Analysis of Cold Chain

Industry

Segment Definition
Regulations
Key Success Factors and Risks
Market Size and Structure
Demand Outlook
Growth Drivers
Industry Structure
Competitive Analysis
Costs and Profitability Analysis
Investment Outlook
Growth Projections summary
Player Profile
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Segment Analysis

 Cold chains provide storage and distribution services of products maintained

at a given temperature.
The specific temperature tolerance depends on the product being transported.
The infrastructure required for a cold chain consists primarily of:
Temperature controlled warehousing (TCW)
Temperature controlled transportation/vehicles (TCT)
Value proposition: The cold storage facilities are the prime infrastructural
component for perishable commodities such as fruits and vegetables.
The key value proposition of cold storages is that the products are stored at
controlled temperature that helps reduce wastage and spoilage, thereby
maintaining quality.

 Besides the role of stabilizing market prices, the cold storage industry renders
other advantages and benefits to both the farmers and the consumers.
In the absence of cold storage facilities, the farmers are forced to sell their produce
immediately after harvest which results in situations where supply exceeds
demand resulting in low price realization.
The farmers get an opportunity to get remunerative prices if there are adequate
cold storage facilities.
The consumers also get the better quality supply of perishable commodities with
lower fluctuation of prices throughout the year eliminating the seasonality of the
produce.

 Cold storages are essential for extending the shelf life of the products, reducing
transport bottlenecks during the peak period of production and maintenance of the
quality of produce.
The development of cold storage industry has therefore an important role to
play in reducing the wastages of the perishable commodities and thus providing
remunerative prices to the farmers.

The key components of the cold chain industry are:

Procurement and delivery systems
Pre-cooling facilities*
Refrigerated vehicles
Cold stores/controlled atmosphere (CA) stores
Refrigerated retail outlets
Information systems and traceability**
*Pre-cooling activity is performed to maintain a constant temperature of articles
(mainly fruits and vegetables). This reduces the rate of water loss and maintains
freshness and quality of the products.
**Traceability refers to the capability to trace goods along the distribution chain based
on a batch number or series number.

Major Companies

Industry Classification

Industry Classification

Activities involved in a cold chain process

Diagrammatic representation of the activities involved in cold chain

Key end-user markets

Key end-user markets

Traditionally, wholesale traders (over 95 per cent) and a few exporters (5 per cent),
especially of meat and fish products, have constituted the key users of cold chain
services.
Over the last 3-5 years, the organised retail and food service industry has emerged as
a new user segment.
Growth in this segment has been driven mainly by the gradual shift in consumption
pattern in favour of frozen meats and fresh vegetables in malls and other retail stores,
and also the emergence of leading chains such as Pizza Hut, McDonald's, Subway etc.
The increasing trend of eating out' has also contributed to the growth of the cold
chain industry, as a significant portion of raw materials in food service is in frozen
form. Modern formats in retailing require distributed sourcing, centralised holding
and dispatch followed by de-centralised sales.

Key end-user markets

Hence, cold chains are essential to maintain the quality of the produce.
Currently, almost 20-25 per cent of the organised retailing revenues are contributed
by the food and grocery vertical.
While food processing includes any type of value addition to the agricultural and
horticultural produce, including processes such as grading, sorting, packaging etc, it is
the secondary food-processing that has higher requirement of cold chain facilities.

Primary and secondary processing

Regulations

17

Government Policies
The government has set the following key objectives for the industry:
Promote setting up of cold storages/storages in the country for reducing post harvest
losses.
Creation of over 16 lakh MT of new storage capacity along with modernization of
existing storages of around 8 lakh MT.
In view of these objectives, the government has identified cold chains as
infrastructure and has placed special emphasis on policy-making to aid
development of this important sector.

Subsidy schemes:
NHB provides a subsidy @ 40% of the project cost in general areas and 55% of the
project cost in case of Hilly & Scheduled Areas for a maximum storage capacity of
5000 MT per project.
The cost of setting up a single commodity multi-chamber cold storage (temperature
range 0C to 16C) with minimum of two chambers, standard insulation material,
with civil structure, insulations and cooling system as per NHB prescribed Standards
is Rs 6,000 per MT.
The cost of setting up a multi product, multi-chamber cold storage (temperature
range -2C to 16C) with a minimum of two chambers, standard insulation material,
with civil structure, insulations and cooling system as per NHB prescribed Standards
is Rs 7,000-8000 per MT.
NHB will assist project promoters in getting loans at an interest rate of PLR+1%

The subsidy eligibility would be computed as under:

Duty cuts
The Union Budget of 2010-11 has incentivised investments in infrastructure through:
Lower customs duty of 5 per cent with full exemption from service tax for the setting
up and expansion of cold storage units and processing units.
Full exemption from customs duty to refrigeration units required for the manufacture
of refrigerated vans of trucks.
Duty cuts are expected to boost investments into cold chain infrastructure while
improving the quality of existing infrastructure (through international quality
imports). However, duty cuts are expected to have relatively marginal impact on
new investments in comparison to improvements in underlying demand-supply
dynamics and other, more favourable incentive schemes.

Depreciation benefits
The Union Budget of 2009-10 introduced Sec. 35 AD permitting deduction to the
extent of 100 per cent of capital expenditure incurred for the purpose of setting up of
cold chain infrastructure (excluding investments in land, goodwill and financial
instruments) within a year of investments. This policy has been viewed as a
significant boost to all future investments in the sector. However, since utilization
levels are presently at low levels even for organized players, new investment is likely
to flow in at a relatively moderate pace as most players would target better utilization
before committing significant investments (discussed in detail in Investment
Requirement/Investments & Funding sections).

Foreign Investments
FDI for investments in cold chain infrastructure is allowed up to 100 per cent, which
could provide an important source of capital for the necessary large investments in the
sector.
Players in the industry have been allowed access to cheaper foreign debt through
External Commercial Borrowings (ECBs).

