Product and Service
Companies included in starches &sweeteners sector usually produce starches and sweeteners from corn mainly.
Demand for Product and Service
The demands for starches &sweeteners have been constant while grown slowly. Driven directly by increasing raw material costs and strong demand, especially from international market, we have seen an upward pressure in price and improved profitability among companies in the past several years.
Sector’s current, trend, causes behind trend, and future
Current and Trend
- Demands in this sector have kept constant but grown slowly and very sensitive to changes in price due to competition with other alternative products.
- International market has contributed most of increase in volume in the past several years.
- Increasing cost of raw materials has exerted upward pressure on price.
- Strong demands may continue as reflected in improved gross margins when price rise.
Causes behind the trend
- We believe the fundamental nature of what are happening in food industry is the reason behind what has been happening in this sector. What are happening in food industry include slow growth under economy and demographic changes and shifting to more natural and healthier food under changes in consumers’ lifestyle. In developed market, flat demands for traditional food products and preference for healthier food determined slowing down demands for core made starches and sweeteners.
- We think the trend in demands for starches and sweeteners is that developed market will keep going down and developing market will grow at 2-3% rate comparable with the growth in demand for food products in those areas.
General Financial Performance of Companies In the Sector
As a mature sector, it presents stable demands based on data in the past several years. However, the demands seem to be very sensitive to changes in prices, a typical impact of elastic of economy under probably competition from alternative products.
Demands as shown by the organic sales volume fluctuated in a small range and seem to be shrinking in North America and South America market but picking up in Asia and Europe areas. At the same time, the average selling price went down in those areas where we see increasing sales volume and went up in the areas where we see decreasing sales volume.
However, generally the demands have kept strong which in turn allow rooms for rising selling price, especially in north/south America. While offset the increasing raw materials cost, rising prices brought higher margins for companies in this sector. A typical gross margin can reach to 24% with an operating margin of 14%.
According our analysis, a typical ratio of enterprise price/adjusted EBI is 17 with interest/EBI of 15%, which is mainly a reflection of mature but slowing down market for starches and sweeteners, medium debt level, relatively higher sensitivity of margin to changes in sales.