Project Report

M/s. JASMINE EDIBLE OIL LLP

15-2-673, Kedia Building, Kishan Gunj, Hyderabad – 12

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INDEX

SL NO. PARTICULARS PAGE NO

1.1 COMPANY AT GLANCE 2

1.2 KEY FINANCIALS 3

1.3 FINANCIAL ANALYSIS 4

2.1 ABOUT COMPANY 5

2.2 ABOUT PROMOTERS 6

2.3 PRODUCTS 7

2.4 INFRASTRUCTURE FACILITIES 13

2.4 MARKETING ARRANGEMENT 14

3.1 BANKING ARRANGEMENT 16

3.2 SWOT ANALYSIS 17

3.3 WORKING CAPITAL ASSESSMENT 19

3.4 LETTER OF CREDIT ASSESSMENT 22

4.0 INTRODUCTION EDIBLE OIL INDUSTRY

INDUSTRY 23

4.1 PRODUCT 23

4.2 PRODUCT USES 24

4.3 CONSUMPTION PATTERN IN INDIA 24

4.4 GLOBAL EDIBLE OIL INDUSTRY 25

4.5
4.5 INDIAN EDIBLE OIL INDUSTRY 28

4.6 CONSTRAINTS IN OIL SEED PRODUCTION 31

4.7 TREND OF OIL IPORT 31

4.8 GOVERNMENT INTERVENTION 32

5.1 CONCLUSION 33

FINANCIALS

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1.1 COMPANY AT A GLANCE

NAME OF THE FIRM JASMINE EDIBLE OIL LLP

15-2-673, Kedia Building, Kishan Gunj,

REGISTERED OFFICE
Hyderabad-500012

Sy.No.113 Part, Timmapur, Kothur, Ranaga Reddy

FACTORY / UNIT
District, Telangana

PAN AAMFJ6686P

COMPANY AAI – 3041 registered with ROC, Hyderabad

INCORPORATION 18th January 2017

1. Musturd Oil
2. Coconut Oil
PRODUCT
3. Olive Oil
4. Gingelly Oil

1. Mr. Amit Goyal Kumar

PROMOTERS
2. Mrs. Hema Kedia

INSTALLED CAPACITY To Install 40 TPD of edible oil packing.

Edible oil Packing and selling in the name of own

LINE OF ACTIVITY
brands.

INDUSTRY Edible Oil

The Firm requires working capital for packing and

trading edible oils:
PRESENT REQUIREMENT
Cash Credit: Rs.700.00 Lakhs
Letter of Credit: Rs.100.00 Lakhs

# 19-2-226/1/C, D, & E, Situated at Ramnasthpur,

COLLATERAL SECURITY
Hyderabad admeasuring about 2000 Sq Yards.

The promoters had established market with more

than 1000 distributors and dealers as they are in the
MARKET
same industry for more than 15 years.

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1.2 Key Financials of the Company:

Rs. In Lakhs

JASMINE EDIBLE OIL LLP

2016-17 2017-18 2018-19 2019-20 2020-21
Operating Income 309.15 9068.40 10201.95 11335.50 12469.05
Other income 0.00 0.00 0.00 0.00 0.00
TOTAL INCOME 309.15 9068.40 10201.95 11335.50 12469.05
Operating Expenses 302.43 8729.30 9826.13 10916.65 12007.32
EBIDTA 6.72 339.10 375.82 418.85 461.73
% of EBIDTA to Total
2.17% 3.74% 3.68% 3.70% 3.70%
Income
Interest 0.00 100.00 100.00 100.00 100.00
Depreciation 0.00 2.09 1.80 1.55 1.33
PAT 4.64 165.91 191.81 222.11 252.28
% of PAT to Total income 1.50% 1.83% 1.88% 1.96% 2.02%
Cash Accruals 4.64 168.00 193.61 223.66 253.61
% of Cash accruals to Total
1.50% 1.85% 1.90% 1.97% 2.03%
income
LIABILITIES
Equity Capital/Trust Fund 100.00 200.00 200.00 200.00 200.00
Net worth 104.64 370.55 562.37 784.48 1036.76
Term Loans 0.00 0.00 0.00 0.00 0.00
Other Loans 0.00 700.00 700.00 700.00 700.00
Total Loans 0.00 700.00 700.00 700.00 700.00
Current Liabilities 20.80 626.68 685.93 763.91 841.86
TOTAL LIABILITIES 125.45 1697.23 1948.30 2248.38 2578.61
ASSETS
Gross Fixed Assets 15.00 15.00 15.00 15.00 15.00
Depreciation 0.00 2.09 3.89 5.43 6.76
Net Fixed Assets 15.00 12.91 11.11 9.57 8.24
Current Assets 65.45 1684.32 1937.18 2238.82 2570.38
Net Current Assets 44.64 1057.64 1251.25 1474.91 1728.52
Other Non Current Assets 45.00 0.00 0.00 0.00 0.00
TOTAL ASSETS 125.45 1697.23 1948.30 2248.38 2578.61
TOL/TNW 0.20 3.58 2.46 1.87 1.49
Current ratio 3.15 1.27 1.40 1.53 1.67

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1.3 Analysis:

Net Sales: The net sale of the company is estimated at Rs.3.09 Crore for the year
ended march 2017 and is projected at Rs.90.68 and Rs.102.02 Crore for the years 2018
and 2019. Net Sales is increasing every year due to increase in the production
capacity utilization.

Profitability: The PBDIT of the company is estimated at Rs.6.72 lakhs for the year
2016-17 and the same is projected at Rs.339.10 and Rs.375.82 lakhs for the year 2017-
18 and 2018-19. The Net Profit of the company for the current year is estimated at
Rs.4.64 lakhs which is 1.5 % of the net sales. Profit after tax is projected at Rs.165.91
and Rs.191.81 lakhs for the year 2017-18 and 2018-19 which is 1.83% and 1.88% of the
net sales.

