Agriculture Nomura Sept10

Agri-related | I N D I A
C O N S U M E R R E L AT E D
NOMURA SINGAPORE LIMITED
Tanuj Shori +65 6433 6981 tanuj.shori@nomura.com
Aatash Shah +91 22 4037 4194 aatash.shah@nomura.com
NEW
Tushar Mohata (Associate)
THEME
R E P O R T
A N C H O R
Time to sizzle Stocks for action

We are Bullish on the Indian edible oil sector. Domestic demand is set for a 7% CAGR We initiate with BUY ratings on Ruchi
to 30mn MT by 2020F, against production growth of just 2.7% pa. Acreage Soya and KS Oils and maintain our
opportunities are limited and most demand growth will come from imported palm oil BUY call on Wilmar.
(~20% CAGR). The industry is highly fragmented, with the top 4-5 players taking 57%
of the market. As reliance on imports mounts and integration benefits across the value Price Price
Stock Rating (local) target
chain come to the fore, we expect increasing industry consolidation. Big players should Ruchi Soya (RSI IN) BUY* INR141.1 INR170
be best placed to expand market share and margins. On our forecasts, higher-margin KS Oils (KSO IN) BUY* INR51.1 INR67
branded sales will account for 60% of the market by 2015, from 25% now. We initiate Wilmar (WIL SP) BUY S$6.36 S$8.24
on Ruchi Soya, India’s largest edible oil player, with a BUY. Targeting 25-30% pa * Initiating coverage
bottom-line growth and exposed to palm plantation, Ruchi should increasingly be Price as on 9 September, 2010
benchmarked to global peers, in our view. Even allowing for KS Oil’s tax raid overhang
and slower growth, its recent correction looks overdone. On the back of its leadership Analysts
of the mustard (rapeseed) market, we forecast a diluted 16% FY10-13F earnings Tanuj Shori
CAGR and initiate with BUY. Wilmar, a proxy to the Indian edible oil story through its +65 6433 6981
tanuj.shori@nomura.com
JV with Adani group, remains a BUY.
Aatash Shah
 Initiate BUYs on Ruchi Soya, KS Oils; reaffirm BUY on Wilmar
+91 22 4037 4194
aatash.shah@nomura.com
 We expect industry growth of 7% and branded sales growth of 25%
Tushar Mohata (Associate)
 Incremental demand will be imported and has to be met by palm
 Consolidation is the theme, with few players dominating the market
Nomura Anchor Reports examine the key themes and value drivers that underpin our
sector views and stock recommendations for the next 6 to 12 months.
Any authors named on this report are research analysts unless otherwise indicated.
See the important disclosures and analyst certifications on pages 73 to 76.
Nomura 14 September 2010

Agri-related | I N D I A
C O N S U M E R R E L AT E D
Aatash Shah +91 22 4037 4194 aatash.shah@nomura.com NEW
Tushar Mohata (Associate) THEME
 Action Stocks for action

We initiate coverage on the Indian edible oil sector with a Bullish view and a BUY We initiate with BUY ratings on
rating on Ruchi Soya and KS Oils. We also reaffirm our BUY on Wilmar as a proxy Ruchi Soya and KS Oils and
to the sector through its JV with Adani. We believe the sector is set for a demand maintain our BUY call on Wilmar.
inflection, change in mix from an unbranded to a branded market and consolidation
among industry participants, which should fuel re-rating for leading players. Import
policies and an increase in domestic yields can be a swing factor, in our view.
Price Price
 Catalysts Stock Rating (local) target
Ruchi Soya (RSI IN) BUY* INR141.1 INR170
Key catalysts would be a volume uptick and margin inflection led by growing capex,
KS Oils (KSO IN) BUY* INR51.1 INR67
higher utilisations and change in sales mix to branded edible oil market. Wilmar (WIL SP) BUY S$6.36 S$8.24
Anchor themes * Initiating coverage

Price as on 9 September, 2010
Key themes dominating the Indian oilseed complex are dependence on oil imports,
and a fragmented industry structure. We think industry consolidation and
higher-margin branded sales will help larger players capture market share.
Time to sizzle Analysts

Tanuj Shori
+65 6433 6981
 Initiate BUYs on Ruchi Soya, KS Oils; reaffirm BUY on Wilmar
tanuj.shori@nomura.com
We think Ruchi Soya’s targeted growth, with its exposure to palm plantation and
dominant position in soybean processing and edible oil refining in India justify a re- Aatash Shah
rating. KS Oils is the market leader in mustard and capacity utilisation should help it +91 22 4037 4194
capture further market share, and thus we believe the correction due to corporate aatash.shah@nomura.com
governance concerns (post the recent tax raids) is overdone and the stock is
looking attractive, trading at just 9.1x FY12F P/E. Wilmar, we believe, is a good Tushar Mohata (Associate)
proxy to the Indian edible oil market with a leading presence through its JV. We
initiate coverage on the sector with a BUY on Ruchi Soya and KS Oils and reaffirm
our BUY on Wilmar.
 We expect industry growth of 7% and branded sales growth of 25%

Indian edible oil demand is set to rise from 16mn MT now to 30mn MT by 2020F,
more than China’s market size today, implying a CAGR of 7%. More importantly,
with increasing quality consciousness, rising incomes and consolidation, industry
experts suggest branded sales are likely to grow at ~25-30% over the next few
years. Branded sales comprise only about 25% of the total edible oil market in India
now, but may grow to ~60% of the market by 2015F, as per our estimates.
 Incremental demand will be imported and has to be met by palm

Domestic consumption is expected to outstrip production growth (~2.7%), implying
imports must grow at a much faster rate (~15%) to fill the demand. As acreage
opportunities are limited in other crops, most of this demand growth will come from
palm oil (~20% CAGR). Thus the players with refining / upstream exposure to palm
stand to gain market share and volumes, in our view.
 Consolidation is the theme, with few players dominating the market

Due to the recent financial crisis, several poor harvests and reduction in import
duties on edible oil, a lot of small scale solvent extractors and refiners have closed
down, or been taken over by larger players in the industry. We expect this to be an
ongoing trend; as larger players have several key advantages, such as being able
to sustain a price war, access to cheaper credit from MNC banks and markets,
lower marginal cost of production, and possibility of backward integration.
Nomura 1 14 September 2010

Agri-related | India Tanuj Shori
Contents
Indian edible oil — stage set for inflection 5

Initiate coverage with a BUY on Ruchi Soya and KS Oils, upside of 21% and 31%,
respectively, and reaffirm BUY on Wilmar 5
Potential demand implies industry growth of 7% and branded sales growth of 25-
30% 6
Way forward for Indian edible oil industry — incremental demand to be met by
palm and soybean oil imports 7
Consolidation the theme as a few rise to the top 8
One who moves fast will make money fast; Ruchi Soya, KS Oils and Adani
Wilmar likely to be key beneficiaries 8
Valuations — lack of benchmark and regional perspective 9
Risks — mostly on execution and government policies 10
A potential market as big as China 12

Indian edible oil demand has grown with population and income; still significantly
below world average 12
Indian edible oil market can top where China is now in the next 10 years 12
China and India differ in what they import and consume 13
Indian oil production unlikely to match demand this year 13
India is going to meet most of edible oil deficit through palm oil 14
Indian protein meal market dynamics work different from China ... 15
… as India exports ~25% of its meal production 15
Meal market in India is small, but growing 15
So the main profit driver for processors is oil, not meal 15
Indian edible oil industry is fragmented and capacity utilisation is low 17

Ruchi Soya and KS Oils are largest listed processors by capacity… 18
Recent consolidation to continue, the top players will capture the growth, in our
view 18
India still an untapped branded oil market 19

Palm is still largely an unbranded story; sunflower oil has the highest proportion
of packaged sales 20
Ruchi Soya and Adani-Wilmar lead branded market share 20

India – a dominant edible oil demand driver with significant oil deficit 22
India accounts for a major part of global edible oil demand 22
Indian oil consumption has grown over the years, but domestic production has
remained stagnant… 23
… resulting in lower import tariffs and higher imports 23
Indian oilseed production has only increased marginally; however, share of global
production has remained stable 24
Area under soybean cultivation has increased; yields still low 24
Until India becomes self-sufficient in oilseed output, incremental imports are
going to fulfil edible oil demand 25
Imports of oilseeds in India is almost non-existent due to policy restrictions and
lack of a viable meal market 25
… however, the government may have to revisit restrictions if it wants to reduce
edible oil import dependence… 26
... which will be a positive for local processors in our view 26
Palm, soybean and mustard oil are the three pillars 27

The oils differ in fat composition and taste 28
Consumption is regional and consumer preference driven… 28
… implying Ruchi Soya and KS Oils serve non-overlapping consumer belts 29
Palm oil: the next big opportunity 30

Palm oil imports steadily rising; soybean oil imports remained constant 30
However palm oil demand is price driven; may fall if it trades at parity to other oils 31
Palm refining margins are better than soybean or sunflower oil 32
Everyone wants a share of the palm oil market 33
Mustard oil – limited volume growth but margin accretion through

branded sales 34
Mustard is easy to grow with a high oil yield 34
Mustard seed and oil prices to remain fairly constant 34
Soybean oil: losing market share 36

A low oil yield with a better quality meal 36
Soybean oil losing market share to palm 36
Crushing margins do not move in line with global margins 36
Appendix 1: Refining process flow 37
Appendix 2 – Pictures from Agri-Diaries 38
Latest company views

K.S. Oils 40
Ruchi Soya Industries 54
Wilmar International 68

Indian edible oil industry
Exhibit 1. Indian edible oil industry
World edible oil consumption

China,
27.2mn mT
Others,
71.1mn mT EU-27,
23.7mn mT
India,
15.6mn mT
Peanut, 9%
Sunflowerseed, 5%
Palm, 43% Soybean, 17% Rapeseed, 14% Other, 4%

Cottonseed, 7%
Branded sales, Rs 188 Unbranded sales, Rs

bn 563 bn
0% 20% 40% 60% 80% 100%
Potential market share of India’s

total
Key Major Oil Branded
players Presence Crushing Refining Oils
Ruchi Soya Soybean, palm 13.7% 13.4% 17.3%
Adani Wilmar Soybean, palm 6.1% 6.3% 16.5%
KS Oils Mustard 5.2% 3.3% 5.0%
Note: Market share data for crushing and refining assumes 100% utilisation. Branded market share is as per Ruchi Soya presentation
Source: Nomura research, Company data

Executive summary
Indian edible oil — stage set for inflection

Initiate coverage with a BUY on Ruchi Soya and KS Oils, upside
of 21% and 31%, respectively, and reaffirm BUY on Wilmar
Ruchi Soya — attractive despite the run-up

We initiate coverage on the Indian edible oil sector with a Bullish view and on Ruchi Bullish and BUY
Soya with a BUY rating and potential upside of 21%. We think Ruchi Soya’s targeted
bottom-line growth of 25-30% pa, along with its exposure to palm plantation, and
dominant position in oilseed processing and edible oil refining in India justify a
re-rating as it is the largest edible oil player in India. We believe the market will start
appreciating the company’s similarity to its global peers as earnings delivery continues
with expanding scale of operations and margin enhancement. We think Ruchi Soya
looks attractive even after the recent run (up 28% over the past one month), as strong
1Q11 results suggest the company is on track for another strong year — FY11F.
KS Oils — value among debris

KS Oils, on the other hand has lagged in performance vs Ruchi Soya and the
benchmark index (down 21% YTD), mostly due to corporate governance concerns
post the recent tax raids on the company. We think the correction is overdone and the
stock is looking attractive, currently trading at -1SD of just 9.1x FY12F P/E. Although
the tax issue may remain a near-term overhang and a key risk, earnings growth on the
back of increasing presence and leadership in the mustard (rapeseed) market justifies
a bounce back, in our view. We apply a 20% discount to arrive at our target 12x
multiple for KS Oils to account for risks and relative slower growth as compared to
Ruchi Soya, and initiate with a BUY with potential upside of 31% and a PT of
INR67/share.
Wilmar — proxy to Indian edible oil demand

We believe Wilmar is a very good proxy to play the Indian edible oil story as it is one of
the leading players through its JV with Adani group. As per our estimates, Wilmar is
the second largest oilseed processor, second largest oil refiner and controls ~17% of
branded consumer pack edible oil market in India. To add, Wilmar is heavily investing
into growing its Indian edible oil business and sees it as a very attractive market. Our
channel checks suggest that Wilmar is one of the better organised player in the
industry with the best corporate governance structure. We thus reiterate our BUY on
Wilmar with potential upside of 30%.
Exhibit 2. Indian edible oils vs Index performance Exhibit 3. Edible oil companies relative performance
(%) Ruchi Soya KS Oils (%) Ruchi Soya KS Oils Wilmar
60 Sensex BSE Midcap 60
50 50
40 40
30 30
20 20
10
10
0
0
(10)
(10)
(20)
(20)
(30)
(30)
May-10
Mar-10
Jan-10
Feb-10
Apr-10
Jun-10
Jul-10
Aug-10
Sep-10
May-10
Mar-10
Jan-10
Feb-10
Apr-10
Jun-10
Jul-10
Aug-10
Sep-10
Source: Company data, Nomura estimates Source: Company data, Nomura estimates

Exhibit 4. Ruchi Soya: forward P/E Exhibit 5. KS Oils: forward P/E
25 21
19
20
17
+1SD=13.9 +1SD=13.9
15 15
13
Average=11.4
10 Average=9.1
11
9
5 -1SD=8.9
-1SD=4.3 7
0 5
May-07
May-08
May-09
May-10
Nov-07
Mar-08
Nov-08
Mar-09
Nov-09
Mar-10
Jan-07
Sep-07
Jan-08
Sep-08
Jan-09
Sep-09
Jan-10
Jul-07
Jul-08
Jul-09
Jul-10
Exhibit 6. Ruchi Soya: forward PEG Exhibit 7. KS Oils: forward PEG
1.4 1.4
1.2 1.2
1.0 +1SD=0.9 1.0 +1SD=0.9
0.8 0.8 Average=0.7
0.6 Average=0.4
0.6
0.4
0.4 -1SD=0.5
0.2
-1SD=0 0.2
0.0
0.0
(0.2)
Nov-07
Mar-08
Nov-08
Mar-09
Nov-09
Mar-10
Jul-07
Jul-08
Jul-09
Jul-10
May-07
May-08
May-09
May-10
Jan-07
Sep-07
Jan-08
Sep-08
Jan-09
Sep-09
Jan-10
Potential demand implies industry growth of 7% and branded

sales growth of 25-30%
Per capita consumption of vegetable oils in India has increased 30% from ~10kg/year Plenty of room for growth, even
in 2001 to ~13kg/year in 2010, underpinned by 132% growth in per capita income to to pull even with regional peers
US$1000 over the period. Overall demand for edible oils has risen 40% as a result to
about 15.6mn mT, second only to China at 27mn mT. However, Indian per capita
consumption still lags significantly below the world average of 22kg/year, and even
developing neighbours such as China and Pakistan at 20kg/year
Indian edible oil demand is set to rise from 16mn MT now to 30mn MT by 2020, more Transition from unbranded to
than China’s market size of today, implying a CAGR of 7%. More importantly, with branded market
increasing quality consciousness, rising incomes and consolidation, industry experts
suggest branded sales are likely to grow at ~25-30% over the next few years. Branded
sales of edible oil in India at ~US$4bn comprise only about 25% of the total edible oil
market of INR750bn (~US$16bn), with most of the lower income consumers opting for
cheaper oils sold in loose form. But as per our calculations, branded sales will
represent ~55-60% of the total market by 2015F.

Exhibit 8. Per capita oil consumption in the world (kg/year)

(kg/yr)
35
30
25
20
15
10
Mexico
Brazil
United
Indonesia
China
Argentina
Pakistan
Russia
Japan
India
States
Source: Nomura research, USAD FAS
Exhibit 9. Branded edible oil market is forecast to grow at 25-30% pa

(Rs bn) Branded sales Unbranded sales
1,200
Overall growth = 7%
1,000
420
800
600
563
400 Branded CAGR =
25-30% 632
200
188
0
2010 2015F
Source: Company data, Nomura research
Way forward for Indian edible oil industry — incremental

demand to be met by palm and soybean oil imports
We believe India will continue to have an oil deficit as total demand in India doubles to Domestic supply can’t keep up
about 30mn mT by 2020, as per our estimates. However, driven by lower yields, with demand
agricultural production will continue to lag this demand growth. Domestic consumption
is expected to grow at 8.6% annually over 2007-11F, outstripping production growth at
only 2.7%, implying imports must grow at a much faster rate (~15%) to fill the demand.
As demand increases for edible oils, although at some stage, the government might
have to rethink its seed policy to allow higher yields from imported GMO seeds to fulfil
this demand, but in the near-medium term, India will rely more on palm and soybean
oil imports to fulfil this demand.
As acreage opportunities are limited in other crops, most of this demand growth will
have to be satisfied by palm oil (expected to grow at ~20% CAGR). Thus the players
with refining / upstream exposure to palm will stand to gain market share and volumes
in our view.

