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Sanwaria Agro is among one of the fastest wealth creators

Ajay Modi     December 5, 2013
It's considered one of the world's healthiest foods. But, oddly enough, soybean is a relatively new cash crop in India and private companies only began processing the legume in the 1970s and 1980s after the country became increasingly dependent on edible oil imports.

Today, the market has several big soybean processers, but only a handful have grown as quickly as Bhopal-based Sanwaria Agro Oils. The relatively little-known company has expanded into a business with revenues of Rs 2,000 crore in just a little over two decades, with two-thirds of its revenue coming from processing soybean into oil, soymeal and de-oiled cakes.

Sanwaria Agro first came into the spotlight in December 2011 when brokerage and financial services firm Motilal Oswal ranked it alongside Reliance Industries and Kotak Mahindra Bank as one of the fastest wealth creators between 2006 and 2011. Not many were surprised. The promoters, the Agrawal family, had years of expertise in procuring soybean and supplying it to companies such as ITC and SM Dyechem.

Director Anil Agrawal's father, R.N. Agrawal, set up the company in 1991 when Ruchi Soya and Prestige Foods were already established players. Today, Sanwaria is ahead of industry leader Ruchi Soya on financial parameters such as return on capital employed, operating margins and earnings per share. "We could see that processors were minting money and that lured us to get into this business," says Anil Agrawal.

The family had been in commodity trading and milling of pulses since the 1950s. Its first unit at Itarsi in Madhya Pradesh  became operational in 1993 and was followed by an IPO to fund expansion. Since then, Sanwaria Agro has grown on the back of a series of acquisitions of sick or closed units which it turned around successfully.

"We have followed a brownfield expansion route through the acquisition of sick units since then," says Agrawal. "We are looking for acquisition opportunities where we can create value. We have been getting offers. We also want to acquire edible oil and wheat flour brands. We plan to invest Rs 300 crore in the next couple of years and we are eyeing a top line of Rs 5,000 crore."

The efforts have paid off. Today, Sanwaria Agro is one of the leading soybean processors and among the seven largest edible oil companies in India. What started as a company with the capacity to crush 200 tonnes of soybeans a day can now handle 3,250 tonnes a day, says Agarwal.

That is not all. It posted a profit of Rs 55 crore last year while exports account for 30 per cent of revenues. The company has grown thanks to strategic planning. Realising that raw material procurement is key to the soybean industry, Sanwaria Agro has focused its energies on cost-effective sourcing. The company's four units are located about 80 km from each other to ensure efficient procurement of raw materials.

The financial strength of soybean-processing companies is critical because raw material is available only during the October-February period.  "The cost here is calculated backwards. So, if you save Rs 50 on procuring a quintal of soybean, you can be certain of healthy margins on finished products such oil, meal and cakes," says an industry expert.

{blurb}A Care Ratings report says Sanwaria Agro's business has gained from the growing soy oil and soy food products industry coupled with expansion in capacity. "It is a well-established player in the soy oil extraction industry, with an efficient procurement channel, warehousing capabilities and fairly good distribution network," said the report. Agrawal says Sanwaria Agro is looking to tie up with a large global player. The Indian edible oil industry, particularly soybean, has attracted foreign food majors such as Cargill, Archer Daniels Midland Co and Bunge. "The industry will soon witness a phase of consolidation and those who are merely converters will have a tough time. We wish to do a strategic tie-up with a global player in soybean value addition," said Agrawal.

He adds that the future of the soybean processing industry depends on branding and value addition instead merely being a bulk processor. As awareness about the health benefits of soy grows across the country, Sanwaria Agro is also aiming to expand the share of branded products from 20 per cent to 50 per cent of revenues in the next two years.

The company has other plans on its plate: it is getting into soy flour, soy chunks, basmati rice and salt, while expanding its edible oil portfolio by getting into sunflower, mustard and rice bran oil. It will also be setting up units in Maharashtra and Rajasthan for cottonseed and mustard processing.

The company has made arrangements with big retailers like Reliance Fresh, Pantaloon Retail and ITC Choupal Sagar for the sale of its branded products. It is also in talks with Walmart which has a presence near one of its units in Bhopal.  "Margins are low in the pure processing business. With the rising cost of finance and operations, we need to focus on branding and getting into packaged products not limited to edible oil," says Agrawal. "This segment ensures higher margins and better visibility for the company."

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