Proventus Agrocom coming with an IPO to raise Rs 69.54 crore

Proventus Agrocom

• Proventus Agrocom is coming out with an initial public offering (IPO) of 9,02,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 771 per equity share.
• The issue will open for subscription on May 24, 2023 and will close on May 26, 2023.
• The shares will be listed on NSE Emerge Platform.
• The share is priced 77.10 times higher to its face value of Rs 10.
• Book running lead manager to the issue is Sundae Capital Advisors.
• Compliance Officer for the issue is Pinal Rakesh Darji.

Profile of the company

The company is an integrated health food brand with its presence in entire range of dry fruits, nuts, seeds and berries and healthy snacking products across the value chain. Its approach in the space focuses on diversifying across the baskets and intensifying its presence across the value chain; in the end, being a ‘one-stop shop’ for its consumers. The motto of Proventus is to create expertise in healthy food products and build the revenue stream by moving across the value chain from origination to distribution and creating an integrated business model -from “farm to homes”. The fundamental cornerstone of its approach is to capture the demand and supply stream by developing a stable base of sourcing and distribution.

There is a large vacuum in the “healthy snacking” space in India especially in the dry fruits, nuts, seeds and berries category. In the last few years, there has been a shift in consumer preference from unbranded / loose produce to branded products all the way down to Tier 2 city kirana stores also. As consumer preference gravitates towards better quality branded produce, they are looking for a trustworthy brand offering innovative products from natural to flavour augmented healthy snacks - this is where ‘ProV’ is positioned with its wide range of healthy snacks in the dry fruits, nuts, seeds and berries category. With its pan-India distribution and easy availability, ProV aims to be THE brand consumers think of whenever they want to buy nuts or dry fruits.

ProV offers something for every consumer in terms of price points, produce size or flavours. ProV has six brand segments, namely ‘ProV Select’ which is the economical at home daily consumption category, ‘ProV Premium’ which is the flagship high quality category, ‘ProV Regal’ which is the luxury jumbo sized produce category, ‘ProV Flavours’ which is augmented with flavours, ‘ProV Fusion’ which is a line of exquisite trail mixes, and the most recently launched ‘ProV Minis’ for pick-and-go needs and replacement to unhealthy junk snacks at a price point of just Rs 30 each pack. The “ProV” brand is used by its subsidiaries ProV Foods and Proventus Retail for the consumer packs sold through retail channel.

Proceed is being used for:

• Funding working capital requirements of the company.
• Funding working capital requirements of the company’s material subsidiary namely, Prov Foods.
• General Corporate Purposes.

Industry overview

The Indian food & beverage industry has been blooming quite well over the last decade. This is due to a change in social patterns and generalized economic growth. From the elementary packaged foods, baked goods, dairy and confectionery products to the deserts, snacks, and ice-cream-the industry has made considerable growth over the years. Even the beverage industry consisting of tea, coffee and other alcoholic and non-alcoholic drinks is making considerable progress. With a prominent agriculture sector, abundant livestock, and cost competitiveness, India is fast emerging as a sourcing hub for processed food. The food & beverage industry contributes to 3% of India's GDP and around 2/3rd of the total retail market in India. More than 7.5 million people in India rely on the F&B sector for employment and income. This makes it the single-largest employer in the country. F&B also acts as an engine for other sectors of the economy such as transportation, retail, hospitality services and agriculture. The current market size of the Indian Food and Beverage Industry shows a great potential for higher profit and therefore is attracting enormous foreign investments.

The Indian edible nuts, seeds and berries market size is valued at $ 7.3 billion in 2022 and is expected to grow at a CAGR of 8.6%. Nuts have a dominant share in the Indian market. Majority of sales in the nuts, seeds, and berries market is dominated by unorganised channels wherein these are sold openly in local markets. This market has a wide prevalence of loose, unbranded, and unpackaged products which are not always hygienically processed, thereby carry a risk of adulteration. The Indian edible nuts market size is valued at $ 5.9 billion in 2022 and is expected to grow at a CAGR of 6.7%. Peanuts dominates the Indian market with a value share of 40%, followed by cashew nuts and almonds with a value share of 16% each. The mass segment makes up for 70% of the edible nuts market and most of the nuts are sold openly in the market or by local brands across the region. The mid premium and premium segment contribute 20% and 10% respectively. Leading brands of edible nuts in India include: Happilo, Nutraj, Tulsi, Solimo, Vedaka, 24 Mantra, Delight nuts, Big Basket, among others. 

