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Industry sees mustard seed shortage ahead

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A section of trade estimates the new mustard seed crop to be 25-30% less than 2005-06 production. According to Sanjay Agarwal, MD, KS Oils, total crop this year is likely at 55 lakh tonnes against 68 lakh tonnes last year.

Seed prices which had fallen to Rs 16,000 per tonne last year are currently Rs 18,000 per tonne, which is above the minimum support price of Rs 17,150. Consequently, mustard oil prices, which were at Rs 45,000 per tonne in 2005- 06, are currently around Rs 50,000.

Prices would rationalise between Rs 45,000 and Rs 50,000 once new crop starts arriving in March, added Mr Agarwal. Around 41% of oil is derived from the mustard seed by crushing and another 6% from the mustard oil cake through the solvent extraction process. Mustard oil cake is used primarily as cattle feed.

Apart from diversion of area under mustard to wheat and pulses, high temperature at the time of sowing in October has affected crop, said Ramesh Garg, chairman, KS Oils. Against ambient temperature of 22 degrees, temperature was much higher at 29 degrees Celsius in the main growing areas of Rajasthan (50% of crop), UP (15%), MP (10%) and Punjab and Haryana.

The officials were speaking on the sidelines of a media meet at which the company unveiled its FY07 third quarter results. Net profit at Rs 20 crore for Q3 witnessed a 469% jump over the year-earlier quarter?s Rs 3.6 crore. Net sales in the comparable period rose 148% to Rs 123 crore.

Consolidated net profit for the nine-month period ending December ?06 was Rs 39.8 crore, an increase of 275% from Rs 10.6 crore a year ago. The share price of the company ended up 5% at Rs 333.10 on the BSE on Tuesday. The thrust of the Morena, MP-based company is to increase branded sales of crude mustard oil, refined soya and mustard oils. Branded sales which currently comprise 60% of revenues are proposed to be raised by another 10-20% in FY08.

This is the primary reason KS Oils was able to attract investment from Citigroup?s venture capital arm, Citigroup Venture Capital International (CVCI). After several attempts to invest in the agro foods sector, CVCI finally zoomed in on KS Oils, in which it picked up 15% in December.

We invested in this company because we think the management is trying to move from commodities into branding, that is the thesis we liked,? said PR Srinivasan, director, CVCI. When queried whether CVCI had any plans of picking stakes in other agro food companies, Mr Srinivasan replied that the company was open to investing in companies which have ?supernormal growth opportunities.?

At 1,225 mt per day, KS Oils has the largest mustard crushing facility in the country. Since the past eight months the company has been promoting sales of its branded products across Bihar, West Bengal, UP, Orissa, Rajasthan and MP. Nearly 80% of the rural populace in the states of Bihar and UP consume mustard oil while the rest is consumed by people living in West Bengal, Orissa, Rajasthan and MP.