VIDHI SPECIALITY FOOD INGREDIENTS LTD

Current Market price at the time of suggestion-: 203Rs

Vidhi Speciality Food Ingredients is a completely debt free company engaged in the business of manufacturing & trading in synthetic food colours as well as trading chemicals. The company is the second largest food colour manufacturer in Asia and it products are being distributed and consumed in over 80 countries across 6 continents. 

Founded In 1996 By A Group Of Reputed Business Leaders, Each Having An Experience Of Over 30 Years In The Chemical Industry, Vidhi Specialty Food Ingredients Ltd. (VSFIL) is an ISO 9001:2008, ISO 22000:2005 & HACCP Certified Company with Manufacturing Facility Spread Over 20000 Sq. Meters near the City Of Mumbai. 

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VSFIL, Began humbly by producing 400 m.tons of synthetic food colours in the year 1996 which has now been upgraded to Aa total manufacturing capacity of over 3500 M. Tons a year hence making VSFIL the 2nd Largest Food Colour Manufacturing facility in asia. It is a leading manufacturer of Superior Synthetic and Natural Food Grade Colours used in Food & Beverage, Confectionary, Pharmaceuticals, Feeds, Cosmetics, Homecare, Personal Care, Inkjet Inks and Salt Free Colours.

VSFIL, was the first company in the field of manufacturing synthetic food colours in India to be awarded with a Quality management system standard i.e. ISO 9002 in the year of 2000.

VSFIL, was Inspected by the U.S. FDA Officials In the Year 2002 and found VSFIL Satisfactory. VSFIL, Also Enjoys The Management Of Food Hazard Analysis (HACCP) System For The Manufacture Of Synthetic Food Colours & Lakes.

Besides food colours the company is also engaged in sourcing and exporting high quality non food dyes as under Acid Dyes, Textile Dyes, Reactive Dyes, Basic Dyes, Pigments and other such items to provide a one stop solution to many of its customers by fulfilling their non food dye requirements also.

All of the company’s products carry HALAL and Kosher certification.

Why Food Colours???

• ✓Food colours are ingredients that are added to food or beverage to enhance its appearance .Colours when added to food products imparts very bright and tempting effect and it also Improves the appearance of the product for consumption
• ✓It helps by providing Consistency in the product appearance to influence the consumer to buy a product through visual perception
• ✓It also Enhances the visual appeal of a dish and introduces decorative colours to other foods
• ✓Colour of the food can influence the perceived flavor

Business Products & Certifications

Synthetic Water Soluble Colours: Full range of 14 water soluble colours available in Microfine Powder, Fine Plating Grade Powder & Granular Forms.

FD&C Colours: Full range of U.S. FDA Certified Colours in Microfine Powder, Fine Plating Grade Powder & Granular Forms & Lakes.

Aluminum Lakes: Full Range Of Aluminum Lakes Used In Surface Coatings, Capsules, Dry Snacks Food Packaging Material Etc., 

D&C Colours: Range of Certified D&C Dyes & Lakes for Drug & Cosmetic Applications. Company can develop and match any shade as per the customers specifications

Blends: Useful For Acquiring Any Desired Shade. Co-Blended Lakes & Granules. 

Brilliant Blue FCF (Blue 1) is a synthetic organic compound used primarily as a blue colorant for processed foods, medications, dietary supplements, and cosmetics. It is classified as a triarylmethane dye and is known under various names, such as FD&C Blue No. 1 or Acid Blue 9. It is denoted by E number E133 and has a color index of 42090. It has the appearance of a blue powder and is soluble in water and glycerol, with a maximum absorption at about 628 nanometers. It is one of the oldest FDA-approved colour additives and is generally considered nontoxic and safe.

Besides food colours the company is also engaged in sourcing and exporting high quality non food dyes as under

• Acid Dyes
• Textile Dyes
• Reactive Dyes
• Basic Dyes
• Pigments

As well as company manufactures all other such items to provide a one stop solution to many of our customers by fulfilling their non food dye requirements also.

Applications and Uses of the Synthetic Food Colours

Primary Food Water Soluble Colours are water soluble, and impart colouring to any product when dissolved . Further these colours are in accordance with the E.C. & JECFA Regulations & Approved for human consumption by WHO.

Blends of Water Soluble Food Colours are obtained from mixing different primary colours with one another . Thus Resultant colours are unique in colour property and provide a different feel to products.

Lake Food Colours are used where colouring is to be imparted by coating, these are basically Food Grade Pigments . Lake Colours are bright, consistent, and useful in industries like snack food, confectioneries, pharmaceuticals, cosmetics, inks, plastic, food containers etc.

Clients

Global Presence-:

The company products are being distributed and consumed in over 80 countries across 6 continents. Continent wise, North America contributed 30% of sales in 9MFY2021, South America 20%, Europe 19%, Asia 21%, Middle East 7% and Africa 4%.

The company meets all the specific regulatory requirements for each country and continent. It has continued to add new customers, while increasing wallet share in existing customers enhancing the growth for the years to come. Top 10 countries contribute 40% of the revenues and Top 10 customers contribute 41% of the revenues.

Capex

The company is currently embarked on more than treble its capacity to about 1000 MT/month by 2023 in two phases. The additional capacity is created by setting up two new greenfield projects. 

As a part of phase I of expansion plans, the company is setting up 360 MT/month (300 tonnes/month of Synthetic Water Soluble Food Colours and 60 tonnes /month of Synthetic Foodgrade lakes) at Dahej SEZ, Gujarat. The capex is Rs 30 crore to be funded largely from internal accruals. The civil construction has already commenced and the commercial production is expected to begin in the next 12-15 months.

