Ramdevbaba Solvent coming with IPO to raise upto Rs 50.27 crore

Ramdevbaba Solvent 

• Ramdevbaba Solvent is coming out with initial public offering (IPO) of 59,13,600 shares of Rs 10 each in a price band Rs 80-85 per equity share.  
• The issue will open for subscription on April 15, 2024 and will close on April 18, 2024.
• The shares will be listed on NSE Emerge Platform.
• The face value of the share is Rs 10 and is priced 8.00 times of its face value on the lower side and 8.50 times on the higher side.
• Book running lead manager to the issue is Choice Capital Advisors.
• Compliance Officer for the issue is Pratul Bhalchandra Wate.

Profile of the company

The company is in the business of manufacturing, distribution, marketing and selling of Physically Refined Rice Bran Oil (Rice Bran Oil). It manufactures and sell Rice Bran Oil to FMCG companies like Mother Dairy Fruit & Vegetable, Marico and Empire Spices and Foods. It also manufactures, market and sell Rice Bran Oil under its own brands “Tulsi” and “Sehat” through thirty-eight (38) distributors who in turn sell to various retailers across Maharashtra. Rice bran oil is the oil extracted from the hard outer brown layer of rice called ‘bran’. It is well known for its high smoke point of 232 degree C i.e. 450 degree F and mild flavour, making it fit for high-temperature cooking methods such as stir-frying and deep-frying. It has an ideal balance of Polyunsaturated Fats (PUFA) and Monounsaturated Fats (MUFA), in almost a 1:1 ratio. Since rice bran oil is made from bran, it is rich in Vitamin E, an antioxidant. It also produces De-oiled Rice Bran (DORB), which is a by-product in the extraction of Rice Bran Oil and sell the same as cattle feed, poultry feed and fish feed in the States of Maharashtra, Goa, Gujarat, Madhya Pradesh, Andhra Pradesh, Telangana, Karnataka, Kerala and Tamil Nadu. Other by-products such as fatty acid, lecithin, gums, spent earth and wax are sold in the open market.

Proceed is being used for:

• Setting up of new manufacturing facility.
• Repayment in full or in part, of certain of outstanding borrowings.
• Funding the working capital requirements of the company. 
• General corporate purposes. 

Industry overview

Over the years, agricultural production in India has consistently recorded higher output. India ranked first in pulses & milk, second in vegetable primary, fruit primary wheat & rice and third in cereals, eggs primary in World Agriculture in 2019. An abundant supply of raw materials, increase in demand for food products and incentives offered by the Government has impacted food processing sector positively. During the 5 years ending 2020-21, Food Processing sector has been growing at an average annual growth rate of around 8.38 per cent as compared to around 4.87 per cent in Agriculture & allied sector (at 2011-12 prices). Food Processing Sector has also emerged as an important segment of the Indian economy in terms of its contribution to GDP, employment and investment. The sector constituted as much as 10.54 per cent and 11.57 per cent of GVA in Manufacturing and Agriculture sector respectively in 2020-21 (at 2011-12 prices). 100% FDI is permitted under the automatic route in food processing industries. 100% FDI is allowed through Government approval route for trading, including through e-commerce in respect of food products manufactured and/or produced in India. The sector has witnessed FDI equity inflow of USD 5.72 billion during April, 2014 to September, 2022.

Edible oils and Fats are essential ingredients for a wholesome and balanced diet and they are vital items of mass consumption. The Department of Food and Public Distribution deals with issues related to the Vegetable Oil Processing Industries, Price Control, Inter State trade & commerce and also supply & distribution of vanaspati, oilseeds, vegetable oil, cakes and fats. The Directorate of Sugar and Vegetable oils is staffed with qualified technical people who assist the Ministry in the coordinated management of Vegetable Oils Policy, particularly relating to production/availability and monitoring of prices. India is a vast country and inhabitants of several of its regions have developed specific preference for certain oils largely depending upon the oils available in the region. For example, people in the South and West prefer groundnut oil while those in the East and North use mustard/rapeseed oil. Likewise several pockets in the South have a preference for coconut and sesame oil. Inhabitants of northern plain are basically consumers of fats and therefore prefer Vanaspati, a term used to denote a partially hydrogenated edible oil mixture of oils like soyabean, sunflower, ricebran and cottonseed oils.

Pros and strengths

Strategic location of manufacturing facilities: The company’s Manufacturing Facilities are situated near Nagpur, Maharashtra giving it the strategic advantage to supply and distribute Rice Bran Oil in Maharashtra and DORB across various states in India. It is the preferred partner for its FMCG clients for manufacturing Rice Bran Oil as it can be easily distributed to central and southern India from Nagpur. Its strategic location also enables it to sell DORB to the southern states of Andhra Pradesh, Telangana, Karnataka, Kerala and Tamil Nadu, which is used by fish & poultry farmers, traders and certain end user industries for their products.

Easy availability of rice bran around manufacturing facilities: Rice bran oil is extracted from the hard outer brown layer of rice called bran. There are various rice mills which are situated near its Manufacturing Facilities ensuring the supply of rice bran to it on regular basis. Vidarbha region is one of the largest rice producing area in the State of Maharashtra and therefore rice bran is easily available at competitive prices. The ease of availability of rice bran in abundance, which is its main raw material, ensures the smooth operations of its Manufacturing Facilities, and production and sale of its finished products. In addition to the ease in availability, rice bran is also available to it at a competitive price which in turn enhances its ability to compete aggressively in pricing of its finished product as compared to its competitors.

