Empyrean Cashews
Empyrean Cashews is coming out with an initial public offering (IPO) of 52,47,000 Equity Shares of face value of Rs 10 each for cash at a fixed price of Rs 37 per equity share.
The issue will open on March 21, 2022 and will close on March 23, 2022.
The shares will be listed on NSE Emerge Platform.
The share is priced 3.70 times higher to its face value of Rs 10.
Book running lead manager to the issue is Systematix Corporate Services.
Compliance Officer for the issue is Rahul Suresh Gawande.
Profile of the company
Empyrean Cashews commenced operations in 2014 under the name and style of the brand ‘Krishival Cashews’. The company was incorporated in 2014 and is engaged in processing raw cashew nuts into finished cashew kernels in different flavours, with a presence in more than 26 tier II and tier III towns and cities. It primarily caters to the domestic market with a network of more than 30 distributors across India. It procures majority of its raw materials by way of import from certain African and Asian countries and also from the Konkan region of India.
The company focuses on quality of its products to increase its presence across the country. The company has one Subsidiary namely, Siddhivinayak Cashew Industries. In addition to processing raw cashews it is also engaged in the business of organic manure which is prepared by using by-products like husk and other biodegradable material left after processing of the raw cashews. Based on the audited restated financials for FY 2021, 93% of its revenue is derived from sale of cashews whilst remaining 7% is derived from sale of organic manure.
The company’s product portfolio include different flavours of cashews such as salted, pepper, chilli and assorted – all offered in different grades and packaging formats. The grades of the cashew kernels are based on the size of cashew nuts. The company has following grades available in 100 grams, 250 grams, 500 grams as well as 10 kilograms packings: (a) Premium grades such as W180, W210, P210, W240 and P240 (b). Other grades include W320, P320, W400, SSW, DW, RW, KW, JJH, JH, JK, LWP, SP, SWP, BB as well as flavoured cashew. The products are processed under hygienic condition following the specific food grade standards recommended by the industry. The products are supplied to different channels which include distributors, supermarkets, retailers as well as wholesalers. Also, the products of the company are sold over the counter to tourists and localites who visit its packaging unit. The company also supplies organic manure which is a derived from husk and other biodegradable material left after the processing of raw cashews. The organic manure is used in agriculture to improve soil fertility and enhance crop productivity. Its organic manure is purchased by the local farmers at its processing unit itself.
Proceed is being used for:
Meeting the working capital requirements.
General corporate purposes.
Meeting the issue expenses.
Industry overview
India is the second largest producer of raw cashew nut in the world, and it produced 703 thousand Metric tonnes in 2019-20. The country’s annual cashew nut production (raw cashew nut) peaked 836 thousand Metric tonnes in 2017-18 and it contract by 11% and 5% in the subsequent two year, respectively. The declining production was experienced due to low night temperature for a prolonged period that resulted in less fruit set and translated in less production for Raw Cashew Nut (RCN) in FY 2019, while in 2019-20, unseasonal rainfall and infestation by tea mosquito bug impacted the cashew output. RCN production thus grew at subdued CAGR of 1.2% between 2016-20. In 2020-21, the domestic production of cashew crop was estimated at 651 thousand tonnes, nearly 50 thousand tonnes less from the year ago level as lockdown during the peak harvesting season adversely impacted the crop production volume as well as quality. Moreover, some of crop in the Western region was impacted by the attack of tea mosquito bug and other pests while flowering was delayed, and many trees observed only one flowering cycle. Cyclone and other unfavorable weather conditions in 2019 too impacted cashew output.
Cashew market in India is an export-oriented Industry. With average 15% share in the world export between 2015-19, India is the second largest exporter of cashew kernels in the world after Vietnam. The Indian cashew kernels are well applauded for its superior quality, taste, and appearance. India remained a net exporter of cashew kernel between FY 2017-21. Around 97% of Indian exports of cashew kernel are in plain form (average 2017-21 by volume) and in bulk packing while export of value added / consumer packs accounts for remaining 3% share. India’s annual export value and volume of cashew kernel reached Rs 29.1Bn and 50.3 thousand tonnes in FY 2021, respectively. However, India’s export of cashew kernel has been falling steadily over the last few years as Vietnam is aggressively expanding as major exporter of the commodity. The rate of contraction in India export earnings have been in the range of 12-25% between FY 2019-21. In FY 2021, the cashew nut kernel exports fell by 25% against 13% decline in FY 2020 while in volume terms, it fell by 26% as compared to 2% increase in the previous fiscal.
