Tapi Fruit Processing coming with an IPO to raise upto Rs 5.21 crore

Tapi Fruit Processing

• Tapi Fruit Processing is coming out with an initial public offering (IPO) of 10,86,000 Equity Shares of face value of Rs 10 each for cash at a fixed price of Rs 48 per equity share.
• The issue will open on September 12, 2022 and will close on September 14, 2022.
• The shares will be listed on the Emerge platform of NSE.
• The share is priced 4.80 times higher to its face value of Rs 10.
• Book running lead manager to the issue is Fedex Securities.
• Compliance Officer for the issue is Kashyapkumar Nagjibhai Pandav.

Profile of the company

The company has over the years leveraged its understanding of its target markets and consumer segments, product innovation capabilities, extensive distribution network, strategically located manufacturing facilities, and have focused its marketing and promotional activities to strengthen its product brands and establish its brands across India. The company’s diversified product portfolio includes three categories:

• Candied, Crystallised and Glazed Fruit and Vegetable Products (Candied Fruit): These products are made out of 100% fruits and vegetables cooked in sugar syrup. The company’s products under this category includes tooty fruity, karonda cherry, amla candy. It sells these products under its brand “Tapi”, “MumMum” and “Boleto”.
• Fruit Bar, Jellies, Fruit Jam & Fruit Leathers (Fruit Jellies): A product made out of natural fruit pulps dried and shaped in to roll form or bar forms. Its products under this category includes mango fruit rolls, tamarind bars etc. These are fruit jellies made from sugar, glucose, pectin along with fruit pulps added with flavours and colors. Its products under this category includes jelly balls, fruit bears, fruit jelly pops, Jams, fruit katli and jelly cubes. Fruit Jam made from sugar, glucose, pectin along with fruit pulps added with flavours and colors.
• Chutney & Sauces: In this category it sells Ketchup made from tomato paste under its brand “Tapi”.
• Beverages: Under this category the company’s product includes fruit crush and fruit syrups. The company recently reintroduced its fruit syrups under its new packaging, with added fruit content.
• Nutraceutical Products: The company manufacture herbal base nutraceutical products as gummies, fortified with minerals as a functional food. These products are available as multi vitamin gummies, etc.

The company manufactures its nutraceutical range of products under the private labeling arrangement and contract manufacturing arrangements with its customers. All its products are manufactured in-house at its manufacturing facilities located in Pipodara village, Distt. Surat, Gujarat, which enables it to have an effective control over the manufacturing process and to ensure consistent quality of its products. Its manufacturing facility is strategically located in proximity to its source of raw materials, which minimises freight and logistics related time and expenses. Its manufacturing facility is generally equipped with modern and semi-automated production processes, with specialized custom-made manufacturing equipment obtained from national and international suppliers.

Proceed is being used for:

• Meeting incremental working capital requirements.
• Repayment / prepayment of certain borrowings availed by the company.
• General corporate purposes.

Industry Overview

Fast-moving consumer goods (FMCG) sector is India's fourth-largest sector with household and personal care accounting for 50% of FMCG sales in India. Growing awareness, easier access and changing lifestyles have been the key growth drivers for the sector. The urban segment (accounts for a revenue share of around 55%) is the largest contributor to the overall revenue generated by the FMCG sector in India. However, in the last few years, the FMCG market has grown at a faster pace in rural India compared to urban India. Semi-urban and rural segments are growing at a rapid pace and FMCG products account for 50% of the total rural spending. Favourable demographics and rise in income level will boost the FMCG market. The FMCG market in India is expected to increase at a CAGR of 14.9% to reach $220 billion by 2025, from $110 billion in 2020. The urban segment contributes to about 55% of the revenue share, while the rural segment accounts for 45%. Rise in rural consumption will drive the FMCG market.

The FMCG market in India is expected to increase at a CAGR of 14.9% to reach $220 billion by 2025, from $110 billion in 2020. The Indian FMCG industry grew by 16% in CY21 a 9-year high, despite nationwide lockdowns, supported by consumption-led growth and value expansion from higher product prices, particularly for staples. The rural market registered an increase of 14.6% in the same quarter and metro markets recorded positive growth after two quarters. Final consumption expenditure increased at a CAGR of 5.2% during 2015-20. According to Fitch Solutions, real household spending is projected to increase 9.1% YoY in 2021, after contracting >9.3% in 2020 due to economic impact of the pandemic. The Government has allowed 100% Foreign Direct Investment (FDI) in food processing and single-brand retail and 51% in multi-brand retail. This would bolster employment, supply chain and high visibility for FMCG brands across organized retail markets thereby bolstering consumer spending and encouraging more product launches.

Pros and strengths

One of few organized players in segment of confectionaries: The company is one of the few organized players in the Candied Fruit and Jelly Bar & Fruit Bar segment of confectionaries, with a modern state of the art manufacturing facility in Gujarat and a well-established distribution network. It has been able to create a market for its products and expand its operation to achieve economies of scale that other unorganized producers of Candied Fruit are unable to do. The company’s manufacturing facility and its manufacturing process has been tested by international certifying agencies like TUV India and has been found to adhere to the quality control parameters set by such agencies. By exercising greater control over the production process, from procurement of raw materials until distribution of the finished product, it has been able to achieve its goal of maintaining and enhancing the quality of its products.

