Baba Food Processing (India) coming with IPO to raise upto Rs 32.88 crore

Baba Food Processing (India)

• Baba Food Processing (India) is coming out with an initial public offering (IPO) of 43,26,400 equity shares of face value of Rs 10 each in a price band Rs 72-76 per equity share.
• The issue will open for subscription on November 3, 2023 and will close on November 7, 2023.
• The shares will be listed on NSE Emerge Platform.
• The share is priced 7.20 times of its face value on the lower side and 7.60 times on the higher side.
• Book running lead manager to the issue is Horizon Management.
• Compliance Officer for the issue is Ashana Vij.

Profile of the company

The company is primarily engaged in the business of manufacturing high fibre Whole Wheat Atta (Wheat Flour), Refined Flour (Maida), Tandoori Atta and Semolina flour (Sooji). Its manufacturing unit is situated in Ranchi and houses two divisions namely, high fibre whole wheat atta division and refined flour division. The company manufactures high fibre Whole Wheat Atta (Wheat Flour) in its whole wheat atta division and Refined Flour (Maida), Tandori Atta, Semolina flour (Sooji) in its refined flour division. It also commercialeses the by-product and waste material, i.e., wheat bran and other waste materials generated during its manufacturing process as cattle feed and fish feed, which makes its manufacturing unit a zero waste and zero discharge manufacturing unit.

Its manufacturing unit is equipped with ultramodern highly automated Buhler’s Swiss Technology Pesa Mill for manufacturing of stoneless high fibre atta and also an ultra-modern highly automated Buhler’s Swiss Technology Roller Flour Mill. It also market and sell Chickpea Flour (Besan) and Roasted Gram Flour (Sattu) under its brand ‘Panchakanya’, however it procures these product from third party manufacturers. It proposes to utilise a portion of the Net Proceeds of this Issue, towards purchase of machinery for manufacturing Chickpea Flour (Besan) and Roasted Gram Flour (Sattu) in its existing manufacturing unit.

The company operates under the guidance of its Promoter, Yogesh Kumar Sahu, who has a long standing experience in the agro trading and milling business. Its Promoter prior to incorporation of the company was associated with a partnership firm under the name ‘M/s Baba Flour Mill’, in the capacity of a partner, which was engaged in the business of trading of agro-commodities and milling of rice and grains.

Proceed is being used for:

• Investment in its wholly owned Subsidiary, Panchakanya Foods for setting up a manufacturing unit in Patna, Bihar, comprising an ultra-modern highly automated roller flour mill and chakki whole wheat atta mill (Project).
• Funding purchase of machinery for manufacturing Chickpea Flour (Besan) and Roasted Gram Flour (Sattu) in its existing manufacturing unit in Ranchi.
• Funding working capital requirements of the company.
• Prepayment or repayment of all or a portion of certain outstanding unsecured borrowings availed by the company.
• General corporate purposes.

Industry Overview

Food and grocery market in India is the sixth-largest in the world. Food processing industry contributes 32% to this food market and is also one of the largest industries in the country, contributing 13% to total export and 6% of industrial investment. The Indian food processing industry is expected to reach $535 billion by 2025-26 on the back of government initiatives such as planned infrastructure worth $1 trillion and Pradhan Mantri Kisan Sampada Yojna.

Sales of processed food in the domestic market have been increasing at a faster pace. The Indian food processing market is expected to be worth $535 billion by 2025, with a CAGR of 15.2%. The food processing sector employs the most people, accounting for 20.05 lakh or 12.32% of total employment. The food processing sector allows 100% FDI under the automatic route. The sector has also recorded a sharp increase in investments with cumulative FDI inflow of $11.795 billion between April 2000 - December 2022. This accounts for 1.88% of total FDI inflows received across industries. The processed food market in India was valued Rs 19,31,288.7 crore in FY20. 

In July 2022, PM Formalisation of Micro food processing Enterprises (PMFME) scheme was launched for providing financial, technical and business support for setting up/ upgradation of micro food processing enterprises in the country with an outlay of Rs 10,000 crore. The food processing industry employs about 1.77 million people. According to National Accounts Division, Ministry of Statistics and Programme Implementation, food processing units in India is growing at 7.68% annually. With a budget of $1.46 billion, the Production-Linked Incentive Scheme for Food Processing Industry (PLISFPI) has been approved to develop global food manufacturing champions commensurate with India's natural resource endowment and to support Indian food brands in international markets.