Pros and strengths
Quality assurance: The company is dedicated towards quality of its products, processes and input raw material. The company had been accredited with “ISO 9001:2015” Certification for Quality Management System for Processing and Sales of Dryfruits and “ISO 22000:2018” Certification for Food Safety Management System. It adheres to quality standards as prescribed by its customers; hence it get repetitive orders from its buyers. Delivering quality products on time is one of its prime objectives. It dedicate resources for quality assurance to ensure that quality norms are continually met. It also have quality control checks before accepting or booking any consignment of raw material since it has a direct impact on the quality of its finished products. It does regular quality control of its product from FSSAI notified National Accrediation Board for Testing and Calibration Laboratories (NABL).
Strategically located manufacturing facilities: The company’s processing and packaging facilities are situated in Kolhapur District of Maharashtra. Being strategically located, it gets easy access to labours having experience in cashew industry as well as it helps it in procuring local raw material supplies resulting in reduced the cost of transport, thereby giving it a competitive advantage. Its Plant has good connectivity to roads which facilitates easy transportation of raw material and finished goods. Due to aforesaid reasons, the location of its processing and packaging units brings cost efficiencies in procurement of manpower and raw material and reduces logistic cost which helps it to achieve economies of scale. Its processing unit, packaging unit and warehouse are located within a periphery of 5 to 10 kilometres which reduces the time taken for the raw material from warehouse to processing unit and from there to packaging unit.
Widespread distribution network: The company maintains long terms relationships with its key customers by providing quality products as per their requirements and specifications. Its long-standing association with its customers are also built on its successful execution of prior orders. Its track record of timely delivery of quality products has helped in forging strong relationships with its customers.
Risks and concerns
Limited knowledge with respect to new geographies: The company may face risks in expanding its operations in new geographical areas in international and domestic markets in which it does not possess the same level of familiarity with the economy, consumer preference, commercial operations and distribution network and with product offerings that it has limited operating experience of. In addition, its competitors in such geographical areas may already have established operations in such areas and particularly in this industry, and it may find it difficult to attract customers in such areas.
Significant power requirements: The machinery and equipment installed at the company’s Processing Unit, Packaging Unit and warehouse consume power and the same is sourced by the Company from MSEB. The company has a total sanctioned load of 223 kilo watts and it also has one generator at its Processing Unit to have a continuous power supply. However, it does not have any power back up sources at its Packaging Unit. As the processing and packaging activities are significantly dependent on power supply, any interruptions in power supply may disrupt its operations resulting into business and financial results. Further, it has limited options in relation to maintenance of power back-ups such as diesel generator sets and any increase in diesel prices will increase its operating expenses which may adversely impact its business margins.
Dependent on third party transportation service providers: The company is significantly dependent on third party transportation providers for the delivery of raw material to it from its international suppliers. Uncertainties and risks such as transportation strikes, failure to book vessels or delay in supply of raw materials due to port congestions, vessel/vehicle breakdown could have an adverse effect on its supplies and deliveries to and from its customers and suppliers. Additionally, raw material may be lost or damaged in transit for various reasons including occurrence of accidents or natural disasters. A failure to procure or transport the raw material or to deliver the same to its distribution intermediaries in a timely, efficient and reliable manner could adversely affect its business, results of operations and financial condition.
Outlook
Incorporated in 2014, Empyrean Cashews engages in the processing of raw cashew nuts into flavoured cashews. The company produces and sells cashews under the brand name Krishival Cashews. In addition to processing raw cashews it is also engaged in the business of organic manure which is prepared by using by-products like husk and other biodegradable material left after processing of the raw cashews. The company offers products on the domestic market with a network of more than 30 distributors across India. The company product portfolio includes different flavours of cashews such as salted, pepper, chilli and assorted - all offered in different grades and packaging formats. The company has a qualified and experienced management team empowered to take timely decision which makes the operations of its business smoother and ensures efficiency in all aspects of its operations. On the concern side, the company’s business requires a significant amount of working capital. In its business, working capital is often required to finance the purchase of raw material and for processing activities. In the event, it is unable to source the required amount of working capital, it might not be able to efficiently satisfy the demand of its customers. The company’s business model requires it to maintain a certain level of inventory of raw material, to meet the present and future orders. If it underestimates the orders that it may receive it may experience inventory shortages and a loss of opportunity.
The company is coming out with a maiden IPO of 52,47,000 equity shares of Rs 10 each at a fixed price of Rs 37 per equity share to mobilize Rs 19.41 crore. On the performance front, the company’s total revenue for the Fiscal 2021 was Rs 2,858.08 lakh as compared to Rs 4,438.68 lakh for the Fiscal 2020, representing a decrease of (35.61%). The company earned a profit for the year on a restated basis for the Fiscal 2021 of Rs 66.74 lakh as compared to Rs 95.60 lakh for the Fiscal 2020, representing a decrease of 30.20%. The company intends to cater to the increasing demand of its existing customers and to expand its customer base by enhancing the distribution networks to take its products in different parts of the country. It proposes to increase its marketing and sales team which can focus on different regions/states and will also establish and maintain relationship with new and existing customers.
