City Crops Agro coming with IPO to raise Rs 15 crore

City Crops Agro

• City Crops Agro is coming out with an initial public offering (IPO) of 60,00,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 25 per equity share. 
• The issue will open for subscription on September 26, 2023 and will close on September 29, 2023.
• The shares will be listed on BSE SME.
• The share is priced 2.5 times higher to its face value of Rs 10.
• Book running lead manager to the issue is Turnaround Corporate Advisors.
• Compliance Officer for the issue is Zalakben Chintan Gajjar.

Profile of the company

The company is engaged in the business of trading of products like seeds, agricultural produces mainly Rice, Wheat, Onions, Potato, Tomato, Isabgol, and Pulses. It has an integrated online platform which includes products such as cereals, oil seeds, pulses and vegetables. The company is also engaged in contract manufacturing for agricultural produce such as Cucumber, Onion and Castor. The company sources the agricultural products from the manufacturers by paying an advance payment with its labeling and then these products are sold to its network of distributors. Owing to its presence in the market for decades, it has built strong relationships with both the farmers as well as with the wholesaler/retailers’ community.

In contract manufacturing, the company leases an agricultural land on lease and cultivate Cucumber, Onion and Castor for meeting the demand in the market. This gives the company control over the entire process and getting the agricultural produces at better rates as compared to the market. A part of the yield is shared with the farmers working on contractual basis on the leased land, which further helps the local farmers’ community. 

Proceed is being used for:

• Meeting the working capital requirements of the company
• General corporate purposes
• Meeting the issue expenses

Industry overview

India is one of the major players in the agriculture sector worldwide and it is the primary source of livelihood for about 58% of India’s population. India has the world's largest cattle herd (buffaloes); largest area planted to wheat, rice, and cotton, and is the largest producer of milk, pulses, and spices in the world. It is the second-largest producer of fruit, vegetables, tea, farmed fish, cotton, sugarcane, wheat, rice, cotton, and sugar. Agriculture sector in India holds the record for second-largest agricultural land in the world generating employment for about half of the country’s population.

The Indian food industry is poised for huge growth, increasing its contribution to world food trade every year due to its immense potential for value addition, particularly within the food processing industry. The Indian food processing industry accounts for 32% of the country’s total food market, one of the largest industries in India and is ranked fifth in terms of production, consumption, export and expected growth.

Agriculture and allied activities recorded a growth rate of 3.9% in FY 2021-22 (until 31 January, 2022). Gross Value Added by the agriculture and allied sector is 18.8% in FY2021-22 (until 31 January, 2022). As per the Budget 2022-23, Rs 1.24 lakh crore ($15.9 billion) has been allocated to Department of Agriculture, Cooperation and Farmers’ Welfare. Between April 2020-February 2021 and April 2021-February 2022, agricultural & processed food product exports stood at $22.07 billion. Between April 2000-March 2022, FDI in agriculture services stood at $2.55 billion. In the Rabi marketing season 2021-22, the government purchased a record 43.33 MT of wheat. As of October 27, 2021, the total Rabi area stood at 0.53 lakh hectares.

Pros and strengths

Organizational stability along with management expertise: The Company’s ability to endure economic and business cycles is demonstrated by its group’s established track record of more than 9 years, and qualified promoters have more than 10 years of relevant expertise. This indicates its ability to maintain business viability and steer the business through operational hurdles. Its promoters are the guiding force behind the operational and financial decision of the company. Its promoters are responsible for the entire business operations of the company along with an experienced team of professionals who assist them.

Smooth flow of operations: It has maintained good relationship with its major customers. It is successful in building a strong client base for its business. Its existing relationships help it to get repeat business from its customers. This has helped it to maintain a long-term working relationship with its customers and improve its customer retention strategy.

Existing supplier relationship: Its existing supplier relationship protects the business with terms of supply and pricing of the products, the quality of the products offered etc. It, being a small and medium size organization, rely on personal relationship with its suppliers. The company enjoys existing relationship with its suppliers. Further, it also leverages the past experience of its management in maintaining effective supplier relationship.

Risks and concerns

Seeds business is highly seasonal: Its business is seasonal in nature. Both raw material supplies and sales are seasonal, as its business is influenced by the traditional crop seasons in India. In India, majority of the farmers depend on monsoon for cultivation. Rainfall usually occurs during Kharif season and hence, the timing and seasonality of rainfall has an impact on the business of the company. Thus, it is subject to seasonal factors, which make its operational results very unpredictable.

Face competition: Increased competition may result in decreased in demand or lower prices for its products. Its failure to compete effectively could reduce its profitability and in turn its results of operations. It faces substantial competition due to technological advances by its competitors in various facets of the agri-inputs business especially certified seed players. Multinational corporations invest huge amounts of money and considerable resources on Research and Development and technology and are thus able to come out with very effective and highly improved versions of hybrids. Hence, these types of technological advances force it to face substantial competition, as it neither own or possess any research facility and it only trade and supply seeds to clients on their need basis.

Dependents on limited number of customers: It is significantly dependent on certain key customers for a significant portion of its sales, the loss of any one of its key customers for any reason could have an adverse effect on its business, results of operations and financial condition. While it strives to maintain good relations with its key customers, there is no assurance that its key customers will continue to place similar orders with it in the future. In addition to these external factors, these key customers may also set off any payment obligations, require indemnification for themselves or their affiliates, replace it with its competitors, or replace their existing products with alternative products which it does not supply.

Outlook

City Crops Agro is engaged in the business of trading of products like seeds, agricultural produces mainly Rice, Wheat, Onions, Potato, Tomato, Isabgol, and Pulses. It has an integrated online platform which includes products such as cereals, oil seeds, pulses and vegetables. On the concern side, it operates in the highly competitive industry. There are no entry barriers in its industry which puts it to the threat of competition from new entrants. There are numerous players operating in the industry. It faces tough competition in its business from a large number of unorganized and a few organized players.

The company is coming out with an IPO of 60,00,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 25 per equity share to mobilize Rs 15 crore. On performance front, the total Income for FY2022-23 has increased by 38.68% from Rs 1775.69 lakh for FY 2021-22 to Rs 2,462.50 lakh for FY 2022-23. The Profit after tax has increased by 141.84% from Rs 48.41 lakh for FY 2021-22 to Rs.117.08 lakh for FY 2022-23. Going forward, it plans to establish its presence in the more geographical potential regions. Its emphasis is on expanding the scale of its operations as well as growing its supply chain network, which will provide attractive opportunities to grow its client base and revenues. Further, the company intends to strengthen its product development effort by leveraging skills of its employees which will help to increase the sales of the company and retain customers.