Indong Tea Company coming with an IPO to raise Rs 13.01 crore

Indong Tea Company

• Indong Tea Company is coming out with an initial public offering (IPO) of 50,04,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 26 per equity share.
• The issue will open on February 09, 2023 and will close on February 13, 2023.
• The shares will be listed on SME Platform of BSE.
• The share is priced 2.60 times higher to its face value of Rs 10.
• Book running lead manager to the issue is Finshore Management Services.
• Compliance Officer for the issue is Chandan Gupta.

Profile of the company

Indong Tea Company incorporated in the year 1990, owns and operates a Tea Garden under Government lease and is engaged in Tea Plantation & Manufacturing of CTC Tea at Indong Tea Estate situated at Jalpaiguri District of West Bengal and is presently managed under the leadership of Sri Hariram Garg, one of the main promoters of the Company. The Indong Tea Estate is spread over an area of 740.38 Hectares which comprises of Tea Plantation, Tea Factory, Withering Trough House, Officer’s Bunglows, Staff Quarters, Labour Quarters, Pump House, General Stores, Dairy Farm etc.

The original Promoter of the company was Devvrat Gupta, Shyam Saran Gupta and Nagarmal Kanoria. The main business of the company is manufacturing of Tea. The company is having one Tea Garden i.e. Indong Tea Estate which is producing high quality CTC tea in Dooar’s region of Jalpaiguri District of West Bengal. In the year 2014, the company was taken over by Asian Group promoted by Sri Hariram Garg. Under his Leadership, the company has achieved the economic viability by way of massive investments in all spheres while at the same time taking a keen interest in the welfare of the workers. He invested fresh capital and installed new machinery which resulted in high yield from the plantations produced.

The company is a magnificent Tea Garden in Western Dooars perched in the foothills of Himalayan Range. Blessed with a bracing climate and a panoramic view of the mountains and meandering rivers, the garden was founded over a century ago by the British Planters under the famous Gillanders & Arbuthnot & Co. Currently, the garden retains many of the British legacies. The company produces only Crush/Cut, Tear, Curl Tea (CTC). This a method of processing black tea in which the leaves are passed through a series of cylindrical rollers with hundreds of sharp teeth that crush, tear, and curl the tea into small, hard pellets. This replaces the final stage of orthodox tea manufacture, in which the leaves are rolled into strips. Tea produced using this method is generally called CTC tea.

Proceed is being used for:

• Funding capital expenditure towards extension, uprooting and infilling of tea plantation at Indong Tea Estate, Jalpaiguri, West Bengal.
• Funding Capital Expenditure towards installation of additional plant and machinery for Tea Processing Unit at Indong Tea Estate, Jalpaiguri, West Bengal.
• Meeting the working capital requirements.
• Meeting the issue expenses.
• General corporate purposes.

Industry Overview

India is the second-largest producer of tea globally. Indian tea is one of the finest in the world due to strong geographical indications, heavy investment in tea processing units, continuous innovation, augmented product mix, and strategic market expansion. As of a 2018 survey, a total of 6.37 lakh hectares of area was cultivated in India for tea production. India is also among the world's top tea consuming countries, with 80% of the tea produced in the country consumed by the domestic population. India's total tea production for the calendar year 2020 was 1,257.52 million kg and for the financial year 2020-21 it was 1,283 million kg. In May 2022, India’s tea production stood at 127.11 million kgs, and it was at 91.77 million kg in April 2022. From January-September 2022, India’s tea production stood at 984.67 million kg.

India is among the top 5 tea exporters in the world making about 10% of the total exports. In the year 2021, the total value of tea exports from India was around $687.9 million. Indian Assam, Darjeeling, and Nilgiri tea are considered one of the finest in the world. The majority of the tea exported out of India is black tea which makes up about 96% of the total exports. The types of tea exported through India are: Black tea, Regular tea, Green tea, Herbal tea, Masala tea and Lemon tea. Out of these, black tea, regular tea and green tea make up approximately 80%, 16% and 3.5% of the total tea exported from India.

The primary driving force behind the sector is the widespread consumption of tea across all socioeconomic strata in India. The country's rapid economic development and rising disposable income of the middle class are also accelerating the industry's growth. The rise in demand for packaged tea in urban and rural areas, where there is less chance of adulteration and simpler storage, is also helping the Indian tea sector expand rapidly. In the next few years, the tea industry’s growth is anticipated to be driven by the rising popularity of cafes and lounges serving different beverage varieties. The industry's distribution networks, which include supermarkets and neighbourhood ‘Kirana’ stores, will also aid in the industry's growth. The RTD (ready to deliver) category has the potential to grow favorably, as consumers explore more convenient foods and beverages as a result of busier lifestyles and growing workforce participation. An increase in packaging and flavour innovations will also fuel the market in the future. 