Proposed Policies: Cold chain

A proposal for a comprehensive cold chain infrastructure scheme for implementation
during the 11th Plan had been submitted to the Planning Commission. The key
recommendations in the proposal are for:
Revision of the scale and quantum of financial assistance.
Inducting flexibility to cover components like pre-cooling, mobile cooling, reefer vans
etc.
Financial assistance up to 50 per cent of the total cost of the plant and machinery and
technical civil works set up in general areas and 75 per cent for the North East region
and underdeveloped areas subject to a maximum of Rs 100 million.

Proposed Policies: Food Parks

The Ministry of Food Processing Industries (MFPI) submitted a proposal on 30 Mega
Food Parks to the Planning Commission for implementation during the 11th Five Year
Plan which aims to provide a mechanism to bring together farmers, processors and
retailers and link agricultural production to the market so as to ensure maximizing
value addition, minimizing wastages, increasing farmers' income and creating
employment opportunities in the rural sector.
The food parks have been proposed with the objective of providing state-of-the-art
infrastructure for food processing in the country on a pre-identified cluster basis and
to ensure value addition of agricultural commodities including poultry, meat,
dairy, fisheries etc.

Proposed Policies: Food Parks

The committee has suggested public-private partnership (PPP) model for the
proposed mega food parks. The ministry of food processing industry would float an
SPV that would develop the 30 food parks in partnership with the state governments
and private sector players.
Pattern of Assistance: Financial assistance up to 50 per cent of the project cost (NE
Region and difficult areas 75 percent) subject to a ceiling of Rs 500 million for setting
up of a Mega Food Park will be provided.
As of October 2011 eight of the proposed mega food parks were approved and a total
of Rs 2.36 billion was mobilised toward the development of these projects. Around
seven projects are in pipeline and are yet to be approved.

Proposed Policies: Food Parks

The government in October 2011 also approved the setting up up of 15 new mega
food park projects in addition to the 15 ongoing projects under the Infrastructure
Development Scheme. The government sanctioned Rs.7.8 billion towards setting
up the Mega Food Parks.

List of Mega Food Parks

Implication for cold chains:

The setting up of 30 mega food parks in all the states will entail the setting up of cold
chain facilities in the catchment areas.
The government will have to work on 30 cold chain routes countrywide to enable
integration of the sector from farmgate to the retail outlet.

Key Success Factors and Risks

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The success of a cold chain business depends largely on:

Maintaining quality- High quality equipment and advanced handling mechanisms
are required to maintain the temperature consistency to protect the quality of the
produce which is perishable in nature. Even slight variations in temperature could
reduce the quality and thereby the value of the product.
Presence across the value chain- Presence across the value chain from the production
level to the consumer level will help protect the quality of produce and lead to
increased utilization of cold chain facilities.

Business mix- Currently with the organised retail market in its infant stage, around 75
per cent of the cold chain facilities are used by wholesalers who store fruits and
vegetables. This makes the industry highly dependent on the success of harvest and
prices of commodities in the market. Thus, having a mix of rental and trading
business will help mitigate the risk.
Diversified customer base- Having a well diversified customer base from
wholesalers, farmers, retailers, food processing companies, quick service restaurants
to pharma companies will help in increasing pricing flexibility and reducing
dependence on single sector.

Market Size and Structure

33

Market Size & Structure

The current market size (revenues) of the cold chain industry, comprising the two
business segments, is shown in the following chart:
Market size: Cold chain industry (2010-11)

Note: TCV: Temperature controlled vehicles; TCW: Temperature controlled

warehouses

Temperature Controlled Warehouse

In 2010-11, the market size (revenues) of the TCW segment was estimated at Rs 108110 billion in value terms and 16-18 million tonnes in volume terms.
Potatoes constitute the largest share, accounting for about 70-75 per cent in volume
terms. However, its share is a mere 18-20 per cent in value terms. A lower share in
value terms is mainly on account of substantially low rentals for potatoes storage, low
value of the produce, and rentals being charged for the entire season (spanning 8-9
months) than on a monthly basis.

Temperature Controlled Warehouse

Average capacity utilisation rates have been low in the industry at around 60-65 per
cent. This is mainly because utilisation levels of potato storage capacities have been
low at around 50-60 per cent due to the seasonality of the produce. Utilisation levels
for multipurpose cold storages have however been relatively higher at around 70 per
cent.
Annual rentals per tonne for potato storage range from Rs 1,500-2,000; the same is
around Rs 15,000-17,000 for products such as meat, fish and imported fruits.
Interactions with industry sources indicate that, rentals have shown a slight
improvement of 3-4 per cent on an annual basis varying as per the commodity, region
and facilities offered at warehouses.

Product mix in volume terms (2010-11)

Product mix in volume terms (2010-11)

Notes
1. Multi-purpose cold storages are cold storages where potatoes, fruits and vegetables,
meat, fish etc can be stored at the same time.
2. Meat and fish products account for over 50 per cent of the others' segment.

Product mix in value terms (2010-11)

Product mix in value terms (2010-11)

Notes
1. Multi-purpose cold storages are cold storages where potatoes, fruits and vegetables,
meat, fish etc can be stored at the same time.
2. Meat and fish products account for over 50 per cent of the others' segment.

State-wise cold storage capacity (2009-10)

Ownership-wise cold storage capacity (2009-10)

 Over 70 per cent of the cold storage capacity is concentrated in the states of West
Bengal, Uttar Pradesh and Bihar wherein storage of potatoes constitutes over 90
per cent of the capacity.
Storage units in Maharashtra, parts of Gujarat and the country's southern states are
designed for storing a number of commodities such as dairy products, fruits,
processed fish and meat products and seasonal vegetables.

Temperature Controlled Transportation

In 2010-11, the market size (revenues) of the TCT segment is estimated at Rs 5-6
billion and the number of refrigerated transport vehicles was estimated at around
2,500-3,000 units.

