HOAC Foods India coming with IPO to raise Rs 5.54 crore

HOAC Foods India

• HOAC Foods India is coming out with an initial public offering (IPO) of 11,55,000 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 for subscription on May 16, 2024 and will close on May 21, 2024.
• The shares will be listed on NSE Emerge Platform.
• The share is priced at 4.80 times higher to its face value of Rs 10.
• Book running lead manager to the issue is GYR Capital Advisors.
• Compliance Officer for the issue is Bhawna Agarwal.

Profile of the company

The company is engaged in the manufacturing of flour (chakki atta), herbs & spices, unpolished pulses, grains, and yellow mustard oil in its product range and markets & sells it in and around Delhi-NCR under the brand name ‘HARIOM’ through its Exclusive Brand Outlets. It handpick its raw materials from various parts of the country and process its products with utmost care without using artificial preservatives or chemicals, thereby creating a product portfolio of organic spices and flour, which carry the freshness and goodness of each ingredient. Its model has helped the company penetrate the niche segment of its market and establish a customer base in and around Delhi-NCR. Since its inception, its objective has been to produce high-quality natural spices and food products without artificial preservatives or synthetic substances. To achieve this, it has developed a business model in which it manufactures and packages its products in quantities that can sustain a customer until the shelf life of the product, reducing waste and providing a diverse range of products with freshness and goodness.

It also relies on D2C platform through ist in-house built Mobile Application both on Google Play Store and Apple’s App Store and Company website which is available for sale of its products. It has implemented a franchisee management system that helps the company coordinate with its franchise owners, store managers and provides the visibility on its inventory levels and franchisee and store sales, enabling the company to optimize its distribution network and reduce the time between the food product manufactured in its facility to consumer’s kitchen which is around within same day to maximum 1 day. This strong approach towards good supply-chain management across different business processes enables it to preserve the freshness, taste and nutritional value of its products.

Its range of flour includes MP Sharbati Atta, MP Lok One Atta, Multi-grain Atta along with different healthy flours. Over the years, it has leveraged its experience and understanding of the preferences and tastes of its consumers, and target markets to develop a wide range of products, which has strengthened its foothold in the Delhi-NCR region specifically in Indian Flour, Spice and Foods category. Its product portfolio comprised of 4 categories which include products such as, Spices & Herbs, Oil, Wheat Flour (Chakki Atta) & Healthy Flour, Pulses, Rice & Grain and other food products with 153 product SKUs, thereby addressing a wide variety of tastes and preferences.

Proceed is being used for:

• Funding the working capital requirements of the company
• General corporate purposes

Industry overview

The fast-moving consumer goods (FMCG) sector is India’s fourth-largest sector and has been expanding at a healthy rate over the years as a result of rising disposable income, a rising youth population, and rising brand awareness among consumers. With household and personal care accounting for 50% of FMCG sales in India, the industry is an important contributor to India’s GDP. India is a country that no FMCG player can afford to ignore due to its middle-class population which is larger than the total population of the USA. The Indian FMCG market continues to rise as more people start to move up the economic ladder and the benefits of economic progress become accessible to the general public. More crucially, with a median age of just 27, India's population is becoming more consumerist due to rising ambitions. This has been further aided by government initiatives to increase financial inclusion and establish social safety nets.

India is the world’s largest spice producer. It is also the largest consumer and exporter of spices. The production of different spices has been growing rapidly over the last few years. Production in 2021-22 stood at 10.88 million tonnes. During 2020-21, the export of spices reached an all-time high both in terms of value and volume by registering a growth of 17% in US$ value terms and 30% in volume terms. During 2021-22, the single largest spice exported from India was chili followed by spice oils and oleoresins, mint products, cumin, and turmeric. India produces about 75 of the 109 varieties which are listed by the International Organization for Standardization (ISO). The most produced and exported spices are pepper, cardamom, chilli, ginger, turmeric, coriander, cumin, celery, fennel, fenugreek, garlic, nutmeg & mace, curry powder, spice oils and oleoresins. Out of these spices, chilli, cumin, turmeric, ginger and coriander makeup about 76% of the total production.

Pros and strengths

Cluster-based distribution through retail outlet network: It has leveraged its Omni channel database of consumers to select store locations, design brand and assortment mix, direct traffic to its stores, plan offline marketing events and campaigns in housing society to create more brand awareness and relevance and as a result it helps it in creating an experiential based, educational and personalized shopping experience. It also developed its hyper-local delivery capability which allows it to use its physical stores and manufacturing unit as last mile delivery hubs for online orders across Delhi-NCR, which is its focus market. This has helped it improve its speed of delivery and optimize its inventory by making it more fungible.