Exhibit 10. Monthly crude palm oil imports Exhibit 11. Monthly crude soybean oil imports
('000 mT) ('000 mT)
India total CPO imports
600 350 India total Crude Soy oil imports
500 300
250
400
200
300
150
200
100
100 50
0 0
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Source: Solvent Extractors Association of India Source: Solvent Extractors Association of India
Consolidation the theme as a few rise to the top

Due to the recent financial crisis, several poor harvests and reduction in import duties
on edible oil, quite a few small-scale solvent extractors and refiners have closed down,
or been taken over by larger players in the industry. The number of solvent extractors
has fallen from 766 to 711 and refiners have come down from 800 to ~600 since 2005.
We expect this to be an ongoing trend; as larger players have several key advantages
such as being able to sustain a price war, access to cheaper credit from MNC banks
and markets, lower marginal cost of production, and possibility of backward integration.
The larger players are more likely to achieve positive crushing margins, even if the
price of oils and meals corrects severely, but the price of raw oilseeds are not allowed
to go below their Minimum Support Price, in our view, owing to their scale and global
supply chain networks.
One who moves fast will make money fast; Ruchi Soya, KS Oils
and Adani Wilmar likely to be key beneficiaries
The leading players have all invested heavily into building additional capacities over
the last few years and continue to invest in refining and crushing capacity generation.
We think players like Ruchi Soya, KS Oils, Adani-Wilmar, can benefit from likely
industry dynamics in two ways: 1) from increasing capacity utilisations and
2) consolidation in the industry, and will likely capture all the incremental industry
growth, in our view.
Operators such as KS Oils, Ruchi Soya, Adani-Wilmar should be able to grab market The branded players should be
share from the unorganised sector, which is unlikely to be able to compete with them able to muscle out the
in terms of sourcing capability, quality factors and the like. This will lead to unorganised sector
consolidation in the industry, and we think a major share of the approximately

US$35bn Indian edible oil market may be held by four-five players in a few years from
now. Thus, whoever is present in the space with the operational set-up to satisfy this
demand will be the winner, in the long run, in our view.
Exhibit 12. Indian edible oil market share

Potential market share of India’s total (%)
Capacity Crushing Refining Branded
Ruchi Soya 13.7 13.4 17.3
Adani Wilmar 6.1 6.3 16.5
KS Oils 5.2 3.3 5.2
Note: Potential market share assumes 100% utilisation
Source: Nomura research, Ruchi Soya presentation

Valuations — lack of benchmark and regional perspective

Valuations in the Indian Agri space have lacked regional benchmarks so far, in our Local players will increasingly
view. But, as the sector grows bigger, we believe the market will appreciate the implied match up with global peers
growth and leadership position of consolidated players to value them in line with
regional players. As Ruchi Soya and KS oils have both midstream and downstream
businesses with expanding upstream presence, their blended multiples should reflect
blended multiples across the value chain.
We value Ruchi Soya at 15x FY12F P/E (CY11), which is at a discount to Wilmar (our
implied target P/E for Wilmar is ~16.5x CY11 earnings). Its discount to Wilmar is
justified, in our view, because of lower scale despite the fact that earnings trajectory for
Ruchi Soya should be much higher than Wilmar. We value it at a premium to the
average of midstream to account for high earnings growth and the fact that it is a
leading player in high-margin downstream branded segment, as Indian and Chinese
consumer names typically trade at 20x-plus their forward earnings. We also add back
plantation business value of INR35/share, where they have already planted 32,000ha
of palm oil land in India, and have acquired a total plantable landbank of 169,000ha.
We also see significant capex opportunity with the prospect of acquisition or Greenfield
investments in palm plantations in Africa or Indonesia.
We value KS oils at 12x FY12F EPS, at a discount to Ruchi Soya to account for near-
term headwinds owing to tax concerns and a lower planned capacity expansion over
the next few years. KS Oils is mostly focusing on increasing market share in mustard
and is not significantly adding new capacity in refining. On PEG, Ruchi Soya is trading
at 0.5x, at midcycle valuations while KS Oils is trading at 0.4x, at a significant discount
to historical mid-cycle valuations.
Exhibit 13. Valuation summary

Market P/E P/BV EV/EBITDA Dividend Yield (%)
cap Closing PEG PEG
Name Nomura rating (US$mn) price 09 10F 11F 09 10F 11F 09 10F 11F (1 year) (2 year) 09 10F 11F
Upstream
Palm Oil
Sime Darby (SIME MK) REDUCE 15,842 8.2 21.6 29.1 15.9 2.3 2.2 2.1 12.9 12.5 9.0 0.4 1.7 2.3 1.7 3.1
IOI (IOI MK) REDUCE 11,805 5.5 23.6 21.6 18.1 4.1 3.3 3.0 20.4 12.7 12.5 1.1 1.5 1.0 2.2 2.0
KLKepong (KLK MK) REDUCE 5,869 17.1 29.8 19.3 17.4 3.2 3.0 2.8 16.3 11.8 10.6 1.7 0.6 2.3 2.8 3.2
Golden Agri (GGR SP) NEUTRAL 5,297 0.585 24.9 14.4 12.5 0.9 0.9 0.8 14.6 9.2 8.1 0.9 0.3 1.1 1.4 1.6
Indofood Agri (IFAR SP) NEUTRAL 2,538 2.35 18.4 16.8 15.1 2.4 2.0 1.7 9.3 8.4 7.6 1.5 1.6 0.0 0.0 0.0
Astra Agro (AALI IJ) NEUTRAL 3,613 20,700 19.6 19.9 14.9 5.2 4.7 4.2 11.3 12.2 9.5 0.6 1.4 2.8 2.8 4.0
Upstream average 23.0 20.2 15.6 3.0 2.7 2.4 14.1 11.1 9.6 1.0 1.2 1.6 1.8 2.3
Midstream
Wilmar (WIL SP) BUY 30,329 6.36 18.1 16.7 14.2 2.8 2.4 2.1 13.4 11.4 10.2 0.9 1.3 1.1 1.2 1.5
Olam (OLAM SP) BUY 4,405 2.79 27.6 23.8 19.9 4.6 3.3 2.9 18.3 15.5 13.1 1.2 1.3 1.3 1.6 1.4
Noble (NOBL SP) BUY 7,619 1.7 15.2 17.1 13.0 2.2 2.3 2.0 12.4 11.7 9.6 0.5 1.7 1.7 1.4 1.5
China Agri (606 HK) BUY 5,208 10.02 19.3 14.5 10.7 2.4 2.0 1.7 32.6 16.6 12.1 0.4 0.4 0.6 1.7 2.3
ADM (ADM US) NR 20,426 31.95 10.0 11.1 10.9 1.3 1.4 1.3 5.9 6.8 6.4 4.3 nm 1.7 1.8 1.9
Bunge (BG US) NR 7,846 55.93 17.6 16.7 10.5 0.9 0.8 0.8 17.9 6.9 5.9 0.3 0.6 1.3 1.5 1.5
KS Oils Ltd (KSO IN) BUY 436 51.05 11.3 10.8 9.5 1.8 1.5 1.2 8.3 6.3 5.4 0.7 0.4 0.4 0.4 0.5
Ruchi Soya (RSI IN) BUY 765 141.05 20.9 20.1 16.7 2.2 2.4 2.2 14.7 9.9 8.3 0.8 0.5 0.4 0.6 0.6
Midstream average 17.5 16.4 13.1 2.3 2.0 1.8 15.4 10.6 8.9 1.1 0.9 1.0 1.3 1.4
Downstream
- China
China Foods (506 HK) REDUCE 2,049 5.7 27.1 25.9 21.9 2.9 2.7 2.5 13.1 11.8 10.6 1.4 2.3 1.2 1.2 1.6
Want Want (151 HK) NEUTRAL 10,492 6.17 33.1 27.4 22.1 10.6 9.6 7.8 30.0 22.5 17.9 1.1 1.2 2.6 2.3 2.6
Tingyi Holding (322 HK) NEUTRAL 14,051 19.54 35.4 35.9 27.9 9.7 7.4 6.4 16.5 15.2 12.4 1.3 2.9 1.2 1.6 1.6
China Mengniu (2319 HK) NEUTRAL 5,299 23.7 30.4 27.6 23.2 4.2 3.7 3.3 20.6 19.5 15.7 1.5 1.9 0.7 0.8 1.0
Downstream average 31.5 29.2 23.8 6.8 5.9 5.0 20.0 17.3 14.1 1.3 2.1 1.4 1.5 1.7
Overall average 22.5 20.5 16.3 3.5 3.1 2.7 16.0 12.3 10.3 1.1 1.3 1.3 1.5 1.8
Note: Pricing as on 9 September, RSI IN and KSO IN’s values are for calendar year
Source: Company data, Nomura estimates

Exhibit 14. Estimate summary

Market EPS Net debt/Equity
cap Closing Revenue growth (%) EPS growth (x) CAGR & ROE (%) Net margin (%) (%)
Name Nomura rating (US$mn) price 09 10F 11F 09 10F 11F (09-11F) 10F 11F 10F 11F 10F 11F
Upstream
Palm Oil
Sime Darby (SIME MK) REDUCE 15,842 8.2 (8.9) 4.6 9.4 (35.1) (25.6) 83.0 16.6 7.8 13.5 5.2 8.7 17.1 19.6
IOI (IOI MK) REDUCE 11,805 5.5 (0.4) (14.1) 7.9 (36.5) 9.5 19.1 14.2 21.3 17.3 16.2 14.4 8.1 5.7
KLKepong (KLK MK) REDUCE 5,869 17.1 (15.2) (0.8) 7.6 (41.1) 54.1 11.3 31.0 16.2 16.7 14.3 14.8 7.4 7.0
Golden Agri (GGR SP) NEUTRAL 5,297 0.585 (23.2) 2.9 8.3 (43.5) 72.6 15.7 41.3 0.5 0.5 14.8 15.8 7.3 7.1
Indofood Agri (IFAR SP) NEUTRAL 2,538 2.35 (23.6) 30.6 11.1 (1.3) 9.8 11.3 10.5 9.8 11.3 11.4 11.4 43.3 33.1
Astra Agro (AALI IJ) NEUTRAL 3,613 20,700 (9.0) (1.0) 11.6 (36.9) (1.4) 33.5 14.7 24.8 29.5 22.3 26.6 net cash net cash
Upstream average (13.4) 3.7 9.3 (32.4) 19.8 29.0 21.4 13.4 14.8 14.0 15.3 16.6 14.5
Midstream
Wilmar (WIL SP) BUY 30,329 6.36 (18.0) 23.9 18.5 28.6 8.9 17.7 13.2 16.0 16.5 6.3 6.3 36.4 39.3
Olam (OLAM SP) BUY 4,405 2.79 6.2 22.6 14.0 9.6 16.0 19.8 17.9 25.5 17.7 3.4 2.8 216.2 224.0
Noble (NOBL SP) BUY 7,619 1.7 (13.6) 49.0 14.0 (21.3) (7.7) 32.0 10.3 14.6 17.0 1.0 1.1 101.1 95.0
China Agri (606 HK) BUY 5,208 10.02 4.8 16.4 29.3 (28.8) 32.7 36.2 34.5 15.3 17.5 5.1 5.4 40.4 51.0
ADM (ADM US) NR 20,426 31.95 7.1 (7.7) 3.6 8.9 (10.2) 2.6 (4.0) 12.9 11.9 2.9 2.9 27.5 27.4
Bunge (BG US) NR 7,846 55.93 (20.2) 6.4 7.0 (57.0) 5.7 58.8 29.5 4.5 7.2 1.1 1.7 12.8 4.6
KS Oils Ltd (KSO IN) BUY 436 51.05 54.9 29.3 18.3 (2.3) 4.6 14.0 9.2 22.4 16.2 5.7 4.4 83.7 72.2
Ruchi Soya Industries Ltd BUY 765 141.05 9.0 12.6 19.1 13.7 4.1 20.7 12.1 14.0 15.3 1.3 1.3 61.2 60.7
(RSI IN)
Midstream average 3.8 19.1 15.5 (6.1) 6.8 25.2 15.3 15.7 14.9 3.3 3.2 72.4 71.8
Downstream
- China
China Foods (506 HK) REDUCE 2,049 5.7 18.1 19.7 22.3 16.7 4.8 18.2 11.3 10.9 11.9 3.1 3.0 net cash net cash
Want Want (151 HK) NEUTRAL 10,492 6.17 10.1 29.5 29.0 20.0 20.8 24.1 22.5 37.4 38.7 17.6 16.5 net cash net cash
Tingyi Holding (322 HK) NEUTRAL 14,051 19.54 18.9 28.5 28.0 51.1 (1.4) 28.6 12.6 26.6 27.8 6.4 6.0 net cash net cash
China Mengniu (2319 HK) NEUTRAL 5,299 23.7 7.7 18.5 17.3 (206.3) 10.3 18.7 14.4 14.3 15.2 4.3 4.3 net cash net cash
Downstream average 13.7 24.0 24.2 (29.6) 8.6 22.4 15.2 22.3 23.4 7.9 7.5 net cash net cash
Overall average 0.3 15.0 15.4 (20.1) 11.5 25.8 17.3 16.4 16.8 7.9 8.2 51.0 49.8
Note: Pricing as on 9-Sep, RSI IN and KSO IN’s values are for calendar year
Exhibit 15. Ruchi Soya and KS Oils: valuation details

Max Min Current Average
Ruchi Soya
P/E 22.9 2.0 12.6 9.1
P/B 2.2 0.2 1.8 1.0
PEG 2.4 0.1 0.5 0.4
P/S 0.21 0.02 0.18 0.10
KS Oils
P/E 19.3 7.3 8.5 11.4
P/B 3.5 1.2 1.2 1.9
PEG 1.3 0.4 0.4 0.7
P/S 1.0 0.3 0.4 0.5
Note: Above values are on a N12M basis and so may not tally with Exhibit 12 and 13
Source: Nomura estimates
Risks — mostly on execution and government policies
Policy on oilseed imports

Currently, oilseed imports in India are restricted and unfeasible owing to regulations
and the lack of a meal market in India. We think any policy change by the government
to allow oilseed imports, although unlikely over the medium term, may be negative for
the companies under coverage, as they have been building incremental refining
capacities, and not invested heavily in soybean crushing capacity generation.
Import tariff structure for edible oils

Any increase to the import tariffs for edible oils to historical high levels, though unlikely
to happen due to increasing dependence on edible oil imports, may depress refining
margins for the companies.

Execution risk, in terms of capacity utilisations and margin growth

The companies have built up significant capacities and are expecting volume and
market share growth through increasing capacity utilisation and branded sales growth.
Any delay in ramp-up of utilisation may lead to muted earnings growth than expected.
Corporate governance and investments in non-core business

Both companies have invested significant capex in developing wind power operations. Investment in wind power is
Although management at both companies state these investments are for captive about providing power not
diversfying revenue
power generation, and they don’t intend to be in the power business, there might be
concerns on these non-core assets. In addition, the search conducted by the income
tax department on KS Oil’s premises in March may be an overhang on the company’s
share price for some months.

How big is the India opportunity?
A potential market as big as China

We believe the Indian market presents a significant growth opportunity for edible oil As in so many other
players owing to a growing population, income growth, low current per capita comparisons, India stacks up to
China here
consumption, low penetration and the fact that edible oils are a necessary part of the
daily diet for a majority of Indian consumers. As per our estimates, Indian edible oil
markets may reach 30mn mT by 2020F, which is more than the size of today’s China
market.
Indian edible oil demand has grown with population and income;
still significantly below world average
Per capita consumption of vegetable oils in India has increased by 30% from India has seen per capita income
~10kg/year in 2001 to ~13kg/year in 2010, underpinned by a 132% growth in per rise by 132% since 2001; and this
extra money is going to fuel
capita income to US$1,000 over the period. Overall demand for edible oils has risen by
consumption
40% as a result to about 15.6mn mT, second only to China at 27mn mT. However,
Indian per capita consumption still lags significantly below the world average of
22kg/year, even to that of developing neighbours such as China and Pakistan at
20kg/year.
Exhibit 16. Consumption vs population growth Exhibit 17. Per capita consumption v income growth
(mn mT) (mn) (kg/year) (US$)

Population (RHS) GDP/capita (RHS)
17.5 1,250 14.0 1,200
Total oil consumption (mn mT) (LHS) Per capita consumption (LHS)
16.5 13.5
1,200 1,000
15.5 13.0
1,150 12.5 800
14.5
13.5 1,100 12.0
600
12.5 11.5
1,050
11.0 400
11.5
1,000 10.5
10.5 200
10.0
9.5 950
9.5 0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010F
2011F
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010F
2011F
Note: Does not include fats like butter etc Note: Does not include fats like butter etc
Source: USDA FAS, IMF Source: USDA FAS, IMF
Indian edible oil market can top where China is now in the next
10 years
As shown below, Indian per capita consumption is still significantly below levels in
other developing countries, mainly because of lower household incomes, and a small
urban population in proportion to the overall population, in our view. As per industry
estimates, the proportion of Indian middle-class, (which has adequate purchasing
power for consumer staples like edible oils), is expected to rise from 5% of population
in 2007 to 40% by 2025. We think this would lead to India’s per capita oil consumption
reaching levels of other countries like China. As per our estimates, assuming a 1.3%
growth of population, and per capita consumption levels of ~22kg/year, India’s total
edible oil market size can be ~30mn mT, by 2020F which, is more than China today.

Exhibit 18. Indian edible oil market: big potential

Per capita consumption (kg/yr)
26
24
Indonesia China
22 Argentina
20 Brazil
18 Pakistan
Russia
16
14 Mexico
12 India
10
0 2,000 4,000 6,000 8,000 10,000 12,000
GDP/capita (US$)
Note: Area of the bubble represents total market size

Source: USDA FAS, IMF, Nomura research
We estimate Indian per capita consumption will equal the current world average in the
next 10 years, and the total consumption of edible oil is expected to double from 16mn
mT currently to 30mn mT by 2020F, which implies a CAGR of 7%.
China and India differ in what they import and consume

Like India, Chinese domestic oilseed production is not sufficient to match its edible oil China consumes soybean oil;
demand, and it relies on imports to make up for the deficit. However, China imports India prefers palm oil
raw oilseeds and crushes them locally to produce edible oil, whereas India imports
crude edible oil and refines it locally. Soybean oil is the oil of choice in China, whereas
palm is the most consumed oil in India. In addition, almost all oil meal produced in
China is consumed locally, whereas ~25% of Indian meals are exported, owing to
other animal feed options available in India.
Exhibit 19. China vs India: a comparison

2010/11F estimates China India
Oilseeds
Major oilseed production Peanut and Soybean Cottonseed
% of total oilseed production 26% 31%
Major oilseed imported Soybean None
% of total oilseed consumed 59% -
Oilseed imports as % of total crushed 60% Very small
Vegetable oils
Major vegetable oil consumed Soybean oil and palm Palm oil and Soybean oil
% of total oil consumed 40% & 24% 46% & 16%
Major vegetable oil imported Palm oil Palm oil
% of total oil consumed 24% 46%
Oil imports as % of total oil consumed 37% 57%
Protein meals
Protein meal consumed as % of total production 100% 75%
Protein meal exports as % of total production - 25%
Source: USDA FAS, Nomura research
Indian oil production unlikely to match demand this year

The Indian oilseed crop has historically been insufficient to match oil demand, and the India produces roughly half the
edible oil it needs
situation is expected to continue this year. Total edible oil availability is only expected
to be ~8mn mT, vs the requirement of 16mn mT (ex-fats).

Exhibit 20. Estimates of India Oilseeds Crop for 2009/10F

Marketable surplus for crushing Total
and oil availability (mn mT) marketable Total oil
Oil recovery Oilseeds surplus availability
(%) (mn mT) Summer crop Winter crop (mn mT) (mn mT)
A. Oilseeds
Groundnut (in shell) 40 5.12 3.29 1.83 1.52 0.61
Soybean 17 8.5 8.5 - 7.5 1.28
Rapeseed / mustard / toria 33 6.42 0.1 6.32 6.22 2.05
Sunflower 35 0.99 0.32 0.67 0.98 0.34
Others 2.08 1.44 0.64 1.74 0.76
Sub-total 23.11 13.65 7.63 17.96 5.04
B. Other Oilseeds
Cottonseed 12.5 9.15 9.15 - 8.65 1.08
Copra 65 0.66 0.66 - 0.66 0.43
Subtotal 9.81 9.81 - 9.31 1.51
C. Secondary source
(Rice bran oil, oil cakes and minor oilseeds) 1.33
D. Butter, as fat 2.16

Grand total 10.04
Source: KS Oils Company presentation
India is going to meet most of edible oil deficit through palm oil
India’s total edible oil consumption is expected to grow at a CAGR of 8.6% over India’s edible oil import deficit will
2007-11F. Most of this incremental oil demand is going to be met by palm oil, whose be met by imports of palm oil, in
our view
share in Indian oil consumption has grown from 31% in 2007 to 46% in 2011F.
Demand for other major oils like soybean and rapeseed, is expected to remain more or
less flat, as we think it is unlikely that there will be a significant change in crop area or
yields, over the near term. We believe this is the reason why all major edible oil players
in India have ventured into oil palm cultivation over the last few years, to reduce
dependency on imports and backward integration.
Exhibit 21. Indian oil demand is increasing … Exhibit 22. Share of palm in consumption is growing
(000 mT) Palm Soybean (%) Palm Soybean Rapeseed Peanut Others
18,000 Rapeseed Peanut 100
Cottonseed Sunflowerseed 90 18 16 17 16 15
16,000
Other 80 9
14,000 12 12 10 9
70 14 14
12,000 15 14
60 18
10,000 16
50 16 17
18
8,000 21
40
6,000 30
4,000 20 44 43 46
39
31
2,000 10
0 0
06/07 07/08 08/09 09/10F 10/11F 06/07 07/08 08/09 09/10F 10/11F
Source: USDA FAS Source: USDA FAS

Meal market dynamics are different in India
Indian protein meal market dynamics

work different from China ...
India produces about 16mn mT of protein meal annually, mainly soybean meal (~39%) Indian meal market is not as big
and mustard meal (~22%). This represents ~6.2% of world production, but is only as China
about 1/10 of Chinese meal output, as China imports raw soybean instead of oils.
… as India exports ~25% of its meal production

India exports about 4mn mT of protein meal, (25% of its total production) to other
countries, such as South Korea, the Middle Eastern countries and the EU. About 80%
of these exports are soybean meal, and India is the fourth-largest meal exporter in the
world, with a ~5% market share.
As per the ERS department of the USDA, Indian soybean meal offers better price and
quality competitiveness in the world markets than other Indian meals. This is partly due
to the fact that soybeans are a relatively new crop in India, and so most of the
processing facilities are relatively modern and technologically advanced, as opposed
to mustard, which have been there since decades.
Meal market in India is small, but growing

Although Chinese edible oil market is about 1.8x the size of India, the Chinese meal However, it is growing with
demand as animal feed increasing
market is ~5x the size of India. This is due to lower consumption of meal in cattle, and
other cheaper alternatives available in India. However with the strong growth of Indian
poultry and egg producers, exports of Indian oilmeal have come down as percentage
of production. Also, with the minimum support pricing mechanism, the price of Indian
soybean meal has been firm, reducing their price competitiveness compared to the
world.
Exhibit 23. Indian meal exports are forecast to decline further

(000 mT) Meal exports (LHS) (%)
18,000 Meal production (LHS) 45
16,000 Exports as % of production (RHS) 40
14,000 35
12,000 30
10,000 25
8,000 20
6,000 15
4,000 10
2,000 5
0 0
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011F
Source: USDA FAS
So the main profit driver for processors is oil, not meal

Prices of Indian oil meal do not fluctuate much, due to a small domestic market and
the export market being flooded by meal from other big producers like Argentina and
Brazil. So the main profit driver for Indian oilseed processors is oil and not meal, in our
view. Although oil comprises only ~18% of the oilseed output by volume (soybean) and
35% of the volume (mustard), it accounts for >50% of the total value of the output.
Thus, Indian oilseed crush margins are still very much dependent on oil prices.