Tangible Net Worth: The TNW of the company is estimated for the current year
2016-17 at Rs.104.64 lakhs, and is projected to increase every year due to ploughing
back of profits back into the business and infusion funds into business by the
promoters of the company.

TOL/TNW Ratio: The gearing ratio of the company is estimated at 0.20 for current
year 2016-17. The same is projected at 3.58 and 2.46 for 2017-18 and 2018-19
respectively. The ratio is less than the benchmark, due to investment made by
promoters as an additional capital.

Current Ratio: The current ratio of the company for the current year is estimated at
3.15. This is above the benchmark level and is set to maintain above benchmark level
in the following projected years. The projected current ratio is projected at 1.27 and
1.40 for 2017-18 and 2018-19 respectively. Current ratio in the year 2017-18 is slightly
decreased due to increases in short term borrowings in the form of working capital.

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2.1 ABOUT THE COMPANY:

M/s. Jasmine Edible Oil LLP is registered as a Limited Liability Partnership

incorporated under companies act 2013 vide certificate of Identification No. AAI –
3041, dated 18th January 2017 with the Registrar of Companies, Telangana,
Hyderabad. The main object of the company is to manufacture, import, export, buy,
sell, manipulate, prepare for market, can process, preserve and otherwise deal in
oils, vegetable oils and fats, vegetable and artificial ghee, oil made or processed from
seed, coconuts, ground nuts, products of plantation, horticulture, agriculture and
forest products, animals and poultry feeds, fatty acids, soaps, glycerine, allied
products and lubricants namd from such oils and other or as by-products thereof.

Company will be run by an experienced persons having over 15 years of

experience in the related industry. The registered office is situated at 15-2-673,
Kedia Building, Kishan Gunj, Hyderabad-12.

The promoters of the company have been associated with importers /

exporters/traders for the last 10 years in terms of trading of edible oils. The
promoters considering the growing demand for edible oil incorporated JEOLLP to
do the business of manufacturing and trading in edible oils.

The filling and packing unit is located at Sy.No.113, Timmapur, Kothur, Ranga
Reddy District, Telangana with installed capacity of 40 TPD. The company proposed
to manufacture different kinds of edible oils such as:

Musturd Oil

Coconut Oil

Olive Oil

Gingelly / Sesame Oil

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2.2 ABOUT THE PROMOTERS

The company has promoted by well-established and HNIs from Hyderabad, having over
more than two decades of experience in manufacturing and trading of edible oils and other
related products and services. The directors of the company are:

Mr. Amit Goyal Kumar: He is aged about 40 years. He is a commerce graduate.

After completion of his graduation, he started business in his own capacity. At
present he is doing his trading business in the name of Amron Associates which is
proprietorship firm. He has varied and rich experience in the business of oil trading
and are in the business since last 15 years and has network of customers. Entire day
to day activities of the firm are being looked by him. He is expertise in Accounts and
Finance, and Marketing activities of the company. He has been closely associated
with Oil Industry for the last 15 years. By virtue of his association with edible oil
marketing for more than 15 years, he has established direct contacts with
wholesalers/retailers for selling the edible oil.

Mrs. Hema Kedia: She is a commerce graduate and has over 20 years of rich and
diverse experience in the field of Manufacturing/Refining/Marketing of edible oils.
She is fully conversant with the intricacies and trends of Vegetable oil market in
India and belongs to a family of leading vegetable oil traders of Telangana and
Andhra Pradesh. She has grown by leaps and bounds starting from the humble
beginning of the edible oil manufacturing unit in Andhra Pradesh. She is also
director in Natural Vanaspati Limited and Kolour Spintek Limited.

Sl. Name of Networth

PAN DOB Address of Guarantor
No Guarantor In lakhs

H.No.1-11-222/6, Near
Amit Goyal
1 ACWPG5076G 09/12/1976 128.00 Syndicate Bank, Begumpet,
Kumar
Secunderabad-16

H.No.5-9-30/1/4/3, Palace
2 Hema Kedia ADOPK5513F 06/12/1971 965.00 Colony, Basheerbagh,
Hyderabad-63

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2.3 Products:
2.3.1: Mustard Oil:
Mustard oil is a type of fat, which is extracted from mustard seeds through pressing
of seeds and is filtered using the distillation process. Mustard oil has got a typical
pungent and sharp flavour that is because of the presence of a compound called
Allyl Isothiocyanate. This oil has about 60% monounsaturated fatty acids (MUFA),
21% polyunsaturated fats (PUFA) and about 12% saturated fats. A higher amount
of MUFA and PUFA distinguishes it from other types of fats. These fatty acids are
also called “good fats” as they do not get deposited on arterial walls. Mustard oil
contains Glucosinolate, which basically works against microbes and adds on to the
oil’s health benefits. It is filled with the very best antioxidants and Vitamins. It is
quite abundant in India and can load us with many Vitamins like A,D,E and K.
Minerals are equally affluent in mustard oil and it is a great source for essential zinc
and antioxidants like beta-carotene, which is known to convert to Vitamin A in the
body.

It has been commonly used in North and East India since ancient times, and comes
with a bevy of health benefits. Mustard oil has high levels of both alpha-linolenic
acid and erucic acid. It is an ancient oil that is said to be loaded with many health

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benefits. In Eastern and North Eastern India, it is hard to imagine life without a
bottle of mustard oil at home. It is believed to have miraculous properties, and
therefore is used as a remedy to treat cold, boost immunity, encourage hair growth,
provide nourishment to skin (especially in case of babies who are massaged with
mustard oil during winters and made to sunbathe for a dose of Vitamin D and also
to strengthen the bones), oral health, so on and so forth.

