Sona Machinery
- Sona Machinery is coming out with initial public offering (IPO) of 36,24,000 shares of Rs 10 each in a price band Rs 136-143 per equity share.
- The issue will open for subscription on March 5, 2024 and will close on March 7, 2024.
- The shares will be listed on NSE SME Platform.
- The face value of the share is Rs 10 and is priced 13.60 times of its face value on the lower side and 14.30 times on the higher side.
- Book running lead manager to the issue is HEM Securities.
- Compliance Officer for the issue is Supriya.
Profile of the company
Sona Machinery is a diversified agro-processing equipment manufacturer, manufacturing equipments for the processing of rice, pulses, wheat, spices, Barnyard Millet etc. Its product portfolio includes Grains Pre-Cleaner machines, Rotary Drum Cleaner, Vibro Classifiers, Stone Separator Machines, Paddy De-Husker, Husk Aspirator, Rice Thick/Thin Grader, Rice Whitener, Silky Polisher, Multi Grader, Length Grader, Belt Conveyer, Bucket Elevator etc. along with the complete projects for rice mills and ethanol distilleries. Its services encompass engineering, erection, supervision, and machine commissioning, delivering a comprehensive end-to-end solution for the milling section which includes grain unloading and milling solution upto pre-masher for ethanol distilleries and paddy unloading to rice packaging for rice mill industries.
The company started its operations in January, 2021 when it purchased the fixed assets and stock for a consideration of Rs 465.17 lakhs from “M/s Sona Foods India”, which is a proprietorship concern of Narender Kumar, father of its promoter, Vasu Naren. M/s Sona Foods India is a manufacturing concern which is manufacturing agro-processing equipment’s since year 2003. Vasu Naren joined the family business i.e. M/s Sona Foods India in year 2015 and now he is looking after the overall business operations of the company.
The company’s product portfolio comprises of various equipments including support services for all the equipments manufactured and supplied by the company. The company is manufacturing and supplying agro-processing equipments under various categories like cleaning, grading, blending, material handling etc. Currently, it has a manufacturing unit situated at Ghaziabad, Uttar-Pradesh with a total area of approx. 52,205 sq. ft. and a warehouse for storage of its material and finished goods. Its manufacturing facility is equipped with requisite infrastructure including machineries and other handling equipment to facilitate smooth manufacturing process.
Proceed is being used for:
- Funding the Capital Expenditure requirements of the company towards setting up of a new manufacturing unit at Ghaziabad.
- Repayment of the outstanding amount of the Letter of Credit availed by the company for purchase of machinery.
- General Corporate Purpose.
Industry overview
The Indian agricultural sector is predicted to increase to $24 billion by 2025. Indian food and grocery market is the world’s sixth largest, with retail contributing 70% of the sales. India’s agricultural and processed food products exports stood at $43.37 billion in FY23 (April 2022-January 2023). As per third Advance Estimates for FY23 (Kharif only), total food grain production in the country is estimated at 330.5 million tonnes. As per the Second Advance Estimates of National Income, the share of GVA of agriculture and allied sectors in the total economy in 2022-23 was 18.3%, with a growth rate of 3.3%. Rabi crop area has increased by 3.25%, from 697.98 lakh hectares in 2021-22 to 720.68 lakh hectares in 2022-23. This is a 22.71 lakh hectare, a 13.71% increase over the average sown area in 2021-22. In the current crop year (July 2022-June 2023), India's horticulture output is expected to have hit a record 350.87 million tonnes (MT), as production of fruits, vegetables, spices, and plantation crops surged dramatically.
Meanwhile, India’s food processing sector is one of the largest in the world and its output is expected to reach $535 Billion by 2025-26. The Food Processing sector in India has a quintessential role in linking Indian farmers to consumers in the domestic and international markets. The Ministry of Food Processing Industries (MoFPI) is making all efforts to encourage investments across the value chain. The food processing industry has a share of 12.38% (at 3-digit of NIC classification) in the employment generated in all Registered Factory sector engaging approximately 1.93 Million people. Unregistered food processing sector supports employment to 5.1 Million workers as per the NSSO 73rd Round report. Major sectors constituting the food processing industry in India are grains, sugar, edible oils, beverages, and dairy products. Under PMKSY, 41 Mega Food Parks, 376 Cold Chain projects, 79 Agro-Processing Clusters, 489 proposals under Creation/Expansion of Food Processing & Preservation Capacities (CEFPPC), 61 Creation of Backward and Forward Linkages Projects, 52 Operation Green projects, 183 Food Testing Laboratories projects have been approved across the country.
