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Monday, October 12, 2009

Vimal Oil & Foods Ltd:Future outlook and analysis

Scripscan:Vimal Oil & Foods Ltd

Story:Vimal Oil processes and sells refined edible oils under its own brand name.The company has diversified into ready-to-eat snacks such as potato chips and fried and extruded snacks.The market for snack foods, now pegged at about Rs 1,000-1,300 crore, is growing in the low double-digits and is difficult to break into, given the presence of large national players such as PepsiCo and Haldiram's as well as a slew of regional brands which occupy lucrative local niches.The category also competes with other snacking options such as sweets, biscuits and confectionery.Being an impulse purchase, success in the snack foods market hinges on consistently adapting the product mix to local tastes, building an extensive logistics and distribution chain and gaining brand recognition through aggressive advertising and promotion.This requires significant ongoing investments that may require deep pockets.Even established FMCG players such as ITC (Bischips) and Britannia (Snax) have made a few unsuccessful attempts to break into the snack foods market. A relatively small-sized player with no prior experience in FMCG marketing may find the going pretty tough.Investors can refrain from taking exposure to Vimal Oil and Foods.The stock is unlikely to deliver attractive returns over a one/two-year period, given the uncertainty surrounding the company's earnings prospects.Exit on rally and move on to better bets.

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