Mustard oil is highly recommended for the reason that it is full of monounsaturated
fatty acids. Our body needs oil in the ratio of 3:1 - three parts of polyunsaturated
fatty acids and one part of saturated fatty acids. Monounsaturated fatty acids
(MUFA) come under polyunsaturated. Mustard oil is full of MUFA which is very
essential for our health. It's good for the heart, lightens skin, helps in hair growth,
prevents premature graying of hair, etc,

Mustard oil is often applied externally, especially during massages. The oil has high
levels of vitamin E, which helps improve skin health. It can help protect the skin
against free radicals from ultraviolet light and pollution, and can even help reduce
the look of fine lines and wrinkles. Additionally, when rubbed into the skin, the
vitamin E in the oil can help promote circulation and immunity.

2.3.2: Coconut Oil:

Coconut oil, or copra oil, is an edible oil extracted from the kernel or meat of
mature coconuts harvested from the coconut palm. It has various applications.
Because of its high saturated fat content, it is slow to oxidize and, thus, resistant
to rancidification, lasting up to six months at 24 °C (75 °F) without spoiling.

Coconut oil is commonly used in cooking, especially for frying, and is a common
flavor in many South Asian curries. Unlike virgin coconut oil, refined coconut oil
has no coconut taste or aroma. RBD oil is used for home cooking, commercial food
processing, and cosmetic, industrial, and pharmaceutical purposes.

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Refined, bleached, and deodorized" (RBD) oil is usually made from copra, dried
coconut kernel, which is pressed in a heated hydraulic press to extract the oil. This
yields practically all the oil present, amounting to more than 60% of the dry weight
of the coconut. This "crude" coconut oil is not suitable for consumption because it
contains contaminants and must be refined with further heating and filtering.
Another method for extraction of coconut oil involves the enzymatic action of alpha-
amylase, polygalacturonases, and proteases on diluted coconut paste.

There are primarily 6 varieties of coconut oil: pure, refined, virgin, organic,
fractionated and extra virgin (this is most debated form as there are no standards on
virginity and it is unclear as to what qualifies as extra virgin oil). When you want to
buy coconut oil, first of all, you need to decide why you need it and where you are
going to use it. Your choice should be based on your need, like whether you want it
for edible purposes or as a carrier oil to be used in aromatherapy, for massaging, for
weight loss, or for medicinal purposes. Below is a list of such purposes and the type
of coconut oil to buy.

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2.3.3: Olive Oil:

Olive oil is a fat obtained from the olive, a traditional tree crop of the Mediterranean
Basin. The oil is produced by pressing whole olives. It is commonly used in cooking,
whether for frying or as a salad dressing. It is also used in cosmetics,
pharmaceuticals, and soaps, and as a fuel for traditional oil lamps, and finds uses in
some religions.

In 2013, world production of virgin olive oil was 2.8 million tonnes (table), a 20%
decrease from the 2012 world production of 3.5 million tonnes. Spain produced 1.1
million tonnes or 39% of world production in 2013. 75% of Spain's production
derives from the region of Andalucía, particularly within Jaén province which
produces 70% of olive oil in Spain. In North America, Italian and Spanish olive oils
are the best-known, and top-quality extra-virgin olive oil
from Italy, Spain, Portugal and Greece are sold at high prices, often in prestige
packaging. A large part of U.S. olive oil imports come from Italy, Spain, and Turkey.

Olive oil is the main cooking oil in countries surrounding the Mediterranean, and it
forms one of the three staple food plants of Mediterranean cuisine, the other two
being wheat (as in pasta, bread, and couscous) and the grape, used as a
dessert fruit and for wine.

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Olive oil is extracted from the olive fruit. From ruling our kitchens to taking over the
cosmetic world, olive oil has become a rage all over the world in recent times.

1. Virgin Olive Oil – The most popular variety, virgin olive oil is a well-known
cooking oil with a surprisingly low acid content. It is best suitable for people
who want to enjoy the benefits of olive oil without spending a bomb.
2. Extra Virgin Olive Oil – Made by cold pressing olive fruit, this oil is
considered to be the best for our body. But mind you, not everybody can afford
to use extra virgin oil due to its high cost.
3. Pure Olive Oil – This oil is actually an amalgamation of refined and virgin
olive oils. It has a high acidic content, and hence is unsuitable for use.
4. Lampante Oil – The type that is used only as a fuel and is not suitable for
cooking.

2.3.4: Sesame or Gingelly Oil:

Sesame or Gingelly oil is an edible vegetable oil derived from sesame seeds. Besides
being used as a cooking oil in South India, it is often used as a flavour enhancer
in Korean, Chinese, Japanese, Middle Eastern, and Southeast Asian cuisine. It has a
distinctive nutty aroma and taste.

Gingelly oil is another name for sesame oil. It's also known as til oil. It's commonly
used in cooking, just like vegetable oil and olive oil. Practitioners of both Western
medicine and the Indian system of Ayurveda recognize significant health benefits in
gingelly oil. You may find it worth your while to use it for all your edible oil needs --
and all your skin care needs as well. Use caution, however, if you suffer from peanut
allergies or other nut allergies, as you may experience similar allergic reactions to
sesame seeds. The oil from the nutrient-rich seed is popular in alternative medicine,
from traditional massages and treatments to the modern day.

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The oil is popular in Asia and is also one of the earliest-known crop-based oils, but
world-wide mass modern production continues to be limited even today due to the
inefficient manual harvesting process required to extract the oil. The market for
sesame oil is mainly located in Asia and the Middle East where the use of
domestically produced sesame oil has been a tradition for centuries. About 65
percent of the annual US sesame crop is processed into oil and 35 percent is used in
food.

There are many variations in the colour of sesame oil: cold-pressed sesame oil is pale
yellow, while Indian sesame oil (gingelly or til oil) is golden, and East Asian sesame
oils are commonly a dark brown colour. This dark colour and flavour are derived
from roasted/toasted sesame seeds. Cold pressed sesame oil has a different flavour
than the toasted oil, since it is produced directly from raw, rather than toasted,
seeds.