Wide spread and established sales and distribution network: The company’s extensive sales and distribution network allows it to reach a wide range of consumers and ensures effective penetration of its products and marketing campaigns. Its sales and distribution network is strategically spread across different states of India, and has an especially strong outreach in certain semi urban and rural markets, where it expects growth to be more significant. Points of sale for its products include general trade (which includes traditional retail points, such as kirana), super markets and convenience stores. The company distributes its products across 28 States and Union Territories in India, through its widespread network of super stockists. As on March 31, 2022, it has a distribution network comprising of 60 super stockists, supplying to wide range of customers through distributors and retail outlets. Its super stockiest network is managed by its in- house sales team of over 3 personnel, as on June 30, 2022, who work closely with its super stockists to understand consumer preferences, and to receive feedback on its products and that of its competition, which enables it to formulate an effective strategy for sales, marketing and pricing.

Diversified product portfolio: Align pace with the time and market demand, the company has time to time diversified its product portfolio, consisting of Candied Fruits, Fruit Jellies, Chutney & Sauces, Beverages. Its diversified and innovative products portfolio has effectively enabled it to cater consumer trends. Further, as per customer convenience and needs, it offers such product in different size of packaging. This helps it to build brand recognition and customer loyalty.

Risks and concerns

Rely largely on third party super stockists: The company relies largely on third party super stockists to sell its products to retailers who place its products in the market. As on June 15, 2022 its distribution network for its products includes over 60 super stockists supplying to distributors, retailers and modern retailers. The company’s ability to expand and grow its product reach significantly depends on its ability to influence the market that it cater to and effective management of its distribution network. It continuously seek to increase the penetration of its products by appointing new super stockists to ensure wide distribution network targeted at different consumer groups and regions. It cannot assure that it will be able to successfully identify or appoint new super stockists or effectively manage its existing distribution network. It may not be able to compete successfully against larger and better-funded distribution networks of some of its current or future competitors, especially if these competitors provide their super stockists with more favourable arrangements.

Face competition: The company operates in a highly competitive industry. Increased competition from existing players may cause it to lose customers, fail to attract new customers and result in an overall reduction in its market share. Some of its competitors may have certain advantages, including greater financial resources, technology, research and development capability, greater market penetration and operations in diversified geographies and product portfolios, which may allow it competitors to better respond to market trends. Its competitors in certain regional markets may also benefit from raw material sources or production facilities that are closer to the markets for the downstream products or may benefit from integrating upstream and downstream production processes, which provides them with competitive advantages in terms of costs and proximity to consumers.

Working capital requirements: The company’s business requires working capital, part of which would be met through internal accruals and borrowings. In many cases, significant amounts of working capital are required to finance the procurement of raw materials, labour and the upkeep of its production facilities before payments are received from customers. Its working capital requirements may increase if, under certain contracts, payment terms do not include advance payments or such contracts have payment schedules that shift payments towards the end of the production or otherwise increase its working capital burdens. Further, the cost of financing high levels of inventories has significantly increased and in future, will increase its working capital requirements. Additionally, its working capital requirements have increased in recent years due to the general growth of its business and also on account of the fact that it routinely attempt to forecast the demand for its products to ensure it purchase an adequate amount of raw materials. All of these factors may result, or have resulted, in increases in its working capital needs.

Outlook

Tapi Fruit Processing is a Manufacturer of Jelly Based Fruit Products such as Candied, Crystallised and Glazed Fruits, Fruit Bar, Fruit Jellies, Fruit Jam & Fruit Leathers, Chutney & Sauces, Beverages, Fruit crush, Fruit Syrups and Nutraceutical products such as vitamin Gummies. The company was started in 1999 by its founder director Ghanshyam Lukhi as a Proprietorship firm namely Tapi Food Products. The products of the company are manufactured in-house at the manufacturing facilities located in Pipodara village, Distt. Surat, Gujarat. It has received several quality certifications and accreditations, including certification from the ISO 22000:2018 and the Food Safety and Standards Authority of India (FSSAI). Over the years the company has developed PAN-India distribution network and well-established brand that has enabled it to increase market penetration and expand its footprint across India and exports in more than 20 countries worldwide. On the concern side, the company relies on third party transportation providers, with whom it has no formal arrangements, or timely delivery of its required raw materials and for delivery of its products to its customers, distributors and the retailers. The company’s financing arrangements contain restrictive covenants whereby it is required to obtain approval from its lender, regarding, among other things such as major changes in share capital, changes in fixed assets, creation of any other charge, not to issue any personal guarantee by the guarantors etc.

The company is coming out with a maiden IPO of 10,86,000 equity shares of Rs 10 each at a fixed price of Rs 48 per share to mobilize around Rs 5.21 crore. On performance front, the company’s total revenue increased by 16.34% to Rs 1516.33 lakh for the financial year March 31, 2022 from Rs 1303.31 lakh for the financial year 2020-2021. Profit after Tax (PAT) increased to Rs 15.60 lakh in F.Y. 2022 from Rs 10.06 lakh in F.Y. 2021. The profit after tax increased by 55.07% as compared to F.Y. 2021 on account of increase in revenue from operations. Meanwhile, the company plans to consolidate its presence across the Central and Western regions of India and will continue to assist its existing super stockist in enhancing their performance and improving their sales. It seeks to increase its presence in export markets by targeting to serve in developed and emerging countries through merchant exporter. It also plans to serve these markets directly by establishing relationship with reputed retail chains and distributors in order to access a more diversified customer base across geographies.