Product mix in value terms (2010-11)

Demand Outlook

46

Demand outlook
Research expects revenues in the cold chain industry to grow at 15-17 per cent over
the next 5 years (2011-12 to 2015-16) to Rs 230-235 billion.

Industry size outlook: Cold chain industry

Industry size outlook: Cold chain industry

E: Estimate, P: Projection
Temperature Controlled Warehouse (TCW)
The overall market size of the TCWsegment is estimated to grow at a CAGR of 15-17
per cent, over the next 5 years (2011-12 to 2015-16), from Rs 108-110 billion in 2010-11
to Rs 230-232 billion in 2015-16.

Growth Drivers

50

Growth drivers
The growth in the cold storage industry is closely linked to the growth in the food
processing, organised retailing and food service industries. Traditionally, wholesale
traders (over 95 per cent) and a few exporters (5 per cent), especially in meat and fish
products, constituted the key user segment for cold storage services. Over the last 3-5
years, the organised retail and food service industry have emerged as new user
segments, driven mainly by the gradual shift in consumption pattern in favour of
frozen meats and fresh vegetables in malls and other retail stores, and also the
emergence of leading chains such as Pizza Hut, McDonald's, Subway etc.

Food processing industry

According to the Ministry of Food Processing Industries (MFPI), India produces
annually 91 million tonnes of milk (highest in the world), 150 million tonnes of fruits
and vegetables (second largest in the world), 212 million tonnes of food grains (third
largest producer), 6.4 million tonnes fish (third largest in the world), 489 million
poultry and 41,000 million eggs and 485 million livestock(largest producer).
However, the extent of processing is very low in India - at around 2 per cent in fruits
and vegetables, 15 per cent in milk, 4 per cent in the fishery sector, 6 per cent in
poultry products processing.
India's share in world trade in respect of processed food is about 1 per cent.
Compared with an 80 per cent processing proportion of fruit harvested in the U.S.,
less than 2 per cent of India's fruits are processed.
This highlights the tremendous potential of the food processing industry in India.

Food processing industry

In India, the percentage of nuclear families and working women is very low.
Therefore, the penetration of packaged and branded products is very low.
People prefer homemade or fresh products, which are cheaper than branded
products.
However, over the last couple of years, urban population is showing a marked shift
towards ready-to-eat food.
With urban incomes increasing and urban consumers squeezed for time, they are
slowly demanding packaged food.
This is expected to fuel the growth of food processing industry in India.

Food processing industry

While food processing includes any type of value addition to the agricultural and
horticultural produce, including processes such as grading, sorting, packaging etc, it is
the secondary food processing that has higher requirement of cold storage facilities.
Increased investment in food processing and better export opportunities are expected
to provide an impetus to the cold storage industry in India.

Organised retailing industry

Twenty per cent of the organised retailing revenues (Rs 1400 billion in 2010-11) are
contributed by the food and grocery vertical which forms the largest share of the total
retail market.
This vertical includes the retailing of fresh fruits and vegetables, milk and other dairy
products, staples, cereals, processed foods, ready-to-eat meals, spices and other edible
products.
In India it has been observed that fresh produce purchases are made thrice a week on
an average from cart vendors who in turn buy from wholesalers.
Retailers have identified this gap and tried to bridge it with direct farm procurement,
thus breaking the chain and passing on the savings in cost to the consumer.
It is here that supply chain management and cold storages are of prime importance.
Modern formats in retailing require distributed sourcing, and centralised holding and
dispatch followed by de-centralised sales.

Organised retailing industry

Hence, cold storages are essential to maintain the quality of the produce.
Strong growth in the organised retail industry is expected to be a big driver for
growth in the cold storages industry.
With the cabinet clearing the proposal to allow 51 per cent Foreign Direct Investment
(FDI) in the country and with 51 per cent of those investments mandated towards
investing in back-end infrastructure, the cold chain industry is expected to receive a
big boost in the next 5-10 years.

Increase in contract farming to steer the growth of cold storages in India

Contract farming is defined as a system for the production and supply of agricultural
produce under contracts between producers and buyers.
The essence of such an arrangement is the commitment of the producer/seller to
provide an agricultural commodity of a certain type, at a time and a price, and in the
quantity required by the buyer.
Many multi-national companies in the FMCG sector in India are increasingly
engaging in contract farming.
For instance, contract farming in tomatoes is being practised in Punjab by Pepsi Co.
The growth in the contract farming practices is expected to lead to the growth in the
cold storage infrastructure in India as the buyer has contracted to buy the produce of a
specific quality and the producer has to make sure that the produce does not get
spoiled and its quality is maintained.

Changing demographic profile and urbanisation

Increasing urbanisation and changing demographic profile of the Indian population
is leading to growth in the organised retail industry.
As more and more families are moving to a nuclear setup, increase in the organised
retail industry is bound to happen.
Increased levels of literacy, rapid urbanisation and rising per capita income have all
caused rapid growth and changes in demand patterns.
An average Indian spends about 50-60 per cent of household expenditure on food
items.
With retail sector booming and the super market culture on the rise, cold storage
business is set to grow further.

Food service industry

The food services industry encompasses those places and companies engaged in the
business of distribution of meal prepared outside the home.
This industry includes restaurants and catering operations companies.
The growth in the food service industry over the last 3-5 years, mainly driven by the
increased number of consumers eating outside their homes, has contributed to the
growth of the cold storage industry.
This is because a significant portion of raw materials in food service is in frozen form.
The food service and the food processing industries require a constant supply of
frozen/perishable products.

Food service industry

Hence, the requirement of cold chains becomes critical for the continuous supply of
the same.
The growth in the food service industry is expected to lead to an increase in the
organised retail industry as the former consumes a big proportion of the items in the
processed food industry.