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2.4 INFRASTRUCTURE FACILITIES:

The promoters are mainly engaged in marketing of all kinds of edible oil. The
promoters considering the growing demand from the distributors and consumers,
planned to pack and sell edible oils such as Mustard oil, Coconut oil, Olive oil, and
Sesame Oil. The firm requires infrastructure like Land, Buildings, Machinery,
Utilities, Water, and Power to fill oil and pack into different quantities.

Land & Building:

The firm has taken the unit which is already set up on industrial land situated at
Sy.No.113 Part, Timmapur, Kothur, Ranaga Reddy District, Telangana. The factory
and equipments are taken under lease for a lease amount of Rs.50,000/- per month.

Plant & Equipments:

The firm is packing its various products in different sizes under its brand. The firm is
packing the refined oil in 500ml and one litre polythene pouches, for which the firm
has automatic machine for filling and sealing the above. Besides above, the firm is
also packing and selling in 5 litre plastic cans, 15 litres, plastic cans and 15 KGs.
metal tins. The required equipments will be taken under lease along with building.
The plant & equipments installed in plant are mentioned below:

Amount in Rs.
S. No EQUIPMENTS Units in Nos.
In Lakhs
1 Storage Tanks – 50 MTs 3 22.65
2 Storage Tanks – 10 MTs 3 9.15
3 Packing and Sealing Machines 4 24.00
Others such as Electricals, Valves &
4 4.50
Fitting, Pipeline, etc.
Total 60.30

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2.5 MARKETING ARRANGEMENT

The sales and market areas of Jasmine Edible Oil LLP are as follows. The Company
will also utilize the existing marketing channel in addition to develop additional
market:-

The promoters had already developed a very strong network of distributors, dealers
and brokers throughout Andhra Pradesh and Telangana.

The promoters are in the process of expanding their marketing network to other
areas. It further proposes to market its products through Supermarkets, Big retail
outlets etc., The group is also directly selling its products to some of the important
hotels in twin cities of Hyderabad/Secunderabad.

The group has concentrated its efforts in promoting its products in twin cities. The
promoters are doing edible oil business in twin city for the last twenty five years.
The area-wise analyses shows that the group have fully covered twin city
irrespective of industrial area, residential area, wholesale markets such as
Begumbazar, Monda Market, Sub-urban area in all directions.

The Quality of the firm’s products is well accepted in the market and there are
number of enquiries from neighboring states like Tamilnadu, Karnataka and Kerala
etc.

The company’s main strength is its’ marketing & distribution setup. It has over 1500
dealers, Distributors, stockiest, and consignee agents all over the country, apart
from depots and warehouses at Hyderabad. This marketing setup has been in
operation for the last 20 years and will enable the company to achieve a turnover of
Rs.150.00 Crores per year. Thus there is no lead-time involved in marketing the
additional capacities newly created.

As stated earlier, the demand for refined oils is substantial and growing in the
country mainly due to increase in literary levels and living standards of the
population. More and more people, especially of the large middle class strata are
changing over to the use of refined edible oils in the preparation of daily food in
preference to crude edible oils. It may be mentioned that almost all edible oils,

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except Groundnut oil have to be refined to make them edible since oils like
Sunflower, Rapeseed, Cottonseed, Palm oils contain toxic materials and need to be
refined to make them edible. Refining also reduces the levels of saturated fats (and
the level of harmful cholesterol) in the oil thus helping control over harmful heart
diseases.

There are several branded refined groundnut and other edible oils, which are
distributed in the Indian market by large domestic and multinational companies.
These enjoy good demand from people of upper middle class strata of society.
However due to the brand image and substantial marketing expenses, the consumer
price of these branded oils is very much on the high side and not within the reach of
a large segment of population. The refined oils manufactured by the firm are
catering to the demand of this segment of middle class population. With its past
experience in the field and its wide and tested marketing network, the firm is
confident of selling the entire production including that from the proposed
expansion.

The potential areas where the group proposes to increase its concentration for
marketing its products are Ranga Reddy, Mehboobnagar, Nalgonda, Warangal,
Medak, and Khammam Districts in Telangana.

Kurnool, Ananthapur, Guntur, Vijayawada, Prakasham and Ananthapur districts in

Andhra Pradesh.

Bidar, Raichur, Gulbarga and Hubli districts in Karnataka.

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3.1 Banking Arrangement:

The Present proposal is for the working capital facilities to the tune of Rs. 8.00 Crore.
The proposed requirement of fund & non-fund based facilities is given hereunder: -

Credit Facilities Proposed:

Proposed Limits
Credit Facility
Rs. in Crore

Cash Credit 7.00

Letter of Credit 1.00

Total 8.00

1. Company is requesting for working capital facilities, Cash Credit – Rs.7.00 Cr

and Letter of Credit of Rs.1.00 Cr for working capital requirement.
2. Interest rate: 12.50 % p.a.
3. Security :
a. Exclusive Charge on current assets of the company.
b. Personal guarantees from promoters.
c. Collateral Security: Collateral security to the extent of 100% of the credit
facilities will be provided as additional collateral security for working
capital facilities.

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3.02 SWOT ANAYSIS

STRENGTHS:

• The promoters of the company have got rich experience in the industry.
• The group has a well-established distribution network for marketing of edible
oils.
• All the products packed and traded are “AGMARK” graded (Under license
from Government of India).
• The markets for the products of the company are well established and hence
no problem is envisaged in marketing. The existing marketing network can be
made use of for the proposed activity also.
• The promoters existing businesses are profit making and past dealings with
the financial institutions are satisfactory.
• The promoters are well experienced in this line of activity and are financially
sound.

WEAKNESS:

 The industry has low margins due wide network of distribution. Company is
increasing its profitability by decreasing procurement and processing costs.
 Unfavourable changes in taxes structures.
 Foreign exchange fluctuations will also have a bearing on the performance of
the unit.

RISK MITIGATION

 The industry is even though low margins but high volume and gains on high
volume. Moreover, the promoters being financially sound also have a relevant
experience in this line of activity. The existing unit is showing better margins
comparing the other units in this line.

