Agro Tech to exit bulk commodities

Strategy hits second-quarter sales, but net up 27%

HYDERABAD: In line with the parent’s aim of logging out of low-margin bulk commodity trading businesses globally, branded foods and food ingredients major Agro Tech Foods Ltd (ATFL) has decided to exit commodity trading in the country by the end of next year.

The Hyderabad-based Agro Tech is 48% owned by multinational ConAgra Foods.

With margins of just 1-2%, bulk commodity trading has ceased to be attractive compared with branded foods which result in 20%-plus margins, Utpal Sen Gupta, president, ATFL, said announcing the results for the quarter ended September 2007.

“By December 2008, the company will be totally out of the commodity business,” he added.

The de-risking process has resulted in a drop of 37% in the sourcing and institutional business in the quarter ended September 30, 2007 which has brought down the total sales by 10.43% during the quarter to Rs 253 crore compared with Rs 282 a year ago.

In the short term, the de-risking will mean a considerable correction in sales with revenues taking a hit. For instance, bulk oils alone accounted for a turnover of Rs 300 crore last year for the company.

However, the company has posted a 27.5% increase in net profit for the quarter at Rs 3.7 crore, led by the more lucrative branded foods segment.

Net sales of branded foods have increased 18% reflecting the continued focus of the company on value added and differentiated products in the edible oils and foods portfolio.

Sundrop oil and Act II popcorn are the two strong brands from the Agro Tech stable which is now intent on adding to this list with the introduction of Snack Pack its brand of shelf stable pudding product which is currently being test marketed in Hyderabad.

“Act II will start generating surpluses in another year’s time and we be in a position to invest in another brand by then in a gradual manner,” Sen Gupta said.

The specialised foods market is at an early stage in India but we see a huge potential in it, he added stating the company would look to introducing more brands like Egg Beaters and Ready Whipp aerosol cream from parent Conagra’s stable in due course.

This apart the company is also increasing its presence in the food service segment through the Lamb Weston frozen potato products which are already in the market, and the Hunt’s tomato based products which it is introducing in the country.

ATFL increased investments on brands such as Sundrop Heart and Act II by 31% on a year-on-year basis which has resulted in significant market gains for the products.

While Sundrop accounts for up to 9% market share Act II is a category in itself being the only product of its kind in the market.