under Brand Pride of Cows) is selling at Rs. 85 a litre in select cities like Mumbai, Pune. The demand is very strong and Parag is now expanding its reach and entered Delhi and Surat. This shift towards premium branded products is going to get much bigger with rising income levels of rural India, GST creating level playing field for Organized and Unorganized sector, improvement in the infrastructure and logistics enabling companies to penetrate deeper into India. So if EID is able to create something in this field one can imagine the future scope of scale. EID has all the essentials to successfully create a brand out of sugar- strong Murugappa group, financial clout, experience in brand creation, absence of a branded product etc. So I think if planned properly sugar can turn into Gold.

Most of all, Its 62% holding in Coromandel International (after giving 30% holding company discount) is valued at 5000 cr which, in fact, is the current market value of EID Parry!! This means its standalone business (With NP of around 150 cr to 200 cr) is available free.

EID parry is lauded across the globe for their Farmer friendly practices and the management is ethically very strong. In 2011, there was a storm in Tamil Nadu which destroyed all the cane crop of nearby villages. Farmers were devastated but then EID did something unexpected and bought the entire crop at regular prices to save the poor farmers. This feat was something from other world.

I am sure EID can create a brand out of Sugar. Madhur sugar brand from Renuka sugar is here but the group is deep into debt.

Good buy at CMP of 300 and even greater buy at every fall.

(Views are personal and should not be taken as a recommendation for buying or selling a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing. I am not a certified Sebi Analyst and holding the shares discussed in this Post)