Increased exports of processed foods

India exports a wide range of processed foods including fresh fruits and vegetables,
processed fruits and vegetables, meat products, cereals and other products such as
jaggery, confectionary and gaurgam.
The value of exports of processed foods from the country have stood at Rs 436 billion
in 2010-11 and has grown at a CAGR of 9.5 per cent over the last 2 years. Processed
fruits, vegetables and meat products which are the main users of cold storage facilities
contribute to about 40 per cent of the total processed food exports.
Healthy growth has been seen in the processed meat products segment which has
grown at 19 per cent over the last 2 years.
The export of buffalo meat which is 85 per cent of total meat products segment has
grown at a healthy rate of 32 per cent over the last 2 years.
We expect demand for exports of processed food products to be strong thus driving
demand for cold chain services.

Industry Structure

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 Currently, the cold chain industry in India is highly fragmented with the
unorganized segment having an estimated share of around 80-85 per cent of the
total cold storage capacity.
There are over 5,300 cold storages in the country, the bulk of which are operated by
small cold storage service providers having less than five cold storages.
Potato storage constitutes the largest share of the cold storage capacity, accounting
for about 75per cent in volume terms.
The remaining capacity consists of multi-purpose storage facilities which are used
for storing fruits, vegetables, dairy products, meat products and other processed
foods. Over 70 per cent of the cold storage capacity is concentrated in the states of
West Bengal, Uttar Pradesh and Bihar wherein storage of potatoes constitutes over
90 per cent of the capacity.
The highly unorganised nature of the industry and its high dependence on
potatoes have led to severe price competition among players, thus giving users the
bargaining power.

 Over the past 5-7 years with healthy growth in organised retail industry and quick
service restaurants, increasing penetration of food processing industry and strong
exports of processed foods have led to the emergence and growth in the organised
cold chain industry.
The organised players have been successful in setting up cold storages in key
urban locations to cater to the above mentioned industries.
By providing quality cold chain infrastructure, organised players have been able to
build long term arrangements and are able to charge a premium.

Number of players
Previously cold storage facilities were majorly used for storing potatoes, which
accounted for around 88 per cent of the total cold storage capacity in the year 2000.
The share of potato storage facilities has been consistently decreasing with more
multi-purpose storage facilities coming up over the last 4-5 years and currently is at 75
per cent of total storage capacity.
With around 80-85 per cent of the industry dominated by the unorganised sector who
own less than 5 cold storage facilities, the main players in the organised sector are
Snowman Logistics, R.K.
Food land, Dev Bhumi Agro, Adani Agro Western Farm Fresh Kausar India, Fresh
and Healthy Enterprises (CONCOR) and Bulaki Deep Freeze .
These players account for less than 5 per cent of the total cold storage capacity.

Competitive Analysis

66

The cold chain industry is explained by Porter's five forces model.

Porter's model

Threat of new entrants: High (2/5)

A cold chain business involves a moderate capital outlay.
The average capital cost for setting up a multi-purpose cold storage with an average
capacity of 5,000 MT is Rs 35-40 million and the cost is much lower for a potato
storage facility or a single commodity storage facility.
Capital subsidy schemes by the government also facilitate the entry of new players.
The only considerable entry barrier for a new player is availability of land in strategic
locations and the high land costs.

Bargaining power of buyers: High (1/5)

Highly unorganised nature of the industry and very low value addition has led to
high bargaining power to buyers.
Around 75 percent of the users of cold chain services are wholesale traders who
would look to minimize the additional cold storage cost to protect their margins.
This high dependence on a single user base and minimal value addition to the
products stored has further increased the bargaining power of buyers.
However, players in the organised sector have been successful in entering into long
term arrangements with their customers as they provide quality storage facilities and
value added services.

Bargaining power of suppliers: Low (2/5)

Majority of the cold storages in the unorganised sector are ammonia based cold stores
and there are a number of local equipment manufacturers who supply the required
equipment.
However, players in the organised sector who build high end controlled
atmosphere (CA) cold stores import their equipment.
Thus the bargaining power of supplier to an organised player is higher compared to
a supplier to the unorganised sector.

Threat from new substitutes: Low (4/5)

Normal storage facilities, where the risk of spoilage is high are the only substitutes
for cold storage facilities.
Competitive rivalry: High (4/5)
Currently, there are over 5,300 cold storages in the country, the bulk of which are
operated by small cold storage service providers having less than five cold storages.
Also, over 50 per cent of the refrigerated transport players have a fleet size of less
than five.
The high fragmentation has led to severe competition among the players, resulting in
weak pricing flexibility.
However, large organised cold chain players entering the sector provide high quality
storage facilities and value-added services and are thus able to influence the terms
and conditions of contracts to a limited extent.

Costs and Profitability Analysis

72

 Given the highly unorganised nature of the industry, profitability of players varies
with the location of the cold storage, competition dynamics in the region, quality of
harvest in a year and prices of agricultural produce.

The organised sector which caters mainly to organised retailers, quick service
restaurants and food processing industry have fixed contracts and have a more
stable revenue model when compared to the unorganised players.

Cost structure (Temperature controlled warehouse)

Cost structure (Temperature controlled vehicle)

Temperature controlled warehouse

Over 65 per cent of the operating costs are fixed in nature with power costs from the
use of compressors and condensers accounting for the bulk.
Other manufacturing expenses primarily include hire charges, lease rentals,
operations and maintenance of cold storages and vehicles, loading/unloading charges
and permit charges.
Operating margins for the organised players stand at 15-18 per cent and have
increased significantly over the last 2-3 yearswith the increase in the capacity
utilization of the players.
We expect operating margins to remain at the current level. While higher capacity
utilisation will improve margins; increasing power cost, unavailability of stable power
supply and competition from the unorganised sector will exert pressure on
profitability. Net margins of the organised players are in the range of 7-9 per cent.

Temperature controlled transportation

The cost of operations of a refrigerated transport vehicle can be broadly divided into
fixed and variable costs:
Fixed costs: These costs consist mainly of employee expenses, maintenance expenses,
insurance payment, road taxes permit charges and administrative overheads.
Variable costs: These costs comprise mainly fuel, lubricants, tyres, spare parts and
other running expenditures.
Operating margins for the organised players stand at 18-20 per cent and are on a
recovery path after declining over the past 2-3 years mainly on account of rising fuel
costs.
We expect operating margins to increase slightly with the increase in utilization
levels but also experience pressure from rising fuel costs.
According to our industry sources, the break-even point for a new reefer truck is
achieved at around 60-65 per cent utilization levels.

