In conversation with Shreeram Bagla, Chairman & Managing Director of Annapurna Swadisht Ltd., we explore the company’s journey from its humble beginnings in 2016 to becoming a ₹30 crore/month FMCG brand. With a focus on rural markets, innovative packaging, and strategic expansions like the acquisition of Madhur Confectionery, Annapurna Swadisht is carving its path in the competitive snack industry.
Catch the full interview for more insights into their growth story and future plans.
Rumela Banerjee: Hi, this is Rumela Banerjee. Joining me today is Shreeram Bagla, Chairman and Managing Director at Annapurna Swadisht Ltd. Welcome to Small Cap Spotlight, Sriram.
Can you tell the viewers about the journey of Annapurna Swadisht and what inspired you to start this company?
Shreeram Bagla: We started this journey of Annapurna in the year 2016. Actually, there was a small pellet plant which was set up by me in Asansol just to support some family members because it required a very little capex. So that way, we started this journey and got to know a little about this FMCG industry.
But again, that was just a back-end product which was required by the FMCG frames industry. Then in the year 2020, me and one of my friends, Mr. Ritesh Shah, who came back from the US due to COVID, we have started looking deeply into this business. Initially, what we had in mind is this business could be in the scale of somewhere around maximum, could be 2 to 3 crore rupees a month, not more than that.
So whatever little bit of knowledge about the industry we had, and we come from a service class background, both of us used to work in investment banking companies in Calcutta and Bombay. And so a little bit of industry which we knew about, we started putting in a little effort and we in just a couple of months could scale up to 2 to 3 crore rupees a month. Then what we find out is that the rural area has a number of challenges which the smaller distributors are unable to cater to.
There, we identified a gap where we strategically fit into completely. That was in terms of quality, in terms of timely delivery of finished products, the distribution network and all those things. What we found out is that in this 5 rupee segment where we primarily operate, their target customers don’t get the quality food which is supposed to be there at the same price point only.
So then there are very, very small distributors who are selling inferior quality products. So there was a grey area which we identified and gradually moved forward into. So this is how we started Annapurna.
Rumela Banerjee: What was the initial vision for Annapurna and how has it evolved over the years? Also, could you elaborate on the key milestones and challenges faced during the company’s growth trajectory?
Shreeram Bagla: See, we didn’t have too much capital to put into the company. So initially whatever savings we had, that close to 8 to 10 crore of a rupee we have put. Then the main thing in the growth of business comes from capital.
But since we come from this capital market background, we had few access to investors where we had just based our idea and we raised a little bit of capital from them to expand the business. There onwards, we got multiplied growth in terms of revenue, what we have projected to our investors. And at that point of time, we found an opportunity to get listed on this NSE SME platform.
That platform was not that active at that point of time where we came out with our IPO. But successfully we could raise a good amount of capital through the NSE SME IPO. And that has helped us in raising our revenue from almost a crore of a rupee a month to right now approximately 30 crore rupee a month.
This is the run rate where we are currently into. So this platform helped us a lot in raising capital because at any point of time you cannot go to a bank to raise capital because they require a lot of collateral which we don’t have. So this equity money helped us a lot in achieving this journey right from zero till where we are right now.
And in terms of challenges as such, the main challenge is distribution of goods. So we have got a very good team where we don’t have the expertise of distribution, but they have. And successfully we could implement a little bit of technology which we have put into the system that has helped us in scaling up this entire business.
So as such, if you ask me about challenges, we didn’t have too much of a challenge in scaling up the business to this scale as of now.
Rumela Banerjee: You know, if you could tell me what makes Annapurna Swadisht stand out from other packaged snacks companies in India, especially in this highly competitive FMCG market?
Shreeram Bagla: This is absolutely correct. The 5 rupee segment where we operate, has very very thin wafer line margins. Now to protect margins and to do business, we face a lot of competition from unorganized players where they don’t properly follow all those taxes and everything. So they have a little edge on us in terms of profitability, which they can do, which we cannot because we have to follow certain rules and regulations. Everything has to be followed.