Exhibit 24. India soybean crushing margins

(Rs/mT) Soybean crushing margins (LHS) (Rs/mT)
7,000 Soybean price (RHS) 80,000
6,000 Soymeal (RHS) 70,000
Soy oil (RHS)
5,000 60,000
4,000
50,000
3,000
40,000
2,000
30,000
1,000
0 20,000
(1,000) 10,000
(2,000) 0
May-08
May-09
May-10
Mar-08
Nov-08
Mar-09
Nov-09
Mar-10
Jan-08
Jul-08
Sep-08
Jan-09
Jul-09
Sep-09
Jan-10
Jul-10
Sep-10
Source: Bloomberg, Nomura research

Indian edible oil industry is fragmented and underutilised
Indian edible oil industry is fragmented

and capacity utilisation is low
Owing to the Indian government policies that have regulated plant scale and set A large number of small scale
incentives for building new processing facilities, the Indian oilseed processing producers running at low
utilisations characterise Indian
landscape is dotted with small units, with non-technologically advanced processes
edible oil industry
running at very low utilisation rates. Although a number of inefficient units have closed
down after reduction of high import tariffs on edible oils made importing oils feasible
instead of processing locally, the average utilisation rates of Indian oilseed processors
is still very low (~30-40%), as they operate only during the local harvest season of raw
materials. To put this into perspective, capacity utilisation in developed nations, like the
US are close to 92-96%, average size of their units are roughly six times the size of
Indian units, thus giving them better scale and lower marginal cost of production.
Exhibit 25. Indian oilseed market process flow chart
Note: 1. Solvent extraction is used for raw materials, such as soybeans, cottonseed, and expeller oilcake with less
than 20% oil content
Source: ERS Report on Indian Agriculture, Nomura research
Exhibit 26. Indian oilseed processing capacity

Capacity (1)
Total Average Utilisation
Units (mn mT) (mT/day) (%)
Mechanical crushing:
“Ghanis” 130,000 2 0.05 10
Expellers 20,000 40.5 7 30-40
2
Solvent extraction 711 36 157 40-50
Vanaspati 241 4.8 66 35
Oil refining 585 4.7 20 35
Note:
1 Capacity and use based on raw material; 300 days/year, 24 hours/day basis.
2 Includes expander units.
Ghanis are very small scale oilseed crushers; Vanaspati = hydrogenated oil
Number of refiners and solvent extractors have come down in the last 5 years, from 800 and 766 respectively
Source: ERS Report: “The role of policy and industry structure in India's Oilseed Markets”

Ruchi Soya and KS Oils are largest listed processors by

capacity…
A number of Indian and foreign oilseed players have developed significant oilseed Ruchi Soya and KS Oils offer the
largest listed exposure to Indian
processing capacity, and are likely to be beneficiaries of any consolidation in the
edible oil industry
sector, in our view. Among the listed players, Ruchi Soya, which is the leader in palm
and soybean oil and KS Oils, which has the highest market share in mustard oil, have
the largest capacities. Adani-Wilmar, a JV between the Adani Group and Wilmar
International, has invested significant capex over the past few years, into building the
second largest processing capacity. However, even if we assume complete utilisation
of these established players’ capacity, they only account for 32% of the total oilseeds
crushed and 25.7% of total refining. This reaffirms our view that there is still significant
room for capacity expansion and consolidation among India’s edible oil space, which is
still largely unorganised.

Crushing Refining Potential market share of India’s total (%)
Capacity (mT/day) (mT/day) Crushing Refining
Ruchi Soya 12,700 7,370 13.7 13.4
Adani Wilmar 5,675 3,430 6.1 6.3
KS Oils 4,800 1,800 5.2 3.3
Guj. Ambu. Exp. 3,300 1,200 3.6 2.2
Sanwaria Agro 3,250 300 3.5 0.5
Total 29,725 14,100 32.1 25.7
Source: Ruchi Soya presentation
Recent consolidation to continue, the top players will capture

the growth, in our view
Owing to the recent financial crisis, several poor harvests and reduction in import
duties on edible oil, quite a few small scale solvent extractors and refiners have closed
down, or been taken over by larger players in the industry. The number of solvent
extractors has reduced from 766 to 711 and refiners have come down from 800 to
~600 since 2005. We expect this to be an ongoing trend; as larger players have
several key advantages such as being able to sustain a price war, access to cheaper
credit from MNC banks and markets, lower marginal cost of production, and possibility
of backward integration. The larger players are more likely to achieve positive crushing
margins, even if price of oils and meals corrects severely, but the price of raw oilseeds
are not allowed to go below their Minimum Support Price, in our view.
We think larger players like Ruchi Soya, KS Oils, Adani-Wilmar can benefit in two ways: The larger players stand to gain
1) from increasing capacity utilisation and 2) consolidation in the industry, and will the most
likely capture all the incremental growth in our view.
Exhibit 28. Marginal oilseed processing cost decreases with higher utilisation
Rapeseed Soybeans Groundnuts Sunflower
Cost (INR/mT) 30% 50% 100% 30% 50% 100% 30% 50% 100% 30% 50% 100%
Power 325 215 210 150 333 275 210 150
Steam 155 65 150 90 175 100 150 90
Hexane 125 70 134 100 108 55 134 100
Labour 255 195 128 100 210 140 128 100
Interest 156 156 120 96 157 157 120 96
Other 170 170 58 25 130 130 108 75
Total 1,186 871 680 800 561 375 1,112 857 696 850 611 425
% cost savings 27 43 30 53 23 37 28 50
Note: Breakup of cost for 100% utilisation is unavailable
Source: ERS Report, World Bank

Branded sales — CAGR of 25-30% expected
India still an untapped branded oil

market
Branded sales of edible oil in India at ~US$4bn comprise only about 25% of the total Proportion of pack oil sales in
edible oil market of INR750bn (~US$16bn), with most lower-income consumers opting India is still very low
for cheaper oils sold in loose form. However, with increasing quality consciousness,
rising incomes and consolidation in the edible oil space, industry experts suggest
branded sales are likely to grow at ~25-30% over the next few years, as opposed to
the total market growth at ~7% pa, and as per our calculations the branded market will
represent ~55-60% of the total market by 2015F.
Exhibit 29. Branded edible oil market is forecast to grow at 25-30% pa

(Rs bn) Branded sales Unbranded sales
1,200
Overall growth = 7%
1,000
420
800
600
563
400 Branded CAGR =
25-30% 632
200
188
0
2010 2015F
As per industry data, only about 31% of urban households and about 9% of rural Millions are climbing out of
households consume branded edible oils, with the national average at ~16%. This poverty and becoming
consumers
represents a significant untapped opportunity, with a potential to grow to US$13.5bn
by 2015F. We believe established players with scale like Ruchi Soya and KS Oils will
be the key beneficiaries of this deeper penetration.
Exhibit 30. Proportion of India’s deprived is falling

(%)
0.2% 0.4% 1.1% 1.7%
100 2.7% 5.7% 11.4% 12.8%
18.0%
80 22.0%
32.0% 34.0%
60
40 80.0%
72.0%
56.0% 52.0%
20
% 0
1995-96 2001-02 2007-08 2009-10F
Deprived Aspirers Middle class Rich
Source: Images Retail 2009

Palm is still largely an unbranded story; sunflower oil has the

highest proportion of packaged sales
Among the major edible oils, palm oil is still largely traded as a commodity and sold Palm oil is still sold mostly in
mostly in loose form, although players such as Ruchi Soya have their palm oil brands loose form
(Ruchi Gold). Sunflower oil on the other hand is mostly sold in packaged form. Mustard
oil, which is one of the more recent oils to be liberalised, is still sold 70% in unbranded
form.
Exhibit 31. Branded proportion and typical margins

Proportion of branded sales (%)
Branded Unbranded
Soybean oil 55 45
Palm oil 10-20 80-90
Mustard oil 30 70
Sunflower oil 70 30
Ruchi Soya and Adani-Wilmar lead branded market share

The branded edible oil industry has consolidated, with the top-five players having 57% Adani Wilmar is a formidable
competitor in our view
of the market. Ruchi Soya, along with Adani-Wilmar, is the leading consumer pack
distributer with its leading brands in soy oil and vanaspati (hydrogenated oil). The
leading players are incrementally focusing on improving the branded part of value
chain as it is a high-margin business and growth should be significant, led by structural
industry shift from unbranded to branded products.
Exhibit 32. Consumer pack oil market share by value

Consumer pack oil market share by value (%)
2004 2005 2006 2007 2008
Ruchi Soya 18.1 16.6 17.3 17.5 17.3
Adani Wilmar 16.3 16.4 17.3 16.1 16.5
Cargill 14.9 16.8 13.1 11.8 10.2
Agro Tech 9.7 8.2 7.2 6.9 6.3
Kaleesuwari 8.5 7.6 6.9 6.8 6.7
Exhibit 33. Brand portfolio for Indian players

Adani-Wilmar Ruchi Soya KS Oils
Soybean Oil Fortune Soya Health Nutrela, Mahakosh Kalash
Mustard Oil Fortune Kacchi Ghani Nutrela, Mahakosh, Kalash, Double Sher
Pure Mustard Oil Ruchi Gold
Palm Oil Raag Gold Ruchi Gold KS Gold
Sunflower Oil Fortune Sunlite Nutrela, Mahakosh Kalash
Vanaspati Avsar Nutri Gold KS Gold
Source: Nomura research

Exhibit 34. Key edible oil players: product portfolio

A leading edible oil consumer
India – a dominant edible oil demand

driver with significant oil deficit
India accounts for a major part of global edible oil demand
India is one of the world’s leading consumers and importers of vegetable oils. As per The USDA expects India to
USDA estimates, India is the third largest consumer of edible oils (after China and the account for 11% of global
vegetable oil demand in 2010/11F
EU-27 countries), and will account for 11% of global edible oil demand and 16% of
global imports in 2010/11F. Indian consumption and import growth is however
expected to outpace all the major countries’, including China, with a forecast 2007-11F
demand CAGR of 8.6% (vis-à-vis China at 7.2% and the world at 3.6%) and import
growth CAGR of 14.6% (China at 6.4% and the world at 5.5%). We believe at this rate
of growth, India will surpass China in oil imports over the next few years.
Exhibit 35. Total vegetable oil consumption (mn mT) Exhibit 36. Total vegetable oil imports (mn mT)
07-11F 07-11F
06/07 07/08 08/09 09/10F 10/11F CAGR (%) Imports 06/07 07/08 08/09 09/10F 10/11F CAGR (%)
China 22.6 23.3 24.7 27.2 29.8 7.2 China 8.5 8.8 9.8 9.7 10.9 6.4
EU-27 21.7 22.4 23.1 23.7 24.1 2.7 India 5.4 5.9 8.8 8.7 9.4 14.6
India 11.8 13.0 14.8 15.6 16.5 8.6 EU-27 9.0 9.0 9.1 8.5 8.8 (0.5)
Others 63.2 67.1 67.9 71.1 73.8 4.0 Others 24.1 27.2 26.6 28.2 29.1 4.9
Total 119.3 125.9 130.4 137.6 144.2 4.9 Total 47.0 50.9 54.2 55.1 58.2 5.5
India % of total 9.9 10.3 11.3 11.4 11.4 India % of total 11.6 11.6 16.2 15.8 16.1
Exhibit 37. India major oil production and consumption

Attribute Country 2006/2007 2007/2008 2008/2009 2009/2010F 2010/2011F
Palm oil
Production India 50 50 50 50 50
World 37,248 40,947 43,852 45,552 49,337
India as % of world 0.1 0.1 0.1 0.1 0.1
Domestic consumption India 3,671 5,065 6,475 6,750 7,550
World 35,878 39,754 42,839 45,000 47,946
India as % of world 10.2 12.7 15.1 15.0 15.7
Mustard oil
Production India 2,135 1,968 2,058 2,230 2,265
World 17,122 18,387 20,453 22,290 21,950
India as % of world 12.5 10.7 10.1 10.0 10.3
World 17,522 18,474 20,125 22,015 22,238
India as % of world 12.2 10.6 10.4 10.2 10.3
Soybean oil
Production India 1,157 1,499 1,287 1,190 1,385
World 36,325 37,571 35,695 38,402 40,821
India as % of world 3.2 4.0 3.6 3.1 3.4
World 35,386 37,761 35,912 38,065 40,971
India as % of world 7.1 6.2 6.4 7.0 6.3
Source: USDA FAS

Indian oil consumption has grown over the years, but domestic
production has remained stagnant…
Over 2004/09, local production of vegetable oils in India has seen a CAGR of only The demand supply gap is rising
0.2%. On the other hand, consumption has grown 6% annually, resulting in a widening
demand production gap. We estimate a production deficit of 9.3mn mT in 2010/11F, up
135% since 2003/04, and think that this deficit will widen over the medium-long term.
Exhibit 38. Indian vegetable oil production and consumption

(mn mT) (mn mT)
18 India production (LHS) 10
16 India consumption (LHS) 9
Demand-Production Gap (RHS) 8
14
7
12
6
10
5
8
4
6
3
4 2
2 1
0 0
03/04 04/05 05/06 06/07 07/08 08/09 09/10F 10/11F
Source: USDA FAS
… resulting in lower import tariffs and higher imports

Between 2001 and 2008, import duties on imported crude soya / palm oil were And dependence on imports in
prohibitively high, at 40-90%. The increasing gap between production and increasing
consumption resulted in the government rethinking these protectionist tariffs and the
revising down these duties to 7.5% for refined palm / soybean oil and 0% for crude
palm / soybean oil. This has resulted in imports of oils surging to address demand,
with imports rising 49% in 2009. We think these import duties will remain low in the
future, and import volumes will remain strong, as we believe the government will
prioritise food security and domestic oil production is unlikely to ramp up significantly.
Exhibit 39. Indian edible oil import duties Exhibit 40. Total oil imports
CPO and Crude Olein (mn mT)

(%) Refined Palm Oil and RBD Palmolein 10
Degummed soybean oil (crude) 9
120
Refined soybean oil 8 Import duties
100 7 slashed
80 6
5
60
4
40 3
2
20
1
0 0
Jan/00
Jan/01
Jan/02
Jan/03
Jan/04
Jan/05
Jan/06
Jan/07
Jan/08
Jan/09
Jan/10
03/04
04/05
05/06
06/07
07/08
08/09
09/10F
10/11F
Source: SEA of India Source: USDA FAS

Indian oilseed production has only increased marginally;

however, share of global production has remained stable
Oilseed production has not been
India’s total oilseed output has not grown in step with edible oil demand, growing at a
able to match up to demand
CAGR of only 2.3% over 2004-09. This is exacerbated by unpredictable weather and growth
droughts which have impacted production in various years. However, India’s share of
world oilseed production has remained stable at 7-9% over the years. As per the
USDA, cottonseed is India’s major oilseed crop, followed by soybeans and rapeseed.
Exhibit 41. India: total oilseed production Exhibit 42. India: what constitutes total output
(09/10)
(mn mT) (%)
36 India (LHS) India % of world (RHS) 9.0
35
8.5 Argentina Others
34 Cottonseed
12% 29%
2%
33 8.0
32
31 7.5 Soybean
India 2%
30 China
7.0 13% 8% Rapeseed
29 1%
28 6.5 Peanut
27 1%
26 6.0 USA Sunflowerseed
Brazil 24% Other
0%
03/04
04/05
05/06
06/07
07/08
08/09
09/10F
10/11F
16% 0%
Area under soybean cultivation has increased; yields still low

Agricultural land devoted to oilseed cultivation in India has increased at a slow pace, Indian crop yields are low
growing only 14% since 2000 to 39.5mn ha in 2009. However, area under soybean compared to the world
cultivation has increased significantly, up 49% to 9.6mn ha, whereas rapeseed is flat at
6.2mn ha. Area under cottonseed, which is India’s largest oilseed crop, has also grown
18% since 2000. However, Indian yields are still low compared to some of its more
developed peers, due to insufficient irrigation, fertiliser usage, and the prohibition of
genetically-modified crop. We think any government action to improve irrigation
facilities or policy changes to allow GM crop may lead to significant improvements in
yields, which may increase Indian oilseed production.
Exhibit 43. India: Area under oilseed cultivation

(mn ha) Groundnuts, with shell Rapeseed
45 Seed cotton Soybeans
40 Others
35
30
25
20
15
10
5
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: FAOStat

Exhibit 44. India soybean yields: low Exhibit 45. India rapeseed yields: low
(mT/ha) Brazil (mT/ha) Brazil
3.5 China 2.5 China
India India
3.0 United States of America United States of America
2.0
2.5
2.0 1.5
1.5
1.0
1.0 Low rapeseed yields
Low soy yields 0.5
0.5
0.0 0.0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2001
2002
2003
2004
2005
2006
2007
2008
2009
Source: FAOStat Source: FAOStat
Until India becomes self-sufficient in oilseed output,

incremental imports are going to fulfil edible oil demand
We expect the demand-production deficit to widen further and think that zero import Indian dependence on edible oil
duty on crude oils will continue over the medium term. With yields unlikely to surge imports will continue in our view
abruptly, we think edible oil imports will fulfil the ever increasing demand. Palm oil, due
to its low price and easy availability from neighbouring Malaysia and Indonesia, will
account for a large part of incremental import growth, in our view. As of now, palm oil
accounts for 73% of total oil imports in India, making it the world’s largest consumer of
the oil.
Exhibit 46. Indian edible oil imports: palm leads the way
(000 MT)
Palm Soybean Sunflowerseed Rapeseed Other
10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10F 10/11F
Source: USDA FAS
Imports of oilseeds in India is almost non-existent due to policy

restrictions and lack of a viable meal market
The government of India imposes several tariff and non-tariff restrictions on oilseed Policy restrictions and lack of a
imports, due to which Indian oilseed imports are virtually non-existent. India imposes a big meal market make oilseed
30% import duty on oilseeds, and also prohibits imports of genetically-modified crop, to imports not very profitable
protect its organic farming status in oilseeds. Also an 2002 Plant Quarantine Order
states that all imports should be certified pest-free and seeds should be “de-vitalised”
(ie, cannot be used for growing crop). This is done to protect local oilseed farmers, but
makes the cost of shipped soybeans prohibitively high. Also, if seeds are devitalised
by splitting them at the point of origin, they can degrade in quality during shipping.

