Aelea Commodities coming with IPO to raise Rs 51 crore

Aelea Commodities

• Aelea Commodities is coming out with initial public offering (IPO) of 53,68,800 shares in a price band Rs 91-95 per equity share.
• The issue will open on July 12, 2024 and will close on July 16, 2024.
• The shares will be listed on BSE SME Platform.
• The face value of the share is Rs 10 and is priced 9.10 times of its face value on the lower side and 9.50 times on the higher side.
• Book running lead manager to the issue is Ekadrisht Capital.
• Compliance Officer for the issue is Rekha Kamal Rathi.

Profile of the company

The company was incorporate on November 05, 2018 with an object of trading in agriculture products. Initially on inception, the company was engaged in Trading of Sugar, Cashew, Pulses and other Commodities product. Thereafter, it decided to venture into the business of Cashew Processing and setup a processing unit. The processing unit is located in the premises of Gujarat Agro Infrastructure Mega Food Park Near Town of Mota Miya Mangrol, Taluka Mangrol, District Surat, Gujarat, India. It specializes in the comprehensive processing and trading of cashews, catering to both the B2B and B2C markets. With a focus on delivering high-quality cashew products, the company engages in selling its premium offerings to customers across diverse locations within India and Internationally. 

As a versatile enterprise, the company is deeply entrenched in the processing and trading of cashews, while also actively engaged in the trading of a diverse range of commodities such as Sugar, Pulses, Soybean, Rice, Wheat Flour, and more. Its operational strategy revolves around two distinct models, namely Business to Business (B2B) and Business to Customer (B2C). In the realm of cashews, it has successfully established a presence in both B2B and B2C segments, allowing it to cater to the nuanced requirements of both wholesale clients and individual consumers. On the other hand, its trade in products like Sugar, Pulses, Soybean, Rice, Wheat Flour, etc., is exclusively conducted through its B2B channel. This strategic approach enables it to optimize its operations, ensuring efficiency and quality service for its business partners, while also delivering top-notch products to its valued retail customers. The strategic approach involves not only meeting the demands of the domestic market but also extending its reach to customers outside India. 

The company engages in importing Raw Cashew Nuts (RCN) from diverse African nations, including Benin, Tanzania, Burkina Faso, Senegal, and Cote d’Ivoire, necessitating substantial quantities and tying up working capital funds. It specializes in trading RCN and Cashew Kernels for consumption. Additionally, it trades in by-products from sugar mills, such as Bagasse.

Proceed is being used for:

• Purchase of plant and machinery at existing manufacturing unit
• General corporate purposes

Industry Overview

India is among the largest cashew-producing countries in the world. The cashew industry has large economic significance as it employs more than 10 lakh people on farms and factories in rural areas. The cultivation of cashews in India covers a total of 0.7 million hectares of land, and the country produces over 0.8 million tonnes (MT) annually. Between 2019-20 and 2021-22, India's cashew nut production grew from 0.70 million tonnes (MT) to 0.77 million tonnes (MT). In India, cashew cultivation is spread along the coastal regions of the peninsula. Cashew is mainly grown in states like Maharashtra, Kerala, Karnataka, Tamil Nadu, Andhra Pradesh, Goa, Orissa, West Bengal, and some parts of the North-Eastern region. According to data published by the National Horticulture Board (NHB), Maharashtra stands first in annual cashew nut production during 2021-22 at 0.20 million tonnes (MT), growing from 0.19 million tonnes cashew nut produced in 2020-21.

India is the largest cashew exporter, with more than 15% of the world's export share. India primarily exports Cashew Kernels and very small quantities of Cashewnut shell liquid. Between April 2023 to January 2024, the cashew exports by value stood at $282.54 million as against $290.95 million in April 2022 to January 2023, registering a decline of 2.89%. India exports cashews to over 60 countries spread across different parts of the world. The key export destinations for India are UAE, Japan, Netherlands, Saudi Arabia, the USA, the UK, Canada, France, Israel, and Italy. As per the APEDA statistics on the exports of cashew kernels and cashew nut shell liquid, UAE was the largest importer of Indian cashews, valued at $127 million, accounting for 34.9% of overall exports during 2022-23 as compared to $131.5 million in the previous year.

The Government of India and the cashew export promotion council have undertaken several initiatives for the ease of exports and growth of the cashew industry. As non-financial assistance to exporters, many trade delegations, buyer-seller meets, fairs, development workshops, and research and development data are provided. Additionally, in 2018, the Basic Customs Duty on raw cashew nut was reduced to 2.5% from the previous 5%, and the Goods and Services Tax (GST) on the same was reduced to 5% from 12%.