Now, the difference between them and us is they cannot supply materials on a timely basis. Let’s say for example, you take today’s example again, the palm oil prices have increased 130-140 rupees. So if the raw material prices increase overnight or over a month of time, they are again lacking capital.
So the smaller players have a challenge over there and again, the distributors also want to work with a company who can guarantee them the returns, who can guarantee them their claims and who are there servicing them for a pretty long period of time. So that way we have created a place between this unorganized player and the organized players, which is the gray area which I mentioned earlier and that is where we have done this entire journey.
Rumela Banerjee: What is the target market segmentation strategy and how do you tailor your products to different consumer segments?
Shreeram Bagla: Our target customers are tier 2 and tier 3, 4 cities like that. We are even present in villages where we have a population more than 10,000-12,000. So we are basically not an urban company. Our entire focus is rural and in terms of change in product and everything, you don’t need to do too much.
What we have done is our products have been sold in pan shops. You have seen pan shops in every area. So what we have done is, we have converted the entire material which is sold in a pan shop into packaged material.
Let’s say for example, you eat some cupcakes or even greenfield cake which is being sold in open jars. What we have done is we have started manufacturing those and have packed them at the same price point. So that becomes convenient for the sellers to store those materials otherwise they get a little soggy and that becomes a hygiene point for the buyers, consumers to buy those products which are in the packed form. So that is the way we have created this entire thing.
Rumela Banerjee: The company has experienced rapid growth in Eastern India. What are the key factors driving this growth and how do you plan to maintain or accelerate it in these markets?
Shreeram Bagla: Again, the eastern part of India has a very big population and the rural market is very big. So till now, if you see, we haven’t put too much effort or for going point on point for selling and scaling up the business. The business is coming from mouth to mouth publicity from the distributors. So as such, if you talk about percentage in terms of percentage, we are less than 5% of the entire market size which is there present in eastern India.
So still there is a lot of scope which is there and the growth which we are projecting and we have experienced in last couple of years, we assume we can continue the same growth rate for another 2-3 years and as and when your size and scale increases, then in terms of percentage, you would come to a stagnant growth rate. But as of now, since your base is very low, you can see this kind of a percentage jump in terms of growth.
Rumela Banerjee: You know the company has a distribution network of 550 distributors who are primarily spread across eastern India and parts of north India. Do you have any particular plans of expanding the distribution network across the country or even internationally?
Shreeram Bagla: The eastern part of India still has a very big market which is there to cater. So we would like to expand to Assam which we have already done. We have recently a couple of months back taken a unit in the upper part of Assam called Tejpur.
So luckily, we got a unit over there. We made it operational and started supplying goods from there. So what we are targeting is, yes, an increasing number of distributors are always there.
But if you talk about going to different geographies again, then as such we don’t have any such plans as of now. You would stick to the eastern part of India till we achieve all the markets which we are targeting.
Rumela Banerjee: You’ve recently leased a plot in Tezpur, Assam. What is the capex you’re planning and the ROI you’re looking at?
Shreeram Bagla: That’s a piece of land which has been awarded by the state government to us to set up a plant over there. And initially, the idea was to set up our own plant over there. But that plant had a huge capex of close to 100 crore rupee.
We had planned for that capex also. But luckily, we found a same plant with the same manufacturing facility in Tejpur, which was run by a family, which they were not going to continue with. So we took that entire plant on lease and started the production immediately.
So as of now, we are not planning to do any capex in that greenfield project, which we are discussing now, because all the manufacturing things which we require to make are already found there in the same premises. And the current owners of the company are ready to put in another capital if you want anything to be done further. So financially, it makes much sense for the company to take that entire facility on lease basis as it is done today, rather than putting so much of capital for that greenfield project.
Rumela Banerjee: If you could also tell me the ROI you are looking at?
Shreeram Bagla: It’s almost the same because of the capital which you put into the interest cost, which the burden which will come to the company, it’s almost the same if you take your own plant, rather it will be a little cheaper. So the kind of margins which you make, it’s almost the same margins, even if you lease out.