Investment outlook

78

 Research estimates that investments to the tune of Rs 48-52 billion are expected to
be channelled towards the establishment of Cold Chain infrastructure (including
warehouses and reefer vehicles) during 2011-12 to 2013-14.
Average investments for setting up a single commodity cold storage is around Rs
5,000-8,000 per tonne and for organised multipurpose facility is around Rs 15,00020,000 per tonne.

Factors like increasing government focus and incentives for the sector as well as
investments in user segments such as organized retail & distribution chains, FMCG
and agri-processing & export sectors are likely to further boost investments in cold
chains.

However, there exist certain deterrents to new investments such as:

Moderate and varied profitability of existing players.Limited effectiveness of
deduction incentives (given low profitability), prohibitive cost of land and other
necessary investments in urban areas.
Limited effectiveness of deduction incentives (given low profitability), prohibitive
cost of land and other necessary investments in urban areas.
Structural weaknesses such as power shortage and low preference for cold stored
food products.
Dependence on low value potatoes as the key market and significant operational
challenges such as sourcing consistent quality of farm products.

Risks
Low voltage and irregular power supply affects quality, leading to higher cost.
The lack of awareness and the general perception of cold chain products not being
fresh has led to relatively low demand and therefore low returns in the past.
Any rise in fuel costs directly impacts the profitability of the refrigerated
transportation players as the same accounts for around 55 per cent of the operating
expenses.

Structural Weaknesses
TCW players that have a trading business model, require the ability to manage the
source, i.e. farmers of fruits and vegetables, thereby overcoming the cartel of
commission agents and managing consistency in the quality of the produce.
Lack of skilled manpower to manage cold chains.

Growth Projections: Summary

83

 The cold storage industry plays an important role in reducing the wastages of
perishable commodities such as fruits and vegetables.
Traditionally, wholesale traders and a few exporters, especially in meat and fish
products, constituted the key user segment for cold storage services.
Over the last 3-5 years, the organised retail and the food services industry have
emerged as new user segments of the cold storage industry in India, driven mainly
by the gradual shift in the consumption pattern in favour of frozen meats and fresh
vegetables in malls and other retail stores, and also the emergence of leading food
chains.

Going forward, food processing, organised retailing and food service industries
are expected to be the drivers of the cold storage industry in India.

The Indian cold chain industry, which accounts for 3-4 per cent of the totallogistics
industry is estimated to grow at a CAGR of 15-17 per cent over the next 5 years.

Key conclusions
Research expects the revenues of the cold chain industry in India to grow at 15-17 per
cent CAGR over the next 5 years (2011-12 to 2015-16) to Rs 242-246 billion.
The revenues of the Temperature Controlled Warehouse (TCW) segment is expected
to grow at a CAGR of 15-17 per cent, over the next 5 years (2011-12 to 2015-16), from
Rs 108-110 billion in 2010-11 to Rs 230-232 billion in 2015-16.
In volume terms, demand is expected to increase at a CAGR of 7-8 per cent, from 1920 million tonnes to 28-30 million tonnes, during this period,. The rise is expected to
be driven primarily by the growth in organised retail, the food services industry,
processed food industry and the exports of processed food products.
.

Key conclusions
Research expects the revenues from the Temperature Controlled Transportation
(TCT) segment to grow by 18-20 per cent, from Rs 5-6 billion in 2009-10 to Rs 12-14
billion in 2015-16. We expect meat & meat products, confectionary, ice creams and
frozen products (like green peas) to be the key growth drivers. CRISIL Research
estimates that investments to the tune of Rs 48-52 billion are expected to be made in
cold chain infrastructure (including warehouses and reefer vehicles) during 2011-12 to
2013-14

Industry Performance & Investment (IPI) Matrix

Industry Performance & Investment (IPI) Matrix

The cold chains industry scores 2 out of 3 on the industry performance scale and 2 on
3 on the investment requirements scale. In the past 5 years (2006-07 to 2010-11), the
market size of the TCW segment has grown at a CAGR of 13-14 per cent to Rs 108-110
billion from Rs 57-59 billion. Going forward, the industry's revenues are expected to
grow by 15-17 per cent (CAGR) over the next 3 years. We expect investments of Rs 4852 billion to flow into the sector over the next 3 years, after taking into account the
moderate capital intensiveness of the business and also the expected improvement in
asset utilization owing to higher demand and increasing number of multipurpose
warehouses.

Industry Performance & Investment (IPI) Matrix for mid-sized and emerging
sectors
Industry Performance & Investment (IPI) Matrix is a 3X3 matrix that determines the
health of an industry by using two measures:
Performance indicators
Investments required
The Performance Indicators measure takes into account a sector's growth prospects,
profitability and returns. The Investment Required measure takes into account the
likely investment in the sector, given its investment intensity, its phase of growth and
investment cycle.

Each sector is graded on these parameters as high, average and low on a relative scale.
The benchmarks have been adapted for mid-sized and emerging sectors, which tend
to have different growth and returns characteristics as compared to the larger and
more mature sectors.

Industry Performance & Investment (IPI) Matrix

Player Profile : Dev Bhumi

92

Company profile
Dev Bhumi Cold Chain Ltd (DBCCL) was incorporated in August, 2003.
DBCCL is in the business of trading fruits and vegetables and renting the Cold Store
(CS)/Controlled Atmosphere (CA) Store.
It has a CS/CA having a capacity of 5,000 MT situated in New Subzi Mundi,
Azadpur-Delhi.
It has set up state-of-the-art cold store chambers of various sizes at the Delhi facility
in Azadpur, all of which have been finished with thick sheeting of stainless
steel/aluminum on walls, floors, roofs and pillars, with a capacity to store 3,000
tonnes (150,000 boxes) of fresh fruit and vegetables, dairy products, dry fruits, spices
etc.

