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Detailed Analysis on #Manorama Industries - A niche player in the specialty chemicals space🍫🍫

CMP - ₹1,049

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1. Introduction
-Manorama Industries is engaged in manufacturing cocoa butter equivalents (CBE), butter products & other related by-products from the waste products like sal seeds, mango kernel etc
-Manorama is one of the pioneers in manufacturing specialty fats and butters from

tree-borne and plant-based seeds and nuts.
-They are one of the world’s largest producers and suppliers of specialty fats and butters made from exotic seeds and nuts such as mango kernels, sal seeds, and shea nuts, among others, to the premium food,

chocolate and confectionery segment as well as cosmetic conglomerates.

2. How the business started

3. Exit from the trading segment
-Earlier the company was into trading activities of agro based commodities such as rice, maize, soya etc. The company generated 71.78%, 60.24% and 57.22% of total revenue from operations from its trading activities for the year

ended March 31, 2018, 2017 and 2016 respectively. However they generally experienced loss on such trading activities. The company earlier harboured the ambition of becoming an agro-product trading house along with manufacturing.

However, the trading business could not yield results as envisaged by the management. As a part of the future business strategy, the company won’t pursue the trading business going forward.

4. Business segment contribution
-The company has 2 business segments:
(i) Chocolate, Food & Confectionery and (ii) Cosmetics.
-If we check the revenue mix of Manorama in FY22, 80% of the revenue came from chocolate, food &

confectionery segment & 20% came from the cosmetics segment.

5. Geographical Mix
-India: 62% in FY22 Outside India: 38% in FY22

6. Clientele
-The company has a strong clientele with the world’s leading confectionery & cosmetic brands, like Ferrero, Mondelez, The Body Shop, L’Oréal, Unigra, Mitsui, Walter Rau, etc., sourcing its products.

The Company has built relationships with large global manufacturers and many MNCs. Manorama Industries Limited has also entered into a supply agreement with The Body Shop International Ltd (UK) for supply of Mango butter. The Body Shop is one of the leading global cosmetics

brands which has pioneered social audits with extremely stringent criteria for sourcing of their products and selection of suppliers. The Company’s association with The Body Shop as a supplier speaks volumes about its efforts on the sustainability front. The Company is also

working with L’Oreal under the Solidarity Sourcing Programme that establishes long lasting fair trade partnerships, while creating value. The Company also supplies to many other cosmetics companies globally.

7. Capacity Expansion
-The company has newly set up state-of-the-art integrated manufacturing plant at Birkoni, near Raipur. This is an integrated plant with all facilities inplace-crushing, extraction to refining and fractionation. The commencement of the commercial operations

at this plant has propelled the company to become a leading Indian manufacturer in the global CBE and specialty fats and butter industry.

-The current capacities of 15,000 MTPA of refinery and fractionation are being expanded to nearly 40,000 MTPA, keeping in mind the burgeoning demand for CBE and its value-added products from the food and cosmetic industry.

8. Update on Capex

9. Focus on R&D
-Milcoa Innovation & Research Center is a high standard research laboratory equipped with cutting-edge technologies. The company’s R&D team is led by Dr. Krishnadath Bhaggan

A Ph.D holder, Dr. Krish joined Manorama on January 1, 2019. Together with the R&D team of the Company, he carried out various tests and increased the product portfolio of Manorama. With his support, the Company has been recognised for its R&D efforts by the Government of India’s

Department of Scientific & Industrial Research (DSIR), the sole authority for granting R&D certification to companies in India. With this, the company has now joined the elite club of 2,000 companies in India, who have the certification. Dr. Krish started his career at Unilever

in the Netherlands in 1995 and then worked for IOI Loders Croklaan BV in R&D and Innovation for more than 21 years. Bunge Loders Croklaan is a leading global producer and supplier of sustainable premium quality vegetable oils and fats for the food manufacturing industry.

He is an expert in oils and fats modification and has experience in developing specialty oils and fats for different food categories such as chocolate, confectionery, bakery, savory, culinary and others. With more than 25 years of experience in the oils & fats industry,

Dr. Bhaggan has worked in product and process development as well as application development serving different food categories. He is also inventor/co-inventor of more than 70 patents and author/co-author of more than 20 publications in the oils and fats genre.

