Sept 2016 Interview – “Modi Naturals is moving towards capturing the refined oil market, which is value-adding and this concept is growing in popularity. In edible oil, the defining criteria include Taste, Fatty Acid Profile, and Antioxidants level, Enrichments, Frying Performance and lastly the Brand.”

Akshay Modi, Executive Director, Modi Naturals, is an Engineer from the University of Leeds, U.K and an alumnus of The Doon School. The company’s foray into packaged edible oils under the brand names ‘Oleev’ and ‘Tarai’ is the brainchild of this 29-year old visionary entrepreneur. He is also on the Board of Modi Infratech Private Limited.
In an interaction with Anil Mascarenhas of IIFL, Akshay Modi says, “Modi Naturals is moving towards capturing the refined oil market, which is value-adding and this concept is growing in popularity. In edible oil, the defining criteria include Taste, Fatty Acid Profile, and Antioxidants level, Enrichments, Frying Performance and lastly the Brand.”
India is the fourth largest edible oil consuming country and one of its largest importers. What explains India’s lack of self-sufficiency in edible oil? 
India is the world’s largest importer of Edible Oils and is likely to remain so in the foreseeable future. We have to rely on imports on two major counts, one, a dense population of over 1.25 billion people and two, the fact that domestic production falls short of meeting the ever growing demand. India has imported 14.4 mt (crude and refined) during the oil year (November 2014–October 2015), worth around $10 billion. The country’s edible oil import bill is likely to jump in 2016-17, due to rising prices and a burgeoning supply deficit from local sources. The bill in 2015-16 might cross $11.5-12 bn and to $14.5-15 bn in 2016-17.The import has risen 50 per cent over four years. Since the past 13 years, output from domestic sources has moved in a narrow range of 5.5–7.25 million tonnes (mt), due to both negligible innovation in farming techniques and unfavourable duty structure, which discourage farmers from producing oil seed crops.
The overall edible oil market is roughly around Rs.1, 25,000 crore growing at 7-8% annually. The organised market share has improved recently, roughly placed at 50% of the overall market which is seeing a CAGR of 15%. Thanks to the growing awareness of the virtues of packaged oil, more and more people from urban and rural areas alike are shying away from using oil in sold in loose form.
Given the rising number of cardiac cases from lifestyle changes and food consumption habits, to what extent can the use of right combination of oils help in reversing the situation? 
According to the National Family Health Survey in India, 13 percent of women and 9 percent of men in India are overweight or obese. Obesity increases the chance of other lifestyle disorders. According to the WHO, cardiovascular diseases, which affect heart and blood vessels resulting in heart attacks or strokes, account for 26% of deaths in India, or 2.5 million people. A conservative estimate finds 30 million CHD patients in India, 14 million from urban areas and 16 million from rural pockets. About 25% of deaths in the age group of 25-69 years happen due to heart disease which accounts for about 19% of all deaths across all age groups. So, adopting the right lifestyle is definitely an issue in India.

Oil is indispensable to any meal, and the most important factor to watch out for any health related issue. Every doctor would suggest using blended oil as no one oil can give you every health benefit. Awareness building can play a major role in boosting the use of blended oils. The Olive oil Revolution initiated by the Spain olive organisation is running an effective campaign – through a 60 second ad flashed across 25 prime channels across 6 metros coupled with print ads – but a lot more needs to be done to promote consumption of healthy edible oil. It’s heartening to note that the urban Indian has learnt to prioritize health over taste; which is evident from the growing market for healthier edible oils.
What’s the size of the market in terms of annual consumption and production? 
India accounts for an annual consumption of roughly 17 mn tons, the per capita consumption is at 14.5 kg p.a., which is relatively low compared to the world average of 23.5 kg p.a. Our domestic production is estimated to 8.5 mn tons. Oil is an indispensable factor in every household for cooking. It’s a commodity required by all so the demand is everlasting. Popular cooking medium used in India include: sunflower oil, mustard oil, groundnut oil, soya bean oil, palm oil and coconut oil. On the other hand, the demand for olive oil is steadily increasing. Mustard, soya bean and palm oil account for over 75% of total edible oil consumption and around only 16% of Indian households consume branded edible oils. Among branded oil, refined oil accounts for 60% of consumption and crude oil accounts for the balance. Branded edible oils have penetrated 31% of households in urban areas and only 9% in rural areas overall. Hence, there is a huge scope for the branded edible oil players.
Down South, the preference is for coconut oil. In the West, the vote is in favour of Groundnut while North and East prefer mustard. How do you cater to different markets? 
Every household uses multiple types of oil – flavoured as well as refined. As you rightly mention, North-East Zone uses Mustard Oil/ Soya Oil, West Zone uses more of Groundnut oil, whereas the south Zone uses more of coconut. These are the flavoured types of oil. Modi Naturals is moving towards capturing the refined oil market, which is value-adding and this concept is growing in popularity. In edible oil, the defining criteria include Taste, Fatty Acid Profile, and Antioxidants level, Enrichments, Frying Performance and lastly the Brand. Modi Naturals has undertaken in-depth R&D to create products to cater to customers all over India.