Summary
DBCCL operates in an industry (trading) where over 80 per cent of the market is
controlled by commission agents.
Strong revenue growth outlook for cold chain business due to high growth of
organised retailing, food processing and the food services industry.
The company plans to invest Rs 155 crores over the next 2 years to build self-owned
cold storages in Ahmedabad, Mumbai, Chennai, Matiana and Krishnagiri.

Shareholding Pattern (as on 31st March 2010)

The company's share is closely held by the promoters.

Board of directors
SanjayAggarwal(ManagingDirector)
SunilaAggarwal(Director)
AnilDwivedi(Director)
Dr. Gian Thakur (Vice President)

Key financial indicators

Key financial indicators

Banking relationships
ICICI bank, HDFC Bank, Bank of Baroda, Vijaya bank
Auditors
Lokesh Jain& Associates

Business Profile
Business evolution
Indraprastha Ice and Cold Storage Pvt Ltd (IPICSPL), a sister concern of DBCCL was
incorporated in 1944 with its first cold storage facility put in Shidipura, Delhi.
In 1968, after re-organization of business by the Delhi Government, IPICSL moved to
Azadpur being allocated a land (22,000 sq ft) for relocation of its cold storage facility.
IPICSL has a cold storage capacity of 5,000 MT situated in New Subzi Mundi,
Azadpur-Delhi.
In 2003, with the realization of the need for upgradation of the technology and
backward integration of the activities for achieving better integration with
procurement and superior supply chain, DBCCL was incorporated.

Business Profile
Business evolution
DBCCL entered into long-term lease agreements for the existing facilities of IPICSL
and upgraded such facilities suitably through the installation of superior technology
equipments.
DBCCL has 10 acres of land with orchards of apples, cherry, walnut and other
vegetables like Asparagus etc at Shimla,Himachal Pradesh.
The company is commissioning its own mobile pre cooling units.
DBCCL has recently entered into a contract with a leading food major of Europe for
undertaking crop research for growing
strawberries in the Himachal region and for prospective export of frozen strawberries
to Europe.

Business structure
In 2003 the management of IPICSPL realized a need for the upgradation of the
technology and backward integration of the activities for achieving better integration
with procurement and superior supply chain.
As a result, DBCCL was incorporated. DBCCL is the sister concern of Indraprastha
Ice and Cold Storage Pvt Ltd (IPICSPL) to undertake end-to-end service in the
agricultural procurement, storage and supply chain business.
Dev Bhumi has made an offer for the acquisition of the entire cold storage business of
IPICSL for an all cash consideration and such proposal has been accepted by the
management and board of directors of IPICSL.

Business model
DBCCL is engaged mainly in the business of the trading of fruits and vegetables
where they are captive users of their cold chain facilities and also operates as thirdparty service providers who provide the services for rentals.
The company owns 10 acres of land with orchards of apples, cherry, walnut and
other vegetables like Asparagus etc at Shimla, Himachal Pradesh.
Apart from its own production, it also sources from farmers.
In addition to this, the company also imports fruits, vegetables and processed fruits
and packages under its own brand name or as sole distributors of the original
manufacturer's brand.
The domestic market is characterized by oversupply in the peak season and shortage
in the off-season, resulting in off-season prices that are often 3-4 times that of season
prices.
Apart from this, a number of market intermediaries are involved in transferring the
produce from the growers to the consumers who take away a substantial portion of
the end price.

Business model
The number of market intermediaries and lack of appropriate storage and logistic
infrastructure jacks up the prices for the ultimate consumers.
As a result, neither does the produce reach the consumer in its optimal condition nor
does the producer get fairly remunerated.
The strategy of DBCCL is to concentrate on products that are produced far from
major consumption centres, products that are seasonal in nature and are amenable to
increase in storage life using modern integrated cold chain facilities and to break the
cartel of commission agents (market intermediaries) by directly buying from the
source.
The company is employing Controlled Atmosphere Technology' for increasing the
shelf life of fruits.
This enables the company to take advantage of controlled atmospheric storage
technology to arbitrage on the price differential between peak and off-peak season.

Pricing
The prices of fruits and vegetable are inversely related to the quantity produced i.e.
higher the production, lower the price. DBCCL has limited control over the prices of
traded goods which depend on the agriculture production in that year and are
regulated by the government to some extent.
The cold chain industry is highly fragmented and there is stiff competition from a
large number of players, as a result of which there is very low pricing flexibility
among players.

Clients
Dev Bhumi caters to two kinds of customers:
The medium to large corporative food companies, which seek storage facilities in
each city.
The large wholesaler/retailers in the food market which have similar storage
requirement in a centralized facility.
Dev Bhumi caters to both these segments, with the fruits and vegetables market at
Azadpur being its single largest buyer, with a revenue contribution of 40 per cent.
Among the other notable customers of DBCCL are Mother Diary (5 per cent), Dabur (5
percent), Big Apple (10 per cent), Subhiksha (5 per cent), Aditya Birla Group (15 per
cent), Namdhari (5 per cent), Spencers (5 percent) and the traders of the Mumbai
wholesale market (10 per cent). The above mentioned numbers are as of 2008-09.

Business trends
Asset turnover and RoCE

Gearing and Interest Coverage

Gearing and Interest Coverage

The asset turnover of the company increased in 2009-10 to 0.79 times in 2009-10 from
0.57 times in 2008-09 with more than a 75 per cent increase in operating income. Over
the past 2 years, the company has been in an expansion mode where the total assets of
the company have more than doubled.
The company is currently involved in the construction of Strategic Distribution
Centres in Matiana and Himachal Pradesh and in Kashmir (for apples).
After the infusion of Rs 37.5 million equity capital in 2008-09, gearing levels of the
company have fallen from 7.21 times in 2007-08 to 1.93 times in 2009-10.
Interest coverage ratio of the company has decreased to 1.25 times in 2009-10 from
1.96 times in 2007-08 on account of more than three times increase in short term debt
from Rs 30 million to Rs 90 million.