10. Manufacturing Process Value Chain
Raw Materials such as Shea/Illipe go through the expeller & raw materials such as Sal/ mango and other exotic seeds go through the solvent extraction process to form crude butter and deoiled cake. Solvent extraction is basically a process of

separating impurities from a compound and getting a desired compound. Deoiled cake is the byproduct sold as cattle feed. Crude butter is an unrefined butter which means no chemicals have been used during extraction. Crude butter is then refined through a refinery process to

get fatty acids/gums and refined butter (NBD Butter). NBD Butter is Neutralized, Bleached & Deodorized fat extracted & processed by solvent extraction method. Fatty acids/gums are supplied to cosmetic companies as an ingredient for skincare products. Then the refined butter goes

through the fractionation process to get Stearin and olein. Olein again finds application in skin care products. Then Stearin (70-80%) and palm mid fraction (PMF) (20-30%) together go through a blending process to get the final product Cocoa Butter Equivalent (CBE).

11. Key Raw Materials

Sal seeds are abundantly available in India having the largest Sal forests in the world. 16% of Indian land is covered with Sal forests. As per a CARE report (2018), the estimated Sal seed production p.a. is 10 lakh MT, while the current utilization is estimated at 1.5 lakh MT.

Thus 8.5 lakh MT of Sal seeds are not picked from the forest and are wasted and left to rot. Similarly, the expected production and current utilization is given in the following table:

12. Key Product Portfolio

13. Significant scope for business growth
-FSSAI has allowed the use of 5% CBE in chocolates from January 2018 (from the earlier limit of 2.5%). This should lead to an increase in the consumption of CBE from 8,000 MTPA in 2018 to more than 20,000 MTPA by 2022.

In developed markets the permissible limit is 10% and if the same is allowed in India, it will open up significant scope for growth to MIL.

14. Indian Chocolate Industry
-The Indian chocolate industry has grown at a healthy rate over the last five years due to increased demand from the bakery, confectionery, and ice cream sectors, as well as rising consumer chocolate consumption from the country’s youth.

In the next five years (CY2021-CY2026), the CAGR is predicted to be 12.8%
-The Indian chocolate industry is showing its growing appetite for premium chocolates. Due to a low sugar content in the dark chocolate, there is an increasing demand for the premium

dark chocolate segment in India.
-The rising disposable income of the middle-class population in the country has affected the market space for the overall chocolate consumption

15. Confectionery Industry Review
-The global confectionery market is forecasted to witness a CAGR of 3.45% during the forecast period CY2019-CY2024. Chocolate is the most popular category dominating the market, owing to its increased consumption, globally. North America

and Europe are the market leaders, with Asia-Pacific and the Middle East being a prospective market
-Demand for healthier confectionery items: Low-calorie products, such as sugar-free confectionery, are expected to be the driving force behind the growth of the global

confectionery market.
-Competitive landscape: With huge global presence and wide distribution networks, a few key players hold significant share in the global confectionery market. The primary focus is on online distribution channels for their digital marketing and branding of

products to expand their geographic reach and increase their customer base.

16. Global Cosmetics Industry
The global cosmetics industry comprises skin care products, hair care products, deodorants & fragrances and makeup & colour cosmetics. It has been segmented on the basis of category, gender, distribution channel, and region.

The worldwide cosmetics market was valued at USD 380.2 billion in 2019 and is expected to register a CAGR of 5.3 % from 2021 to 2027, reaching USD 463.5 billion.

17. Cocoa Butter Equivalent (CBE) Market
-Cocoa Butter Equivalent (CBE) Market size was valued at USD 1450.46 Million in 2020 and is projected to reach USD 1805.62 Million by 2028, growing at a CAGR of 3.18% from 2021 to 2028.

-Cocoa butter is a key component in the production of chocolate. It’s hard, moldable, and brittle at room temperature but fully melts at oral temperature. Cocoa butter also has several drawbacks, such as a limited tolerance for milk fat, a lack of stability at high temperatures,

and a tendency to bloom. The cocoa butter equivalent, on the other hand, lowers the cost of chocolate production because it is less expensive than cocoa butter.
-The Cocoa Butter Equivalent (CBE) Market is primarily driven by the increase in demand for chocolates and the high

price of cocoa butter. The palm oil fraction product market, on the other hand, has seen significant expansion in recent years, owing to low prices, easy availability, and greater use in the cosmetics industry. Furthermore, the existence of branded confectionery makers, as well

as rising chocolate consumption in Europe, are encouraging market growth

18. Global specialty fats and oils market
-Specialty Fats and Oils Market Size in 2019 is estimated to be $19.17 Billion and is projected to grow with a CAGR of 6.4% during the period of 2020-2025.