India also does not have a viable meal market, and exports about 25% of its oil meal
output. Lack of a local market and meal being one of the end products of crushing
reduces the profitability of crushing locally. All these reasons make oilseed imports
unfeasible and minimal, in our view.
… however, the government may have to revisit restrictions if it

wants to reduce edible oil import dependence…
With crop yields unlikely to jump in the near term, and edible oil demand continuing to Although unlikely over the near
rise, the import dependence to bridge the gap between demand and supply will term, the government may have to
reconsider oilseed import
continue to increase, in our view. Currently, India is self-sufficient in meal demand and
regulations if it wants to reduce
a net exporter, but this may change over the long term with higher domestic demand oil import dependence
from the animal feed industry. A dual dependence on both meal and oil imports may
prompt the government to revisit import restrictions on oilseeds, in our view. We
believe this may also be done in a phased manner, by imposing import quotas, so as
to safeguard local grower’s crop off-take.
... which will be a positive for local processors in our view

We think the removal of import restrictions will benefit the processors like Ruchi Soya
and KS Oils, with available capacity to crush the incremental imports, and will enable
them to also take part in additional meal output.
Exhibit 47. Indian share in world oilseed production and consumption

Attribute (mn mT) Country 2006/2007 2007/2008 2008/2009 2009/2010F 2010/2011F
Oilseeds
Production India 29.92 33.95 33.4 31.72 34.65
World 404.45 392.01 396.37 441.2 439.74
India as % of world 7.4 8.7 8.4 7.2 7.9
Consumption India 24.49 27.79 26.14 25.01 27.8
World 328.17 339.09 338.32 369.86 371
India as % of world 7.5 8.2 7.7 6.8 7.5
Protein meals
Exports India 5.22 6.6 4.63 3.41 4
World 68.91 71.83 69.27 72.59 74.83
India as % of world 7.6 9.2 6.7 4.7 5.3
World 221.71 228.32 227.95 238.21 249.48
India as % of world 4.1 4.2 4.5 4.6 4.8
Vegetable oils
Production India 6.4 7.05 6.74 6.45 7.14
World 121.55 128.22 133.38 139.06 146.14
India as % of world 5.3 5.5 5.1 4.6 4.9
World 119.3 125.87 130.44 137.61 144.19
India as % of world 9.9 10.3 11.3 11.4 11.4
Source: USDA FAS

A snapshot of the three major oils
Palm, soybean and mustard oil are the

three pillars
Palm, soybean and mustard oil are the most consumed oils in India, collectively A story of three oils – palm,
mustard and soybean
accounting for ~75% of the country’s total oil demand. Mustard oil is almost entirely
produced within the country, whereas about 45% of soybean oil and almost the whole
of palm oil is imported in crude form and refined in either port based / hinterland based
refineries. Mustard oil produced is almost entirely consumed, leaving very little
inventories at the end of the marketing year, which implies that there is room for
capacity growth if crop output increases, in our view.
Domestic consumption of edible oils is expected to grow at 8.6% annually over 2007-
11F, outstripping production growth at only 2.7%, implying imports need to grow at a
much faster rate (~15%) to address the demand.
As per USDA estimates, most of this demand growth will come from palm oil, (~20% Demand growth is expected to be
CAGR), whereas mustard and soybean oil consumption will grow at only 1-2% pa. met by palm oil
Stock usage ratios for Indian oils remain very low, partly due to the oil deficit status of
the country.
Exhibit 48. Indian edible oil supply demand forecasts

% CAGR
Oil (000 MT) 2006/2007 2007/2008 2008/2009 2009/2010F 2010/2011F (07-11F)
Production
Palm 50 50 50 50 50 0.0
Rapeseed 2,135 1,968 2,058 2,230 2,265 1.5
Soybean 1,157 1,499 1,287 1,190 1,385 4.6
Others 3,062 3,531 3,348 2,983 3,436 2.9
Total 6,404 7,048 6,743 6,453 7,136 2.7
3 as % of total 52 50 50 54 52
Imports
Palm 3,650 5,015 6,867 6,400 7,500 19.7
Rapeseed 0 0 42 23 23 na
Soybean 1,447 733 1,060 1,500 1,180 (5.0)
Others 343 169 818 780 685 18.9
Total 5,440 5,917 8,787 8,703 9,388 14.6
3 as % of total 94 97 91 91 93
Domestic consumption
Palm 3,671 5,065 6,475 6,750 7,550 19.8
Rapeseed 2,133 1,967 2,095 2,252 2,287 1.8
Soybean 2,500 2,330 2,300 2,670 2,600 1.0
Others 3,503 3,608 3,891 3,960 4,015 3.5
Total 11,807 12,970 14,761 15,632 16,452 8.6
3 as % of total 70 72 74 75 76
Ending stocks
Palm 47 47 489 189 189 41.6
Rapeseed 0 0 4 4 4 na
Soybean 172 58 103 121 84 (16.4)
Others 107 157 419 209 302 29.6
Total 326 262 1,015 523 579 15.4
3 as % of total 67 40 59 60 48
Stock usage ratios
Palm 1.3 0.9 7.6 2.8 2.5
Rapeseed 0.0 0.0 0.2 0.2 0.2
Soybean 6.9 2.5 4.5 4.5 3.2
Total 2.8 2.0 6.9 3.3 3.5
Source: USDA FAS

The oils differ in fat composition and taste

With increasing health consciousness among urban Indian consumers and to some
extent in the rural markets, the focus has shifted to the suitability of cooking oils for the
Indian consumer. Typically palm oil has one the highest percentages of saturated fats
(~51%) which are perceived to be bad for the heart, whereas mustard oil has only ~7%,
the lowest of the major oils. Soybean oil offers a more balanced composition, with
~62% of polyunsaturated fats (which are considered beneficial).
We think this puts mustard oil and soybean oil producers like Ruchi Soya and KS Oils Mustard and soybean oil are
in a sweet spot in case health becomes a deciding factor for the purchase. This is perceived to be healthier than
palm
likely to be the case in affluent Indian households, which are increasing in number.
These companies also produce branded sunflower oil for urban markets.
Exhibit 49. Oil fat content comparison
Saturated Fat Monosaturated Fat Omega 3 Polyunsaturated Fat Omega 6 Polyunsaturated Fat
Coconut Oil 91 7 02
Palm Oil 51 39 0 10
Lard 43 47 1 9
Cottonseed Oil 27 19 0 54
Peanut Oil 19 48 0 33
Rice bran Oil 18 44 0 38
Oilive Oil 15 75 1 9
Soybean Oil 15 23 8 54
Corn Oil 13 29 1 57
Sunflower Oil 12 16 1 71
Flaxseed Oil 9 16 57 18
Safflower Oil 8 77 1 14
Mustard Oil 7 61 11 21
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Note: Health benefits increase from left to right, ie Monosaturated fat is better for health than saturated fat; Source: KS Oils corporate presentation
Consumption is regional and consumer preference driven…

One important distinction between the edible oil consumption patters in India and other Oil consumption is regional and
countries in the world is that Indian oil preferences differ on a regional basis. This taste preference driven
arises in part due to availability and local taste preferences for oils. For instance,
mustard oil has traditionally been very popular is eastern and north-eastern India, due
to the flavour it brings to seafood. Palm oil has increasingly become the oil of choice in
South India due to its warmer climate (palm oil gets a cloudy appearance in colder
North Indian climates and becomes unfit for consumption) and easy availability from
S.E. Asia through ports in the region. Soybean oil is prevalent in north and central
India due to the local availability of raw soybeans.
Exhibit 50. Regional oil preferences

Type of oil Preferred by
Mustard North-east, Central, North and East India
Groundnut West India
Palm Central and South India
Soybean North and Central India
Sunflower Largely consumed in urban India, in small quantities
Source: Company data

… implying Ruchi Soya and KS Oils serve non-overlapping

consumer belts
Ruchi Soya, which is the market leader in soybean oil, serves mainly North and
Central India. On the other hand, KS Oils, whose primary output is mustard oil, serves
North-East, Eastern, along with other parts of North and Central India. This creates a
non-overlapping demand scenario for their outputs, separating their consumers.
Although the companies have recently ventured into each other’s territories, with Ruchi The companies have recently
Soya entering mustard oils through its Mahakosh and Ruchi Gold brands and KS Oils diversified into each other’s
territories
producing Kalash Soybean Oil, we think it will take time for them to make a reasonable
impact on the other’s market, given their leadership position. We also think there is
less likelihood of Indian consumers with taste peculiarities to shift from one oil to the
other (eg, fish and pickle can only be cooked in mustard oil due to its pungency and
preservative properties respectively).
Exhibit 51. Indian regional oil preferences
Note: Shaded region represents oilseed production belt of Rajasthan and Madhya Pradesh; Sunflower oil is mostly
consumed in urban areas in small quantities
Source: KS Oils presentation

Palm oil is the next big opportunity
Palm oil: the next big opportunity

With soybean and rapeseed crop output hardly growing, palm oil has emerged as the The share of palm oil in India’s
answer to India’s edible oil consumption. The share of palm oil in India’s consumption consumption is expected to
increase from 31% in 2007 to 46%
is expected to increase from 31% in 2007 to 46% in 2011F, due to various reasons:
in 2011F
 Easy availability from Malaysia and Indonesia.
 Cheaper alternative which suits the Indian price conscious consumer.
 Zero duties on crude palm oil.

 Drought in South America in 2008-09 decreasing soybean oil output and increasing
prices.
This along with the fact that processing cost in palm oil are lower than other oils, has
led to most players like Ruchi Soya and KS Oils establishing or acquiring palm refining
capacity, in our view.
Exhibit 52. SEA forecast for Indian imports in 2015 Exhibit 53. Current import duties on edible oils
(mn mT) 2015 Edible oils Duty (%) Non Edible oils Duty (%)
Total edible oil demand 22.5 Crude Crude Palm Stearin 19.57
Total area under oilseeds (mn ha) 30 Crude palm oil / olein 0 Crude Palm Kernel Oil 17.37
Yield (mT/ha) 1.3 Crude sunflower oil 0 Palm Fatty Acid Distillate 32.76
Production of oilseeds 42 (P.F.A.D.)
Domestic supply of edible oils 12.5 Crude rapeseed oil 0 Palm Kernel Fatty Acid 32.76
Distillate (P.K.F.A.D.)
Total edible oil imports required 10
DG Soybean oil 0 Spilt Palm Kernel Fatty 32.76
Imports as share of demand (%) 44 Acid
Source: Company presentation Refined
Vanaspati 12.03
Refined palm oil/RBD 7.73
palmolein
Refined rapeseed oil 7.73
Refined sunflower and 7.73
other oils
Refined soybean oil 7.5
Source: SEA of India
Palm oil imports steadily rising; soybean oil imports remained

constant
Palm oil monthly import data shows that the amount of imports has increased over the
years, especially after withdrawal of import tariffs in 2008. Soybean oil imports have
more or less remained steady on the other hand, with a highly seasonal import pattern
which peaks in June-October. Palm oil imports remain more or less steady throughout
the year, only dipping slightly when soybean oil imports pick up.

Exhibit 54. Monthly crude palm oil imports Exhibit 55. Monthly crude soybean oil imports
('000 mT) ('000 mT)
India total CPO imports
600 350 India total Crude Soy oil imports
500 300
250
400
200
300
150
200
100
100 50
0 0
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Source: Solvent Extractors Association of India Source: Solvent Extractors Association of India
Exhibit 56 below shows that soybean oil imports are typically at their highest levels in
June-October, after the harvest season. A shortage of soybean oil post the South
American drought in 2008-09 decreased soybean oil imports and pushed prices up.
Exhibit 56. Seasonality in palm / soybean imports

(000 MT)
350 Average CPO import Average crude soybean oil import
300
250
200
150
100
50
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: SEA of India
However palm oil demand is price driven; may fall if it trades at

parity to other oils
One of the reasons for palm oil’s popularity is its low price. However, during periods Palm oil imports may fall if it
where the average discount of palm oil to soybean oil has narrowed significantly, palm trades at parity to soybean oil in
our view
oil imports have dropped as refiners have switched to other oils like soybean. This puts
a strong cap on CPO prices in India, as although India’s dependence on palm oil
cannot be entirely withdrawn, importers can temporarily shift to soybean till CPO prices
cool down.
Palm oil prices (CIF Mumbai) has historically traded at a 16% discount to soybean oil,
in line with global averages, until recently when the discount has narrowed to ~5%
since March. This explains the recent drop in CPO imports, which have picked up only
in June due to anticipated festive demand.

Exhibit 57. CPO imports fall when discount narrows and vice versa
(000 MT) (%)
India Crude Palm Oil Imports
600 5
CPO discount to soybean oil (RHS)
0
500 (5)
(10)
400 (15)
(20)
300
(25)
200 (30)
(35)
100 (40)
(45)
0 (50)
May-07
May-08
May-09
May-10
Mar-07
Nov-07
Mar-08
Nov-08
Mar-09
Nov-09
Mar-10
Jul-07
Sep-07
Jan-08
Jul-08
Sep-08
Jan-09
Jul-09
Sep-09
Jan-10
Jul-10
Source: Bloomberg, SEA of India, Nomura research
Exhibit 58. Import prices of CPO and soybean oil

(US$/MT)
India CPO import price CIF Mumbai
1,800
India Soyoil import price CIF Mumbai
1,600
1,400
1,200
1,000
800
600
400
200
0
Mar-07
Mar-08
Mar-09
Mar-10
Dec-06
Jun-07
Sep-07
Dec-07
Jun-08
Sep-08
Dec-08
Jun-09
Sep-09
Dec-09
Jun-10
Source: Bloomberg
Palm refining margins are better than soybean or sunflower oil

Palm refining margins are better than soybean or sunflower oil mainly due to lower Processing costs for palm oil are
cost of palm and fewer number of steps in palm refining process (see appendix). lower than other oils
Processing costs for palm are ~INR1.25/kg (~US$30/mT) and for soybean and
sunflower around INR2.25/kg (~US$45/mT). This is another reason why most Indian
names, including Ruchi Soya, are expanding capacities in palm refining. Refining
margins are generally around 2-2.5% on a cost basis. These are lower than those
realised in other countries due to the price sensitivity of Indian consumers.

Exhibit 59. India implied refining margins
(Rs/mT)
Soybean oil refining margins
12,000
Palm oil refining margins
10,000
8,000
6,000
4,000
2,000
0
(2,000)
May-09
May-10
Mar-09
Nov-09
Mar-10
Jan-09
Feb-09
Apr-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Dec-09
Jan-10
Feb-10
Apr-10
Jun-10
Jul-10
Aug-10
Sep-10
Source: Bloomberg, Nomura research
Everyone wants a share of the palm oil market

Most Indian edible oil players have recognised palm’s opportunity, and have rushed in Recent initiatives in palm oil by
to build palm refining capacities. Some, like Ruchi Soya and KS Oils, have also Ruchi Soya and KS Oils
ventured into oil palm cultivation, to reduce their dependence on imports and remove
price risk. Both companies have also taken the M&A route to accelerate growth in the
palm market.
Exhibit 60. Ruchi Soya and KS Oils in the oil palm industry
Ruchi Soya KS Oils
Palm refining  Plans to expand palm refining  Acquired a port based refinery in
capacity by 1mn mT/year to 3.1mn Haldia with a capacity of 500mT/day
mT by 2012. for INR1500mn.
 Setting up an additional 1000mT/day
palm refining operation at its
Patalganga plant.
Palm cultivation  After the acquisition of Palm Tech  It currently has about 750ha of
India early this year, has rights to planted plasma plantations in
develop ~169,000ha of palm land in Indonesia and is targeting planting
India. about 36,000ha in medium term
years.

Mustard oil industry growth to come from branded sales
Mustard oil – limited volume growth but

margin accretion through branded sales
We think volume growth in the Indian mustard oil market will be muted, due to limited Mustard oil volumes are not
crop availability and practically no imports of the oil. Mustard oil production is slated to expected to grow much, but
margins are better
remain fairly stagnant, growing at 1.5% pa over 2007-11F; however, a large part of the
mustard oil segment comprises small unorganised players and unbranded sales. KS
Oils has the largest mustard oil processing capacity in India at ~4,400mT/day, and
management targets to increase its market share in the mustard segment from 12.5%
to 20% over the medium term. This would lead to higher realisations, and margin
enhancement in our view. As mustard oil has been the last oil to be liberalised in India
and has one of the higher margins, large players have entered the space recently to
capitalise on the mustard opportunity.
Mustard is easy to grow with a high oil yield

Mustard is easy to grow, and does not need extensive irrigation facilities, and is A high oil yielding crop which is
generally pest-resistant. It is consumed mostly as a virgin oil (without refining, to easy-to-grow
preserve its taste and pungency), so there is no import market. Mustard is primarily
grown in Rajasthan in India, and mustard oil is the oil of choice in eastern and north
eastern India. Oil yield from mustard is about 42%, with about 35% of the oil extracted
during three stages in the oil mill (Kachi Ghani) and the final 7% extracted through
solvent extraction (it is in non-edible form and is then refined to form edible oil).
Mustard meal has a 37% protein content (lower than soymeal with a 48% protein
content). Thus, it sells at a discount to soybean meal. The price of mustard DOC is
INR11/kg (US$220/mT) whereas soybean DOC is INR17/kg (US$340/mT). The cost of
raw mustard is INR22,000-25,000/mT (US$440-500/mT). Prices are lowest during
February-March harvesting season.
Exhibit 61. Mustard oil industry players

Company Brand Comment
K S Oils Double Sher, Kalash, KS Gold Largest player in the mustard edible oil market (crushing capacity of 4,650 MT/ day)
Gokul Refoils Gokul Capacity of 690 MT/ day for mustard crushing
NDDB Dhara GCMMF (Amul) is the sole selling agent for Dhara and markets this brand through its wide
distribution network
Agro Tech Sudham Refined mustard oil which is marketed in the Eastern market
Bunge Dalda Recently launched refined mustard/soybean edible oil in Eastern market
Shri Hari Engine Established brand in Rajasthan
Industries
Vijay Solvex Scooter Acquired the brand 5 years ago; crushing capacity of 325 MT/day
Adani Wilmar Fortune Kachi Ghani Recent entrant in crude mustard oil (third party manufacturing)
Ruchi Soya Mandap and Ruchi Gold Presence in crude and refined mustard oil (third party manufacturing)
Mustard seed and oil prices to remain fairly constant

Mustard oil prices have remained stable at INR45-55/kg, with a constant price spread
of INR 25/kg between the oil and the seed. We do not see any significant price
appreciation in mustard over the medium term, and thus believe earnings growth for
mustard will come from higher margin branded sales.