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OPPORTUNITIES:
• Increase in business potentiality as product and sector is fast growing and never
ending for all kinds of industries.
• Huge market for edible oil in India as well as abroad.
• Moving into new market segments that offer improved profits.
• Great opportunity for growth of local area in terms of all aspects such as
employment, taxes, etc.
• Better price realization for the product from the market

THREATS:

• Continuance of recession over a longer time horizon.

• Power position in the state.
• Fluctuations in prices of supplies may occur.
• Taxation introduced on the product.
• Competition could develop expensive new market campaigns and strategies.

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3.03 ASSESSMENT OF WORKING CAPITAL:

The firm requested Cash Credit limit of Rs.7.00 Crore for the current year based on
sales turnover of Rs.90.68 Crore and the credit limits are assessed as under:
(Rs.in lakhs)

Sl. Particulars Estimated Projected Projected Projected

No
2016-17 2017-18 2018-19 2019-20

1 Current Assets 65.45 1684.32 1937.18 2238.82

2 Current Liabilities (Other
than Bank Liabilities) 20.80 626.68 685.93 763.91

3 Working Capital Gap (WCS)

1-2 44.64 1057.64 1251.25 1474.91

4 Min. Stipulated net working

capital 16.36 421.08 484.30 559.70

5 Actual/projected Net
Working Capital 44.64 357.64 551.25 774.91

6 Items 3 minus Item 4 28.28 636.56 766.95 915.21

7 Items 3 minus Item 5 0.00 700.00 700.00 700.00
8 Maximum Permissible Bank
Finance 0.00 636.56 700.00 700.00

Holding levels of various components of current assets and current liabilities are
as under:

Year ended Projected Projected Projected Projected

March 31st 2017 2018 2019 2020

Raw material 15.00 15.00 15.00 15.00

Work in Process 3.00 3.00 3.00 3.00

Finished goods 8.00 8.00 8.00 8.00

Receivables 45.00 45.00 45.00 45.00

Sundry Creditors 25.00 25.00 25.00 25.00

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(a) Raw Material :

Main raw material of the company is refined vegetable oils for packing and
distribution. The firm purchases Vegetable oils such as Mustard oil, Coconut oil,
Olive oil, and Sesame oil from domestic market as well as South America, South East
Asia etc. The company has a full fledged logistics department to handle the day to
day movement in the local prices as well as imports and exports all over the world.
The company has expert knowledge in visualizing the trends of oil production in the
world as against the Indian demand / supply position with the promoters having
rich experience in this line of activity over decades.

The Olive oil is generally imported from African and American countries and the
other products will be procured in the domestic market. The shipping period usually
varies depending on the place. The shipping time from America is usually between
20 to 30 days and the shipping time in the domestic market is usually between 2 to 5
days. The port clearance and transportation to site usually takes 10 days time. Thus
depending on the type of oil required to be purchased and the credit period
available the L.C is opened with a Usance period ranging from 60 to 90 days. Hence
a provision is made for about 15 days of imported and domestic raw material, which
is required to be kept in stock to ensure the continuity of production, which is
considered reasonable.

The company buys indigenous vegetable oils during November to March. Most of
the indigenous material is available either against cash or on credit, which is usually
costly as per the market competition. The company is required to take care of
volatility in prices of raw material due to marginal margins on the sales. In addition
the company is also required to have careful watch over the availability of material,
whether domestic or international for uninterrupted production. Both the factors
influence for the firm to have huge working capital requirements.

Considering the above factors into consideration, the inventory level for raw
material is accepted.

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(b) Finished goods and Workin Process / Stock in Process:

The company, after packing or filling with the bottles, distributes all over Southern
States through distribution network. For retail distribution, the company packs the
finished goods in various sizes in 50 Ml pouches, 200 Ml pouch, 250 Ml Pouch, 500
Ml pouch, 1 Litre pouch along with 5 litres, 10 litres, and 15 litres tins for bulk sales.
Accordingly, the company is required to hold minimum quantities of all varieties of
packings as above. All these factors contributing to the work in process and finished
goods level of about 20 days level. The company’s projection of finished goods level
8 days and work / stock in process at 3 days appears reasonable and hence accepted.

(c) Receivables:
The company sells the goods to the stockiest, distributors, brokers and dealers. There
is competition in the line of business. These distributors are in turn selling to the
retailers. Due to the business practices, these distributors seek credit for 45 to 60
days. Hence the company projected receivables level at 1.5 months.

(d) Creditors for purchases:

Main raw material of the company is refined vegetable oils for packing and
distribution. The firm purchases Vegetable oils such as Mustard oil, Coconut oil,
Olive oil, and Sesame oil from domestic market as well as South America, South East
Asia etc. They are available indigenously in limited quantities compared to the
demand. Packing material and other consumables are locally available and the
company usually gets the credit of around one week on these materials.

In view of the above, the company has estimated a level of 25 days for sundry
creditors which appears reasonable.

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3.04 Assessment of letter of Credit:

The company procures most of its Raw Material requirements in the domestic
market against Letters of Credit on usance terms ranging from 60 to 90 days terms,
depending upon market conditions. The Olive oil is generally imported from African
and American countries and the other products will be procured in the domestic
market. The shipping period usually varies depending on the place. The shipping
time from America is usually between 20 to 30 days and the shipping time in the
domestic market is usually between 2 to 5 days. The port clearance and
transportation to site usually takes 10 days time. Thus depending on the type of oil
required to be purchased and the credit period available the L.C is opened with a
Usance period ranging from 60 to 90 days.

Assessment of LC is made as under:

Particulars Amount in Rs. Crore
Total Annual Purchases of raw material 77.48

Purchases under LC – 10% 7.48

Per month requirement 0.65

LC terms on average 60 Days

Lead time 30 Days

Usance LC requirement 90 days * 7.48/365

= 1.91 Crore

The company request for Sanction of ILC Limits for Rs.1.00 Crore for oil
procurement on conservative basis. Depending upon domestic market conditions
and availability, the company decides for procurement. To have more flexibility, the
company seeks combined limit for ILC and FLC. The company’s requests appear
genuine and hence recommended.

