Shubhshree Biofuels Energy coming with IPO to raise Rs 16.56 crore

Shubhshree Biofuels Energy

• Shubhshree Biofuels Energy is coming out with an initial public offering (IPO) of 13,92,000 equity shares in a price band Rs 113-119 per equity share.
• The issue will open on September 09, 2024 and will close on September 11, 2024.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 11.30 times of its face value on the lower side and 11.90 times on the higher side.
• Book running lead manager to the issue is HEM Securities.
• Compliance Officer for the issue is Aakrati Singhania.

Profile of the company

The company is engaged in the business of manufacturing & supplying of biomass fuels, which includes biomass pellets and briquettes. These biomass fuels are an alternative source of energy which is basically used in commercial and industrial heating, cooking fuel, industrial burning and electricity generation, as an alternative to fossil fuels like coal, firewood, lignite, Agri-waste etc. The briquettes are majorly used for industrial purposes like running boilers etc. and the pellets are majorly used as cooking fuel or commercial purposes. It is selling these pellets and briquettes to customers who are engaged in the business of recycling material, textile processing, pharmaceutical, metal etc. 

These Biomass pellets and briquettes are built from recycled green waste, producing less greenhouse gas emission. The main raw material used in the manufacturing of biomass fuels include Agri-waste, saw dust, farm waste etc. These raw materials are procured from the farmers and nearby sources either directly or through dealers and brokers. Apart, from the biomass manufactured by the company, it is also involved in the supplying of the biomass pellets and briquettes, which are procured from different vendors who are engaged in the manufacturing of these biomass fuels.

Biomass pellet or briquettes are cylindrical and condensed form of organic material derived from various renewable sources. These pellets serve as an alternative to traditional fossil fuels and play a significant role in addressing energy and environmental challenges. These biomass fuels act as renewable energy source, reduce emissions, helps in utilization of the waste materials and are energy efficient. 

Proceed is being used for:

• Funding Capital Expenditure towards installation of additional plant and machinery.
• Meeting working capital requirements.
• General corporate purpose

Industry Overview

Biomass fuels provide a strategic advantage to promote sustainable development and to supplement conventional energy sources in meeting the rapidly increasing requirements for transportation fuels associated with high economic growth, as well as in meeting the energy needs of India’s vast rural population. Biomass fuels can increasingly satisfy these energy needs in an environmentally benign and cost-effective manner while reducing dependence on import of fossil fuels and thereby providing a higher degree of National Energy Security. The Indian approach to biomass fuels is based solely on non-food feedstocks to be raised on degraded or wastelands that are not suited to agriculture, thus avoiding a possible conflict of fuel vs. food security.

A relatively recently popularized classification for liquid biofuels includes ‘first-generation’ and ‘second-generation’ fuels. There are no strict technical definitions for these terms. The main distinction between them is the feedstock used. A first-generation fuel is generally one made from sugars, grains, or seeds, i.e. one that uses only a specific (often edible) portion of the above-ground biomass produced by a plant, and relatively simple processing is required to produce a finished fuel. First-generation fuels are already being produced in significant commercial quantities in a number of countries. Second-generation fuels are generally those made from non-edible lignocellulosic biomass, 1 either non-edible residues of food crop production (e.g. corn stalks or rice husks) or non-edible whole plant biomass (e.g. grasses or trees grown specifically for energy).

Pros and strengths

Location advantage: Its factory is located at Village Pahadi, Teh. Niwai, District Tonk, Rajasthan. It procures most of its raw material requirements relating to agricultural waste from the farms which are located at nearby locations. The availability of the raw material at the farmland in the nearby locations of its factory, helps it in faster and cost effective procurement of agricultural waste.

Customer centric approach: The company focuses on providing the customers with the best possible quality and composition of product which is very important for the success of the business. Apart from the quality of the products, the timely delivery of the product is very important for the success of the company. Thus, by maintaining a customer centric approach it has been able to establish better relationship with its customers.

