The Hindu Business Line : `Saptarishi Agro's focus will be on mushrooms '

MR Malvinder Singh, promoter of the Rs 150-crore Agro Dutch Industries Ltd, a leading mushroom producer and exporter, recently acquired Saptarishi Agro Industries Ltd, a mushroom unit from the Thapar group company, Global Green Ltd.

Mr Singh believes that Saptarishi has the inherent capacity to turn a profit, which has eluded it in the last one decade when various leading groups in agro business, including the Tatas, have been in control.

Focus only on mushroom business and keeping costs down, are key factors that will see Saptarishi succeed, he says. Saptarishi Agro has its plant near Chingleput, about 50 km from Chennai. Excerpts from the interview:

What are the main concerns that need to be addressed at Saptarishi?

The major areas are the raw material, energy and human resource. The raw material, paddy straw, is something that we cannot change. Trials at Punjab indicate that the output can be as good as with wheat straw. The main concern here is the energy cost, which is a little over Rs 4 per unit and unviable. So we will need to put up a captive power plant. The skilled and cost effective human resource is available, and we are training them at Agro Dutch.

Major players seem to have failed at Saptarishi. What do you think is going to be a key factor in its success?

Nothing but sole focus on mushrooms. It is a tough area to be in, and you are competing against the likes of China that has a 70 per cent share of the global market. A decade ago industry projections pegged mushroom prices at $27 per case, and they have been totally off the mark. It is now ruling around $16. Low cost is the issue.

Since the primary issue is energy cost, we are reviewing the options for a temperature control facility that will cut cost by 20-25 per cent. The ideal seems to be a coal-based power plant with coal imported from Australia or Indonesia.

Another cost factor is the packaging. Tins are expensive and need to be imported from Japan and Germany. Depending on institutional or retail packaging the cost of cans range from 20 - 25 per cent to 40 per cent of the product cost. We have a captive can manufacturing facility that is among the best in the market. It will supply to Saptarishi at market cost while quality is maintained.

When will the benefits of these efforts be seen? What can the shareholders expect?

By a conservative estimate I expect Saptarishi to turn a profit of Rs 5-6 crore per year in two years' time. Agro Dutch suffered a set back last year because of pesticide issues but this year it has recovered, and will make a profit. Its equity is Rs 14.86 crore and turnover Rs 150 crore. Saptarishi's equity is around Rs 36 crore and for now its turnover is zero. But the Agro Dutch expertise is now backing it. It is good that the shareholders have not responded in a big way to the open offer. I am confident that they will soon see the returns that have eluded them so far.

Saptarishi's is a well set up plant. We will be bringing in over Rs 5 crore. The facility just needs to be spruced up, and the racks for mushroom growing and machines refurbished. The idea is to start harvesting mushrooms in six months' time.

What are your marketing plans?

Agro Dutch has confirmed orders for six months and it is running at full capacity of 80 tonnes per day. The customers are among the world leaders in foods business such as the Unilever group. Saptarishi has a capacity to produce about 12 tonnes per day and this can easily be absorbed.

The main market for the Saptarishi plant would be Israel. Agro Dutch enjoys an 80 per cent share in this market and Saptarishi will cater to it.

For now Saptarishi cannot access the US market because of the 66 per cent anti-dumping duty imposed on it. Once we bring down the cost and establish a market, a representation can be made for the review, which can take up to 18 months.

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