Modi Naturals - Olive Oil Play

[sabbaniramesh]

Modi Naturals(Mkt Cap 30Crs) is a natural oil processing company based in India. It is one of India’s largest oil processing companies. It has marked its entry in the fast-moving consumer goods industry, which is one of the growing industry. Modi Naturals is only listed on BSE.

History
Modi Naturals was founded in 1974 by D. D. Modi of the Modi Group. It was previously known as Anil Modi Oil Industries Limited which was later rechristened as Modi Naturals when his son Akshay Modi joined the realms.

Products
Modi Naturals have gained steady and firm ground in the fast-moving consumer goods industry with its popular brands ‘Oleev’ and ‘Tarai’.

Modi Naturals is an ISO 9001:2008 certified Company and has obtained AGMARK & HACCP certifications.

Olive Oil - Oleev Extra Virgin Olive Oil, Oleev Extra Light Olive Oil, Oleev Pomace Oil
Health Oil - Oleev Active
Tarai Shudh - Cooking Mustard Oil.
Pipo - popcorn with several different flavours (Cheese Burst, Peri Peri, Desi Cocktail and tomato)

Having said briefly about the company, I would like to highlight why you should avoid this company altogether first.

** BIG NEGATIVES **

1. None of the financial indicators looks even decent. I repeat again. All the financial indicators look very Ugly.
   
   
2. Promoters/Management did not pay any dividend in the last 10 years. Couldn’t verify before that.
3. Cashflow statement is the worst thing to watch out for.
   
   
4. The company website also functions very rarely.
   
   
5. The industry this company operating is fully dominated by big players like Marico, Wilmar Adani, Ruchi Soya etc.

So let me stop adding more negatives and classify this as Warren Buffet’s examples of Business Model which is GRUESOME.

Now you may be wondering why I am even bothered to add this topic in a great forum like ValuePickr.

Below are the reasons why I am starting this thread in this forum.

1. The first and foremost is one of the Intangible assets which is the BRAND.

Intangible assets are those assets that you can’t touch or see. A company can have intangible assets, like brands, patents, or regulatory licenses that allow it to sell products or services at a bigger margin that can’t be matched by the competitors. - Pat Dorsey

Here the company introduced various Brands under Olive Oil. The most popular one is Oleev Active which is available in almost all modern supermarkets, online e-commerce sites and some traditional retail outlets. And, the ratings were not bad.

The other mass-market brand is Tarai Shudh. Below is the snapshot from IndiaMart listing.

Next question we should ask about the Brand is, whether this can be converted as an enduring intangible asset forever for the company. Right now I am not sure about this.

2. Next reason is the Olive Oil as Health Conscious consumption story. I think due to various non-communciable diseases, many consumers are shifting to healthier oils like Olive oil. Some are shifting permanently to this segment and some are consuming partially by using it now and then or to specific food preparations.

3. Modi Naturals is one of the key market players of Olive Oil in India. The other players are Colavita S.p.A, FieldFresh Foods Pvt Ltd., Deoleo, S.A., Cargill Inc., R R Oomerbhoy Pvt Ltd., Ybarra, Rafael Salgado, Borges International Group, S.L., and Hashmitha Enterprise.

4. The olive oil industry is projected to grow at around 10%.
   

   

5. The current generation promoter family member Akshay Modi sounds decent guy. He reminds me of the Radico Khaitan story where the latest generation completely converted the company from B2B to B2C with branded play.

With that, I will open this thread to the investors out there. Please post your opinions/comments about the company.

Regards,
Ramesh

Disc: I do not own this stock. Not planning to own in the near future as well. But will watch the story how it plays out.

[JJoy]

Why should someone put finger in such a company when there are good companies available at reasonable valuations in the current market environment.

Looking at the above valuations ITC is cheaper to this company.

