We Aim To Be A Billion-Dollar Company In The Next 5 Years
Tell us about the nature of basmati rice business.
We are in specialty rice, which is predominantly basmati rice. It is a product like champagne – it needs to be aged before it comes to consumers and it comes from a defined region. There has to be 12-18 months of ageing – good rice comes from ageing. And we carry a large inventory. We buy the crop once a year; store it; age it; process it and sell it. As a result, it’s a very healthy business. We already know the cogs (cost of goods sold) ahead of time. It gives a natural hedge to the business. It is pure stock management.
Why did you opt for NYSE listing?
Two-thirds of our revenues come from international markets and we look at ourselves as an international company. India does not have an investor base which looks at small and medium enterprises of our size. Indians are not very good investors. They are not wealth creators – they are only income generators. Indians do not make a mark as investors globally. We (Indians) are good as entrepreneurs. So we have chosen a market that understands food and agri. Rice is not a commodity. It is a specialty staple and not an ingredient. After getting listed on NYSE, we are satisfied with the valuation. It gives us great credibility to be listed on the New York Stock Exchange and it has already given us good dividends. What has changed after the listing is that we believe we have got into the next phase of growth; we have the right talent now. We are close to 400 people globally and have offices in California, London, Dubai, India and Malaysia. We have added significant and senior people after the listing.
Did you look for PE funding before the listing?
We spoke to a few private equity investors, but did it informally. However, we quickly realised that they do not understand the agriculture business. For them, agriculture means companies in the industrial input space. The investors looking at the SMEs in India are not on the horizon. It was obvious to me that the investor base does not lay in India. So without wasting any time, we decided to look abroad and go international. The food story and the agriculture story are two different stories altogether. Agri companies have EBITDA of 3-7 per cent and food companies have an EBITDA of 10-20 per cent. Specialty rice is categorically a packaged food story. But the investors have not recognised that. The food business is a long-term story, not a short-term one. It is a stable business; it is recession-free as people eat more at home when there is a slowdown. But the investor base in India is not looking at Indian food companies the way global investors are doing. There is no right valuation there.
Tell us about your growth and the milestones you have set.
Last year, we grew at 25.7 per cent. We have been growing at a CAGR of 20 per cent for the past four years. From 2012 to 2013, our EBITDA margin increased from 12.1 to 12.6 per cent. We had a growth of 30 per cent CAGR in our EBITDA over the past four years. We will become over-half-a-billion company in this financial year. Our long-term target is to be a billion dollar company in five years and have an EBITDA of $150 million.
You have recently entered the organic food space. How significant is that for the business?
We have already hired a team and you will see the products coming out by the end of this financial year. Organic is a high growth segment. It is a $57 billion market in the US and will double in the next 5-7 years. Internationally, people are getting conscious. We believe in the potential of high marginability in organic food. Thus, it is a natural extension for us. But the revenue guidance we have given this year does not include revenues from organic food.
How are the revenues spread around and how does India fit in your portfolio?
One-third of our sales were outside India when we got listed. Now it is about 60 per cent from the international market and 40 per cent from India. The Indian market is a robust market and private consumption will grow in the next 10 years to $1.5 billion. Population gets fatter before they get fitter. Our major market is the Middle East. The US brings in 2 per cent of our revenues. But the international market is all about the distribution story.
How does the sharp depreciation in rupee affect your business and dollar earnings, especially as you are listed on the NYSE?
We follow a hedge strategy. We only do plain vanilla forwards to sale deliverables. More than 95 per cent of our sales are in US dollars. At the end of the day, we are completely hedged. The currency movement has no effect on our P&L.
But why has the share price come down post listing?
There are a few reasons for that. For one, Indian management teams were not going out and talking to American investors. The US is just 2 per cent of the business and we are not a major player yet in that market. But all our investors want us to benchmark in the US market and give them more comfort. We are already in one supermarket in the US and will be going to more supermarkets in the next 6-8 months. We are in the process of hiring a management team in the US. Moreover, we have recently launched in the UK market. The US investors are waiting to see when the product comes in the country and they are able to buy it mainstream; they want to see the product on the shelf. We are now working to enter different stores there.
But you also snipped the issue price from $13 to $10 a share…
Initially, when we spoke to our bankers, the issue price range was $10. It was raised when the number of companies (investment firms) responded. We were working on our IPO at that time and the bankers raised the issue price and our expectations. But when we went on the road, people said we should take the issue price back and we lowered the price. So we ended up where we started.
About Amira Nature Foods
Founded in 1915, Amira has evolved into a leading global provider of packaged Indian specialty rice, with sales in over 40 countries today. Amira sells Basmati rice, premium long-grain rice grown only in certain regions of the Indian sub-continent, under their flagship Amira brand as well as under other third party brands. Amira sells its products primarily in emerging markets through a broad distribution network. Amira’s headquarters are in Dubai, United Arab Emirates, and it also has offices in India, Malaysia, Singapore, the United Kingdom, and the United States.