The Union Cabinet chaired by the Prime Minister, Shri Narendra Modi has given its approval to introduce the Production-Linked Incentive (PLI) Scheme in Food Products for Enhancing India’s Manufacturing Capabilities and Enhancing Exports - Atmanirbhar Bharat. Under the PLI Scheme for Food Processing Industry, a total of 158 applications have been approved under different categories including 22 applicants (out of 30 selected applicants) selected to participate under PLI Scheme for Millet-based products are MSMEs. The implementation of PLI scheme is likely to facilitate expansion of food processing capacity by nearly Rs 30,000 crore and create additional direct and indirect employment opportunities for about 2.5 lakh persons by the year 2026-27. As per the data being reported by the PLIS beneficiaries, investment of about Rs 4900 Crore has been made under the Scheme.
Pros and strengths
Diversified product range appealing to a wide range of customers: The company has diverse product portfolio across various categories which includes equipments for material handling, cleaning, blending, grading etc. for processing of various grains. It deals in a wide range of products, which enables it to cater widespread customer base across India and also expand its reach in international locations. Over the period, it has expanded its focus from the manufacture of equipment exclusively for the facilitation of rice processing equipment, to take into consideration various other grains including pulses, maize and wheat. The company has necessary resources, experience and network to launch additional products in future that can be customized and leveraged to cater to wider range of agro-processing equipments as per requirements of the customers.
Quality assurance ensuring standardized quality of its products: The company has obtained ISO 9001:2015 certification for Quality Management System from Das Systems & Services Pvt. Ltd. Also, the Bureau of Indian Standards (BIS) certified its Fortified Rice Blending equipment. These certifications provide assurance to its customers for the quality and durability of its products. The company has been in the business of manufacturing and supplying agro-processing equipment and has successfully ventured and supplied quality products to its customers. The company is dedicated towards quality & for the same it has implemented internal procedures to ensure quality control at various stages of production, from procurement of raw material to inventory storage. Delivering Quality products on time is one of its prime objectives. The company’s focus on quality of products has enabled it to sustain and grow its business model to benefit its customers.
Diversified revenue from multiple geographies: The company has diversified revenue from multiple geographical locations across India and from places outside India including Nigeria, Bangladesh, Kenya, Nepal. etc. It has generated around 98.87%, 96.88%, 97.61% and 97.85% of its total revenue from domestic sales for the period ending November 30, 2023 and fiscal year ending 2023, 2022 and 2021 respectively and generated around 1.13%, 3.12%, 2.39% and 2.15% of its total revenue from export sales for the period ending November 30, 2023 and fiscal year ending 2023, 2022 and 2021 respectively. With its expanded geographical outreach across India, it has the ability to quickly respond to changing consumer preferences and constantly fluctuating demand. Its presence in multiple geographies not only helps it in expanding its client base but also helps it by keeping themselves in tune with the latest technological advancements world-wide and helps it to mitigate risk for any unforeseen circumstances in the domestic market and expand its business operations.
Risks and concerns
Very short span of operating history: The company was incorporated on February 12, 2019 as a private limited company and started its business operation in January, 2021 when the company purchased the fixed assets and stock from “M/s Sona Foods India”, which is a proprietorship concern of Narender Kumar, father of its promoter, Vasu Naren. Its limited operating history may adversely affect its ability to implement its growth strategies, and may make it difficult to evaluate its past performance and future prospects in connection with any investment in the Equity Shares. Prospective investors should accordingly consider its future prospects in light of the risks and the challenges encountered by a company with a limited operating history. The company cannot assure that it will be able to successfully meet the challenges, uncertainties, costs and difficulties encountered by it or that it will attain its objectives successfully. Its limited operating history as a company makes it difficult to predict its future prospects and financial performance.
