Uma Exports coming with an IPO to raise upto Rs 62.77 crore

Uma Exports

• Uma Exports is coming out with a 100% book building; initial public offering (IPO) of 92,30,769 shares of Rs 10 each in a price band Rs 65-68 per equity share.
  
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
  
• The issue will open for subscription on March 28, 2022 and will close on March 30, 2022.
  
• The shares will be listed on BSE as well as NSE.
  
• The face value of the share is Rs 10 and is priced 6.50 times of its face value on the lower side and 6.80 times on the higher side.
  
• Book running lead manager to the issue are ICICI Bank, HDFC Bank, Kotak Mahindra Bank and Axis Bank.
  
• Compliance Officer for the issue is Sriti Singh Roy.
  

Profile of the company

The company is engaged into trading and marketing of agricultural produce and commodities such as sugar, spices like dry red chillies, turmeric, coriander, cumin seeds, food grains like rice, wheat, corn, sorghum and tea, pulses and agricultural feed like soyabean meal and rice bran de-oiled cake. It imports lentils, faba beans, black urad dal and tur dal in India in bulk quantities. Its major imports are from Canada, Australia and Burma. It is B2B traders, highly specialized in sugar and Lentils. It maintains stocks and distribute them to different institutional parties like manufacturers, exporters, etc. It provides them in bulk quantities. The company has developed business strategy to switch over exports/imports from one commodity to another with change in demand or inconsistency in pricing for any commodity during any season. This policy adopted by the management ensures that the Company does not pass through a lean period during the year.

Proceed is being used for:

• Augmentation of working capital requirements.
  
• General corporate purposes.
  

Industry overview

Agriculture is the primary source of livelihood for about 58% of India’s population. Gross Value Added by agriculture, forestry, and fishing was estimated at Rs. 19.48 lakh crore ($ 276.37 billion) in FY20. Share of agriculture and allied sectors in gross value added (GVA) of India at current prices stood at 17.8 % in FY20. Consumer spending in India will return to growth in 2021 post the pandemic-led contraction, expanding by as much as 6.6%. 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. Indian food and grocery market is the world’s sixth largest, with retail contributing 70% of the sales. 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. Principal agricultural commodities export for April 2020 - January 2021 was $ 32.12 billion.

Indian retail industry is one of the fastest growing in the world. As per Forrester Research, in 2020, India's retail sector was estimated at $883 billion, with grocery retail accounting for $608 billion. The market is projected to reach $1.3 trillion by 2024. India ranked 63 in the World Bank’s Doing Business 2020 publication. India ranked 73 in the United Nations Conference on Trade and Development's Business-to-Consumer (B2C) E-commerce Index 2019. India’s direct selling industry recorded sales of $2.47 billion in 2019, improving its rank to 15 from 19 a year before. Consumer spending in India increased to $245.16 billion in the third quarter of 2020 from $192.94 billion in the second quarter of 2020. India is the fifth-largest and preferred retail destination globally. The country is among the highest in the world in terms of per capita retail store availability. India’s retail sector is experiencing exponential growth with retail development taking place not just in major cities and metros, but also in tier II and III cities. Healthy economic growth, changing demographic profile, increasing disposable income, urbanisation, changing consumer tastes and preferences are some of the factors driving growth in the organised retail market in India.  

Pros and strengths

Experienced management team: The company has an experienced management team which has positioned its business well for continued growth and development. Its management team has significant experience in the areas of finance, trading in agricultural commodities, quality control, strategy, material sourcing and business development. The knowledge and experience of its management team provides it with a significant competitive advantage as it seeks to grow in its existing markets and enter new segments and geographies. Its experienced management team has enabled it to improve its financial results over the years and increase portfolio of its products as well as its markets. Its management team has demonstrated its ability to execute its business plan and has the skills and experience needed to implement its strategic objectives related to its business and expansion in the future.

Strong presence in agro commodities trading segment: The company has a strong presence in agro commodities trading segment thereby enabling it to strategize and switch over exports/imports from one commodity to another in accordance with change in demand or inconsistency in pricing for any commodity during any season. Its senior management team continuously monitors and undertakes deep research of the current trends and demand of agricultural produce and commodities in the market and accordingly it easily switches over to the agricultural produce or commodity in demand. This policy adopted by the management ensures that the Company does not pass through a lean period during the year.

Track record of growth and profitability: The company has a track record of revenue delivery and profitability across various markets with healthy cash flows. Its total revenue from operations has grown at a CAGR of 51.10% from Fiscals 2019 to 2021. Its EBITDA has grown at a CAGR of 52.76% from Fiscals 2019 to 2021. Its restated profit for the year has grown at a CAGR of 105.45% from Fiscals 2019 to 2021.

Long term relationship with clients and repeat business: The company enjoys a good reputation and despite increase in competition, have received repeat orders from several of its prominent clients. Its clients are spread across the country and overseas and has been associated with it for a long term period. It constantly try to address its clients’ requirements which help it to maintain a long-term working relationship with its clients and improve its retention strategy. The portfolio of its existing clients gives it a competitive advantage in gaining new clients and increasing its business.

