Vidhi Specialty Food Ingredients Limited, is a 78 year old leading manufacturer of Superior Synthetic and Natural Food Grade Colours. It is one of the Asia’s largest food colour manufacturer. The company’s products have applications in industries of Food & Beverage, Confectionary, Pharmaceuticals, Pet Foods, Cosmetics, Inkjet Inks, Personal Care, and Home Care.

Vidhi Speciality was previously suggested in Mar 2021 when the stock was trading around 200 Rs. Since then it had hit all time high of 514Rs there by delivering 157% returns before falling to current levels.

VIDHI SPECIALITY FOOD INGREDIENTS

Introduction

Current Market Price on the date of publishing this report-: 406 Rs

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. 

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 at that time. 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. 

In the year 2000, VSFIL was the first firm in India to be given a Quality management system standard, ISO 9002, for the manufacture of synthetic food colors. 

VSFIL was inspected by US FDA officials in 2002 and confirmed to be satisfactory. VSFIL also has a Food Hazard Analysis Control Plan (HACCP) system in place for the production of synthetic food colors and lakes.

Apart from food colors, the firm also sources and exports high-quality non-food dyes such as Acid Dyes, Textile Dyes, Reactive Dyes, Basic Dyes, Pigments, and other similar things in order to give a one-stop solution to many of its clients by meeting their non-food dye requirements. The company’s goods are all HALAL and Kosher certified.

Today VSFIL’s colors are being distributed and consumed in over 80 countries across 6 continents.

Why food colours are used?

• Food colours are additives that are added to food or beverages to make them look more appealing.
• When colours are added to food goods, they provide a highly vibrant and appealing impact while also improving the product’s look for ingestion.
• It aids in influencing the consumer to purchase a product through visual perception by giving consistency in the product’s look.
• It also improves a dish’s aesthetic attractiveness and adds colourful colours to other items.
• Food colour can impact flavour perception.

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

Water Soluble Primary Food Colors are water soluble and will colour any substance when dissolved. Furthermore, these colours comply with E.C. and JECFA regulations and have been approved for human consumption by WHO.

Blends of Water Soluble Food Colors are created by combining different primary colours. As a result, the resulting colours have distinct colour properties and give things a distinct feel.

Lake Food Colors are employed in situations where colour is to be delivered by coating; they are essentially Food Grade Pigments. Lake Colors are brilliant, consistent, and beneficial in a variety of sectors including snack food, confectioneries, medicines, cosmetics, inks, plastic, food containers, and so on.

Company has Existing Capacity of over 3,500 MT p.a. and has more than approx 8,500 MTp.a. of capacity under expansion which is expected to be operation by fy24. Other than that company has over 200 active customers spread across 5 continents and 80 countries to which company exports which meets all the regulatory requirements.

Company is continuously adding new customers and increasing wallet share in existing customers thereby enhancing the growth . Top 10 countries contributed to about 86% and 78%of the revenues in Q4FY22 & FY22 respectively. Top 10 customers contributed about 71% and 70% of the revenues in Q4FY22 & FY22 respectively.

Clients

Capex

In two phases, the business plans to more than triple its capacity to over 1000 MT/month by 2023. The extra capacity is created by establishing two new greenfield projects.

As part of its phase I development ambitions, the business is establishing a 360 MT/month capacity (300 tonnes/month of Synthetic Water Soluble Food Colors and 60 tonnes/month of Synthetic Foodgrade Lakes) at the Dahej SEZ in Gujarat. The capex is Rs 30 crore, with the majority of the funds coming from internal accruals. Civil construction has already begun, and commercial production is projected to start within this Financial Year.

Arjun Foods, a wholly-owned subsidiary of Vidhi in Roha MIDC, proposes to construct 350 tonne/month capacity for producing new high-margin goods as part of phase II development plans. The expansion location is within 200 metres from the present production site, resulting in operational synergies. The Maharashtra Pollution Control Board has provided terms of reference. The estimated time frame is 12-18 months. The project expenditure is Rs 30 crore, which would be financed mostly through internal accruals. Expected timeline: FY23

Why company is well positioned with better future prospects?

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

Long Customer Acceptance Customer clearance might take up to ten years. For the initial batch of orders, the average single product approval cycle for clients is between 4-5 years. End users frequently have internal standards that are more strict than the regulations to which they must conform.