Exhibit 62. Mustard oil prices have remained fairly stable

(Rs/kg)
Mustard Seed Mustard Oil
75
65
55
45
35
25
15
Dec-03
Apr-04
Aug-04
Dec-04
Apr-05
Aug-05
Dec-05
Apr-06
Aug-06
Dec-06
Apr-07
Aug-07
Dec-07
Apr-08
Aug-08
Dec-08
Apr-09
Aug-09
Dec-09
Apr-10
Aug-10
Source: Bloomberg
Exhibit 63. Rapeseed and soybean growing areas
Source: Company presentation

Soybean oil
Soybean oil: losing market share

Soybean oil accounts for 16% of total oils consumed in India, and demand is expected Soybean oil’s share in India’s oil
to grow by only ~1% pa over 2007-11F, as per USDA. Like China, India depends on demand has declined
imports to satisfy its soybean oil demand. However, India differs from China in that it
imports crude soybean oil, whereas China imports raw soybeans and crushes them
locally to make up for its soyoil demand. We think this is due to prohibitive government
import policies regarding bean imports and a meal surplus in India. We don’t expect
Indian bean import restrictions to change, and believe that processor’s profits will
continue to be determined by domestic crush margins and imported oil refining
margins over the medium term.
Although absolute volumes of soybean oil have grown over the last few years, the
growth has been muted, due to drought in South America increasing soybean oil
prices in 2008-09 and lack of a viable soybean meal market in India.
A low oil yield with a better quality meal

Soybeans yield about 18% oil and 82% meal after the crushing / solvent extraction Soybean oil yield is ~18%, but the
process. Madhya Pradesh, along with Maharashtra and Rajasthan are the key meal has a higher protein content
soybean producing regions in India. Although soy oil forms only 20% of the volume
output of soybean crushing, value-wise it contributes nearly 50% of the end products.
DOC can be used in both edible form (ie, for human consumption) and non-edible form
(feed for cattle). Non-edible DOC market is non-existent in India as protein meal for
animal feed is driven by cheaper options available. Other value-added products like
soy flour, nuggets, etc that can be derived from DOC output are high-margin segments.
Soybean oil losing market share to palm

As India does not have a substantial meal market and soybean related prices have
been high over the last two years due to drought in South America, soybean oil has
been losing market share to the cheaper palm oil.
Crushing margins do not move in line with global margins

Indian soybean crush margins do not move in line with global margins, as most of Indian crush margins move
differently
India’s oil and meal prices depend on world oil and meal prices, but the bean’s price
cannot go below the minimum support price set by the government. Indian soybean oil
refining margins also fluctuate unlike world soybean oil refining margins, due to import
dependence of soybean oil.
Exhibit 64. Soybean oil refining margins (US$/mT) — Exhibit 65. Soybean crushing margins (US$/mT) —
global global
(US$/mT) (US$/mT) US soybean crush margin

250 Soybean oil refining margin global 140 India Soybean crush margin
Soy oil refining margin Indian 120
200
100
150 80
60
100
40
50 20
0
0
(20)
(50) (40)
May-09
May-10
May-09
May-10
Mar-09
Nov-09
Mar-10
Mar-09
Nov-09
Mar-10
Jan-09
Jul-09
Sep-09
Jan-10
Jul-10
Sep-10
Jan-09
Jul-09
Sep-09
Jan-10
Jul-10
Source: Bloomberg, Nomura research Source: Bloomberg, Nomura research

Appendix
Appendix 1: Refining process flow

Exhibit 66. Refining process for 3 major oils
Note: India directly imports degummed soybean oil as it avoids the need for a separate
gum storing facility (gum yield = 2%) and gum precipitates during transport in contact
with sea breeze.
Note: Bleaching in palm to remove colour pigments is done simply by heating, and this
is one reason palm refining margins are better.
 Vanaspati manufacturing process
Vanaspati is solid hydrogenated fat, made by solidifying and blending 50% refined
palm oil, 40% olein, and 10% refined sunflower oil and refined soybean oil. In India
there is no blended oil market.

Appendix 2 – Pictures from Agri-Diaries

We visited KS Oils and Ruchi Soya’s facilities in June-July. Please find below some
photographs of edible oil production process and one picture of the “mandi”, where the
Indian farmer auctions his crop to the processors.
Exhibit 67. Mustard seed Exhibit 68. Mustard cake
Source: Nomura research, Courtesy KS Oils Source: Nomura research, Courtesy KS Oils
Exhibit 69. Mustard oil preparation Exhibit 70. Packaged mustard oil
Source: Nomura research, Courtesy KS Oils Source: Nomura research, Courtesy KS Oils
Exhibit 71. Crude (R) and refined (L) palm oil Exhibit 72. Ruchi Soya’s 3 different retail oil packs
Source: Nomura research, Courtesy Ruchi Soya Source: Nomura research, Courtesy Ruchi Soya

Exhibit 73. Soya DOC chunks Exhibit 74. Mandi (farmer selling mustard seed)
Source: Nomura research, Courtesy Ruchi Soya Source: Nomura research, Courtesy KS Oils

K.S. Oils K S O I N
C O N S U M E R R E L AT E D / AG R I - R E L AT E D | I N D I A
Initiating
Tushar Mohata (Associate) BUY
 Action Closing price on 9 Sep Rs51.1
KS Oils has sharply underperformed the Sensex ytd on a tax-related probe that Price target Rs67.0
began in March. Although the issue may remain a near-term overhang, the
Upside/downside 31.2%
correction seems overdone, in our view, as the stock is trading near its historical
Difference from consensus -7.4%
low valuations although there has been no probe finding as of yet. As the leader in
India’s mustard industry, earnings should remain solid driven by increasing capacity FY12F net profit (Rsmn) 2,471
utilisation in mustard, expansion in soybean and palm refining, and maturing of Difference from consensus -31.3%
palm plantations in Indonesia. Initiate with a BUY rating. Source: Nomura
 Catalysts
Nomura vs consensus
The stock may re-rate on any positive development on the tax issue, along with
continued earnings growth, or any asset tie up in the palm space, in our view. We think consensus is not
meaningful as coverage is thin and
Anchor themes
infrequently updated. We believe the
Dependence on oil imports will remain a key theme. Industry consolidation and information flow to investors is still
increasing branded sales should help larger players capture market share. very limited.
Value among the debris Key financials & valuations

31 Mar (Rsmn) FY10 FY11F FY12F FY13F
Revenue 40,960 48,460 55,187 61,960
 We think that the correction is overdone, initiate at BUY Reported net profit 2,346 2,140 2,471 3,041
Normalised net profit 1,808 2,140 2,471 3,041
KS Oils has underperformed ytd (down 21% versus a 4% uptick in the Normalised EPS (Rs) 4.42 5.23 6.04 7.43
benchmark) on tax-related concerns. We think the correction is Norm. EPS growth (%) (8.4) 18.4 15.5 23.1
Norm. P/E (x) 11.6 10.6 9.1 7.4
overdone and the stock looks attractive, at just 9.1x FY12F EPS.
EV/EBITDA (x) 6.3 5.4 4.5 3.7
Moreover, we expect a rebound on any positive newsflow. We Price/book (x) 1.8 1.4 1.2 1.0
estimate a 16% diluted earnings CAGR over FY10-13F, driven by Dividend yield (%) 0.4 0.5 0.6 0.7
higher utilisation in mustard. ROE (%) 22.4 16.2 15.4 15.8
Net debt/equity (%) 83.7 72.2 53.2 35.2
Earnings revisions
 Market leader in rapeseed, with presence in other oils Previous norm. net profit na na na
The Indian mustard oil market is highly fragmented, and KS Oils, with Change from previous (%) na na na
Previous norm. EPS (Rs) na na na
an 11% market share (up from 2% few years ago), is the largest Source: Company, Nomura estimates
player. It plans to hold 20% market share over medium term and
expects increasing consolidation will lead to higher margins over the Share price relative to MSCI India
medium term. It also has built a strong presence in the soybean (Rs) Price
81 Rel MSCI India 130
crushing and palm refining businesses, which now account for 58% of
76 120
total revenues versus 26% in FY06. 71 110
66 100
61 90
 Initiatives in palm a challenge, but could be a dark horse 56 80
51 70
KS Oils had aggressive plans for upstream plantations in Indonesia, 46 60
targeting 85,000ha. However, with stricter regulations, it had to scale
Nov09
Dec09
Jan10
Feb10
Mar10
May10
Sep09
Oct09
Apr10
Jun10
Jul10
Aug10
down its plans to only 36,000ha, of which 750ha is planted. Still,

management believes that it must be present in the palm oil segment 1m 3m 6m
Absolute (Rs) (7.4) (1.1) (30.7)
and is looking for assets/tie-ups. Any corporate action on palm could Absolute (US$) (8.1) 0.1 (31.9)
act as a positive catalyst for the stock, in our view. Relative to Index (9.4) (12.5) (37.8)
Market cap (US$mn) 435.7
 Concern overdone; valuations attractive Estimated free float (%)
52-week range (Rs)
20.0
76.2/48.75
Three concerns have driven KS Oils’ underperformance, in our view: 3-mth avg daily turnover (US$mn) 2.09
the March tax probe; a slowdown in plantations; and an exit by a PE Stock borrowability Hard
Major shareholders (%)
fund. Although we cannot pre-empt the result of the tax issue, the Promoter Group 41.4
correction implies a ~10% hit to the bottom line that we think looks NSR Direct PE Mauritius 10.2
unreasonable, considering its recorded tax rate is 35%. Also, the PE Source: Company, Nomura estimates
exit was partial and led by closure of the involved fund.

K.S. Oils Tanuj Shori
Value among the debris
Value emerging from the debris

KS Oils has underperformed peers and the benchmark in 2010
KS Oils has corrected by 21% ytd, compared with a 4% rise in the Sensex and a 47% Concerns over a tax probe,
rise in peer Ruchi Soya (RSI IN, BUY). We believe this is due to concerns following the challenging plantations and a PE
fund exit are overdone…
income tax search conducted by the tax department at the company’s premises in
March and the resulting delay in results. This underperformance can also be pinned on
the fact that KS Oils had to scale down its ambitious plantation targets in Indonesia. As
shown in the exhibits below, the share price performance has decoupled from edible
oil price movement over the last six months, reflecting a sharp de-rating on corporate
concerns.
Exhibit 75. KS Oils vs Indian markets Exhibit 76. KS Oils vs Commodity Prices
(%) Ruchi Soya KS Oils (%) KS Oils MPOB Palm Oil
60 Sensex BSE Midcap 140 Crude Soybean Oil Mustard oil
50 120
40 100
30 80
20 60
10 40
0 20
(10) 0
(20) (20)
(30) (40)
May-10
May-09
May-10
Mar-10
Mar-09
Nov-09
Mar-10
Feb-10
Jan-10
Apr-10
Jun-10
Jul-10
Aug-10
Sep-10
Jan-09
Jul-09
Sep-09
Jan-10
Jul-10
Sep-10
Source: Bloomberg Source: Bloomberg
Concerns overdone over tax probe and PE exit

KS Oils has underperformed on what we identify as three key concerns — the tax
investigation; a slowdown in plantations; and an exit by a Citi Venture Capital PE fund.
Although we cannot know the outcome of the tax probe, the correction thus far implies
that the market is writing off ~10% of the recurring bottom line, which looks
unreasonable, in our view. The company’s recorded tax rates have been ~35%
historically, and we are building similar high tax rates going forward (to be conservative,
we are not yet building in the accelerated depreciation impact of windmills, which may
actually lower the future tax rates to below our assumptions).
Also, the PE exit was partial, and it was the sell down of the fund’s round 1 investment
that was made some four years back and was led by closure of the involved fund. The
investor still has more seed money invested in the company, implying to us that the
exit was rooted in corporate governance concerns. As shown in the following exhibit,
private equity players CVC, Barings, New Silk Route and others (GDR in round 2) are
still invested in the company.
On Indonesian plantations, although management has scaled back the plantable

acreage target, it should still be able to achieve ~30,000ha of planted land over the
next few years, in our view. Again, to be conservative, we are not attributing any value
to upstream plantations for KS Oils.

Exhibit 77. KS Oils: Equity raising through private equity, GDRs and promoter infusion
Round 1 (2006) Round 2 (2007) Round 3 (2009) Overall Stake of
Amount Stake of Amount Stake of Amount Stake of fully diluted share
(INRmn) current (%) (INRmn) current (%) (INRmn) current (%) base(%)
1 1 2 2 3 3 5
Citi Venture Capital 900 11.3 4 0.0 490 2.0 13.3
2 2 3 3
Barings 900 4.9 490 2.0 6.8
New Silk Route 1,953 9.1 9.1
2 2
GDR 2,088 11.3 11.3
4 4
Promoters 414 5.2 1,000 5.4 1,570 6.5 17.1
Total 1,314 16.5 3,992 21.5 4,503 19.5
Note:
1. Citi Venture Capital exited Round 1 stake in July 2010 due to closing of its fund. It still holds the round 2 and round 3 investments
2. Other private equity investors have invested in the company through the GDR
3. Warrants issued but not converted yet
4. Till date, warrants for an amount of INR897 mn (3.7%) out of a total of INR1570mn are still unconverted
5. Is currently ~2% after selling off round 1 stake
Potential dilution after all outstanding warrants are converted by CVC, Barings and promoters is ~10% which is already built into our numbers
We expect a bounceback, as valuations look attractive

Given the concerns and respective justifications discussed above, we think the de- …given KS Oils’ attractive
rating in the stock has been overdone. The shares are at FY12F P/E of only 9.1x, valuation, market leadership and
earnings growth outlook
toward the bottom of its three-year trading range. In our view, although corporate
governance concerns will likely remain an overhang over the next several months, any
positive newsflow and further sequential earnings growth — such as that seen in 1Q
FY11 results, up 33% q-q and 3% y-y — is likely to prompt a re-rating from trough
valuations. We also note that the tax investigations may take months to reach a
conclusion; we are comforted somewhat that company’s reported tax rates have been
high, leaving little room for manoeuvring, in our view.
Initiate with BUY; upside of 31% to our INR67 price target

Our PT of INR67 is based on a FY12 P/E of 12x, or a 20% discount to our target
multiple for peer Ruchi Soya, to take into account near-term headwinds on stock price
performance including the tax concerns and lower planned capacity expansion over
the near term. We think that as KS Oils’ branded sales increase, the target multiple
may re-rate to those of Indian and Chinese downstream consumer plays that typically
trade at 20x forward earnings. Still, our price target implies 31% potential upside. The
company is trading below -1SD of its historical P/E average, and our target multiple is
close to the average trading multiple of 11.4x (since 2007), which is undemanding in
our view, given the company’s earnings outlook.
Exhibit 78. KS Oils: forward P/E Exhibit 79. KS Oils: forward P/B
21 4.0
19 3.5
17
3.0
15 +1SD=13.9 +1SD=2.4
2.5
13
Average=11.4 Average=1.9
2.0
11
1.5
9
-1SD=8.9 1.0 -1SD=1.3
7
5 0.5
Nov-07
Mar-08
Nov-08
Mar-09
Nov-09
Mar-10
Nov-07
Mar-08
Nov-08
Mar-09
Nov-09
Mar-10
Jul-07
Jul-08
Jul-09
Jul-10
Jul-07
Jul-08
Jul-09
Jul-10

Earnings support on the back of leadership in mustard

We think KS Oils’ earnings will remain supported by its leadership in the mustard oil Positive newsflow and continued
segment and increasing utilisation therein (It has nearly tripled its capacity in mustard strong earnings performance
should lead to a bounceback
over the last one to two years.) Steady 1Q FY11 earnings up 33% q-q and 3% y-y)
indicate it is on track to achieve our 18% core earnings growth and estimate for FY11F.
Although KS Oils is one of the highest-margin earners in the Indian edible oil space,
due to its presence in the premium mustard oil market, we believe there is still room for
expanding margins over the medium term, with improving utilisation. (KS Oils’ FY10
adjusted net margins at 4.4% were significantly above Ruchi Soya’s at 1.3%.) We think
strong volume ramp-up as the company gains market share from other mustard oil
competitors in newer markets, along with sequential improvement in operating
statistics, will lead the re-rating.
We think KS Oils is still scouting for opportunities in the palm space, which could help
its sourcing capabilities. Any positive newsflow on this should act as a catalyst for the
stock to bounce back, in our view.

Market leader in mustard oil
Market leader in mustard oil

Increasing scale in mustard oil helps the company derive
higher margins
In India, only about 30% of the mustard oil market is branded, while the remaining 70% The company has a head start in
comprises the "unorganised" sector. KS Oils is the market leader in the Indian mustard the high margin mustard oil
industry. The aroma
oil space, which has historically sold at a premium to other kinds of edible oils and
characteristics of mustard oil
helped derive higher margins versus other edible oil producers for the company. The imply the production process
domestic mustard oil market is highly fragmented, and management thinks increasing must be finely calibrated
consolidation in the industry will bolster KS Oils’ share of the organised market and its
margins. The company also believes that given the adulteration (by mixing other oils)
in the mustard oil market, prices of the oil are artificially low. They expect that as the
incidents of spurious mustard oil in the market reduce over the medium term, prices
may rise further — benefitting bigger players like KS Oils.
KS Oils plans to have 20% market share of India’s mustard oil industry over the
medium to long term. It currently has an 11% market share, up from 2% just four to five
years ago. To put things in perspective, KS Oils has total mustard oil processing
capacity of 4,400mT/day, whereas its nearest competitor, Gokul Refoils, has
~690mT/day).
Mustard oil’s pungency characteristics create automatic

barriers to entry
Given the distinctive pungency requirements of mustard oil, it takes a trial-and-error
process spanning years to perfect the production process. KS Oils has taken about 10
years to calibrate the process, while other competitors are just starting to set up their
operations in mustard oil. Difficulties in establishing the correct operational set-up
remain an automatic barrier to entry in the mustard oil industry, and this gives KS Oils
a headstart, with the lowest cost of production versus smaller operators as per the
company. Management expects that by the time competitors ramp-up scale, KS Oils
will already have a substantial penetration in all major markets in the country.
KS Oils is one of six solvent extractors in India (out of ~600) with the knowledge to
extract an additional 7% mustard oil from the mustard cake. This helps the company in
generating incremental returns on the same mustard seed cost.
India’s mustard oil market is supply constrained, and growth will also likely be India’s mustard oil market is
supply constrained, and growth
restricted by the mustard output in the country. As a result, first movers like KS Oils —
will also likely be restricted by the
who have significant presence and capacity (4x the next competitor Gokul Refoils) in mustard output in the country
the industry — will be the first beneficiaries of any industry shift from “unorganised” to
branded sales

Exhibit 80. Mustard oil vs other oils

(Rs/kg) Mustard Oil Refined palm oil Refined soybean oil
65
60
55
50
45
40
35
30
May-09
May-10
Mar-09
Nov-09
Mar-10
Feb-09
Jan-09
Apr-09
Jun-09
Aug-09
Sep-09
Oct-09
Dec-09
Feb-10
Apr-10
Jul-09
Jan-10
Jun-10
Aug-10
Sep-10
Jul-10
Source: Bloomberg
Business sufficiently diversified between mustard and non-

mustard segments
The company has evolved from being primarily a mustard oil player to having a The company also has a sizeable
sizeable chunk in the refining and solvent extraction businesses. Overall, from FY06 to chunk of its revenues coming
from palm and soybean oil
FY10, the Vanaspati market turnover remained virtually stagnant, whereas the
operations
company’s turnover from the mustard oil business decreased from 60% to 41%. The
share of refining and solvent extraction is now 58% of the total business versus 26% in
FY06. This is due to a conscious effort by the company to expand into the soybean
and palm refining businesses. We consider this strategy as positive, as we think that
imports of these two oils will fill up the country’s edible oil deficit. Although this has
diluted some of the strong margins the company was earning from the mustard
segment, we view this favourably as any edible oil player in India should have a
presence in the palm and soybean oil segments, which are going to fill up India’s
growing edible oil deficit in our view.
Exhibit 81. FY06 revenue breakdown Exhibit 82. FY10 revenue breakdown
Solvent Solvent
extraction extraction
and others and others
11% 21%
Mustard oil
Vanaspati Vanaspati 41%
14% 1%
Mustard oil
Refining 60%
15%
Refining
37%
Source: Company data Source: Company data

We expect KS Oils will be a direct beneficiary of rising edible oil

demand and shift from changing consumption patterns
Although the company’s revenue from branded sales has grown 10-fold since FY06,
the proportion of branded sales has remained fairly stagnant at ~10%. Management
expects to increase this percentage, on an increasing number of Indian households
switching to branded oils due to quality-awareness and safety from spurious oils. The
company’s long-term goal is to increase the mustard oil market share from 11% to
20% over the medium term led primarily by a higher share in the branded market. This
would enhance the company’s margin profile further, as retail packs are typically
higher margin offerings, and we think this industry shift to branded retail packs can
sustain bottom-line growth over the longer term.
Exhibit 83. Branded sales as % of turnover has Exhibit 84. Proportion of retail packs as % of
remained constant, but grown in abs terms turnover has grown
(Rsmn) Branded Non-branded (%) Retail packs Loose oils
40,000 120
35,000
100
30,000
80
25,000
65
20,000 60
90
15,000
40
10,000
20 35
5,000
10
0 0
FY06 FY10 FY06 FY10
Initiatives in palm oil: aggressive plans may not materialise

Management had initially guided to a palm plantation target of 85,000ha in Indonesia, The company’s palm oil
along with a total fund outlay of INR7.5bn. However, up to now, only about 750ha has plantation target has been
lowered significantly
been planted, and as per the latest guidance by management, the company is only
looking at ~36,000ha of plantations over the medium term. This is partly due to
difficulty in acquiring new forest concessions in Indonesia given the environment
conservation MoU signed between Indonesia and Norway.
We think this lower guidance is a negative to the company’s palm oil ambitions and
has been a key reason for the stock’s underperformance ytd. We would like to see KS
Oils do more in palm oil refining or plantation space, as we believe that palm oil will
continue to gain importance in India’s food basket, along with higher market share in
India’s edible oil consumption. We are not building in any contribution from the
company’s palm business into our price target, given the very small incremental
planting target.