Pros and strengths

Existing client relationship: It is committed to consistently addressing its customers' needs regarding its products. It prioritizes meeting specific customer requirements and timely order delivery as fundamental factors for the company's growth. The company has consistently strived to ensure customer satisfaction by actively taking measures to meet customer demand, ensuring timely order fulfillment, and maintaining consistent product quality. As a result, it has seen a significant increase in repeat orders, fostering strong client relationships that demonstrate the trust placed in it by its customers.

Quality service: It has set very high standards for its selves when it comes to timelines and quality of service it provides to its customers. The stringent systems ensure that all the products reach its customers on stipulated time and there are minimum errors to ensure reduced product rejection. Its quality service has earned it a goodwill from its customers, which has resulted in customer retention and order repetition. It has also helped it to add to its existing customer base. It has developed internal procedure of checking the client orders at each stage from customer order to delivery. The company focuses on maintaining the level of consistently in its service, thereby building customer loyalty for its Brand.

Well established systems and procedures: Its organization prides itself on its robust systems and procedures meticulously designed for the seamless implementation of both machinery and manpower to achieve current and long-term objectives. Through a comprehensive approach, it ensures that every aspect of production, from processing to packaging, is optimized for efficiency and quality. Its machinery is carefully selected and maintained to meet industry standards, enhancing productivity and minimizing downtime. Simultaneously, its workforce is trained extensively to operate these machines proficiently, fostering a culture of expertise and innovation.

Risks and concerns

Depend on top ten customers: For the period ended May 31, 2024 the Revenue from top ten customers was 73.08% of the total turnover on the basis of Standalone financials. The loss of any customer or a decrease in the volume of orders may severely affect its revenues and profitability, if it is unable to develop and maintain a continuing relationship with its key customer or develop and maintain relationships with other new customers. The loss of a significant customer or a number of significant customers due to any reason whether internal or external related to their business may have a material adverse effect on its business and results of operations.

Do not have long-term agreements with suppliers: It usually does not enter into long-term supply contracts/ agreements with any of its raw material suppliers and typically source raw materials from the open market. The absence of long-term contracts/agreements at fixed prices exposes to volatility in the prices of raw materials that it requires and it may be unable to pass these costs onto its customers, which may reduce its profit margins. It faces a risk that one or more of its existing suppliers may discontinue their supplies to it, and any inability on its part to procure raw materials from alternate suppliers in a timely manner, or on commercially acceptable terms, may adversely affect its business, financial condition and results of operations.

Depend on manufacturing facilities: Its business is dependent upon its ability to manage its manufacturing facilities, which are subject to various operating risks, including those beyond its control, such as the breakdown, failure of equipment or industrial accidents, severe weather conditions and natural disasters. Any significant malfunction or breakdown of its machinery, its equipment, its reactors, its automation systems, it’s any other systems or any other part of its manufacturing processes or systems (together, its ‘Manufacturing Assets’) may entail significant repair and maintenance costs and cause delays in its operations.

Outlook

Aelea Commodities is deeply entrenched in the processing and trading of cashews, while also actively engaged in the trading of a diverse range of commodities such as Sugar, Pulses, Soybean, Rice, Wheat Flour, and more. Its operational strategy revolves around two distinct models, namely Business to Business (B2B) and Business to Customer (B2C). On the concern side, it faces competition in its business based on pricing, relationships with customers, product quality, customization, and innovation. It faces pricing pressures from companies, that are able to produce such products at competitive costs and consequently, may supply their products at cheaper prices. It is unable to assure that it shall be able to meet the pricing pressures imposed by such domestic or multinational competitors which would adversely affect its business, financial condition and results of operations

The company is coming out with a maiden IPO of 53,68,800 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 91-95 per equity share. The aggregate size of the offer is around Rs 48.86 crore to Rs 51.00 crore based on lower and upper price band respectively. On performance front, total income for the financial year 2023-24 stood at Rs 14,450.77 lakh whereas in Financial Year 2022-23 the same stood at Rs 11,014.44 lakh representing an increase of 31.20%. Its profit after tax for the year increased by 539.22% from net profit of Rs 191.22 lakh in financial year 2022-23 to net profit Rs 1,222.31 lakh in financial year 2023-24. Meanwhile, it intends to cater to the increasing demand of its existing customers and also to increase its existing customer base by enhancing the distribution reach of its products in different parts of the country. It proposes to increase its marketing and sales team which can focus in different regions and also maintain and establish relationship with customers. Specifically, within the realm of cashew processing and Sugar, rice and other agro product trading, its focus remains unwavering.