Rumela Banerjee: Given the fast-growing FMCG sector in India, especially in rural India, what trends do you see influencing your business the most in the next five years?
Shreeram Bagla: I can talk about my business where we are in the ready-to-eat segment. The only thing is you provide them with good quality products at a good price point, then the market is too big to cater to. The size and the scale which we can think about, the numbers are rather much bigger because in India, what do you see, the numbers which you see are there are a number of smaller players, just those data which are not available to any of the agencies also. So as per say, we have introduced, I think in the eastern part of India, we have the highest number of SKUs. So as and when you introduce your new SKU, newer products, so you continue to grow in the same phase. And recently we have acquired a confectionery company based out of Iddar, Mathur Confectionery. So now Mathur Confectionery’s 30% business comes from the eastern part of India where we operate and their distribution and our distributions are completely different.
So now, since we have this entire unit with us, so now to scale up the business, we would put these products into our distribution network also because the same products are sold on the same kirana or pan shops.
Rumela Banerjee: Last financial year, you saw solid growth in topline and bottomline. I want to understand, if you could summarize what aided this and whether this growth is sustainable.
Shreeram Bagla: I think this growth is sustainable with much better margins because initially we were in the CAPEX driven phase. So at that time of expansion, the cost increases. Now there is no CAPEX as such left over with the company. With the current production, whatever target we have for another three years, that has already been done.
So probably when you see the six year half yearly numbers next week, you’d be able to analyze that the company is going through the same growth phase with better margins.
Rumela Banerjee: Now, considering you sold more high margin products, what is the ratio now of contribution coming from these products versus value ones?
Shreeram Bagla: Again, if I say our wafers have a very thin margin, but the purpose of acquiring this confectionery company is they have very, very high margin products compared to us. So if we on a combined basis of both the margins, it would inch much higher.
So if you see the margins from our product, a little bit of efficiency can increase a couple of percentage points in terms of margin, but the other products which we are going to add, that is going to give a big boost to the bottom line of the company.
Rumela Banerjee: Inflation has been a problem for all companies, more so for food companies. While raw material prices did cool down last year, thus eating your margins, how do you deal with the volatility in prices and safeguard your margins?
Shreeram Bagla: The only thing which we can do is we can reduce the damage of the product. When we started this company, we used to give 30-35 grams per pack and over four to five years, the prices of every raw material has increased so much that you have to come down to a certain level beyond which it becomes almost unjustifiable to the customer if you sell something. So the only thing left over is you reduce a little bit of gramage to maintain your margin, which other companies also do. Then there is one more thing.
We provide little free gifts in every packet, that is, then the number of free gifts gets reduced, the price point of all those free gifts gets reduced. This is a little bit of adjustments which you need to do when this kind of inflationary trend happens. As of now, if you see again, the prices of palm oil and maida have increased too much.
So again, the company has left with only one option to reduce the gramage which we provide in every packet and continue to maintain more or less the same margin.
Rumela Banerjee: With this acquisition and the Assam plant, what is the amount of CAPEX that you are overall looking at and you have raised some money via QIB?
Shreeram Bagla: We are not going to start that greenfield project as of now. The money which has been raised, has been raised for the purpose of acquisition of Madhur Confectionery, not for that greenfield project.
So the Madhur Confectionery process is almost complete. So most likely by this month end, we will take over the entire company and the transition will be completed. So the entire purpose of the fundraiser was only the acquisition, not this greenfield project.
Rumela Banerjee: You know, I want to understand what’s your vision for the company in the next 5 to 10 years?
Shreeram Bagla: I can give you a vision for the next 3 years. In 3 years, we want to be the biggest company in eastern India, not in the country, in western snack segment. And luckily, Madhur Confectionery which we have acquired, has a very big installed capacity which can generate a very high revenue.
We just want to focus on these 2 companies and scale beyond 1,000 crore if possible in another 3 years time. So this is the vision which we are taking forward for another 3 years. That’s all for now.
Rumela Banerjee: Many thanks for speaking to us and thank you for watching. Stay tuned to Smallcap Spotlight.