Looking at the numbers
Financial analysis
Revenue and earnings to grow on improving capacity utilisation
We look for KS Oils’ revenues and net income to grow on improving capacity utilisation Keep
We margin
expect comments
strong short
revenue andand
at the company’s new mustard capacity. We expect capacity utilisation in mustard to use them growth
earnings to highlight
backedoneby
or two
paragraphsmargins
improving on a page
increase from 45% now to ~70% over the next three to four years, in line with its
previous utilisation of 75% before capacity expansion. Overall, we estimate this will
lead to an FY10-13F revenue CAGR of 14.6% and core earnings CAGR of 19%.
Exhibit 85. Revenues Exhibit 86. Net income

(Rsmn) (Rsmn)
70,000 3,500
60,000 3,000
50,000 2,500
40,000
2,000
30,000
1,500
20,000
1,000
10,000
500
0
0
FY05
FY06
FY07
FY08
FY09
FY10
FY11F
FY12F
FY13F
FY05
FY06
FY07
FY08
FY09
FY10
FY11F
FY12F
FY13F
Processing margins should benefit from continued leadership

in mustard and increasing scale
We expect volumes to grow steadily and processing margins to rise steadily after the
correction in FY10, backed by economies of scale at the new plants and a lower
marginal cost of production. We think the company’s leadership in the mustard oil
business will give it an edge in any market share gains in branded mustard oil, which
can further lift margins. However, we are not yet building a substantial increase in net
margins. We look for a small rise to 4.5% in FY12F from 4.4% in FY10.
Exhibit 87. Net margin (%) Exhibit 88. EBIT margin (%)
(%) (%)
7 12
6 10
5
8
4
6
3
4
2
1 2
0 0
FY05
FY06
FY07
FY08
FY09
FY10
FY05
FY06
FY07
FY08
FY09
FY10
FY11F
FY12F
FY13F
FY11F
FY12F
FY13F

Exhibit 89. EBIT/mT margin (US$/mT) Exhibit 90. Volumes

(US$/mT) (mn mT)
100 1.6
90 1.4
80
1.2
70
60 1.0
50 0.8
40 0.6
30
0.4
20
10 0.2
0 0.0
FY05
FY06
FY07
FY08
FY09
FY10
FY05
FY06
FY07
FY08
FY09
FY10
FY11F
FY12F
FY13F
FY11F
FY12F
FY13F
RoE to remain stable

We expect an 18.8% core earnings CAGR over FY10-13F, and stable RoEs of 15.5-
16%, which are slightly better than Ruchi Soya’s due to KS Oils’ higher margins
derived for mustard oil. We think this RoE advantage will remain the case. Working
capital needs will likely increase in line with incremental sales.
Exhibit 91. RoE Exhibit 92. Working capital

(%) (Rsmn)
60 18,000
16,000
50
14,000
40 12,000
10,000
30
8,000
20 6,000
4,000
10
2,000
0 0
FY05
FY06
FY07
FY08
FY09
FY10
FY05
FY06
FY07
FY08
FY09
FY10
FY11F
FY12F
FY13F
FY11F
FY12F
FY13F
Comfortable gearing and high cash cycle should continue

We think the company’s relatively comfortable gearing at ~80% is likely to improve with
profitability. The company’s cash cycle has been high, but is expected to remain stable,
in our view.

Exhibit 93. Net debt to equity Exhibit 94. Cash cycle

(%) (days)
100 100
90 90
80 80
70 70
60 60
50 50
40 40
30 30
20 20
10 10
0 0
FY07
FY08
FY09
FY10
FY07
FY08
FY09
FY10
FY11F
FY12F
FY13F
FY11F
FY12F
FY13F

Risks to our investment view
Investment risks
Delay in ramp-up of capacity utilisation
We are building in capacity utilisation ramp-up to drive KS Oils’ volume and earnings Delay in capacity utilisation
growth. Any substantial delay in improving capacity may affect our processing volumes ramp-up, slow margin expansion
and competition remain key risks
and have an adverse effect on earnings.
Exhibit 95. Sensitivity: impact if zero capacity utilisation growth

Impact to FY12F (%)
Revenues (10.9)
EBIT (10.0)
Net income (15.3)
Price target (14.9)
Muted margin expansion vis-à-vis expectations

We expect the company to deliver margin accretion through an increase in the
proportion of branded sales and improving economies of scale through higher
utilisation at its plants. Failure to deliver the margin expansion may lead to more muted
earnings growth than our expectation.
Exhibit 96. Sensitivity: impact if zero margin growth

Impact to FY12F (%)
Revenues 0.0
EBIT (3.9)
Net income (6.0)
Price target (6.0)
Competition taking away volumes

Competitors like Adani-Wilmar and Ruchi Soya are also investing in significant
capacity build-up. Any failure to achieve desired volume growth may materially impact
turnover and earnings growth.
Exhibit 97. Sensitivity: impact if zero volume growth

Impact to FY12F (%)
Revenues (10.0)
EBIT (9.8)
Net income (15.1)
Price target (14.9)

Appendix
Company background
KS Oils has an 11% market share in the overall mustard oil segment with a dominant
25% market leadership in branded mustard oil. It employs 3,000 people over its six
manufacturing plants and marketing offices and plantations in India, Malaysia,
Indonesia and Singapore.
Key management personnel

Ramesh Chand Garg, Chairman: He belongs to the promoter family and has been in
the edible oil industry for over 30 years. He is involved in the purchases and strategic
initiatives of the company.
Sanjay Agarwal, Managing Director: Sanjay is a Fellow Member (FCA) of the

Institute of Chartered Accountants of India and the Institute of Company Secretaries of
India. He ran his own practice before joining the company.
Location of plants
Exhibit 98. Location of plants and input capacity in mT per day

Solvent
State Plants Crushing Extraction Refining Vanaspati
Madhya Pradesh Morena 1,000.0 600.0 450.0 150.0
West Bengal Haldia - - 500.0 100.0
Rajasthan Kota 1,200.0 1,000.0 250.0 0.0
Madhya Pradesh Guna 1,200.0 1,600.0 200.0 0.0
Madhya Pradesh Ratlam 1,000.0 1,000.0 200.0 0.0
Total 4,400.0 4,200.0 1,600.0 250.0
Shareholding structure
Exhibit 99. Shareholding structure on 30 June 2010
Non Institutional
36% Promoter
41%
MF/ UTI
2%
FII FI/ Bank

20% 1%
Note: As of date, the percentages will be different due to CVC selling off its round 1 stake
Source: Company filing

Financial statements
Income statement (Rsmn)
Year-end 31 Mar FY09 FY10 FY11F FY12F FY13F
Revenue 31,682 40,960 48,460 55,187 61,960
Cost of goods sold (25,896) (33,905) (40,153) (45,657) (51,195)
Gross profit 5,786 7,056 8,307 9,530 10,764
SG&A (2,574) (2,834) (3,353) (3,819) (4,287)
Employee share expense
Operating profit 3,212 4,221 4,953 5,711 6,477
EBITDA 3,483 4,753 5,677 6,588 7,438

Depreciation (271) (532) (723) (876) (961)
Amortisation
EBIT 3,212 4,221 4,953 5,711 6,477
Net interest expense (654) (1,460) (1,744) (2,005) (1,916)
Associates & JCEs
Other income - - - - -
Earnings before tax 2,558 2,761 3,210 3,706 4,561
Income tax (910) (961) (1,059) (1,223) (1,505) One of the higher net margins
Net profit after tax 1,648 1,800 2,150 2,483 3,056 in the industry
Minority interests 6 7 (11) (12) (15)
Other items
Preferred dividends
Normalised NPAT 1,654 1,808 2,140 2,471 3,041
Extraordinary items - 538 - - -
Reported NPAT 1,654 2,346 2,140 2,471 3,041
Dividends (70) (84) (106) (125) (145)
Transfer to reserves 1,584 2,262 2,034 2,346 2,896
Valuation and ratio analysis

FD normalised P/E (x) 10.6 11.6 10.6 9.1 7.4
FD normalised P/E at price target (x) 13.9 15.2 13.9 12.0 9.8
Reported P/E (x) 10.6 8.9 9.8 8.5 6.9
Dividend yield (%) 0.4 0.4 0.5 0.6 0.7
Price/cashflow (x) 6.1 10.5 7.7 5.8 5.0
Price/book (x) 1.9 1.8 1.4 1.2 1.0
EV/EBITDA (x) 8.3 6.3 5.4 4.5 3.7
EV/EBIT (x) 9.0 7.1 6.2 5.2 4.3
Gross margin (%) 18.3 17.2 17.1 17.3 17.4
EBITDA margin (%) 11.0 11.6 11.7 11.9 12.0
EBIT margin (%) 10.1 10.3 10.2 10.3 10.5
Net margin (%) 5.2 5.7 4.4 4.5 4.9
Effective tax rate (%) 35.6 34.8 33.0 33.0 33.0
Dividend payout (%) 4.2 3.6 4.9 5.1 4.8
Capex to sales (%) 12.8 5.0 5.0 1.4 1.2
Capex to depreciation (x) 15.0 3.8 3.4 0.9 0.8
ROE (%) 20.6 22.4 16.2 15.4 15.8
ROA (pretax %) 18.0 16.2 16.1 16.7 17.7
Growth (%)
Revenue 54.9 29.3 18.3 13.9 12.3
EBITDA 58.5 36.5 19.4 16.0 12.9
EBIT 54.8 31.4 17.3 15.3 13.4
Normalised EPS 8.2 (8.4) 18.4 15.5 23.1
Normalised FDEPS 19.0 (8.3) 9.3 15.5 23.1
Per share
Reported EPS (Rs) 4.8 5.7 5.2 6.0 7.4
Norm EPS (Rs) 4.8 4.4 5.2 6.0 7.4
Fully diluted norm EPS (Rs) 4.8 4.4 4.8 5.6 6.9
Book value per share (Rs) 26.7 28.8 35.8 42.8 51.3
DPS (Rs) 0.2 0.2 0.3 0.3 0.4

Cashflow (Rsmn)
EBITDA 3,483 4,753 5,677 6,588 7,438
Change in working capital (4,378) (2,348) (1,908) (1,737) (1,787)
Other operating cashflow 3,785 (423) (1,059) (1,223) (1,505)
Cashflow from operations 2,889 1,982 2,709 3,627 4,146
Capital expenditure (4,052) (2,048) (2,423) (750) (750)
Free cashflow (1,163) (66) 286 2,877 3,396
Reduction in investments - - - - -
Net acquisitions
Reduction in other LT assets (1,829) - - - -
Addition in other LT liabilities 629 - - - -
Adjustments (549) 103 99 126 228
Cashflow after investing acts (2,911) 37 385 3,003 3,624
Cash dividends (84) (106) (125) (145) (178)
Equity issue 24 - 86 - -
Debt issue 6,492 1,500 1,000 (250) -
Convertible debt issue - - - - -
Others (4,293) (1,175) (1,074) (1,588) (1,527)
Cashflow from financial acts 2,139 219 (112) (1,983) (1,705)
Net cashflow (772) 256 273 1,021 1,919
Beginning cash 1,504 732 988 1,260 2,281
Ending cash 732 988 1,260 2,281 4,200
Ending net debt 8,608 9,851 10,579 9,308 7,389
Balance sheet (Rsmn)

As at 31 Mar FY09 FY10 FY11F FY12F FY13F
Cash & equivalents 732 988 1,260 2,281 4,200
Marketable securities
Accounts receivable 1,208 1,562 1,848 2,104 2,362
Inventories 9,747 12,693 14,997 17,033 19,107
Other current assets 2,282 2,482 2,702 2,944 3,210
Total current assets 13,968 17,725 20,807 24,362 28,879 Cash cycle to remain
LT investments - - - - - relatively high but stable
Fixed assets 6,520 8,036 9,736 9,610 9,399
Goodwill 126 126 126 126 126
Other intangible assets
Other LT assets 3,670 3,670 3,670 3,670 3,670
Total assets 24,284 29,556 34,338 37,767 42,073
Short-term debt 20 20 20 20 20
Accounts payable 3,814 4,967 5,868 6,665 7,476
Other current liabilities 911 911 911 911 911
Total current liabilities 4,745 5,898 6,799 7,596 8,407
Long-term debt 9,319 10,819 11,819 11,569 11,569
Convertible debt
Other LT liabilities 1,054 1,054 1,054 1,054 1,054
Total liabilities 15,118 17,770 19,672 20,218 21,030
Minority interest 21 13 24 36 52
Preferred stock
Common stock 356 356 443 443 443
Retained earnings 2,916 4,956 6,770 8,896 11,559
Proposed dividends
Other equity and reserves 5,873 6,461 7,430 8,173 8,990
Total shareholders' equity 9,146 11,773 14,643 17,512 20,992
Total equity & liabilities 24,284 29,556 34,338 37,767 42,073
Liquidity (x)
Current ratio 2.94 3.01 3.06 3.21 3.43
Interest cover 4.9 2.9 2.8 2.8 3.4
Leverage
Net debt/EBITDA (x) 2.47 2.07 1.86 1.41 0.99
Net debt/equity (%) 94.1 83.7 72.2 53.2 35.2
Activity (days)
Days receivable 13.1 12.3 12.8 13.1 13.2
Days inventory 99.8 120.8 125.9 128.4 128.8
Days payable 46.8 47.3 49.2 50.2 50.4
Cash cycle 66.1 85.9 89.5 91.3 91.6

Ruchi Soya Industries R S I I N
C O N S U M E R R E L AT E D / AG R I - R E L AT E D | I N D I A Initiating
Tushar Mohata (Associate) BUY
 Action Closing price on 9 Sep Rs141.1
Ruchi Soya is the leading Indian edible oil player, with a significant presence in Price target Rs170.0
soybean crushing, palm refining and the consumer pack downstream market.
Capex and increasing utilisations will help volumes and the margin profile should Difference from consensus 61.5%
rise via increasing branded sales. Although the stock has done well (up 47% YTD),
outperformance should continue, underpinned by strong earnings growth (28% FY12F net profit (Rsmn) 3,005
CAGR) and value of palm plantations, in our view. We initiate with a BUY rating. Difference from consensus 16.2%
Source: Nomura
 Catalysts
A 25-30% earnings CAGR led by volume and market-share growth should continue Nomura vs consensus
to drive re-rating. Long term, plantation can set an uplift to earnings. We think the street is not yet
Anchor themes factoring in upstream plantation
value, which can be a big driver,
Dependence on oil imports will remain a key theme. Industry consolidation and considering it already has 32,000ha
increasing branded sales will help larger players capture market share in the future. of palm oil under cultivation.
Better late than never Key financials & valuations

31 Mar (Rsmn) FY10 FY11F FY12F FY13F
Revenue 143,944 171,477 195,382 203,459
 Upside prevails, despite the recent run-up Reported net profit 1,806 2,314 3,005 3,726
Normalised net profit 1,771 2,314 3,005 3,726
We initiate with a BUY and view the company as the key beneficiary Normalised EPS (Rs) 8.31 7.96 10.34 12.82
of rising edible oil demand and industry consolidation on scale and Norm. EPS growth (%) 64.3 (4.2) 29.8 24.0
Norm. P/E (x) 19.3 20.4 15.7 12.7
leadership position. Although the stock looks rich on earnings
EV/EBITDA (x) 9.9 8.3 6.3 5.4
multiples, strong earnings delivery, coupled with an uptick from palm Price/book (x) 2.2 2.5 2.1 1.8
plantations will continue to support valuations, in our view. Dividend yield (%) 0.6 0.6 0.7 0.9
ROE (%) 14.0 15.3 16.7 17.7
Net debt/equity (%) 61.2 60.7 40.7 25.4
 Market leader in Indian edible oil space and plantations Earnings revisions
Ruchi Soya is the market leader in the Indian soybean oil market, and Previous norm. net profit na na na
soybean-related end-products. It has an 11% market share of the Change from previous (%) na na na
Previous norm. EPS (Rs) na na na
edible oil market in India, with a double-digit and leading market share Source: Company, Nomura estimates
in crushing, refining and branded oil segments. To add, it has
aggressively expanded in recently-started palm plantations in India, Share price relative to MSCI India
controlling 28% of the estimated viable landbank. (Rs) Price
150 Rel MSCI India 150
140 140
 The story is around volumes, margins and scale 130 130
120
120
We believe one should Buy Ruchi for significant earnings growth, 110
110
100
which will be helped volume growth on the back of capacity expansion 90 100
80 90
and higher utilisations, increasing margins as branded sales increase 70 80
and supply chain volumes decrease. We expect core earnings growth
Dec09
Feb10
May10
Jun10
Sep09
Oct09
Nov09
Jan10
Mar10
Apr10
Jul10
Aug10
for Ruchi Soya to remain strong (28% CAGR over FY10-13F). Plus,
leadership position and scale will help it capture any upside potential 1m 3m 6m
Absolute (Rs) 29.3 37.5 39.3
of the Indian edible oil market on both the volumes and margins front. Absolute (US$) 28.4 39.1 36.8
Relative to Index 27.6 27.0 31.4
 Sizeable palm exposure will sustain momentum Market cap (US$mn) 765
Estimated free float (%) 53.1
Valuations, in our view, should also get supported via its foray in palm 52-week range (Rs) 141.1/77.4
plantations, which is yet to contribute to the earnings. Our implied 3-mth avg daily turnover (US$mn) 10.98
value of palm plantation is at a discount to related global peers, Stock borrowability
Major shareholders (%)
justified by lower yields and start-up risks, in our view. A positive Promoter Group 46.9
catalyst might be further investment in plantation assets outside India. Emerging Market Mgmt LLC 2.8
Source: Company, Nomura estimates