As a part of phase II of expansion plans, Arjun Foods, a wholly-owned subsidiary of Vidhi in Roha MIDC is planning to install 350 tonne /month capacity for manufacturing of new high margin products. The expansion site is 200 meters away from the current manufacturing site bringing operational synergies. Terms of reference from Maharashtra Pollution Control Board have been received. The expected time line is 12-18 months. The project capex stands at Rs 30 crore to be funded largely from internal accruals.

Why company is well positioned with better future prospects?

High Entry Barriers for New Competition that is Industry Potential with Limited Players

Long Customer Approval Customer approval takes as long as ~10 years. Average single product approval cycle for customers is between 4-5 years for the first set of orders • End users have internal specifications which are often more stringent than the regulations to which they adhere to.

Highly Regulated Markets  -: Company Operates in a highly regulated markets with multiple regulatory approvals required • Undertaken various approvals backed by an appropriate lab testing facility and among the very few USFDA approved manufacturers of food grade colours in India

Colouring is an essential part of any food item to make it more appealing, appetizing, attractive and informative. Factors driving the global food colour market is their ability to strengthen product appeal and growth in awareness about the benefits of colouring.

Financial Highlights

For the Quarter ended Q3 FY21: 

• Revenue for Q3FY21 stood at Rs. 79.3 crs up 61% on q-o-q basis from Rs. 49.1 crs in Q2FY21 and up 47% on y-o-y basis from Rs. 54.0 crs in Q3FY20 
• EBITDA for the quarter stood at Rs. 15.6 crs up 55% on q-o-q basis from Rs. 10.0 crs in Q2FY21 and by 34% on y-o-y basis from Rs. 11.6 crs in Q3FY20.
• EBITDA margins for Q3FY21 stood at 19.6% as compared to 20.4% in Q2FY21 and 21.5% in Q3FY20.
• Profit after Tax for the quarter stood at Rs. 10.5 crs up 40% on q-o-q basis from Rs. 7.5 crs in Q2FY21 and by 36% on y-o-y basis from Rs. 7.7 crs in Q3FY20. 
• PAT margin stood at 13.2% for Q3FY21.

• ✓Revenue of Rs. 79.3 Crs up by 61% 
• ✓EBIDTA of Rs. 15.6 Crs up by 55%
• ✓PAT of Rs. 10.5 Crs up by 39%

Other key Aspects-:

• Operating margins of the company are continuously on the rise and it is further expected to increase to 25% which could be on a consistent basis as the capex plan unfolds, where the company plans to manufacture more value-added products.
• Additionally efforts towards backward integration would provide additional margins.
• Company’s revenues increased by 47% and PAT increased by 37% for Q3FY21 on Y-o-Y basis. Change in product mix, addition of new customers and increase in wallet share in the existing customer led to increase in our revenues and profitability.
• Company is net Debt free.
• Company has ROCE of more than 30%.
• Promoter holding is stable at 64.27%.
• Company has return on Equity of almost 30%.
• Carg profit for the company over 3 and 5 year period for the company stands at around 33% and 22% respectively.

Industry / Global Outlook

The global food colour market is primarily driven by the increasing demand from beverage industry and bakery and confectionary. The high demand from flavoured drinks, fruit juices and nutritional drinks drives the global food colour market. For commercial adoption, synthetic food colours are in high demand because of the high stability under light, cheap in cost and less microbial contamination. However, natural food colours are expensive in comparison to synthetic ones.

Global market of food colour/food colouring agents/powders is valued at US$ 2.1 billion in 2018. It is projected to reach US$ 3.2 billion by 2023, registering a CAGR of 9.8% from 2019 to 2023. India’s exports of food colour increased from US$ 203 million to US$ 263 million in past five years with a CAGR of 6.5%. Natural Food colours are evaluated to be the largest product segment accounting for over 80% of the total global market revenue.

Due to  trade conflicts  erupted  around  the world,  especially  among  China,  the  United  States  and  Western Europe. Large chemical markets that remain accessible in this scenario could present opportunities for chemical Companies in India.

The structure of China’s chemical industry is changing due to stricter environmental norms, tighter financing and consolidation, which could present opportunities for India’s chemical Companies in certain value chains and segments although in small proportions but given the size of the Indian companies being very small this could in itself provide a bigger opportunity.

Business Update: 

Gujarat Pollution Control Board (GPCB) vide letter dated December 03, 2020 has granted the environment clearance to the Company for setting-up a plant in Dahej SEZ wherein the Company intends to manufacture 300 metric tonnes per month of Synthetic Water Soluble Food Colours and 60 metric tonnes of Synthetic Food grade lakes. The work has already been started and is progressing well and expect commercial production in the next 12-15 months.

CONCLUSION

Vidhi Speciality is a completely debt free company. Company has delivered a stellar performance over past couple of years and management is very confident of maintaining similar performance or even better in the coming period. Management has also taken up significant capital expansion which conforms the managements vision to aggressive pursuit the growth and expand operations. Better product mix along with internal operational efficiencies and optimal utilisations, we expect margin to improve going ahead. This may lead to significant increase in top line coupled with better operating margins on a consistent basis. On the back of strong revival in demand post opening up of economy across the globe, led to a surge in demand for the company’s products. We are optimistic of growth going forward on the back of new product development, newer customers addition and newer geographies penetration. Company trades at somewhat premium valuations as compared to its closest peer Dynemic Products however Vidhi Speciality’s consistent performance we believe that VSFIL will continue to command premium valuations . However there may be slight expansion in earnings multiples but a large growth is expected from the top line with better margins and ultimately increasing the bottomline that is Net Profit. Due to the current uncertain situation we are not able to project the exact % of the growth for the company. However with a market cap of just 1000 crores VSFIL is worth exploring for long term.