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4.00 INDUSTRY OVERVIEW:

Edible oils constitute an important component of food expenditure in Indian

households. Edible oil industry is one of the most important industries of agriculture
sector in India. India is a leading player in the industry, with world’s largest
importer from Indonesia and Malaysia and third largest consumer. India is the
fourth largest oil seed-producing country in the world after USA, China and Brazil.
In all, nine types of oilseeds are produced in India. Of the nine, soya bean, ground
nut, and mustard are the major oilseeds produced in the country. The growth of
edible oil consumption and increasing population coupled with limited availability
of oil seeds and shifting of acreage to other crops have resulted in continuous
demand supply gap for edible oil which is being met by imports. Further import of
edible oil is subject to change in custom duty rates between crude oil and refined oil
which can affect domestic producers and refiners. Apart from Indian custom duty
rates, Indian edible oil industry is also susceptible to the policies of Indonesia and
Malaysia, the two largest exporting countries of edible oil. The article delineates on
various reasons for decline in edible oil production along with prospects, issues and
challenges faced by the industry.

4.01 PRODUCT

The demand for the edible oil has been rising steadily, driven by improving
economic performance & population increase. Under the influence of population
growth, rising incomes and low prices of edible oils, India's edible oil demand has
been rising by 54 per cent in recent years. There is a change in attitude of the people
and they are becoming more and more heath conscious, people are only using
refined oil even in the rural areas. Refined oil has more nutritious value and it is
hygienic and free from fats. Moreover, present preferences of people are more for
refined oils than Ghee, Butter and conventional oils, etc, due to health reasons.

Over the last Ten years or so there has been explosive expansion of the country’s
vegetable oil refining capacity triggered in part by Tax breaks, changes in import
tariffs and rapidly rising volumes. The industry perennially depends on imports as

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domestic production is pegged at about 8 million Tons against the demand of 16

million tons. The shift in the consumer preference for branded edible oils in the last
few years was clearly visible as they turned more Quality and Health Conscious.

Though there are good numbers of refined oil units in the state, the growth is not
commensurate with the increase in demand. Thus, the product, being the basic
cooking medium, has good demand potential in the years to come.

4.02 PRODUCT USES

Refined Edible Oils are considered healthier as compare to other oils. Earlier very
few variety of edible oils were available and the traditional ground nut, mustard oil,
til oil, kardi - oil etc., were consumed in crude form. Due to scarcity of edible oil, the
other substitute oils such as sunflower, cotton seed, soya bean, rice brawn have been
developed in the country, but due to the high content of fatty acid they cannot be
consumed in raw form and refining of these oils is essential. So the refined oils have
helped us in filling the gap between demand and supply. Further, scarcity of
traditional oil lead to adulteration and therefore refining appeared the safe route for
getting healthy oil.

4.03 Consumption Pattern of Edible Oils in India

India is a vast country and inhabitants of several of its regions have developed
specific preference for certain oils largely depending upon the oils available in the
region. For example, people in the South and West prefer groundnut oil while those
in the East and North use mustard/rapeseed oil. Likewise several pockets in the
South have a preference for coconut and sesame oil. Inhabitants of northern plain
are basically fat consumers and therefore, prefer Vanaspati, a term used to denote a
partially hydrogenated edible oil mixture. Vanaspati has an important role in our
edible oil economy. Its production is about 1.2 million tonnes annually. It has
around 10% share of the edible oil market. It has the ability to absorb a
heterogeneous variety of oils, which do not generally find direct marketing

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opportunities because of consumers’ preference for traditional oils such as

groundnut oil, mustard oil, sesame oil etc. For example, newer oils like soyabean,
sunflower, ricebran and cottonseed and oils from oilseeds of tree and forest origin
had found their way to the edible pool largely through vanaspati route. Of late,
things have changed. Through technological means such as refining, bleaching and
de-odouraisation, all oils have been rendered practically colourless, odourless and
tasteless and, therefore, have become easily interchangeable in the kitchen. Newer
oils which were not known before have entered the kitchen, like those of cottonseed,
sunflower, palm oil or its liquid fraction (palmolein), soyabean and ricebran. These
tend to have a strong and distinctive taste preferred by most traditional customers.
The share of raw oil, refined oil and vanaspati in the total edible oil market is
estimated roughly at 35%, 55% and 10% respectively. About 50% of domestic
demand of edible oils is met through imports out of which palm oil constitutes about
80% of imports. Therefore, the consumption of refined palm oil (RBD palmolein) and
in blending with other oils has increased substantially over the years specially in
hotels, restaurants and in preparation of wide varieties of food products.

4.04 Overview of Global Edible oil Industry

In terms of value, the global edible oil market is expected to expand at a CAGR of
5.1% during the forecast period (2016–2024). The global edible oil market is expected
to be valued at US$ 130.3 Bn by 2024 end. On the basis of type, palm oil segment is
projected to witness rapid growth during the forecast period. By end-user, retail
segment is expected to witness significant growth over the forecast period, owing to
increasing consumer demand for edible oils from major retail channels in various
countries worldwide. In 2015, Palm oil segment accounted for over 32% volume
share of the global edible oil market, followed by soybean oil segment, which
accounted for around 29–30% volume share.
In 2015, palm oil segment accounted for over 43% value share of the edible oils
market in APAC and is expected to expand at a CAGR of 6.3% during the forecast
period. Soybean oil segment revenue is expected to decrease from 9.8% in 2015 to
9.6% in 2024 in the Europe edible oils market. This is attributed to the introduction of

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new healthy edible oils such as palm olien, olive oil, and canola oil in the market. In
2015, olive oil segment in the Europe edible oils market accounted for over 22.7%
share in terms of value. Demand for edible oils in Europe is expected to remain
steady due to increasing consumption of healthy edible oils with stable fatty acids.