Ruchi Soya Industries Tanuj Shori
We expect re-rating to continue
Leader in Indian edible oil industry

— re-rating to continue
Stock has done well on the back of plantation story
Ruchi Soya has outperformed the index significantly in 2010, rising 47% YTD, vs the Keeping well ahead of the market
Sensex’s 4% gain and a 21% decline in KS Oils. This is on the back of newsflow
regarding the company’s significant acquisitions in the palm oil space in India, where it
has acquired a landbank of 169,000ha, which is 28% of land viable for palm cultivation
in India. It has also acquired Sunshine Oleochemicals, for its fatty acid output from the
refining operations, and this is expected to be earnings and margin accretive from
FY12F. The outperformance has also been helped by strong 1Q results, which saw
earnings jump 38% q-q, significantly beating street estimates.
Exhibit 100. Ruchi Soya vs Indian markets Exhibit 101. Ruchi Soya vs commodity prices
(%) Ruchi Soya KS Oils (%) Ruchi Soya MPOB Palm Oil
60 Sensex BSE Midcap 450 Crude Soybean Oil
50 400
40 350
300
30
250
20 200
10 150
0 100
50
(10)
0
(20) (50)
(30) (100)
May-10
May-09
May-10
Mar-10
Mar-09
Nov-09
Mar-10
Feb-10
Jan-10
Apr-10
Jun-10
Jul-10
Aug-10
Sep-10
Jan-09
Jul-09
Sep-09
Jan-10
Jul-10
Sep-10
Source: Bloomberg Source: Bloomberg
We think there is more to come, expect re-rating to continue

We think that with continuing capex intensity, the perception of Ruchi Soya will change From trader to processor
from a trader to a processor, with a progressively higher percentage of the company’s
turnover to come from the manufacturing segment. As the industry wakes up to
substantial Indian edible oil demand, Ruchi Soya will draw a premium owing to the fact
that it is the leading player in all value-chain segments in India — oilseed crushing,
palm plantation, edible oil refining, and branded consumer packs.
We think the market has only just started to appreciate management’s 25-30% bottom- We don’t think the market is
line growth guidance over the next few years, driven by newer acquisitions and the placing enough stock in guidance
palm venture, which is yet to be reflected in the street’s numbers. We think strong
volumes along with sequential improvement in operating statistics and new initiatives
in oleochemicals and palm business will continue to lead stock performance from here.
In our view, it will re-rate in-line with other listed players in Singapore such as Wilmar,
which has a similar business profile.

Exhibit 102. Ruchi Soya: forward P/E Exhibit 103. Ruchi Soya: forward PEG
25 2.5
20 2.0
+1SD=13.9 +1SD=1.5
15 1.5
Average=1
10 Average=9.1 1.0
5 0.5 -1SD=0.6
-1SD=4.3
0 0.0
May-07
May-08
May-09
May-10
May-07
May-08
May-09
May-10
Jan-07
Sep-07
Jan-08
Sep-08
Jan-09
Sep-09
Jan-10
Jan-07
Sep-07
Jan-08
Sep-08
Jan-09
Sep-09
Jan-10
Initiate with BUY; upside of 21% seen

Our price target of INR170 implies upside of 21% from the current levels. The Should command the upper-end
company is trading at +1SD its historical P/E average, and we think that it should of the P/E band
continue to trade in the upper band of the range, given its leadership position, and
growth prospects.
We value Ruchi Soya at 15x FY12 P/E, at a premium to the midstream

average, but lower than Wilmar
We value Ruchi Soya’s core processing and downstream business at INR134.6/share
on a 15x FY12F P/E (CY11), which is at a discount to Wilmar (our implied target P/E
for Wilmar is ~16.5x CY11 earnings). The discount to Wilmar is justified, in our view,
because of lower scale, despite the fact that the earnings trajectory for Ruchi Soya
should be much higher than Wilmar. We value it at a premium to the average of
midstream to account for high earnings growth and the fact that it is a leading player in
the high-margin downstream branded segment, as Indian and Chinese consumer
names typically trade at 20x-plus forward earnings.
Plantation business forms 20% of our target value, justified on peer

comparison
We also add back plantation business value of INR35.4/share, where they have
already planted 32,000ha of palm oil land in India, and have acquired a total plantable
landbank of 169,000ha.
Our calculation for the value of the plantations business represents an EV/ha of
US$7,812, which is at a significant discount to other listed mid-cap palm players in
Malaysia and Indonesia. We believe this is justified as none of the planted landbank of
Ruchi Soya is mature yet and Ruchi Soya does not own the land (unlike the others), as
its business model is similar to the Indonesian palm operations.
Exhibit 104. Global palm oil companies with comparable landbank, EV/ha
EV Planted EV/Total Planted Immature
Company (US$mn) hectarage Ha (US$) (%)
Genting Plantations 1,766 77,676 22,726 28.4
First Resources 1,388 99,844 13,909 30.5
Kencana Agri 429 29,542 14,533 44.2
Ruchi Soya ~250 32,000 7,812 0
Average 958 59,766 14,745

Continued earnings delivery on the back of entire value chain

We believe Ruchi Soya will continue to deliver strong core earnings growth (our
estimate - 28% CAGR over FY10-13F), driven by increasing capacity utilisations and
higher margins, along with upstream and downstream initiatives across the value chain.
We believe that there is still room for expanding margins, through a higher percentage
of branded sales and more involvement in manufacturing vs the supply-chain
businesses. (Ruchi Soya’s FY10 net margins at 1.3% are significantly above FY09’s
0.7%, but still below KS Oils at 4.4%).
1Q earnings signal company’s guidance on track

Ruchi Soya’s non-consolidated 1Q11 net income of INR524mn (up 38% q-q and 5% y-
y) forms 23% of our FY11F estimates and we believe it can comfortably achieve our
full-year forecasts. We think that the company’s 25-30% core earnings growth
guidance is on track and shareholders should at least get earnings returns if valuations
remain supported.

Business model/competitive advantage/management strategy
Market leader in soybean processing and

branded palm oil
Ruchi Soya is the market leader in the Indian edible oil market, with a double-digit and Leader in Indian edible oil
leading market share in crushing, refining and branded oil segments. It has an 11% industry, with highest market
share in refining, crushing and
market share of the overall edible oil market in India, along with a 25% share in the
branded consumer pack business
soybean oil and 22% in the DOC market. To add, it has aggressively expanded in
recently started palm plantations in India, controlling 28% of the estimated viable
landbank.
First-mover in capacity expansion; increasing capacity

utilisation will enhance margins
Ruchi Soya has invested about INR10.6bn in capacity expansion since FY05 and
currently has the highest crushing and refining capacities in the country. At
12,700mT/day (crushing) and 7,370mT/day (refining), it is the leading oilseed crushing
and palm refining player in India. It is also expanding aggressively into palm refining
(target of 3mn MT by next year).
Current crushing utilisations are however low, at around ~50% due to seasonality in
crushing operations and refining utilisations are some 80-90%, led by higher
utilisations at port-based refineries. We think that crushing utilisations will increase,
owing to consolidation in the industry and will lead to improving crushing spreads and
overall margin enhancement.

Crushing Refining Potential market share of India’s total
Capacity (mT/day) (mT/day) Crushing (%) Refining (%)
Ruchi Soya 12,700 7,370 13.7 13.4
Adani Wilmar 5,675 3,430 6.1 6.3
KS Oils 4,800 1,800 5.2 3.3
Guj. Ambu. Exp. 3,300 1,200 3.6 2.2
Sanwaria Agro 3,250 300 3.5 0.5
Total 29,725 14,100 32.1 25.7
Exhibit 106. Ruchi Soya: capacity growth
(mn MT/yr) Crushing Refining Vanaspati

4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1998 2002 2008 2009

Business breakdown: healthy mix of midstream, downstream

Ruchi Soya’s primary business activity involves refining and selling edible oils, in both A foot in the higher value-added
branded and loose forms. It derives ~71% of FY10F revenues and 65% of FY11F camp
earnings from its oils business. In addition, it also sells by-products of the crushing
operation, the oil meal, for both human consumption (texturised soy protein and soy
flour) and as animal feed (DOC). It also derives 5% of its earnings from the Vanaspati
segment, with an installed capacity of ~0.5mn mT/year. In addition, it has a small
contribution from grains, packaged juices and other minor products.
Exhibit 107. FY10 revenue breakdown Exhibit 108. FY10 EBIT breakdown
Others Others
Food Extractions Food 9% Extractions
7%
Products 14% Products 18%
2% 3%
Vanaspati
6%
Vanaspati
5%
Oils
71% Oils
65%
We expect the proportion of low-margin business to decrease

Currently the company has two major types of operations: a) supply chain (which Fast into manufacturing
involves directly importing oils and selling them), which accounts for 35% of total
turnover, with an EBITDA margin of ~1% (lowest among all segments), and; b)
manufacturing-related business (refining and crushing), accounting for 65% of total
turnover with an EBITDA margin of 3-4%. Going forward, the company expects to
increase the manufacturing proportion of turnover to boost margins. We expect the
manufacturing business to contribute about ~73% of the total turnover in FY13F.
Exhibit 109. Manufacturing % of turnover expected to increase
(Rsmn) Manufacturing Supply Chain

250,000
200,000
27
29
150,000 31
23 34
100,000 23
32 71 73
29 69
50,000 77 77 66
46 68
71
54
0
FY05 FY06 FY07 FY08 FY09 FY10 FY11F FY12F FY13F

Growth in branded portfolio to outpace unbranded sales

Only about 25% of Ruchi Soya’s current turnover comes from high-margin branded
sales, which have grown at a CAGR of 33% over FY05-10F. We expect growth in
branded sales to outpace low-margin unbranded sales and expect that by FY13F, 32%
of the company’s total sales will be from the branded segment.
Exhibit 110. % of branded sales to grow
(%) Branded sales Proportion of Branded sales

35 70,000
30 60,000
25 50,000
20 40,000
15 30,000
10 20,000
5 10,000
0 0
FY05 FY06 FY07 FY08 FY09 FY10 FY11F FY12F FY13F
Upstream ventures to address price-risk and secure volumes

Over past year, Ruchi Soya has taken several inorganic initiatives in upstream palm
and midstream processing space. It has acquired Mac Oil Palm and Palm Tech India,
which have total planting rights for 80,000ha of land. Combined, Ruchi currently now
has rights to develop a total of 169,000ha of land for palm in India, which represents
about 28% of the total land viable for palm in India. Currently, it has about 32,000ha
planted, and plans an incremental 15,000-20,000ha/year. The company eventually
targets a long-term planting target up to 300,000ha over the medium term, and is also
studying the feasibility of palm plantations in Indonesia.
In addition, the company also acquired Sunshine Oleochemicals, for processing and
selling its fatty acid output and generate enhanced margins through the value add. We
think that these acquisitions are an attempt to secure volumes and address price risk
for various agri-commodities, in case of a supply shock.
We believe these acquisitions will drive the next leg of earnings growth for Ruchi Soya,
and the management will continue to target further acquisitions to grow their presence
in edible oil industry, especially palm, outside India.
Exhibit 111. Recent acquisitions

Target When? Capacity description
Mac Oil Palm Nov-2009 Rights to plant ~80,000ha of
Palm Tech India Feb-2010 land for palm
Gemini Edible Oils and Fats (50%) Jan-2010 Crushing capacity of
220,000mT/yr
Sunshine Oleochemicals In process Hydrogenated castor oil
(30mT/d), and Stearic Acid
(20mT/d)

Financial analysis
Financial analysis
Revenue growth — a capacity expansion and utilisation story
Increasing capacity utilisation and near-term capacity expansion will drive revenue and
net income growth for the company, in our view. Overall, we expect a volume CAGR of
14% and revenue CAGR of 19% over FY10-FY12F.
Exhibit 112. Revenues Exhibit 113. Volumes

(Rsmn) (mn mT)
250,000 8
7
200,000
6
150,000 5
4
100,000 3
2
50,000
1
0 0
FY05
FY06
FY07
FY08
FY09
FY10
FY05
FY06
FY07
FY08
FY09
FY10
FY11F
FY12F
FY13F
FY11F
FY12F
FY13F
Margins to increase, led by increasing branded sales

As per our estimates, overall margins will increase on the back of increasing branded
sales and decreasing share of the supply chain business in the earnings mix.
Exhibit 114. EBIT margins Exhibit 115. Net margins

(%) (%)
3.5 2.0
1.8
3.0
1.6
2.5 1.4
2.0 1.2
1.0
1.5 0.8
1.0 0.6
0.4
0.5
0.2
0.0 0.0
FY05
FY06
FY07
FY08
FY09
FY10
FY05
FY06
FY07
FY08
FY09
FY10
FY11F
FY12F
FY13F
FY11F
FY12F
FY13F

Exhibit 116. EBIT/mT margin Exhibit 117. Net income

(US$/mT) (Rsmn)
25 4,000
3,500
20
3,000
15 2,500
2,000
10 1,500
1,000
5
500
0 0
FY05
FY06
FY07
FY08
FY09
FY10
FY05
FY06
FY07
FY08
FY09
FY10
FY11F
FY12F
FY13F
FY11F
FY12F
FY13F
Profitability should rise, and capex may peak this year

The company’s ROEs have been lower due to low-margin businesses, but should go
higher, in our view. There is significant near-term organic capex planned until FY11F
for refinery set up, after which the capex intensity should come down, in our view.
However, capex may again rise two-three years down the line as it will have to invest
in milling capacity for palm plantations.
Exhibit 118. ROE Exhibit 119. Capex

(%) (Rsmn)
20 5,000
18 4,500
16 4,000
14 3,500
12 3,000
10 2,500
8 2,000
6 1,500
4 1,000
2 500
0 0
FY05
FY06
FY07
FY08
FY09
FY10
FY05
FY06
FY07
FY08
FY09
FY10
FY11F
FY12F
FY13F
FY11F
FY12F
FY13F
Balance sheet remains strong, with negative cash cycle

The company’s gearing and cash cycle are at healthy levels, with a ~60% net gearing
and a negative cash cycle. We expect the company to gear up going forward to fund
its acquisitions in the palm space outside India, as it plans to aggressively expand its
palm sourcing capabilities.

Exhibit 120. Net debt-to-equity Exhibit 121. Cash cycle

(%) (days)
120 10
100 5
80
0
60
(5)
40
(10)
20
0 (15)
FY05
FY06
FY07
FY08
FY09
FY10
FY06
FY07
FY08
FY09
FY10
FY11F
FY12F
FY13F
FY11F
FY12F
FY13F

Risks to our investment view
Valuation risks
Delay in ramp up of capacity utilisation
We are building in capacity utilisation ramp-up to drive the volume and earnings
growth of the company. Any substantial delay in the capacity utilisation improving may
affect our processing volumes, and may have an adverse effect on earnings.
Exhibit 122. Sensitivity: Impact if zero capacity utilisation growth

Impact to FY12F (%)
Revenues (4.3)
EBIT (4.4)
Net income (5.2)
Price target (4.1)
Muted margin expansion vis-à-vis expectations

We are expecting the company to deliver margin accretion through an increase in the
proportion of branded sales and improving economies of scale through higher
utilisation at its plants. Failure to deliver the margin expansion may lead to more muted
earnings growth than our expectation.
Exhibit 123. Sensitivity: impact if zero margin growth

Impact to FY12F (%)
Revenues 0.0
EBIT (11.9)
Net income (14.3)
Price target (11.2)
Competition taking away volumes

Competing firms like Adani-Wilmar are also investing in significant capacity build-up.
Any failure to achieve desired volume growth may materially impact turnover and
earnings growth.
Exhibit 124. Sensitivity: Impact if zero volume growth

Impact to FY12F (%)
Revenues (10.0)
EBIT (10.0)
Net income (12.0)
Price target (9.4)
Delay in palm hectarage growth

Any delay in ramping up planting at its palm estates and increasing hectarage may Palm oil production a key swing
impact our valuation of the company’s palm business, and cause a downside to price factor
target.

Appendix
Company background
Company background
Ruchi Soya is a manufacturer of edible oils, vanaspati, bakery fats and soya foods,
and is also the highest exporter of soya meal and lecithin from India. Nutrela (soya
chunks, granules, soya flour) is the largest selling soya foods brand in the country
today. It is the leader in the branded edible oil category as well with brands like Nutrela
Soyumm (Soyabean Oil), Ruchi Gold (Palmolein Oil), Sunrich (Sunflower Oil) and
Mandap (Mustard Oil). It has recently introduced new oil variants like Nutrela Vitamin
Sunflower oil and Nutrela Groundnut oil.
Management Profile
Mr Kailash Shahra, Chairman: He is Graduate in Commerce and Director of the
company since 1986 and is non-executive and promoter director of the Company. He
has 35-plus years experience in various fields of agri-commodity business, the soya
industry and is involved in strategic planning of Corporate affairs of the Ruchi Group.
Mr Dinesh Shahra, Managing Director: He is the promoter director of the company

along with Mr. Kailash Shahra.
Shareholding structure
Exhibit 125. Shareholding structure as on 30 June, 2010
Non Institutional
34%
Promoter
47%
FII MF/ UTI

16% FI/ Bank
2%
1%
Source: Company filing

Income statement (Rsmn)
Revenue 127,798 143,944 171,477 195,382 203,459
Gross profit 8,324 9,348 12,918 15,247 16,509
SG&A (6,277) (5,909) (8,574) (9,769) (10,173)
Operating profit 2,047 3,439 4,344 5,478 6,336
EBITDA 2,905 4,443 5,486 6,856 7,650

Depreciation (858) (1,004) (1,142) (1,378) (1,315)
Amortisation
EBIT 2,047 3,439 4,344 5,478 6,336
Net interest expense (476) (664) (711) (903) (661)
Associates & JCEs
Other income
Earnings before tax 1,572 2,775 3,633 4,576 5,675
Income tax (597) (1,033) (1,271) (1,510) (1,873)
Net profit after tax 975 1,742 2,361 3,066 3,802
Minority interests (20) 28 (47) (61) (76)
Other items
Preferred dividends
Normalised NPAT 955 1,771 2,314 3,005 3,726
Extraordinary items - 35 - - -
Reported NPAT 955 1,806 2,314 3,005 3,726
Dividends (109) (177) (231) (300) (373)
Transfer to reserves 845 1,629 2,083 2,704 3,353
Margin expansion
Reported P/E (x) 27.9 16.6 17.7 13.6 11.0
Dividend yield (%) 0.4 0.6 0.6 0.7 0.9
Price/cashflow (x) 4.0 12.6 13.6 10.4 11.1
Price/book (x) 2.2 2.2 2.5 2.1 1.8
EV/EBITDA (x) 14.7 9.9 8.3 6.3 5.4
EV/EBIT (x) 20.8 12.8 10.5 7.9 6.5
Gross margin (%) 6.5 6.5 7.5 7.8 8.1
EBITDA margin (%) 2.3 3.1 3.2 3.5 3.8
EBIT margin (%) 1.6 2.4 2.5 2.8 3.1
Net margin (%) 0.7 1.3 1.3 1.5 1.8
Dividend payout (%) 11.5 9.8 10.0 10.0 10.0
Capex to sales (%) 2.4 2.0 2.5 0.3 0.3
ROE (%) 8.2 14.0 15.3 16.7 17.7
ROA (pretax %) 3.8 6.0 6.6 7.3 8.0
Growth (%)
Revenue 9.0 12.6 19.1 13.9 4.1
EBITDA (33.7) 52.9 23.5 25.0 11.6
EBIT (43.7) 68.0 26.3 26.1 15.7
Normalised EPS (43.3) 64.3 (4.2) 29.8 24.0
Normalised FDEPS (40.7) 44.3 (5.2) 29.8 24.0
Per share
Reported EPS (Rs) 5.1 8.5 8.0 10.3 12.8
Norm EPS (Rs) 5.1 8.3 8.0 10.3 12.8
Fully diluted norm EPS (Rs) 5.1 7.3 6.9 9.0 11.1
Book value per share (Rs) 63.9 64.7 56.9 66.5 78.4
DPS (Rs) 0.6 0.8 0.8 1.0 1.3