Risks and concerns

Dependent on third party transportation service providers: The company is significantly dependent on third party transportation providers for the delivery of agricultural produce or commodities to it and delivery of the same to its customers. Such services include clearing and forwarding, transportation, material handling and ocean freight. Uncertainties and risks such as transportation strikes, failure to book vessels or delay in supply of raw materials and products 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, agricultural produce or commodities may be lost or damaged in transit for various reasons including occurrence of accidents or natural disasters. A failure to procure or transport the agricultural produce and commodities 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.

Requires significant amount of working capital: The company’s business requires a significant amount of working capital. In its business, working capital is often required to finance the purchase of agricultural produce and commodities and for payment of earnest money for participating in government and international tenders. Further, it is also required to meet the export demand and for achieving the same, adequate stocks have to be maintained which requires sufficient working capital. In the event, it is unable to source the required amount of working capital for addressing such demand of the agricultural produce and commodities or stock adequate quantities of the same, it might not be able to efficiently satisfy the demand of its customers. Even if it is able to source the required amount of funds, it cannot assure you that such funds would be sufficient to meet its cost estimates and that any increase in the expenses will not affect the price of its products.

Operate in competitive business environment: The agricultural produce and commodities industry in India is competitive with both organized and unorganized markets. However, the company is required to compete both in the domestic and international markets. In the business of export & import all trades are organized due to law of land prevailing in India. It may be unable to compete with the prices and products offered by its competitors (local as well as international). It may have to compete with new players in India and abroad who enter the market and are able to offer better quality agricultural commodities. Its competitors may have access to greater financial, marketing, distribution and other resources and more experience in obtaining the relevant regulatory approvals. Increasing competition may result in pricing pressures and decreasing profit margins or loss of market share or failure to improve its market position, any of which could substantially harm its business and results of operations. It cannot assure you that it will be able to compete with its existing as well as future competitors as well as the agricultural commodities prices and payment terms offered by them.  

Government regulations: The company is required to obtain and maintain a number of statutory and regulatory licences, registrations, permits and approvals under central, state and local government rules in India, generally for carrying out its business and for its warehousing facilities. In addition, it will need to apply for renewal of certain approvals, licenses, registrations and permits, which expire or seek new approvals, licenses, registrations and permits from time to time, as and when required in the ordinary course of its business. Its licences, registrations, permits and approvals are also subject to certain conditions, some of which may be onerous and require it to incur expenditure. It may also not be aware of certain approvals or permissions, which it may be required to maintain or acquire for undertaking its operations, under any new regulation or amended regulation made by any local or State Government. An inability to obtain, maintain or renew licences, registrations, permits and approvals required for its operations may adversely affect continuity of its operations.

Outlook

Uma Exports markets, trades and distributes agricultural products including rice, wheat, sugar, spices, dry red chillies, coriander, cumin seeds, food grains, pulses, etc. It is a B2B trader that supplies products to manufacturers, exports, etc. The company imports products like lentils, faba beans, black urad dal, and tur dal in India in bulk quantities from Canada, Australia, and Burma. The company has developed business strategy to switch over exports/imports from one commodity to another with change in demand or inconsistency in pricing for any commodity during any season. This policy adopted by the management ensures that the company does not pass through a lean period during the year. The company has a strong presence in agro commodities trading segment thereby enabling it to strategize and switch over exports/imports from one commodity to another in accordance with change in demand or inconsistency in pricing for any commodity during any season. On the concern side, operating in the international market exposes the company to a number of risks, including, but not limited to, compliance with local laws and regulations, which can be onerous and costly as the magnitude and complexity of, and continual amendments to, those laws and regulations are difficult to keep abreast with and the liabilities, penalties, costs, obligations and requirements associated with these laws and regulations can be substantial. Besides, the company’s licences, registrations, permits and approvals are also subject to certain conditions, some of which may be onerous and require it to incur expenditure.

The issue has been offered in a price band of Rs 65-68 per equity share. The aggregate size of the offer is around Rs 60 crore to Rs 62.77 crore based on lower and upper price band respectively. On the performance front, the company’s total revenue for the Fiscal 2021 was Rs 75,202.64 lakh as compared to Rs 81,030.84 lakh for the Fiscal 2020, representing a decrease of (7.19%). The company earned a profit for the year on a restated basis for the Fiscal 2021 of Rs 1,218.47 lakh as compared to Rs 832.98 lakh for the Fiscal 2020, representing an increase of 46.28%. The company is in process of setting up a procurement office in Australia through a wholly owned subsidiary which will allow it to procure the commodities directly in Australia through such Australian office and dispatch the commodities directly to various other global locations. This move will enable it to save costs like freight and import duties and thereby improving the profitability. With the infusion of additional capital, the company shall be in a better position to bid and participate in for bigger tenders and as a result export larger quantities than before.