Peer comparison
Most of the revenues come from the trading of fruits and vegetables. There are
several players operating in the cold chain segment such as Adani Fresh, R K
Foodlands, etc., who have a trading model.
But most of them are not listed, while some like CONCOR have a very small portion
of their revenues coming from the cold chain business as they have started their
operations recently.
So,we have compared the results of DBCCL with Snowman Frozen Foods Ltd.

Peer comparison

In comparison to its peers, DBCCL has higher sales growth and moderate
gearing.
Net margins of the company are lower due to lower realizations on traded goods.
Return on equity is relatively higher than that of the peers due to higher leverage.
However, return on equity ratios for all companies are likely to be artificially
depressed by the significant capacity expansions underway.

Business & Financial Assessment

Business environment
Key opportunities and sector positives
There is a wide difference between the price which the farmer gets for his produce
and the price which the consumer pays.
This is due to the presence of a number of middlemen in the supply chain. So there is
a lot of scope for a trader as far as profit booking is concerned.
Strong growth of organised retailing, food processing, exports and food services
industry will drive the growth in demand for cold chains.
Government incentives and schemes like assistance given by NABARD and proposed
subsidies for the food parks will help in the growth of the reefer transportation
business.

Key threats and structural weaknesses

Being in the trading business, the ability to manage the source (say farmers for fruits
and vegetables), thereby overcoming the cartel of commission agents and managing
consistency in the quality of the produce remains a key challenge for DBCCL.
Low voltage, irregular power supply affect quality leading to higher costs.
Lack of awareness and perception of cold chain products not being fresh' has led to
relatively low demand and unimpressive returns in the past.
Lack of skilled manpower to manage cold chains.

Key competitiveness factors

Revenue and margin drivers

DBCCL's operating income improved on account of increased revenues from

the trading business in 2009-10, which grew by more than 95 per cent during
the year.

Operating Margins & Net Margins

Operating Margins & Net Margins

Operating margins of DBCCL declined in 2009-10 on account of depressed
realizations on traded goods.
In spite of lower interest costs as a percentage of sales, net margins declined to 0.8 per
cent in 2009-10 from 2.5 per cent in 2008-09 on account of lesser other income during
the year.

Financial Statements Analysis

Financial Performance scores 3.1 on a scale of 10
The past financial performance of DBCCL is assessed below average' due to low
RoCE and low interest cover.
The score has declined slightly from the past levels, as a result of reduced interest
coverage.
While falling RoCE is also a result of the high capital infusion in the business over the
past 3 years, it is expected to improve once investments become productive.

Profit and Loss Account

Balance Sheet

Business and financial outcomes

Player Profile: Khausar

121

Company profile
The company provides temperature sensitive transportation services and transports
around 75,000 tonnes annually.
Incorporated in the year 1984, Kausar India Ltd (KIL) was listed in the Delhi Stock
Exchange and Ludhiana Stock Exchange in March, 2006.
KIL entered into the business of refrigerated transportation in 1996 and presently
provides both full and part truckload services to its customers.
Gati Ltd (a leading logistics player) acquired 73.72 per cent stake in Kausar India Ltd
in December, 2007 and subsequently acquired an additional 26.04 per cent in March
2009 taking the cumulative stake to 99.76 per cent.
Kausar India Ltd., a subsidiary of Gati Ltd was delisted from the Delhi and Ludhiana
Stock Exchanges.
With a fleet size of over 125 refrigerated trucks, KIL is a leader in the temperature
controlled transportation business and transports products like meat, ice cream, dairy
products, pharmaceuticals etc.

Summary
KIL operates in a fragmented industry and hence has low bargaining power with its
customers.
The company is also vulnerable to the volatility in fuel cost.
Revenue growth outlook for reefer transportation business has improved on the back
of high growth expectations in end user segments such as organised retailing and the
food services industry.
Gati Ltd has formed a wholly owned subsidiary named Redsuns Supply Solutions,
which offers cold chain solutions, including temperature sensitive storage.

Key financial indicators

Note: Financials for FY 2010-11 not available

Banking relationships
ICICIBankLtd,BankofPunjabLtd,StateBankofIndia,
Bank of India
Auditors
S K Kothari (2009-10)

Shareholding Pattern as of November 2011

Business Profile
Business evolution
Kausar India Ltd (KIL) was incorporated in 1984 as Kausar Private Ltd.
KIL started its operations as a non-refrigerated truck operator and forayed into the
business of temperature controlled transportation services in 1994.
KIL was listed in the Delhi Stock Exchange Association and Ludhiana Stock
Exchange in March, 2006.
KIL is the largest player in the temperature controlled transportation industry with
revenues of Rs 194 million for the 12 months period ending June 2009.
Gati Ltd (a leading logistics player) acquired 73.74 per cent stake in KIL in December,
2007 for Rs 199 million and subsequently acquired an additional 26.02 per cent in
March 2009 taking Gati Ltd's cumulative stake to 99.76 per cent.
Post acquisition, Gati is in the process of framing its retail cold chain strategy to
integrate KIL with itself.

Business structure
Gati Ltd is the holding company for KIL that acquired 73.72 per cent stake in
December 2007 for Rs 199 million and subsequently acquired an additional 26.04 per
cent in March 2009 taking Gati Ltd's cumulative stake to 99.76 per cent.

Subsidiary companies

Business model
KIL has been in the business of road transportation for 20 years and in the
refrigerated transportation business for over 10 years.
It handles a wide range of perishable goods that include meat & meat products, dairy
products, fruits, vegetables and pharmaceuticals.
Fleet size
KIL has an asset base of over 125 refrigerated transportation vehicles comprising
Light Commercial Vehicles (LCV), Medium Commercial Vehicles (MCV) and Multi
Axle Vehicles (MAV).
LCVs are mainly used for secondary distribution (intra city) of products such as ice
creams, confectionaries and milk products.
The MCVs and MAVs are used for primary distribution (inter state) of products such
as meat & meat products, marine products etc.