Eco-friendly product: The company provides eco-friendly product viz. Bio- pellets and briquettes which are considered to be a good substitute of fossil fuels in those industries where use of fossil fuels such as coal, gas, lignite, diesel etc. is made in large quantities. Globally, biomass fuels assume importance due to growing energy security and environmental concerns. Bio fuels seek to provide a higher degree of national energy security in an environmentally friendly and sustainable manner by supplementing conventional energy resources, reducing dependence on imported fossil fuels and meeting the energy needs of India’s urban and vast rural population.

Risks and concerns 

Substantial portion of the revenue is generated from few clients: It derives and may continue to derive a significant portion of its revenue from a relatively limited number of clients. For the period FY 23-24, FY 22-23 and FY 21-22 its top 5 customers contributed to 57.34%, 62.86% and 66.94% of its revenue from operations. Further Company sold around 42.79%, 49.64% and 34.46% for FY 2023-24, FY 2022- 23 and FY 2021-22 respectively to its top one customer. Significant dependence on certain clients may increase the potential volatility of its results of operations, if it is unable to expand the volumes of its business with its existing clients, maintain its relationship with its key clients or diversify its client base. Further, any significant reduction in demand for its products from its key clients, any requirement to lower the price offered by these clients, or any loss or financial difficulties caused to these clients, or bad debts of the dues from these clients, or change in relationship with the clients could have a material adverse effect on its business, result of operations, financial conditions and cash flow.

Geographical concentration: Almost entire of its total sales are made in certain regions i.e. Northern part of India especially Haryana, Uttar Pradesh, Rajasthan and NCR region. Such geographical concentration of its biomass fuel business in these regions heightens its exposure to adverse developments related to competition, as well as economic and demographic changes in these regions which may adversely affect its business prospects, financial conditions and results of operations. It may not be able to leverage its experience in these regions to expand its operations in other parts of India, at the time of further expansion of its operations. Factors such as competition, culture, regulatory regimes, business practices and customs, industry needs, transportation, in other markets where it may expand its operations may differ from those in these regions, and its experience may not be applicable to other markets.

Depend on third parties for major portion of transportation needs. It does not have an in-house transportation facility and it relies on third party transportation and other logistic facilities at every stage of its business activity including for procurement of products from its suppliers and for transportation of its finished products to its customers. For this purpose, it hires services of transportation companies. However, it has not entered into any definitive agreements with any third party transport service providers and engages them on a needs basis. Additionally, the cost of its goods carried by such third party transporters is typically much higher than the consideration paid for transportation, due to which it may be difficult for it to recover compensation for damaged, delayed or lost goods.

Outlook

Shubhshree Biofuels Energy is engaged in the business of manufacturing & supplying of biomass fuels, which includes biomass pellets and briquettes. These biomass fuels are an alternative source of energy which is basically used in commercial and industrial heating, cooking fuel, industrial burning and electricity generation, as an alternative to fossil fuels like coal, firewood, lignite, Agri-waste etc. The briquettes are majorly used for industrial purposes like running boilers etc. and the pellets are majorly used as cooking fuel or commercial purposes. On the concern side, in case of any delay or default is made in payment by its Customers or if its management fails to accurately evaluate the credit worthiness of its customers, the same may lead to bad debts, delays in recoveries and / or write-offs which could lead to a liquidity crunch, thereby adversely affecting its business and results of operations. A liquidity crunch may also result in case of increased working capital borrowings and, consequently, higher finance cost which will adversely impact its profitability.

The company is coming out with a maiden IPO of 13,92,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 113-119 per equity share. The aggregate size of the offer is around Rs 15.73 crore to Rs 16.56 crore based on lower and upper price band respectively. On performance front, total income for the financial year 2023-24 stood at Rs 9,488.32 lakh whereas in Financial Year 2022-23 the same stood at Rs 5971.24 lakh representing an increase of 58.90%. The main reason of increase was increase in the volume of business operations of the company. Its profit after tax for the year increase by 36.05% from net profit of Rs  242.38 lakh in financial year 2022-23 to net profit Rs 329.77 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 reach of its products in different parts of the country. Furthermore, it uses the services of various dealers, marketing representatives for increasing its sales. It proposes to enter into new geographies and increase its marketing and sales team which can focus on different regions and also maintain and establish relationship with customers. It aims to achieve this by adding value to its customers through quality assurance, timely delivery and reliability.