Pros and strengths

Well-defined organizational structure: 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. The company’s senior management has pioneered its growth and fostered a culture of innovation, entrepreneurship and teamwork within its organization. The motivated and empowered employee base is key to the company’s competitive advantage. The company’s Human Resources Policies are aimed towards recruiting talented employees, facilitating their integration into its organization culture and encouraging the development of their skills and expertise for becoming the next generation leaders. Experience, knowledge and human resources will enable the company to drive the business in a successful and profitable manner.

Customer Centric Business Model: The company focus on attaining highest level of customer satisfaction. Understanding the consumer is one of the most important skills required to be successful in this business. The progress to be achieved by the company will be largely due to its ability to address and exceed customer satisfaction.

Existing Supplier Relationship: The company’s existing supplier relationship protects the business with terms of supply and pricing of the products and services, the quality of the products and services offered etc. The company, being a small and medium size organization, relies on personal relationships with its suppliers. Further, the company also leverages the past experience of its management in maintaining effective supplier relationship ensuring uninterrupted supply chain management.

Risks and concerns 

Operations are sensitive to weather conditions and seasonable: The company’s revenue from sales of CTC Tea for the six months’ period ended September 30, 2022, Fiscal 2022, Fiscal 2021 and Fiscal 2020 was Rs 1,319.24 lakh, Rs 1,927.42 lakh, Rs 2,305.64 lakh and Rs 1,549.17 lakh comprising of 100%, 98.91%, 99.95% and 100% respectively of its revenue from operations. The revenue from sales of CTC tea has declined for the Fiscal 2022 due to less rainfall as compared for Fiscal 2021. Rainfall during the initial few dry months of the year, when the Cropping Season is about to start, is most essential which immensely helps the tea bushes to re-gain health and vigour after the shock it suffered because of different types of pruning operations during winter from November to January. The company’s business activities could be materially and adversely affected by severe weather. Severe weather conditions such as lack of sufficient rainfall, rising temperature, etc. may cause damage to a full and/or portion of its plantation.

High working capital requirement: The company’s business demands substantial funds towards working capital requirements. In case there are insufficient cash flows to meet its working capital requirement or it is unable to arrange the same from other sources or there are delays in disbursement of arranged funds, or it is unable to procure funds on favourable terms, it may result into its inability to finance its working capital needs on a timely basis which may have an adverse effect on its operations, profitability and growth prospects.

No agreement with any of its customers: The company sells its majority of the products through Auctions regulated by Tea Board of India. Presently, from the list of the Auctioneers registered with Siliguri Auction Committee, the company is selling its products through Parcon (India) Private Limited, Siliguri and J. Thomas & Company Private Limited, Siliguri. However, the company has not entered into any formal agreement with them. Further, apart from the auctioneers, a small portion of unsold inventories are sold to other customers outside the auction system. However, it has not entered into any formal agreement with them as well. Though the company has been dealing with some of its customers for several years, it does not have any formal/long-term agreements with its customers. As a result, its customers can terminate their relationships with it due to a change in vendor preference or any other reason upon relatively short/without notice, which could materially and adversely impact its business.

Outlook

Indong Tea Company Limited is primarily in the manufacturing of Tea. The company runs a Tea Garden under Government lease and is engaged in Tea Plantation & Manufacturing of CTC Tea. Their Indong Tea Estate is spread over an area of 740.38 Hectares and consists of Tea Plantation, Tea Factory, Withering Trough House, Officer's Bunglows, Staff Quarters, Labour Quarters, Pump House, General Stores, Dairy Farm, etc. On the concern side, Tea, being an agricultural commodity, is susceptible to the agro climatic risks, such as, drought, insufficient rainfall or occurrence of floods, landslides and as a result of which production of the company’s products may reduce and this may adversely affect its sales and profitability. Therefore, the occurrence of any of these risks could significantly affect results of operations.

The company is coming out with a maiden IPO of 50,04,000 equity shares of Rs 10 each at a fixed price of Rs 26 per share to mobilize Rs 13.01 crore. On performance front, the revenue from operation and other income of the company has been decreased to Rs 1992.97 lakh in FY22 as against Rs 2313.00 lakh in the FY21. Moreover, the restated profit after tax for FY22 has been increased to Rs 131.62 lakh as against Rs 127.56 lakh in the FY21. Going forward, the company’s focus is on increasing sales volume through expansion, diversification and spread in geographical outreach. Its growth in local market can fetch it new business expansion and opportunities. The company is currently providing its services to several clients domestically. its emphasis is on scaling of operations in other markets which shall provide it with attractive opportunities to grow its client base and revenues. Apart from expanding business and revenues the company has to look for areas to reduce costs and achieve efficiencies in order to remain a cost competitive company. Its focus has been to reduce the operational costs to gain competitive edge.