Olive oils prices are comparatively higher than other edible oils in North America
and APAC. Soybean oil prices are expected to fall in Latin America, due to surplus
availability of raw material.

Global palm oil consumption is expected to increase by around 2% between 2015

and 2024. In 2014, APAC accounted for over 45% share of the total palm oil
consumption in the global edible oils market. Palm oil and soybean segments
collectively accounted for over 60% volume share of global edible oils market.

Demand for specialty blended oils is increasing substantially in Latin America and
MEA, whereas demand for olive oil is increasing in Europe and Asia Pacific.

The retail segment is expected to drive sales of edible oils in both developed and
developing countries. This is attributed to a well-established chain of retail outlets
and strong supply chain of edible oil products. This segment is expected to expand
at a CAGR of 5.3% during the forecast period. Foodservice segment is expected to
register a CAGR of 5.1% over the forecast period, owing to easy availability and low
price of palm oil. Consumer preferences for palm oil in Asia Pacific and some
countries of Latin America is expected to drive the growth of palm oil segment
during the forecast period. Palm oil is projected to expand at a CAGR of 6.2% in
terms of value, over the forecast period, highest among all other oil types.

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The global edible oil market was supported by the Chinese appetite for oilseeds,
edible oils and oilmeals in the previous crop year. Surplus production from the US
and South America was absorbed without impacting prices significantly. This year,
too, we believe the oilseeds market won't be left to starve, as produce from
Argentina and Brazil will keep markets well-supplied. China will also continue to
buy a major chunk of the produce. The US Department of Agriculture (USDA)'s
Attache Report stands proof that while China is likely to witness a record import of
84.5 million tonnes (mt) in 2016-17 due to rising incomes, urbanisation and the
modernisation of the domestic feed and livestock sectors, its domestic oilseed
production is set to decline to 52.7 mt.

However, the major oilseeds market in India doesn't seem to paint a rosy picture.
The production of rabi oilseed (rapeseed/mustard seed) seems to be higher than the
previous year, but is below the average. At present, initial trade reports suggest a
possible decline in the kharif oilseed acreage (which is likely to commence after the
initial monsoon showers). Meanwhile, India's foreign purchase of palm oil and its
constituents have rendered the domestic edible oil market highly uncompetitive. The
cheaper palm oil derivatives have flooded the domestic market and the trend
continues. With France leading the EU to impose palm oil taxes, it is quite likely that
the island nations will lose a major market, but Indian imports will continue to
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support prices. Indian oilseeds and edible oil demand is likely to outpace supply as
in the previous year.

4.05 Overview of Indian Edible oil Industry

India plays an important role in the global edible oil market, accounting for 10-12%
share of consumption; 6-8% share of oilseed production; 4-6% share of edible oil
production, and 12-14% share of world edible oil imports for OY151. Furthermore,
the industry is highly dependent on availability of raw material, domestic
production of oil seeds, annual rainfall, global price fluctuations and consumer
preferences. Availability of edible oil in India has shown a compound annual growth
rate (CAGR) of 7.32% during OY06-OY15 with y-o-y growth of 8.02% in OY15 over
OY14, whereas the growth in population has remained at CAGR of 1.29% during
2006-2015. Majority of the demand supply gap of edible oil in India is being filled
through imports.

The growth in production of domestic edible oil has not been able to keep pace with
the growth of consumption. Thus, this gap is being met by the imports that account
for almost 55-65% of the total oil consumption during past five years. Continuous
increase in the gap between demand and supply of edible oil has forced India to do
huge import from leading exporter countries of edible oil. The demand supply gap is
becoming wider mainly due to limited availability of oil seeds, shifting of acreage to
other crops and increase in demand of edible oil.

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More than 14 million tonnes of edible oil was imported with a total value of
Rs.64,396.49 crore during OYFY15. In terms of volumes, crude edible oil contributes
about 89% and refined oil contributes about 11% of the total import during OYFY15.
Of the 89% of imported crude edible oil, palm oil, soybean oil and sunflower oil
contributes about 54%, 21% and 11%, respectively. India is importing edible oil from
Indonesia, Malaysia, Argentina and Ukraine contributing about 36%, 23%, 17% and
13%, respectively, of total imports.

Demand of edible oil is mainly driven by increase in per capita consumption of

edible oil, rising income levels and improvement of living standards. However, the
Indian edible oil market continues to be underpenetrated as current per capita
consumption level of India (at 14.4 Kg/year for 2014-15) is much lower than global
averages (24 kg/year). Furthermore, domestic consumption of edible oil is expected
to increase with enhancement in income level and population.

Indian edible oil industry is the world’s fourth-largest industry after USA, China and
Brazil and accounts for around 9% of the world’s oil seed production. It is highly
fragmented with extreme variation in the consumption pattern of Indian consumers
of edible oil. The Indian edible oil industry continues to be underpenetrated and
thereby holds immense business opportunities. Vegetable oil consumption has
increased due to rise in overall household income, surging retail sector, increasing
health awareness, growing population and increasing demand. In India, oilseeds are
grown in nearly 26-27 million hectares. The productivity is however very low in
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comparison with the world average. The consumption growth is rising by nearly 5.5
to 6.0% per annum. Palm Oil is consumed the most by lower income category of
Indian society. Consumption of Palm oil in India is now nearly 45% of the total oil
consumption followed by Soybean oil and Rapeseed oil.

Soy complex: Soybean prices will witness a moderate uptrend in the near term, on
account of decline in stockpiles and stable demand aided by festivals. However,
exports of oil meals haven't depicted a major recovery, which is a matter for worry.
Soybean oil prices may find support due to the oil demand. We expect soybean to
trade at around Rs 3,800- Rs 4,200 per tonne in the near term, and soybean oil to
trade at around Rs 610-625 per 10 kg, in the near term. The upward trend may be
capped by the rabi oilseed arrivals. Also, it is advised to trade keeping a check on the
imports of soy oil from South America, which can lead to a correction in prices.