[edwardlobo]

You can’t make a brand from olive oil
An easiest way to check for brand is like nestle, others can’t beat taste or quality for the price like page
Shame/embarrassment - using another product likely to cause embarrassment

Anything else that can be replaced with a cheaper alternative will be replaced by the cheaper alternative. Oil, soap, milk, etc difficult to make into a brand

[atul1082]

PL note that oleeve oil being sold by the company is not olive oil but vegetable oil.A reputed company olive oil is at least 4 times the price of oleeve and people buy it thinking that it’s olive oil.
I am bit surprised as to why no one has filed a case against the company as it’s misleading.

[sabbaniramesh]

The company was communicating the same. Oleev active is 20% Olive plus remaining rice bran oil. Apart from that company has pure olive oils like Olivana.

[sabbaniramesh]

Agreed. Even that’s what i clearly mentioned.

But started the thread for below reasons.

1. To track how the story play out both in the company and in Olive oils
2. It will be good learning when we analyse in and out of new businesses or rarely studied businesses. There is no rule to invest in all the businesses we studied.
3. To check our mind map of business vs realistic path it will be taking. Many a times our mind map of business is rosy but the actual business is muddy.
4. Finally we will be able to distinguish good vs bad business only when we know clearly what is bad business. Most investors falter here including myself.

[sabbaniramesh]

Yes. I agree with low cost producer/seller will wipe out the competition sooner than later assuming all else is equal.

But here, all else is not yet equal in Indian Olive oil industry concerned.

1. Penetration is very low.
2. Main players are not actively pursuing this segment.
3. Olive oil consumption increasing in India.

[Investor_No_1]

While I have a different opinion from a comment above that oil, soap, milk cannot be converted to a brand. Marico rules with parachute, dove have some premium soap, Amway have premium bodywash, bath and bodyworks, organic companies sell soaps and washes at premium and lastly pride of cow milk is almost double the cost of taste of India. Long story short, if intent, competence, innovation and commitment is there, any commodity can be turned to a brand. To protect that brand would need constant innovation and value addition.

For modi natural, it maybe able to make good brands but the return to investors would depend on corporate governance and ethics. Ruchi Soya also has market leader in soya products but investors were battered…I thing positive changes in corporate governance is what should be also watched at, if that is possible

[edwardlobo]

Fair point but it’s not because of brand value

Indian laws are not that strong which allows low quality products to sell along with high quality

Marico sells a lot of coconut oil but their quality is good, better than many whose oil smells of mould if unused for a considerable time

So the moat might not last very long. If government becomes strong on quality as is the case when a country develops rapidly and standards of living of everyone improve
In China you can’t buy the substandard goods they sell to other countries
They have strong laws
I met a few Chinese and mostly the products I saw them using were significantly better
That’s been the experience of developed countries where any butter tastes just as good and no one has been able to build a brand

[Investor_No_1]

You have some interesting points. I am trying to understand the essence of your thoughts…do you mean that developing brands with strong moats with longevity is more possible in a developing country with gov. Quality agencies control than in a developed country where the control has been long enough that most basic commodities are anyways of good quality? Btw in US there are good butter brands, I forgot the name, but they do exist and sell decent variants at premium. I did not go deeper into business economics of those though.
Also, if we think and pick up any brand, they are nothing but value added commodities…that’s how Bombay oil Industries transformed to Marico …selling the same commodity but in a different way…

[edwardlobo]

Most people are willing to spend the cheapest amount they can without sacrificing quality unless the brands value is so ingrained that even with better quality if you buy something society will perceive it as inferior quality

Gillette has a strong brand but only because their razors are best quality. They will remain best sellers until that is the case

However if Cadbury’s comes with best chocolates you will still buy Lindt if you have given Lindt before as a present. People receiving Cadbury’s even if you paid more wont appreciate it as much as when you gave them Lindt last time

Likewise for perfumes

You won’t mind switching to topaz blades in a heartbeat if their quality is better than Gillette and price cheap enough that instead of a roce of 40pc on Gillette, topaz makes 20pc

Companies have tried to beat Gillette with strong offers, promotions and free products. But no one has matched their quality

[Nibin_Issac]

Anyone still trackin this, 250 cr ethanal investment seems to be a good move?..many players have already entered into ethanol and ultimately it will become a commodity with no pricing power