Seasonal business: The company’s sales could be affected due to seasonal trends in the agriculture sector. In particular, the agriculture sector is inherently seasonal, and is further impacted by factors including agricultural commodity prices, costs of fertilizers, and adverse weather conditions. Accordingly, due to the inherent seasonality of its business, results of one reporting period (quarter/half year/year) may not be necessarily comparable with preceding or succeeding reporting periods. For instance, its revenue in first qtr. of F.Y 2021-22 and FY 2022-23 respectively is only 19.30% & 11.57 % of total revenue, whereas the same in third qtr. is 29.34% for FY 2021-22 & 32.85% for FY 2022-23. Thus, the company is subject to seasonal factors, which make its operational results very unpredictable. During periods of lower sales activities, it continues to incur substantial operating expenses, but its revenues remain usually lower. Sometimes, even if there is a slight change in the timing of rain fall, the sales will get deferred from one reporting period to another reporting period. The sales that were supposed to take place during one financial year may get added to sales of the next financial year and therefore results of even full financial year may not necessarily be comparable to the other financial year. Further, any change in weather conditions, including the occurrence of drought conditions, could adversely affect its business, financial condition, results of operations, and prospects.
No long-term agreement with suppliers for raw materials: During the stub period ended November 30, 2023 and for the Fiscal 2023 and Fiscal 2022, its purchases of raw material was Rs 4,174.59 lakh, Rs 5,399.85 lakh and Rs 2,990.40 lakh respectively, which represented 66.52%, 66.69 % and 67.18% of its revenue from operations. The raw materials it uses in manufacturing process are primarily sourced from third party suppliers in India. Its purchases from top ten suppliers represented 49.80%, 55.37% and 60.03% of its total purchases for the period ending November 30, 2023, fiscal year ending March 2023 & 2022 respectively. In addition, it usually does not enter into long-term supply contracts/ agreements with any of its raw material suppliers and typically source raw materials from the open market. The absence of long-term contracts/agreements at fixed prices exposes it to volatility in the prices of raw materials that it requires and it may be unable to pass these costs onto its customers, which may reduce its profit margins. It faces a risk that one or more of its existing suppliers may discontinue their supplies to it, and any inability on its part to procure raw materials from alternate suppliers in a timely manner, or on commercially acceptable terms, may adversely affect its business, financial condition and results of operations.
Outlook
Sona Machinery produces agricultural machinery for processing rice, pulses, wheat, spices, and Barnyard Millet. The company manufactures Grains Pre-Cleaner machines, Rotary Drum Cleaner, Vibro Classifiers, Stone Separator Machines, Paddy De-Husker, Husk Aspirator, Rice Thick/Thin Grader, Rice Whitener, Silky Polisher, Multi Grader, Length Grader, Belt Conveyer, Bucket Elevator etc. The company exports its products to Nigeria, Bangladesh, Kenya and Nepal. The company has been accredited with ISO 9001:2015 for Quality Management Systems by Das System & Services Pvt Ltd. On the concern side, the company generates its major portion of revenue from its operations in certain geographical regions and any adverse developments affecting its operations in these regions could have an adverse impact on its revenue and results of operations. Moreover, the company does not have long-term agreements with suppliers for its raw materials and an increase in the cost of, or a shortfall in the availability or quality of such raw materials could have an adverse effect on its business, financial condition and results of operations.
The company is coming out with an IPO of 36,24,000 equity shares of face value of Rs 10 each. The issue has been offered in a price band of Rs 136-143 per equity share. The aggregate size of the offer is around Rs 49.29 crore to Rs 51.82 crore based on lower and upper price band respectively. On performance front, the company has reported a rise of 82.30% in its total income at Rs 8118.06 lakh in FY23 as compared to Rs 4453.07 lakh. The main reason of increase is due to increase in the revenue from business operations of the company. Revenue from top two product categories i.e. Material Handling and Milling & Grading Machines in FY23 has increased by Rs 2585.19 lakh in comparison to FY22. Moreover, the company has reported 135.35% rise in net profit at Rs 768.36 lakh in FY23 as compared to Rs 326.47 lakh in FY22.
Offering quality products at attractive prices is a key aspect of maintaining and expanding its relationships with its customers. In order to achieve the same, it intends to use a variety of lean manufacturing strategies that contribute to cost reduction, minimize wastage, streamline inventory turnover etc. It has adopted several initiatives designed to improve its cost efficiency such as strategic vendor partnerships for the procurement of raw materials, local sourcing to mitigate transportation costs, focus on engineering, reduce customer response time, an emphasis on increasing customer support through after-sales services etc. These endeavors, including the optimization of in-house processes, are fundamental to its commitment to delivering projects while upholding cost-effectiveness. It continues to invest in operational excellence throughout the organization without any compromise on the quality.
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