Integrated operations and economies of scale: Manufacture of Rice Bran Oil mainly involves two processes: (i) solvent extraction of crude oil from rice bran; and (ii) refining the extracted crude rice bran oil. It has integrated operations involving the extraction of oil from bran and refining of the extracted oil enabling it to meet the time, cost efficiency, quality and quantity requirements. Its Manufacturing Facilities have been designed in such a manner that for its operations, materials from one production process are transferred to the following production process through pipelines in a seamless way. This integration allows it not only to save costs but also helps it achieve economies of scale by controlling the inputs / production based on each previous process, improving its efficiency and margins.

Risks and concerns

Depends on sale of products to certain FMCG companies: The company supplies rice bran oil in bulk to certain leading FMCG companies like Mother Dairy Fruit & Vegetable, Marico and Empire Spices and Foods. It has historically derived, and may continue to derive, a significant portion of its income from sales to these FMCG companies. Any reduction in orders from its FMCG customers would adversely affect its income. The demand from its FMCG customers determines its revenue levels and results of operations, and its sales are directly affected by their production and inventory levels. Over the years, it has developed strong relationships with its FMCG customers through whom it has been able to increase the quality of its offerings. Its business depends on the continuity of business with these customers. It has not entered into any long-term agreements with its FMCG customers and instead rely on purchase orders to govern the volume and other terms of its sales of products. Consequently, there is no commitment on the part of its FMCG customers to continue to place new purchase orders with it and as a result, its cash flow and consequent revenue may fluctuate significantly from time to time. Further, it may not find other FMCG customers for the surplus or excess capacity, in which case it may be forced to incur a loss due to lack of utilization of its production capacity. 

Business operations require significant working capital: The company’s business operation requires significant working capital specifically for raw materials and finished goods to undertake manufacturing operations. The working capital requirements for FY 2025 of the Company is estimated at Rs 1,200.00 lakh and will be funded out of the Net Proceeds, whereas the balance working capital requirements would be arranged from its internal accruals and borrowings from banks and financial institutions. However, it may not be able to obtain financing on better and favourable terms from bankers or financial institutions, if and when it decides to avail institutional funding. Further, it cannot assure that its bankers or financial institutions may implement new credit policies, adopt new pre-qualification criteria or procedures, raise interest rates or add restrictive covenants in loan agreements, some or all of which may significantly increase its financing costs, or prevent it from obtaining financings totally. All of these factors may increase in working capital requirements and if it experience insufficient cash flows to meet required payments on its working capital requirements, there may have an adverse effect on its financial condition, cash flows and results of operations.

Derive significant portion of revenues from Rice Bran Oil: The company derive a significant portion of its revenue from the sale of Rice Bran Oil. It manufactures, market and sell Rice Bran Oil under its own brands “Tulsi” and “Sehat” through thirty-eight (38) distributors who in turn sell to various retailers across Maharashtra. It also manufacture and sell Rice Bran Oil to FMCG companies like Mother Dairy Fruit & Vegetable, Marico and Empire Spices and Foods. For the nine months ended December 31, 2023 and Fiscals 2023, 2022 and 2021, its revenue from its Rice Bran Oil under its own brands and to other brands of leading FMCG companies on a contractual basis amounted to Rs 19,396.87 lakh, Rs 29,698.16 lakh, Rs 29,030.38 lakh and Rs 18,555.68 lakh contributing 41.84%, 42.57%, 49.81% and 43.77% during nine months period ended December 31, 2023 and Fiscals 2023, 2022 and 2021 of its revenue from operations, respectively. Consequently, any reduction in demand from the consumers of Rice Bran Oil or lack of preference for Rice Bran Oil could have an adverse effect on its business, results of operations and financial condition.

Outlook

Founded in 2008, Ramdevbaba Solvent stands as a beacon of innovation and sustainability in the agro-industrial sector. With three state-of-the-art Solvent Extraction Plants in Maharashtra, it specializes in producing high-quality Rice Bran Oil, De-Oiled Rice Bran cake, and various by-products, reflecting its commitment to quality and environmental stewardship. The company’s Manufacturing Facilities are situated near Nagpur, Maharashtra giving it the strategic advantage to supply and distribute Rice Bran Oil in Maharashtra and DORB across various states in India. It is the preferred partner for its FMCG clients for manufacturing Rice Bran Oil as it can be easily distributed to central and southern India from Nagpur.  On the concern side, the company’s earnings are to an extent dependent on the prices of the commodities that it sells mainly physically refined rice bran oil. These fluctuate due to factors beyond its control, including, amongst others, world supply and demand, supply of raw materials, weather, crop yields, trade disputes between governments of key producing and consuming countries and governmental regulation.

The company is coming out with an IPO of 59,13,600 equity shares of face value of Rs 10 each. The issue has been offered in a price band of Rs 80-85 per equity share. The aggregate size of the offer is around Rs 47.31 crore to Rs 50.27 crore based on lower and upper price band respectively. On performance front, the company’s total income has increased by 20.35% to Rs 70,433.41 lakh in Financial Year ended March 31, 2023 from Rs 58,525.46 lakh in Financial Year ended March 31, 2022 primarily due to overall increase in the revenue from operations. The company recorded an increase of 97.25% in profit after tax from Rs 659.15 lakh in Financial Year ended March 31, 2022 to Rs 1300.15 lakh in Financial Year ended March 31, 2023. Meanwhile, the company intends to set up corn de-oiling manufacturing facility, adjoining its exisiting manufacturing unit at Brahmapuri, which involves crushing and processing of grains like corn using a process called dry-milling. The company will enhance its marketing efforts to reach out to other districts in and around the Vidharbha region of Maharashtra and also expand into other neighbouring states like Madhya Pradesh and Chhattisgarh.