Cashflow (Rsmn)
EBITDA 2,905 4,443 5,486 6,856 7,650
Change in working capital 4,134 (1,026) (1,198) (1,424) (2,076)
Other operating cashflow (360) (1,033) (1,271) (1,510) (1,873)
Cashflow from operations 6,679 2,384 3,016 3,923 3,702 Interest income
Capital expenditure (3,060) (2,879) (4,287) (534) (578)
Free cashflow 3,619 (495) (1,271) 3,389 3,124
Reduction in investments 1 - - - -
Net acquisitions
Reduction in other LT assets (553) (79) (87) (95) (105)
Addition in other LT liabilities 330 - - - -
Adjustments 1,614 1,332 1,060 819 1,010
Cashflow after investing acts 5,011 759 (297) 4,113 4,030
Cash dividends (149) (231) (296) (379) (465)
Equity issue 1 10 607 - -
Debt issue (1,384) (800) (500) (500) (500)
Convertible debt issue
Others (1,687) (1,838) (1,627) (1,558) (1,487)
Cashflow from financial acts (3,219) (2,859) (1,816) (2,436) (2,452)
Net cashflow 1,793 (2,100) (2,113) 1,677 1,578
Beginning cash 9,595 11,387 9,287 7,174 8,851
Ending cash 11,387 9,287 7,174 8,851 10,428
Ending net debt 7,128 8,428 10,041 7,864 5,787
Balance sheet (Rsmn)

As at 31 Mar FY09 FY10 FY11F FY12F FY13F
Cash & equivalents 11,387 9,287 7,174 8,851 10,428
Inventories 15,262 17,189 20,254 23,000 23,885
Other current assets 10,496 12,071 13,881 15,964 18,358
Total current assets 49,954 52,973 58,496 67,396 73,063 Healthy gearing and cash
LT investments 718 718 718 718 718 cycle
Fixed assets 13,350 15,228 18,373 17,528 16,791
Goodwill - - - - -
Other LT assets 787 865 952 1,047 1,152
Total assets 64,809 69,784 78,538 86,689 91,724
Short-term debt - - - - -
Other current liabilities 1,526 1,678 1,846 2,031 2,234
Long-term debt 18,515 17,715 17,215 16,715 16,215
Convertible debt
Other LT liabilities 1,348 1,348 1,348 1,348 1,348
Preferred stock
Common stock 1,055 1,065 1,672 1,672 1,672
Proposed dividends
Other equity and reserves 7,509 7,885 8,279 8,693 9,128
Total shareholders' equity 12,064 13,775 16,544 19,334 22,779
Liquidity (x)
Current ratio 1.53 1.44 1.35 1.37 1.43
Interest cover 4.3 5.2 6.1 6.1 9.6
Leverage
Net debt/EBITDA (x) 2.45 1.90 1.83 1.15 0.76
Net debt/equity (%) 59.1 61.2 60.7 40.7 25.4
Activity (days)
Days receivable 35.1 34.5 33.6 34.4 35.9
Days inventory 57.2 44.0 43.1 43.9 45.8
Days payable 94.4 90.0 88.1 89.9 93.6
Cash cycle (2.1) (11.5) (11.4) (11.5) (12.0)

Wilmar International W I L S P
C O N S U M E R R E L AT E D / AG R I - R E L AT E D | S I N G AP O R E Maintained

BUY
 Action Closing price on 9 Sep S$6.36
Wilmar, although not growing fast in FY10F, remains a strong fundamental Price target S$8.24
(set on 2 Mar 10)
franchise, in our view, and a proxy play on the region’s key consumption
economies. Given its upstream and midstream exposure, any surge in food Difference from consensus 7.5%
demand that causes a spike in food inflation will likely benefit the company. New
businesses, such as rice, flour, sugar and edible oils in India, should lead the next FY10F net profit (US$mn) 1,866
leg of earnings growth, which should support valuations. BUY reaffirmed. Difference from consensus 4.3%
Source: Nomura
 Catalysts
A surge in contributions from the rice/flour business and firm commodity prices/ Nomura vs consensus
volumes may prompt a positive surprise, sustaining a rolling re-rating.
We are building in contributions from
Anchor themes Wilmar’s rice and flour business in
China will likely continue to drive Wilmar’s growth, with it holding a significant share China for the next two years; here
of China’s oilseed and edible oil areas and, later on, the rice and flour industry. we think we run ahead of consensus.
India, though a long-term story, should become an important market for Wilmar.
Proxy to Indian edible oil demand Key financials & valuations

31 Dec (US$mn) FY08 FY09 FY10F FY11F
Revenue 29,145 23,885 29,585 35,053
 Strong presence in Indian edible oil industry through JV Reported net profit 1,531 1,882 1,866 2,195
We see Wilmar as a good proxy to the Indian edible oil story, where it is Normalised net profit 1,315 1,714 1,866 2,195
Normalised EPS (US$) 0.21 0.27 0.29 0.34
a leading player through its JV with Adani group. We estimate Wilmar is Norm. EPS growth (%) 54.4 30.3 8.9 17.7
the second-largest oilseed processor and oil refiner, and has ~17% of Norm. P/E (x) 22.6 17.5 16.1 13.7
the branded edible oil market in India. Moreover, it is investing in EV/EBITDA (x) 14.1 13.0 11.0 9.9
Price/book (x) 3.0 2.7 2.4 2.1
growing its Indian edible oil business, and though India’s contribution to
Dividend yield (%) 1.1 1.1 1.3 1.5
the top and bottom lines is not yet substantial, we believe it will be an ROE (%) 17.5 18.3 16.0 16.5
important part of the earnings mix over the long term. Our channel Net debt/equity (%) 24.9 40.7 36.4 39.3
checks suggest Wilmar is one of the better-organised players in the Earnings revisions
Previous norm. net profit 1,714 1,866 2,195
industry and has the best corporate governance structure. Change from previous (%) - - -
Previous norm. EPS (US$) 0.27 0.29 0.34
 Proxy play on growing economies and food inflation Source: Company, Nomura estimates
We like Wilmar’s mid- to long-term growth profile, driven by investments

Share price relative to MSCI Singapore
in new businesses and geographies. We believe it is the best proxy to Price
(S$)
gain exposure to the region’s fastest-growing economies — China, 7.3 Rel MSCI Singapore 115
India and Indonesia — and is positioned to ride any inflection in 110
6.8 105
consumption-driven growth in these countries. Moreover, we think it 100
6.3
stands to benefit from food inflation owing to upstream exposure and 95
5.8 90
the fact that contango markets tend to support processing margins. 85
5.3 80
Nov09
Dec09
Jan10
Mar10
May10
Jun10
Jul10
 Actively scouting for inorganic opportunities

Sep09
Oct09
Feb10
Apr10
Aug10
In recent months, Wilmar has acquired interests in palm plantations, 1m 3m 6m

soy sauce manufacturing, tomato processing, sugar assets and Absolute (S$) (1.4) 12.0 (6.9)
Absolute (US$) (1.0) 17.9 (2.8)
oleochemicals. While risks remain in integration and management
Relative to Index (2.3) 1.4 (13.4)
bandwidth, we think reasonable inorganic expansion seems to be the Market cap (US$mn) 30,291
best possible use of its significant cash and healthy balance sheet. Estimated free float (%) 24.4
52-week range (S$) 7.17/5.50
3-mth avg daily turnover (US$mn) 40.01
 Reaffirm BUY; capex should drive the earnings uptick Stock borrowability Hard
Wilmar continues its capex intensity (~US$3bn in FY10F) in plantation, Major shareholders (%)
Kuok Group 31.0
rice, flour, sugar and edible oils in China, Indonesia and India. Along
Wilmar Holdings 29.3
with potential returns from US$2bn capex spent over the past two Source: Company, Nomura estimates
years, we expect this to drive the next leg of earnings growth.
Reaffirming BUY on attractive valuations (13.7x FY11F P/E).

Wilmar International Tanuj Shori
Valuation methodology. We value Wilmar on a SOTP basis by ascribing the

bracketed multiples to its FY11F earnings from plantation (15x), palm and laurics
(16.5x), consumer pack (22x), oilseed processing (16.5x), and other business (15x).
Our price target is S$8.24 (unchanged).
Downside risks. Shortages of raw materials (eg, palm oil, oilseed) could hurt trading
volumes of Wilmar’s merchandising and processing businesses. Reduced bargaining
power attributable to falling demand could hurt profitability. Underlying growth in
volumes and profitability could be constrained by the regulatory framework. Major
fluctuations in raw material and product prices also represent a risk to profitability.

Income statement (US$mn)
Year-end 31 Dec FY07 FY08 FY09 FY10F FY11F
Revenue 16,466 29,145 23,885 29,585 35,053
Gross profit 1,728 3,560 3,003 4,463 5,172
SG&A (794) (1,628) (711) (1,767) (2,072)
Operating profit 933 1,932 2,292 2,696 3,100
EBITDA 1,067 2,140 2,544 3,013 3,455

Depreciation (134) (208) (252) (318) (355)
Amortisation
EBIT 933 1,932 2,292 2,696 3,100
Net interest expense (163) (254) (43) (402) (396) Gains due to sale of shares in
Associates & JCEs 60 111 46 49 51 Wilmar China and gains on
Other income revaluation of biological
Earnings before tax 830 1,789 2,294 2,343 2,755 assets
Income tax (155) (232) (324) (398) (468)
Net profit after tax 675 1,557 1,970 1,945 2,286
Minority interests (95) (26) (88) (79) (91)
Other items (216) (168)
Preferred dividends
Normalised NPAT 580 1,315 1,714 1,866 2,195
Extraordinary items 216 168
Reported NPAT 580 1,531 1,882 1,866 2,195
Dividends (119) (311) (320) (373) (439)
Transfer to reserves 462 1,220 1,563 1,493 1,756

Reported P/E (x) 34.4 19.1 15.6 15.7 13.3
Dividend yield (%) 0.4 1.1 1.1 1.3 1.5
Price/cashflow (x) na 9.1 na 15.7 42.1
Price/book (x) 3.7 3.0 2.7 2.4 2.1
EV/EBITDA (x) 29.6 14.1 13.0 11.0 9.9
EV/EBIT (x) 33.6 15.5 14.4 12.3 11.1
Gross margin (%) 10.5 12.2 12.6 15.1 14.8
EBITDA margin (%) 6.5 7.3 10.7 10.2 9.9
EBIT margin (%) 5.7 6.6 9.6 9.1 8.8
Net margin (%) 3.5 5.3 7.9 6.3 6.3
Dividend payout (%) 20.4 20.3 17.0 20.0 20.0
Capex to sales (%) 3.3 3.5 3.9 4.1 2.7
ROE (%) 13.8 17.5 18.3 16.0 16.5
ROA (pretax %) 12.2 13.8 14.0 13.8 13.8
Growth (%)
Revenue 210.6 77.0 (18.0) 23.9 18.5
EBITDA 526.0 100.6 18.9 18.5 14.7
EBIT 589.3 107.0 18.6 17.6 15.0
Normalised EPS 531.2 54.4 30.3 8.9 17.7
Normalised FDEPS 531.2 52.4 28.6 8.9 17.7
Per share
Reported EPS (US$) 0.13 0.24 0.29 0.29 0.34
Norm EPS (US$) 0.13 0.21 0.27 0.29 0.34
Fully diluted norm EPS (US$) 0.13 0.20 0.26 0.28 0.33
Book value per share (US$) 1.23 1.50 1.71 1.95 2.22
DPS (US$) 0.02 0.05 0.05 0.06 0.07

Cashflow (US$mn)
Year-end 31 Dec FY07 FY08 FY09 FY10F FY11F
EBITDA 1,067 2,140 2,544 3,013 3,455
Change in working capital (3,558) 1,030 (2,586) (755) (2,292)
Other operating cashflow 1,466 62 (478) (398) (468)
Cashflow from operations (1,025) 3,231 (520) 1,860 695
Capital expenditure (544) (1,012) (932) (1,220) (958)
Free cashflow (1,570) 2,219 (1,452) 640 (263)
Reduction in investments (438) (744) 18 - -
Net acquisitions
Reduction in other LT assets (467) 349 (135) - -
Addition in other LT liabilities 255 26 98 - -
Adjustments 664 84 (332) (0) -
Cashflow after investing acts (1,556) 1,935 (1,803) 640 (263)
Cash dividends (22) (240) (328) (373) (439)
Equity issue - - 8 - -
Debt issue 2,103 (995) 4,296 500 -
Convertible debt issue
Others 398 1,226 68 (343) (345)
Cashflow from financial acts 2,479 (9) 4,045 (216) (785)
Net cashflow 924 1,926 2,242 424 (1,048)
Beginning cash 44 968 2,893 5,135 5,559
Ending cash 968 2,893 5,135 5,559 4,511
Ending net debt 4,060 2,390 4,445 4,521 5,569
Balance sheet (US$mn)

As at 31 Dec FY07 FY08 FY09 FY10F FY11F
Cash & equivalents 968 2,893 5,135 5,559 4,511
Inventories 3,614 2,468 3,940 5,196 6,424
Other current assets 1,029 855 622 622 622
Total current assets 7,111 8,293 12,871 15,462 16,670
LT investments 458 1,202 1,184 1,184 1,184
Fixed assets 3,497 4,273 5,073 5,966 6,569
Goodwill 3,933 3,942 4,028 4,028 4,028
Other LT assets 508 158 293 293 293
Total assets 15,507 17,869 23,449 26,933 28,744
Short-term debt 4,209 3,677 8,374 8,874 8,874
Other current liabilities 958 405 170 170 170
Long-term debt 276 1,056 1,206 1,206 1,206
Convertible debt 542 550 - - -
Other LT liabilities 338 364 463 463 463
Preferred stock
Common stock 8,403 8,403 8,414 8,414 8,414
Proposed dividends
Other equity and reserves (1,653) (1,118) (1,305) (1,305) (1,305)
Total shareholders' equity 7,845 9,606 10,931 12,424 14,180 Gearing at healthy level
Liquidity (x)
Current ratio 1.15 1.40 1.24 1.26 1.36
Interest cover 5.7 7.6 52.8 6.7 7.8
Leverage
Net debt/EBITDA (x) 3.81 1.12 1.75 1.50 1.61
Net debt/equity (%) 51.8 24.9 40.7 36.4 39.3
Activity (days)
Days receivable 22.8 22.5 40.1 44.8 47.9
Days inventory 49.3 43.5 56.0 66.4 71.0
Days payable 16.4 20.3 32.0 36.8 39.3
Cash cycle 55.8 45.6 64.1 74.4 79.5


Other Team Members:
Tushar Mohata (Associate) — all enquiries arising from this note should be directed to Tanuj Shori.
ANALYST CERTIFICATIONS
We, Tanuj Shori, Aatash Shah and Tushar Mohata, hereby certify (1) that the views expressed in this Research report accurately reflect our
personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of our compensation was, is or
will be directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part of our
compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International
plc or any other Nomura Group company.
ISSUER SPECIFIC REGULATORY DISCLOSURES

Issuer Ticker Price (as at last close) Closing price date Rating Disclosures
KS Oils KSO IN 0.00 Not Rated
Ruchi Soya Industries Ltd RSI IN 0.00 Not Rated
Wilmar International WIL SP 6.36 SGD 09 Sep 2010 Buy 4
Disclosures required in the European Union

4 Market maker
Nomura International plc or an affiliate in the global Nomura group is a market maker or liquidity provider in the securities / related derivatives
of the issuer.
Previous Ratings
Issuer Previous rating Date of change
KS Oils Not Rated
Ruchi Soya Industries Ltd Not Rated
Wilmar International Strong Buy 29 Oct 2008
Three-year stock price and rating history

Not Available for KS Oils
Not Available for Ruchi Soya Industries Ltd
Not Available for Wilmar International
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Agriculture Nomura Sept10

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Agri-related | I N D I A

Time to sizzle Stocks for action

Nomura 14 September 2010

 Action Stocks for action

Anchor themes * Initiating coverage

Time to sizzle Analysts

 We expect industry growth of 7% and branded sales growth of 25%

 Incremental demand will be imported and has to be met by palm

 Consolidation is the theme, with few players dominating the market

Nomura 1 14 September 2010

Indian edible oil — stage set for inflection 5

A potential market as big as China 12

Indian edible oil industry is fragmented and capacity utilisation is low 17

India still an untapped branded oil market 19

Nomura 2 14 September 2010

Palm, soybean and mustard oil are the three pillars 27

Palm oil: the next big opportunity 30

Mustard oil – limited volume growth but margin accretion through

Soybean oil: losing market share 36

Appendix 1: Refining process flow 37

Appendix 2 – Pictures from Agri-Diaries 38

Latest company views

Nomura 3 14 September 2010

Indian edible oil industry

Exhibit 1. Indian edible oil industry

World edible oil consumption

Palm, 43% Soybean, 17% Rapeseed, 14% Other, 4%

Branded sales, Rs 188 Unbranded sales, Rs

0% 20% 40% 60% 80% 100%

Potential market share of India’s

Nomura 4 14 September 2010

Indian edible oil — stage set for inflection

Ruchi Soya — attractive despite the run-up

KS Oils — value among debris

Wilmar — proxy to Indian edible oil demand

Nomura 5 14 September 2010

Exhibit 4. Ruchi Soya: forward P/E Exhibit 5. KS Oils: forward P/E

Exhibit 6. Ruchi Soya: forward PEG Exhibit 7. KS Oils: forward PEG

Potential demand implies industry growth of 7% and branded

Nomura 6 14 September 2010

Exhibit 8. Per capita oil consumption in the world (kg/year)

Source: Nomura research, USAD FAS

Exhibit 9. Branded edible oil market is forecast to grow at 25-30% pa

Source: Company data, Nomura research

Way forward for Indian edible oil industry — incremental

Nomura 7 14 September 2010

Consolidation the theme as a few rise to the top

consolidation in the industry, and we think a major share of the approximately

Exhibit 12. Indian edible oil market share

Nomura 8 14 September 2010

Valuations — lack of benchmark and regional perspective

Exhibit 13. Valuation summary

Nomura 9 14 September 2010

Exhibit 14. Estimate summary

Exhibit 15. Ruchi Soya and KS Oils: valuation details

Risks — mostly on execution and government policies

Policy on oilseed imports

Import tariff structure for edible oils

Nomura 10 14 September 2010

Execution risk, in terms of capacity utilisations and margin growth

Corporate governance and investments in non-core business

Nomura 11 14 September 2010