19. Growth drivers of global specialty fats and oils
-Shortenings and specialty oils, such as cake oils, are increasingly used to enhance product performance and ensure higher consumer acceptance. These factors have accelerated the growth of this segment.

-The increasing gap between demand and supply of cocoa butter in the confectionery and chocolate industry is met by the production of specialty fats. Moreover, the rising awareness about the benefits of consumption of good fatty acids is a key driver for the growth of the

specialty fats and oils market.
-Asia-Pacific is one of the major markets for specialty fats and oils. The demand for specialty oils and fats in the region is likely to remain concentrated in China and India, owing to a large consumer base and application in the countries.

20. Cocoa Butter Equivalent
-Chocolate typically contains about 20 percent cocoa butter, so confectioners in Asia and Europe looking to save money can replace about a quarter of the cocoa butter with something else. The cocoa butter ratio is determined by chocolate demand.

When the demand for cocoa butter outstrips supply, manufacturers look for alternative ingredients to substitute their product in order to maintain the profit margins.

21. COMPETITORS
i. AAK Kamani
ii. Wilmar International.
iii. 3F Industries

-AAK Kamani
AAK Kamani Private Limited is one of the leading manufacturers in the field of specialty oils and fat products in India. Being FSSC 22000 certified, AAK Kamani specialize in the applications for Food, Pharma, Cosmetic and Nutraceutical industry. KAMANI products

include a whole range of specialty vegetable oils such as Hydrogenated vegetable fats, Margarines, Dairy Fat Replacers, Confectionery fats and Exotic butters. AAK Kamani majorly uses Shea nuts as their raw material to manufacture CBE.

-Wilmar International
Wilmar International Limited operates as an agribusiness company in the People’s Republic of China and internationally Wilmar specialty fats products include cocoa butter equivalents (CBE), cocoa butter replacers (CBR), cocoa butter substitutes (CBS),

specially formulated filling fats, creaming fats, ice-cream fats, milk fat replacers, shortenings, margarines, frying fats and many tailor-made fats to suit customers’ requirements widely used in chocolate coating fats, chocolates, sugar confectionery, bread, pastry, cakes,

cream filling (for candy, wafers, biscuits) and coffee whitener.

-3F Industries
3F has been in the Exotic Fats business since 1975 and since then 3F has been providing exotic fats from Shea nuts to the confectionery industry. 3F sources Shea nuts from farm gate in West African

countries of Benin, Ghana, Burkina Faso, Ivory Coast, Mali and Nigeria. It largely supplies to CBE manufacturers Japan, Malaysia, Italy, Holland, UK & the Scandinavian countries.

22. Manorama’s Strength
Globally, largely CBE is made from Shea nuts which are available mainly in the West African region. However, CBE can also be produced from other tree borne seeds like Sal, Mango, Kokum, Dhupa etc which are available in India.

The most suitable raw material i.e. Sal seeds are available only in India and that too in abundance. Manorama is the only player in India which is capable of manufacturing CBE from Sal seeds given its procurement strength. Hence, the global players will find it difficult to

compete with Manorama in the Indian context.

23. Barriers to entry
-Since the products of the company are ultimately used for human consumption, the Chocolate manufacturers or cosmetic manufacturers give a lot of weightage to the long term relationships compared to pricing.

Hence, the entry barrier to take away customers by reducing prices is very very high.
-Additionally, the by-products produced from processing of Sal / Mango / Kokum i.e. De-oiled Cake, Soap Grade Oil etc. also have a huge market in India which improves realisation far better

compared to any manufacturer in other developed countries thereby giving Manorama to be more price competitive in the international market compared to other producers.
-As per Indian regulations, CBE manufacturing is permitted only from Indian Sal, Mango, Kokum, with a high

import duty for Shea based fats. Any new player coming in the market has to go through at least 3-4 years waiting period for obtaining all customer and regulatory approvals to supply the material.

24. New Products
-The company is looking at entering the business-to-consumer (B2C) segment and are currently developing a range of new products for this.
-In the business-to-business (B2B) segment the company has developed a heat-tolerant CBE (CBE-HT) for tropical countries,

which improves thermo-stability of the chocolate product. Likewise, CBE without palm component has also been developed to replace conventional CBE for different chocolate products.

Through extensive customised solution provider and with co-development approach with customers and in-house research, Manorama Industries Limited has developed a number of customised products as given below:

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