Market Share: Organised players

Organised versus Unorganized market

Organised versus Unorganized market

Research estimates the total market size (revenues) of the refrigerated transportation
industry to be about Rs 5-6 billion with around 30-35 per cent share being with the
organized segment.
Research estimates KIL's market share to be about 20-22 per cent of the organised
market, making it a leader in its segment.

Pricing
Pricing in the refrigerated transportation industry is based on both spot and
contractual basis.
However, the same is largely concentrated on spot basis. This is because most price
contracts for meat are made on spot basis by a handful of players that contribute over
60 per cent of the volumes of this business.
Hence, the growth and returns of this business remains highly concentrated among
the actions and strategies of a few players.
While pricing flexibility in the refrigerated transport business is higher than the nonrefrigerated transport business, it still remains at low levels.

Business trends
Asset turnover and RoCE

Gearing and Interest Coverage

Key highlights
The total asset turnover ratio of KIL has declined consistently between 2005 and 2008
due to expanding capital base to fund new investments.
The asset turnover ratio increased in 2009-10 partly contributed by the increase in
sales and majorly because of heavy net losses which decreased reserves of the
company by Rs 33 million, thereby decreasing total assets.
On account of the negative profit before interest and tax, the company's ROCE was
negative in 2009-10.
Interest coverage has declined significantly over the previous 3 years, from over 9
times for 2006-07 to about 2.3 times in 2009-10.
This is mainly on account of the increase in total debt from Rs 23 million in 2007-08 to
Rs 132 million in 2009-10.
The gearing of the company increased heavily to 67 times on account of erosion of net
worth following net losses of Rs 33 million reported by the company for 2009-10.

Peer comparison
There are limited organized players, which operate in the temperature controlled
transportation segment, and none of the annual reports are available in public
domain.

Business & Financial Assessment

Business environment
Key opportunities and sector positives
Strong growth of organised retailing and food service industry will drive the growth
in demand for reefer transportation.
Government incentives and schemes like assistance given by NABARD and proposed
subsidies for the food parks will help in the growth of the reefer transportation
business.
Depreciation deduction allowances up to100 per cent for investments in cold chain
equipment is a major incentive provided by the Government through the Union
Budget of 2009-10.

Key threats and structural weaknesses

User segments prefer players who have a presence in both refrigerated transportation
and temperature controlled warehousing business than being present in only
refrigerated transport business.
Margins of players are highly vulnerable to volatility in fuel prices.
The freight is mostly charged for the one way journey; hence getting a load on the
return trip is critical and challenging.
Low pricing flexibility due to high fragmentation; low bargaining power with respect
to a few large customers that dominate the user segment.

Key competitiveness factors

Revenue and margin drivers

Operating Income

Revenue and margin drivers

Operating Income
The operating income of the company has steadily increased at a CAGR of 12 per cent
between 2008-09 and 2010-11.
After Gati increased its stake in Kausar to 99 per cent in March 2009, the company has
integrated Kausar with Gati Red Sun, which provides cold chain services and the
vehicles of Kausar are being used to provide transportation facilities to RedSun.

Operating Margins and Net Margins

Operating Margins and Net Margins

Operating margins have been continuously declining from 19 per cent in 2006-07 to
12 per cent in 2009-10 on account of the rise in fuel cost and limited pricing power
because of the dominance of the unorganised industry.
However in 2010-11, operating margins improved to 15 per cent.
Net margins of the company fell from an average of 3.3 per cent during 2006 to 2008
to -14.5 per cent in 2009-10 due to an increase in depreciation, interest charges and
deferred tax liability.
In 2010-11, net margins of the company also improved to -0.26 per cent due to lower
tax provisions.

Financial Statements Analysis

Past Financial Performance score is 3.8 on a scale of 10.
The past financial performance of Kausar India Ltd is assessed below average'.
The score has severely deteriorated from the past levels, because of the losses
reported by the company in the last 2 years and a negative ROCE in the same period.
In 2009-10, the company's score was negatively impacted by high gearing because of
the erosion of net worth on account of net losses of Rs 33 million during 2009-10.
The net worth at the end of 2009-10 was Rs 2 million from Rs 35.7 million in the
previous year.

Profit and loss account

Profit and loss account

Business and financial outcomes

Future plans
Gati Ltd. is setting up 10 cold storages across the country at an investment of about
Rs 2 billion over the next 4 years. In 2011, they plan to open three storage units one
each in Bangalore, Delhi and Maharahtra. The first two of the proposed storage
facilities, for which they have the required land, would entail an investment of Rs 250
million. Each of these would be spread across an area of 25,000 sq feet. End-to-end
supply chain services, technology transfers, knowledge partners and service
partnerships are envisaged for all these facilities.
Gati Ltd plans to increase the reefer trucks from the present 125 to 500 over the next 2
years. They will have different franchises, and partners in different regions of the
country who will also invest in the reefer trucks.

Future plans
Gati Ltd. is setting up 10 cold storages across the country at an investment of about
Rs 2 billion over the next 4 years. In 2011, they plan to open three storage units one
each in Bangalore, Delhi and Maharahtra. The first two of the proposed storage
facilities, for which they have the required land, would entail an investment of Rs 250
million. Each of these would be spread across an area of 25,000 sq feet. End-to-end
supply chain services, technology transfers, knowledge partners and service
partnerships are envisaged for all these facilities.
Gati Ltd plans to increase the reefer trucks from the present 125 to 500 over the next 2
years. They will have different franchises, and partners in different regions of the
country who will also invest in the reefer trucks.
Gati Ltd has formed a wholly owned subsidiary named Redsun Supply Solutions,
which offers cold chain solutions, including temperature sensitive storage; this will
help Gati Ltd benefit from the economies of scale.