Robust supply-chain management: An efficient and effective supply chain management system is crucial for any organization in the FMCG sector, particularly in wheat flour and spices segment. Since this industry is competitive, it decided to adopt a strategy different from its industry peers in order to have sticky customer base and repeated orders. A key aspect of supply chain management is ensuring customer satisfaction and HOAC is very cautious about this aspect, therefore it ensures that its customer service is excellent which ensures it to address any issues in the quality of the product or concerns that arise during the ordering and delivery process.

In-house manufacturing capabilities: It grinds and combines spices in its manufacturing facility located in Village- Bhondsi, Near Geeta Nand Ashram tehsil, Sohna, Gurugram. It is equipped with plant and machinery which enables it to process, grade, and package manufactured spices in a clean and safe manner. Its manufacturing facilities have an FSSAI license under the Food Safety and Standards Act of 2006. It installed a cleaning equipment and a specific grinding facility to grind each variety of spice into powder, such as chili, turmeric, cumin, and coriander. The majority of its manufacturing operations are mechanized, reducing the need of physical labor.

Risks and concerns

Unable to grow business in additional geographic regions: The Company seeks to grow its market reach domestically to explore untapped markets and segments; however, it cannot assures that it will be able to grow its business as planned. Infrastructure and logistical challenges in addition to the advancement of research and development in the food and spices industry, changing customers’ taste and preferences may prevent it from expanding its presence or increasing the penetration of its products. Further, customers may be price conscious and it may be unable to compete effectively with the products of its competitors. If it are unable to grow its business in these new markets effectively, its business prospects, results of operations and financial condition may be adversely affected.

Delays and/or defaults in customer payments: It is exposed to payment delays and/or defaults by its customers. It financial position and financial performance are dependent on the creditworthiness of its customers. As per its business network model, it supplies its products directly to its customers without taking any advance payment or security deposit against the orders placed by them. Such delays in payments may require its Company to make a working capital investment. If a customer defaults in making its payments on an order on which the Company has devoted significant resources, or if an order in which the Company has invested significant resources is delayed, cancelled or does not proceed to completion, it could have a material adverse effect on the Company’s results of operations and financial condition.

Operate in competitive business environment: The food and spices industry in India is competitive with both organized and unorganized markets. However, it is required to compete both in the domestic and international markets. It may be unable to compete with the prices and products offered by its competitors.  Its competitors may have access to greater financial, manufacturing, research and development, 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.

Outlook

HOAC Foods India is engaged in the manufacturing of flour (chakki atta), herbs & spices, unpolished pulses, grains, and yellow mustard oil in its product range and markets & sells it in and around Delhi-NCR under the brand name ‘HARIOM’ through its Exclusive Brand Outlets. It handpick its raw materials from various parts of the country and process its products with utmost care without using artificial preservatives or chemicals, thereby creating a product portfolio of organic spices and flour, which carry the freshness and goodness of each ingredient. On the concern side, its industry is highly fragmented as there is competition from various organized and unorganized players. There are some of the organized players like: Gandhi Spices (Hathi Masala), Adani Food Products, Ramdev Food, MDH Masala, Baadshah Masala, Everest Masala. In the listed space it faces competition from NHC Food. Other than the organized players it also faces competition from unorganized local suppliers. Its competitors may also engage in aggressive and negative marketing or public relations strategies which may harm its reputation and increase its marketing expenses. Any of these events could substantially harm its results of operations.

The company is coming out with an IPO of 11,55,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 48 per equity share to mobilize Rs 5.54 crore. On performance front, revenue from operations of the company for fiscal year 2023 was Rs 1,208.56 lakh against Rs 1,087.27 lakh total income for Fiscal year 2022. An increase 11.16% in revenue from operations. Profit after tax for the Fiscal 2023 was at Rs 58.79 lakh against profit after tax of Rs 27.33 lakh in fiscal 2022, a 115.11% increase. Going forward, it intends to continue to gain market share and strengthen its leadership position in its core market of Delhi-NCR. It intends to deepen penetration in Delhi-NCR with a focus on increasing its market share in this region by leveraging its distribution networks via Retail Outlets and other Supermarket stores of Delhi-NCR.