Pros and strengths

Established and stable sourcing base: The company has an expansive supplier community base directly sourcing and importing produce from around the globe- from quality packers and /or direct from farm gates. It imports from 8 countries across the globe and having relationship with more than 45 growers and / or suppliers itself. It also has a stable sourcing network in Indian market to procure the local agri produce, being used by it for its business. It focuses on maintaining its relationships and growing its network of farms from which it procure agri produce, which it has nurtured and developed over time. It endeavors to ensure consistency of quality of products through its stringent quality assurance processes. It focuses on maintaining quality standards at each step of its process. Its supply chain at the scale and quality at which it operates may require significant investment, effort and time to replicate, which it considers a competitive advantage. 

Operate Capital-efficient and scalable retail model: The company operates a capital-efficient and scalable retail model to capitalize on the high industry growth in the healthy snacking market in India. Since the Fiscal 2019 in which it launched its brand “ProV” under ProV Foods, it has grown at a CAGR of 47.99% and expended its presence to general and modern trade channels, including online e-commerce platforms. Higher brand consciousness, increasing digitization, greater focus towards healthy lifestyle and hygienic food snacking trends are expected to further drive growth in this market. As consumers seek better quality and a better overall taste with multiple snacking options, with the emergence of aspirational brands.

Using dry fruits broken and shells and skins of raw material to derive maximum value realization: The general consumer behaviour and trend is to buy dry fruits which are complete in size with good appearance. However, dry fruits are prone to breakage during transportation and handling. Breaking of dry fruits does not result in loss of its nutritional value. To reduce value loss on account of breakage, it has introduced exquisite trail mix as one of its selling product under the brand “ProV Fusion”. Trail mix is developed by it as a mix of dry fruits, nuts and seeds, combined with a great taste, which acts as a healthy snack option on the go. This helps it to maximise the value realisation for its raw materials.

Risks and concerns

Reliance on celebrities and social media influencers: The company’s marketing strategies include engaging influencers, entering into celebrity endorsement agreements and maintaining a presence on social media platforms on whom it rely upon for its marketing and endorsement. As social media platforms continue to rapidly evolve and new platforms continue to develop, it must continue to maintain a strong presence on these platforms and stay relevant on new or emerging trends on popular social media platforms. Its target consumers often readily available information and any negative commentary could drive large-scale social media campaigns and posts against it, its products or brands, whether motivated or otherwise, and result in consumer boycotts, without further investigation and without regard to accuracy of facts. It is not possible for it to prevent or moderate such behaviors, and the precautions it takes to detect or restrict this activity may not be effective in all cases. 

Face intense competition: The company faces intense competition from a number of competitors, some of which are larger and have substantially greater resources than it, including the ability to spend more on advertising and marketing and offer substantial discounts. It also faces competition from new entrants that may have more flexibility in responding to changing business and economic conditions than it. In addition, its competitors may introduce new products faster and more efficiently, and new products or evolving sales channels may increase competitive pressures by enabling competitors to offer more efficient or lower-cost products. If the company is unable to change its offerings in ways that reflect the changing demands of offline and online buyers and marketplaces or compete effectively with and adapt to such changes, its business, results of operations and cash flows could be adversely affected. 

Requires significant amount of working capital: In the company’s 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. Even if it is able to source the required amount of funds, it cannot assure 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. All of these factors, including increase in business activities, may widen the absolute gap between trade receivables and trade payables putting strain on the company’s financial resources and may result in increase in the amount of short-term borrowings/ working capital loans.

Outlook

Proventus Agrochem is an integrated health food brand. The company has its presence in the entire range of dry fruits, nuts, seeds, and berries. The product of company also includes various healthy snacking products across the value chain. The motto of Proventus is to create expertise in healthy food products. They strive at building the revenue stream by moving across the value chain from origination to distribution and creating an integrated business model - from 'farm to homes'. The company is attempting to fill the vacuum in the healthy snacking range in the Indian market, especially in the dry fruits, nuts, seeds, and berries category. The products of the company are marketed under the brand - 'ProV'. On the concern side, the company’s business operations, in particular its day-to-day manufacturing operations are subject to a broad range of health, safety and environmental laws and regulations, and violations of these laws and regulations can result in fines, penalties or litigation, which may adversely affect its business, financial condition and results of operations.

The company is coming out with a IPO of 9,02,000 equity shares of Rs 10 each at a fixed price of Rs 771 per share to mobilize Rs 69.54 crore. On performance front, the company’s total revenue increased by 34.01% to Rs 40,434.57 lakh for the Fiscal 2022 from Rs 30,173.92 lakh for the Fiscal 2021 primarily due to higher growth in sale of products under the brand “ProV”. The company has recorded a profit after tax for the year of Rs 114.12 lakh in Fiscal 2022 compared to Rs 187.90 lakh in Fiscal 2021. Meanwhile, the company intends to focus on establishing the company as one of the leading companies in India which provides healthy snack options. It intends to promote its brand “ProV” through different marketing channels to increase its brand visibility and recall. It also intends to strengthen its existing brand building activities such as retail branding, web marketing, magazine advertising and outdoor advertising for marketing its products.