How did the company evolve from a contract producer for other brands to launching your own brands?
Modi Naturals began life in 1974 under the visionary leadership of Mr. Devi Dayal Modi. From setting up an edible oil factory in Punjab in 1974 to getting listed at the Bombay Stock Exchange, our journey has been truly momentous. From 2003 to 2005, we were the largest processors of Rice Bran in India and won a recognition award from the Solvent Extraction Association of India. Mr. Anil Modi, currently the chairman of the company, was in the business of manufacturing sunflower oil, rice bran oil, mustard oil, de-oiled cakes and rice-bran wax which was more of commodity business that was sold to various regional players and few other national players too.

In the year 2009, I joined the family business after completing my higher education from Leeds University, UK. I worked in the factory initially to get hands on experience. Eventually I realized that being a processor of edible oil was not very lucrative in the value chain. Having developed our core expertise in edible oil processing, our aspirations grew. Thus, in 2010, we renamed the company from Anil Modi Oil Industries Ltd to Modi Naturals Ltd. Also in the same year, the company launched their first ever brand ‘Tarai’, and since then we have never looked back. After the encouraging response for ‘Tarai’, ‘Oleev’ was launched in the year 2012, followed by Miller, Olivana Wellness Oil and Rizolo in the year 2015. However, the product we are most proud of is ‘Oleev Active’, our flagship product, which combines the goodness of olive oil and rice bran oil.
Olive Oil is witnessing increased attention. What are your offerings here? 
Olive oil is one of the healthiest oils compared to all the other edible oils available for cooking. Some of the key properties of olive oil are: 1. highest content of Mono-unsaturated fatty acid which is an essential nutrient for the body. 2. lowest content of saturated fatty acid and other harmful fats. 3. Large amount of anti-oxidants 4. High profile of Vitamin A, D, E, K, B-Carotene that helps to prevent cancer, reduce the effects of ageing and increases life expectancy. It also helps to prevent and control diabetes, facilitates digestion and it also helps prevent coronary heart disease. Olive oil together with Rice Bran Oil makes for the healthiest combination.
Under the Oleev brand, Modi Naturals’ offering includes extra virgin, extra light and pomace olive oils and Oleev Active, which is a blend of olive oil with rice bran oil at Rs. 165 per litre. Today, there are hundreds of thousands of households which use Oleev Active repetitively. Under ‘Olivana Wellness’, we offer olive oil for cosmetic, spa and baby care use.
In the health oil category of Big Bazaar, Modi Naturals has ~30% share, No.2 after Marico’s Saffola. In overall modern trade, MNL has managed to acquire ~20% market share. The pure olive oil category, is roughly around Rs. 250-300 crore market in India. There is huge potential in this market as it’s growing at roughly 40% annually. The healthy premium oil market would be roughly a INR 2,000 crore market, which is mainly dominated by Marico’s brand Saffola.
Brief us on your manufacturing facilities. What steps are you taking to improve your distribution? 
At Modi Naturals, we have end-to-end manufacturing facilities with all state-of-the-art technology at our plants in Pilibhit Ditrict in Uttar Pradesh. Also, in the last quarter of FY16, we have made certain upgradation to improve our efficiency. As of now, our capacities are 300TPD of crushing capacity, roughly 700 TPD extraction capacity, 200 TPD refining process unit and the packaging & blending capacity are roughly 100 TPD.
Similar to the chicken and egg riddle, advertising your brand comes to a naught without a good distribution network. At Modi Naturals, we first set up our distribution network and then went for brand promotion. Today, our products are readily available to the consumer. Modi Naturals products are available in modern trade, retail trade stores and also on e-commerce platforms. Right from Big Bazaar to Wal-Mart to Tesco, there’s no retail store without Modi Naturals’ products. Modi Naturals has a presence in nearly 40,000+ retail outlets through over 400 distributors. We are present in roughly 3,500 Modern Trade stores. We have recently tied up with Army Canteen Stores too. Our sales team comprises 300 executives and 450 merchandising/in-store promoters.
What is the contribution from major departmental stores? What’s your online presence? 
Currently, our modern trade and retail trade businesses are evenly split in terms of revenue contribution. Talking of online, our products are available on Grofer’s, Local Banya, Snapdeal,, Big basket and almost all the leading platforms. But the revenue from online sales is still negligible. However, with greater acceptance of online grocery shopping, we expect a strong outcome in the near future. We are very positive about hyper local shopping.
Tell us more about some of your high-revenue products. What’s the segment-wise break-up? 