Company Operates in highly regulated markets that need various regulatory permissions. Obtaining multiple approvals supported by a proper lab testing facility, and being one of the very few USFDA recognised makers of food grade colours in India.

Color is an important component of every food item since it makes it more appealing, delicious, attractive, and instructive. The capacity to improve product attractiveness and raise knowledge about the advantages of colouring are driving factors in the global food colour industry.

Financial Highlights

For Q4FY22

• Net Sales at Rs 145.00 crore in March 2022 up 48.26% from Rs. 97.80 crore in March 2021.
• Quarterly Net Profit at Rs. 13.78 crore in March 2022 up 16.28% from Rs. 11.86 crore in March 2021.
• EBITDA stands at Rs. 20.20 crore in March 2022 up 16.09% from Rs. 17.40 crore in March 2021.
• Vidhi Spec EPS has increased to Rs. 2.78 in March 2022 from Rs. 2.42 in March 2021.

For year ended March 22

Net profit increased by 60.20 percent to Rs 58.57 crore in the fiscal year ended March 2022, compared to Rs 36.56 crore in the fiscal year ended March 2021.

Sales increased by 101.59 percent to Rs 537.05 crore in the fiscal year ended March 2022, compared to Rs 266.41 crore in the fiscal year ended March 2021.

Other key Aspects

• Operating margins of the company have recently taken a hit where they are down to 16% from 22% in may 2020. However as the company is planning to increase the capacity in high margins business it is expected that operating margins may increase in the coming period as the capex plan unfolds.
• Additionally efforts towards backward integration would provide additional margins.
• Company’s revenues increased by 100% and PAT increased by 60% for FY22 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 has recently taken on some debt to fund its capex plans.
• Company has ROCE of more than 30%.
• Promoter holding is stable at 64.27%.
• Company has return on Equity of 31%.
• Carg profit for the company over 3 and 5 year period for the company stands at around 26% and 32% respectively.

Industry / Global Outlook

The worldwide food colour market is largely driven by rising demand from the beverage sector, as well as the bread and confectionery industries. The worldwide food colour industry is driven by the growing demand for flavoured beverages, fruit juices, and nutritious drinks. Synthetic food colours are in high demand for commercial application because to their excellent light stability, low cost, and little microbiological contamination. Natural food colours, on the other hand, are more expensive than synthetic ones.

In 2018, the global market for food coloring/coloring agents/powders was assessed at US$ 2.1 billion. It is expected to reach US$ 3.2 billion by 2023, with a 9.8 percent CAGR from 2019 to 2023. India’s food colour exports climbed by 6.5 percent during the last five years, from US$ 203 million to US$ 263 million. Natural food colours are estimated to be the most important product sector, accounting for more than 80% of total worldwide market revenue.

Trade wars occurred all over the world, particularly between China, the United States, and Western Europe. Large chemical markets that remain accessible in this situation may create chances for Indian chemical firms.

The structure of China’s chemical industry is changing as a result of stricter environmental standards, tighter financing, and consolidation, which may present opportunities for India’s chemical companies in certain value chains and segments, albeit in small proportions given the size of the Indian companies.

Conclusion

Vidhi Speciality has had a great performance over the last couple of years, and management is sure that it will deliver a similar or even better performance in the next time. Management has also undertaken major capital expansion, nearly tripling capacity, in line with the management’s ambitious goal to drive growth and expand operations. We anticipate that margins will grow in the future as a result of improved product mix, internal operational efficiency, and optimal utilisation. This might result in a considerable rise in top line revenue as well as improved operating margins on a continuous basis.

A increase in demand for the company’s products resulted from a significant recovery in demand following the opening up of economies throughout the world. We are hopeful about future growth as a result of new product development, new client additions, and geographic expansion. When compared to its closest rival Dynemic Products, the company trades at a somewhat higher valuations. Given Vidhi Speciality’s continuous success, we believe VSFIL will continue to fetch premium values. Earnings multiples may expand slightly, but the top line is likely to rise significantly with greater margins, ultimately boosting the bottom line, which is Net Profit. VSFIL is a long-term investment opportunity with a market valuation of under 2000 crores.

Vidhi Speciality was previously suggested in Mar 2021 when the stock was trading around 200 Rs. Since then it had hit all time high of 514Rs there by delivering 157% returns before falling to current levels.