The Hindu Business Line : AVT Natural Products aims to become a global leader

A 100 per cent EoU, AVT Natural Products Ltd, began as a single-product, single-customer company. Now, it has diversified into a multi-product, multi-customer company that clocked annual turnover of Rs 71.72 crore last fiscal.

The company is in expansion mode with an aim to become a global leader in the processing and supply of raw materials to the food and neutraceutical industries. Mr M.S.A. Kumar, Managing Director of this company and of AVT McCormick Ingredients Private Ltd, spoke to Business Line about the company's plans. Excerpts:

AVTNPL began as a single-product, single-customer company and now it has diversified into other products. What are they?

Marigold extract remains our major product, for which we have a captive market in the US. Our second product is value-added black tea after removing caffeine. The third is spice oils and oleoresins.

Since you claim to be a major exporter of marigold, what is your share in the world market for marigold, which is estimated at $50 million?

China is the major market shareholder with 50 per cent. India has a share of around 30 per cent; the third major supplier is Peru. Of the Indian share we command 70 per cent.

How do you compete with China, which is said to have low cost of production?

With the sowing of F1 hybrid variety marigold seeds, we increased yield by 50 per cent. Thus, the concentration of colour pigment is raised by 25-30 per cent. Besides, through cost-effective measures by increasing productivity of both man and machine, we have been able to achieve a competitive global cost structure. However, so far we have been able to only narrow the gap between our cost and that of China.

But our advantage in marigold is that we have a strategic alliance with an American company, Kemin Foods, for five years. They need marigold extract with high content of leutine, which we produce and supply. The patent for leutine is of our strategic alliance partner. They absorb the entire marigold raw material produced by us for manufacturing neutraceutical products. The annual demand growth is 20 per cent. Apart from this, marigold extract is used widely by the poultry sector.

What is the motivation behind entering China for marigold production?

First, the cost of production is lower than in India. Secondly, China has a big basket of agricultural products. To be competitive with China in the world market we need to maintain the production cost at par with them.

Therefore, we have floated a 100 per cent subsidiary called Tonghe AVT Natural Products Ltd in China's north-east province of Heliangjiang, where we would be investing $2-3 million over a period of 3-5 years. We have already got the business licence from the Chinese authorities and sowing of marigold has been done in 2,000 acres. The area would be expanded to 10,000 acres in five years.

We will do the cultivation, harvesting, processing and extraction. The company is planning to diversify into other crops so as to produce raw materials for flavouring and colouring. We are in fact working on a couple of new crops also.

You have also entered into an agreement with your US counterparts in Thailand. What would be your role in this?

Since AVT has been recognised as a leader in marigold, AVT Natural Pte. Ltd, Singapore, a wholly owned subsidiary, has entered into an agreement with Kemin Foods for managing their wholly owned subsidiary in Thailand, Siagra Company Ltd. The agreement is initially for a period of three years and is on a profit-sharing basis. As per the agreement, the marigold pellets produced at Siagra would be processed at our extraction plant here. The BSE has been informed of this arrangement.

What is the market trend for de-caffeineated black tea?

We are concentrating in the US market with this product. There is an estimated demand of 3,500 tonnes there. Currently, the European producers dominate this market. There is a 15 per cent annual growth in demand. We don't want to disclose our share now. But we are well placed and confident of enhancing our share, as our product is cost-competitive. The share of our competitors in this market has come down and that slot is being taken over by us. The advantage of India is that our processing cost is competitive - about 25-30 per cent lower. The tea is processed in our plant at Vazhakulam in the outskirts of Kochi.

Why are you concentrating on such products?

Our objective is to become a global player in this segment of products used for flavouring, colouring and as raw materials in neutraceuticals, which has tremendous potential for growth. We are planning to expand this segment to achieve our vision of becoming a global leader in the supply of natural ingredients providing flavour, colour and health to enrich human life.

What is the capacity of your unit here and what is the current utilisation?

The total processing capacity of the unit is 15,000 tonnes of raw materials. At present, 10,000 tonnes get processed. We hope to utilise 80 per cent of capacity during the current fiscal by processing 12,000 tonnes.

Do you have the required infrastructure to become a global leader?

Not fully. But to achieve this status in five years we are expanding our infrastructure facilities in R&D, marketing and processing.

Is there any other specific reason for spreading your production base to other countries?

Yes. Of late, global consumers are not willing to depend on a single source of supply - be it China or India; it is a risk mitigation strategy. Realising this trend we embarked on our project in China besides taking over management of the Thailand unit.

How has been your performance last fiscal and what is your projection for the current financial year?

The company clocked an all-time high turnover of Rs 71.72 crore in 2005-06, against Rs 57.29 crore the previous year. Profit after tax also grew to Rs 7.50 crore from Rs 4.60 crore. The EPS as on March 31, 2006 was Rs 19.69 compared to Rs 12.08 earlier. We have set a turnover target of Rs 90 crore for the current fiscal.

The company listed on the BSE and Chennai Stock Exchange has market capitalisation of Rs 70 crore at current prices.

More Stories on : Interview | Outlook | Commodities

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page