Rape-mustard seed: We estimate rapeseed production to be higher than the

previous year at 5.9 mt this season. Fresh produce has started to hit the markets with
prices trading at Rs 3,700-3,900 per tonne (spot market, Bharatpur). We expect the
future prices to correct and trade in the range of Rs 3,800-3,900 per tonne in the near
term. Once the arrival pressure subsides, the market can witness mustard seed to
trade at around Rs 4,200 per tonne.

Palm oil: Taking a cue from the momentum in crude oil, the bio-fuel blending might
gain momentum in Indonesia. The El Niño-induced drought has lessened output
from the island nations, while prices are expected to remain supportive above Rs
500/10 kg (Multi Commodity Exchange) levels, due to increased imports from India.
The deficit in production coupled with increased outflows from Malaysia and
Indonesia (and, if it happens to be, the bio-fuel programme of Indonesia) will tighten
the supply of palm oil and its constituents. We expect palm oil to trade at around Rs
510-545 levels in the near term.

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4.06 Constraints in oilseeds production

1. Oilseed crops are largely grown under rain-fed condition (>70%) and are more
prone to biotic and a-biotic stresses. Only one fourth of oilseed producing area
remains under the irrigation.
2. Oilseeds are energy rich crops but are grown under energy starved conditions
(with minimum inputs with high risk).
3. Majority of oilseed growers (more than 85%) are small and marginal farmers
having poor resource base.
4. High seed rate (number of seeds (Kg) to be used per hector or acre for maximum
yield) and cost of seeds coupled with non-availability of quality seeds of varieties
and hybrids.
5. Limited adoption of improved varieties and technologies.
6. Unorganized marketing infrastructure and procurement mechanism.
7. External price shock on account of dependence on import is a major challenge in
this sector.
8. The cultivation of oil seed farms such as palm has long gestation period of about
3-7 years before the cultivators could actually begin to derive benefit from thereof.

4.07 Trend of refined and crude oil import in terms of volumes and duty
The current duty differential between CPO and RBD (refined, bleached, and
diodized) stands at 7.5%, which provides protection to domestic refiners against
competition from imported refined oils to certain extent.

The increase in export duty by Indonesia on CPO has adversely affected the refining
industries in India due to narrowing spread between crude and refined oil in global
markets OY15. The spread during Q3FY14 between CPO and RBD has narrowed to
as low as about $10 a tonne, thus adversely impacting the profitability margins of
domestic refining industries as most of the domestic trades have sought for import
of RBD than purchasing from domestic players.

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In order to counter the same during January 2014, Indian government has raised the
import duty on RBD to 10% from 7.5%, while that on CPO was kept unchanged at
2.5% resulting in increase in differential duty between RBD and CPO at 7.5% from
5%. Furthermore, import duty for RBD was increased to 20% from 15% and for CPO
it was increased to 12.50% from 7.50% during September 2015. Thus, net duty
differential was being maintained at 7.5% to protect the domestic industry. Going
forward, the industry’s profitability is vulnerable to any reduction in this duty
differential.

4.08 Intervention of Government to tackle import of edible oil

Government of India is promoting National Mission on Oilseeds and Oil Palm
(NMOOP) during 2012-17 to achieve objectives such as increasing Seed Replacement
Ratio (SRR) in oil crops with focus on Varietal Replacement, increasing irrigation
coverage under oilseeds from 26% to 36%, diversification of area from low yielding
cereals crops to oilseeds crops, inter-cropping of oilseeds with cereals/ pulses/
sugarcane, use of fallow land after paddy/potato cultivation, expansion of
cultivation of Oil Palm and tree borne oilseeds in watersheds and wastelands,
increasing availability of quality planting material enhancing procurement of
oilseeds and collection, and processing of tree borne oilseeds.
The cost of interventions under the mission was in the ratio of 75:25 between center
and states. However, for components like seed production, Front Line

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Demonstration (FLD), mini-kits, adaptive research being implemented through

central agencies such as State Agricultural Universities (SAU) and Indian Council of
Agricultural Research (ICAR) institute are being funded through 100% central
support. There are three mini missions in this scheme viz. Mini-mission-I, II and III.
Mini Mission-I focuses on oilseeds, Mini Mission II on oil palm and Mini Mission III
on tree-borne oilseed (TBOs). The mission aims to enhance production of oilseed
from 28.93 million tonnes (average of 11th five year plan) to 35.51 million tonnes by
2016-17 and to bring additional area of 1.25 lakh hectare under oil palm cultivation
with increase in productivity of Fresh Fruit Bunches (FFB) from 4927 kg/ha to 15,000
kg/ha by end of 12th five year plan.

4.09 Conclusion:
Indian Edible oil Industry has witnessed financial stress due to droughts, rising
production costs and cheaper imports thus forcing several small companies to shut
shop. India imports nearly 67% of its edible oil requirements; the rest is being met
from domestic production. Area expansion under palm oil fell by over 50% over the
last couple of years due to low prices of crude palm oil and poor rainfall. Though the
duty differential between crude and refined palm oil is 7.5%, edible oil sellers are
finding it more convenient to import refined palm oil directly from Malaysia and
Indonesia and sell it in the domestic market thus placing the edible oil processing
units to operate at hair line margins or in worst case scenario wherein the units are
small the operations have become unavailable.

The performance of the companies in edible oil sector for medium term period will
depend upon the demand of CPO in India post recent increase in import duties on
refined edible oils, movement of domestic edible oil prices, performance of Indian
Rupee against US Dollar, anticipated sales volumes and profitability margins from
the specialty fats business with comprehensive product range including bakery
shortening’s, chocolate & confectionary fats, ice cream fats and a range of cooking
oils.

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FIANANCIALS

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