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Will next multi baggers come from this space?

Mar 8, 2013

A new trend is fast catching up in India -retailing of organic food products. Organic foods are made from agricultural products grown without the use of pesticides or chemical fertilisers. While such products were primarily aimed at exports earlier, these are now being increasingly demanded in India too. Despite higher costs of organic foods, demand is more for such products because of increased awareness about their health benefits. Substantially more income in the hands of the consumers too has raised demand in the recent years. In fact, the organic food market is now estimated at Rs 1 bn in India. To cash on this opportunity, retailers like Hyper City (Shoppers Stop), Food Bazaar (Pantaloon Retail), Godrej's Nature Basket have started stocking such organic products.

The organic food sector is growing at a rate of around 20% annually. Not surprisingly, this segment has been of interest to private equity investors these days. It has also been in news for mergers and acquisitions. One such deal happened recently with well known retailer Fabindia acquiring stake in Organic India. Organic India is involved in the business of organic foods and supplements. This deal, we believe is just one of the many that may storm this sector in next few years. Such companies are in an expansionary stage and may look at the option of IPOs to meet their funding requirements.

One more thing to note is that here we have only discussed the organic foods industry. However, organic industry is not just limited to foods. The organic personal care products industry too is growing well. In this space, we have a company by the name of Amar Remedies that is listed on stock exchanges. Amar Remedies is a manufacturer of premier personal hygiene products. Through "The Nature's Co", it offers a wide portfolio of personal care and wellness products. All these are made from natural ingredients.

In conclusion, organic industry in both food and non food space is looking promising in terms of growth. Stocks in this space may thus turn out to be good investment bets. In our opinion, investors can surely consider investing in such stocks if such companies decide to go for public issues in the future. However, it is mandatory to analyse the fundamentals and financials of any company before investing in it even if it belongs to a promising sector or business. If investors come across any listed players in this space, they will have to look at current valuations too.

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