Pros and strengths

Quality Assurance and Quality Control of products: It is committed towards quality of its products. Its determination towards quality is demonstrated by well-defined quality and safety procedures at various stages of its manufacturing process from procurement of raw material to distribution of its products. Owing to the expertise of its experienced and trained team forming part of its Quality Division, all its products are manufactured strictly as per the regulatory standards. All its manufacturing facilities have a fully equipped Quality Division with experienced and qualified staff to carry out quality checks and inspections at all the stages of its manufacturing process.

Strong brand recall and established track record: The reputation and the quality of its products have enabled it to establish brand equity of the products marketed under its brand name ‘Panchakanya’ and ‘Bhajan’. It has a track record of developing home-grown brands, leveraging its deep understanding and market research of the agro-commodity and food industry. Its products are marketed by its dealers, sales and marketing teams, retailers, wholesalers and modern traders. 

Diversified Product Basket: Its diversified product portfolio includes a wide range of flour such as, Whole Wheat Atta (Wheat Flour), Refined Flour (Maida), Tandori Atta and Semolina flour (Sooji), thereby effectively addressing a large consumer base. Its capacity to continuously diversify and develop its products, effectively supported by its strategically located manufacturing and distribution network, enables it to launch and market new products aligned to evolving consumer preferences. This facilitates minimal time-to-scale, and has enabled it to generate significant revenues from each of its products.

Risks and concerns

Dependent on third party transportation providers: Dependent on third party transportation providers for the delivery of raw materials to it and delivery of its products to its intermediaries. Uncertainties and risks such as transportation strikes or delay in supply of raw materials and products could have an adverse effect on its supplies and deliveries to and from its customers and suppliers. Additionally, raw materials and products may be lost or damaged in transit for various reasons including occurrence of accidents or natural disasters. A failure to maintain a continuous supply of raw materials or to deliver its products to its distribution intermediaries in a timely, efficient and reliable manner could adversely affect its business, results of operations and financial condition.

Highly depends on information technology systems: It is dependent on information technology system in connection with carrying out its business activities and such systems form an integral part of its business. Any failure of its information technology systems could result in business interruptions, including the loss of its customers/ intermediaries, loss of reputation and weakening of its competitive position and could have a material adverse effect on its business, financial condition and results of operations.

Working capital requirements: Its business requires a significant amount of working capital. As per its settled business terms, it majorly require its intermediaries to pay the full amount of the consideration only after they receive the order, as a result, significant amounts of its working capital are often required to finance the purchase of raw material and execution of manufacturing processes before payment is received from its customers/ intermediaries. 

Outlook

The company is primarily engaged in the business of manufacturing high fibre Whole Wheat Atta (Wheat Flour), Refined Flour (Maida), Tandoori Atta and Semolina flour (Sooji). Its manufacturing unit is situated in Ranchi and houses two divisions namely, high fibre whole wheat atta division and refined flour division. On the concern side, dependent on third party transportation providers for the delivery of raw materials to it and delivery of its products to its intermediaries. Uncertainties and risks such as transportation strikes or delay in supply of raw materials and products could have an adverse effect on its supplies and deliveries to and from its customers and suppliers.

The issue has been offered in a price band of Rs 72-76 per equity share. The aggregate size of the offer is Rs 31.15 crore to Rs 32.88 crore based on lower and upper price band respectively. On performance front, total revenue has increased by 99.95%, from Rs 9,711.10 lakh in the fiscal year ended March 31, 2022 to Rs 18,953.95 lakh in the fiscal year ended March 31, 2023. Net Profit has increased by 150.14% from profit of Rs 201.26 lakh in the fiscal year ended March 31, 2022 to profit of Rs 503.44 lakh in the fiscal year ended March 31, 2023. Meanwhile, it is looking forward to enter into global markets and it plans to target countries where it can leverage its track record and experience in India to compete effectively and expand its revenue base. It continues to enhance its business operations by ensuring that its customer base increases through its marketing efforts.