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An aMAIZEing story of Indian players CORN-ering global market share

Hello!👋 This week, we covered the Market snapshot, explained an aMAIZEing story of Indian players CORN-ering global market share, discussed what else is trending in markets followed by interesting chart & curated reads.

1. Market snapshot

Markets have entered into a correction zone with last week’s sell-off continuing today. The overall market was down by 3.2%. Power & utilities was the only sector which gained 2.6% last week. IT, Telecom, and Pharmaceutical & Healthcare lost the most i.e. down by -6.3%, -6.1%, and -4.9%. 

Starting last week we are seeing correction in small & mid-cap indices as well. Not just in India, last week there was a dip in US markets too (NASDAQ down by 4.71%). 

However Indian markets are awaiting the upcoming union budget which should give more clarity on future direction.

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2. Agro-commodities: An aMAIZEing story of Indian players CORN-ering global market share

An otherwise boring segment – Corn processing has been doing very well with most companies in the sector starting to see good price movement. 

But why? What’s popping? 🙄

For decades, China has been one of the largest exporters of maize. But of late, it is on a corn importing spree! It imported ~23 mn tons in 2021, especially from the US due to poor domestic maize production caused by a result of natural disaster. 

Lower global supply combined with increased demand from China, Canada & other Asian countries (to which China used to export) are driving up the corn prices as you see here 👇

  Source: Index Mundi

Export opportunities for Indian players: Even though domestic corn prices have increased, Indian exports are still cheaper compared to global prices, creating export opportunities for India, indirectly benefitting all players in the value chain. 

   Source- Agri Exchange

Where is demand coming from?

Sugarcane and Corn can be used as alternatives for sweetener/ flavor in cold drinks, medicines, toothpaste, etc. However, Sugarcane production is now being increasingly diverted for use in Ethanol production for fuels, which is opening up growth opportunities for Corn in consumer industries.

Which players might benefit from these tailwinds?

Key corn/ maize processing companies are Gujarat Ambuja Exports Ltd (GAEL), Gulshan Polyols, Sukhjit Starch & Chemicals and Riddhi Siddhi Gluco Biols. They cater largely to sectors such as pharma, textiles, FMCG, paper, baking, etc.

There are high entry barriers in the corn processing industry, due to:

  • Quality standards for en-use industries such as Pharma and FMCG is very stringent, which means trust factor & track record are of utmost importance
  • Also, given the critical end-use, approval process of these products takes a minimum of 2-3 years

So while the industry has attractive tailwinds, new companies can’t enter this space quickly.

Competition is concentrating on the top few players.

As we see in the above table, out of six, the economics of four companies are not up to the mark. This leaves us with two good companies to focus on to play the tailwinds – GAEL & Gulshan Polyols. 

GAEL is the largest listed player in Corn processing and is the lowest cost producer in India (4-5% lower cost than competitors) with a market share of ~20%+. GAEL has better capital allocation:

  1. Shifting focus towards value-added products – entered High Fructose Corn Syrup (HFCS) – a starch derivative used as a sweetener in aerated drinks via which it has a 1st mover advantage- Coca Cola also approached the company for the supply for this derivate.
  1. Applying for licenses for ethanol blending (leading to forward integration
  1. Increasing capacity in maize processing by 133% from 750 TPD to 1750 TPD within the next 18 months. This segment has the highest margins ✨

On the other hand, Gulshan Polyols is one of the market leaders in Sorbitol and has also been focusing on value-added products. The company has been receiving orders related to ethanol blending too and also planning to increase the capacities. So definitely, it can give quite a competition to GAEL and other companies. 

This note only gives an overview of key developments. Please do your own due diligence before jumping in! 😋

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3. What else is trendin’?🤙🏻

✔️ Tech stocks are crashing! While the US Fed is tightening policy measures (rate hike), leading to correction in NASDAQ, China is focusing on easing of policy cycle! 🔥

CSI Index (China’s Index) rose due to a cut in the interest rates for the 1st time in 2 years by China’s central bank to give a push to consumption. Read more about this here

✔️HUL blew up the rosy picture we all had in mind of rural demand picking up👀- Sanjiv Mehta, MD of HUL, cited that there’s a much more serious slowdown in the rural economy than it seems and has suggested the government to take more steps for the revival.

✔️Interestingly, PVR Ltd & Netflix released results. And there are divergent trends. While Netflix is clearly struggling with scaling up its India business profitably, the stock looks interestingly priced at 36x P/E TTM for a growing Tech platform.

✔️Result season is on! But going through each company’s result is no easy task right? 😪 No worries, we got you covered! We share the result summary of all the companies in a single snapshot each day. Follow Multipie to stay updated.

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4. Chart of the week:

Textile sector is debt-free for the first time in 30 years! 😲

Source- Ahmed Madha

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5. Good reads:

5.1  The many ways of being fooled in a bull market by Sucheta Dalal

5.2 Kitchenware is becoming a “fashion quotient & an approach to showcase household’s lifestyle”! Value migration is happening from steel to opal-ware in the crockery segment. Check out our thread on the opal ware industry, growth drivers, profit pool breakup & cap. expansion by Borosil & La Opala.

5.3 A wonderful write-up on the power of focus – doing only one thing at a time.

5.4 We decoded the 10-mins hyperlocal delivery in this thread – learn about the business model + check where you can get the best discounts 🤑

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6. Multipie Adda: Last week at Multipie 🔄

Some selected highlights: 

  • Recently, CCD was in the news being appreciated for debt reduction. Here is Mukesh explaining the real picture.
  • Listen to our latest podcast with Radhika Gupta, CEO – Edelweiss AMC where she has truly broken many investing and career stereotypes. Tune in here.
  • Multipie 2.0 is now live with many interesting features like curated FD products, dark mode, most held stocks on multipie and much more. Do you like the josh?

Here’s to end the piece with a fun meme!

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See you next week. Until then, happy investing!

Join us on Multipie if you haven’t yet by downloading the app by clicking here – for ios, android & web.

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