The company’s topline was Rs.1,158 mn in the year 2010, wherein the revenues were generated fully from the non-branded business. Fast forward to the year 2014, wherein the total revenue was 2,098 Mn, in which branded business contributed roughly around 14% of the topline, whereas in the year 2015, 18% of the total revenue ie. Rs. 2,339 mn was branded. In FY16, out of total sales of Rs. 2,699 mn, roughly around 29% Sales were branded sales. Under the branded sales, 85-90% of the revenue is contributed by the Oleev Brand. In FY17, we expect contribution from branded sales to be even higher.
Brief us on your financials and outlook? 
The company’s top line has seen a CAGR of 11.5% for three years. The branded business has grown exponentially. The company’s gross margins have improved from 15% to 20% in FY16. The EBITDA margins of the company in FY16 are roughly 3%, which in the future with the share of branded sales expanding, will grow significantly. By 2020, the target is to have 70% of the topline from its branded business, which will reflect in higher EBITDA margins of the company. The company incurs huge advertisement & distribution expenses to expand its presence pan India and will continue to do so in the near future.
What are the opportunities and challenges for your business? What would be the next triggers for growth? 
The Indian edible oil market is significantly large and we have a huge market to tap, one that gives us the opportunity to create an enduring brand that resonates with our customers. Our biggest challenge of scaling up is maintaining our profitability. Optimum utilisation of resources, strong brand and a strong distribution network are all critical factors in this regard. Modi Naturals has spent significant time and resources in developing a strong brand and distribution network and most importantly, backward integration has helped us mitigate most concerns. The triggers for growth are many, but the most important one is the higher demand-side preference for a healthy product and the encouraging response to our flagship product, Oleev Active. Further, we see a huge consumption shift from loose oil to packaged oil.
With GST well on the way towards implementation, what impact do you see for your business? 
There’s a lot hinging on GST.  This has been one of the most crucial bills and one of most significant reforms for the Indian economy. Given the confusion relating to the rate, clarity is needed to assess the likely benefits for our sector. At present, there’s a wide divergence in the effective indirect tax rates relating to the product-specifications and area exemption. On the other hand, huge logistical benefits would accrue from the elimination of local tax collection at check posts. Also post GST, the availability of input credit on the services will be available and which in turn will aid the margin expansion. But all of these squarely depend on the rates. Quite simply, if the rates are higher, we would have to pass on the expenses to consumers and if the rates are lower, we can pass on the benefit to the consumers.
Give us an idea of your geographical presence. 
Since the company is located in northern India, we launched our first brand in the north to test waters. Hence, the North contributes around 40% of the topline. Subsequently, we have spread our distribution across India.The West and East region contribute equally to the topline. We started our operations in the southern region last; hence our distribution there is the weakest, though in the forthcoing quarters it will come to the same level as the rest of the regions.
How do you source raw materials? What’s the price trend here? 
Since India lacks in the production of olive oil, it is imported mainly from Spain. Canola Oil is imported from Canada. Apart from these two, the others like rice bran oil, mustard oil, sunflower oil, are produced at our unit in Pilibhit. The last few years have been bad for Indian crops and a good monsoon this year should bring cheer all around. This doesn’t necessarily impact prices as Indian rice bran follows prices of other global oil commodities such as soya and palm. A better harvest means more processing volumes. As for Olive oil, the last 2-3 crops have been below average across the meditterranean, the main producing region. This year we expect a good crop, which should bring the prices down by up to 20%.
What is the vision for your company? 
Our vision extends from healthy naturally to happiness for all. At Modi Naturals, we believe that good health is at the centre of happy living. We reinforce our commitment to society with a three dimensional sustainability program that helps bring happiness to hundreds of farmers and their families, educates their children and protects the environment. We would continue to deliver products of impeccable quality that would always live up to our brand promise. We believe in being mindful of any kind of environmental impact our products, or their process of production would have. Our unrelenting emphasis on innovation is aimed at bringing new and improved products for our consumers.
You have also upped your marketing spend. 
Modi Naturals is now the fourth largest advertisement spender in the edible oil category. Although we have a strong product portfolio and pan India presence, we are focusing on advertising to spread more awareness about our products. Stars Jimmy Shergil & Isha Talwar are our brand ambassadors and our ads are aired on Hindi mainstream channels like Sony, &TV, Colours and StarPlus. With our association with the Masterchef Australia show on Star World, we have now forayed into the English Channel space. We are present on all social media platforms and expect the fruits of our focused visibility campaigns to materialize soon. 
Brief us on your capex plans. What’s the shareholding pattern? Any plans to sell or raise stake?
The company had undergone small capex in the last quarter of FY16, for upgradation of the manufacturing facility for better efficiencies. Currently, our capacities are sufficient for branded sales of approximately Rs. 300 crore. So there are no major capex plans in the near future for us. 74% of the holding is with promoters, 20% is held by the Public and 6% is with FIIs. We don’t have IPO plans in the near future.


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