Gajanand International coming with IPO to raise Rs 20.65 crore

Gajanand International

• Gajanand International is coming out with an initial public offering (IPO) of 57,36,000 equity of face value of Rs 10 each for cash at a fixed price of Rs 36 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 share is priced 3.60 times higher to its face value of Rs 10.
• Book running lead manager to the issue is Fast Track Finsec.
• Compliance Officer for the issue is Vidhi Mehta.

Profile of the company

The company is in cotton and textile industry where it takes kapas as raw material and process Indian Cotton Fiber Quality Standards by minimizing Trash and Moisture, Improving the Cotton Grade Standard and Cotton Packing Standard, and Providing Logistic Support to Ensure Timely Delivery.

The company is an ISO 9001:2015 certified manufacturer. It basically manufactures the types of cotton i.e. Mech1 Cotton, Shankar6 Cotton etc. It has constructed well-established manufacturing units for Ginning, quality inspection, Storage and packing that is equipped with all the necessary hi-tech machines and tools that are required for a modern manufacturing unit. Machinery that is equipped in its infrastructure is operated by its team. The company majorly focuses in delivering quality cotton and maintaining long term association with its clients. The level of advancement determines the productivity of machines and labour, which in turn, determines the production and profitability of the company.

Proceed is being used for:

• Meeting out the working capital requirements of the company
• Meeting out the general corporate purposes
• Meeting out the issue expenses

Industry Overview

Cotton is one of the most important commercial crops cultivated in India and accounts for around 24% of the total global cotton production. It plays a major role in sustaining the livelihood of an estimated 6 million cotton farmers and 40-50 million people engaged in related activity such as cotton processing & trade. The Indian Textile Industry consumes a diverse range of fibres and yarns and the ratio of use of cotton to non - cotton fibres in India is around 60:40 whereas it is 30:70 in the rest of the world. India is the largest producer of cotton globally, accounts for 23% of total global cotton production. It is a crop that holds significant importance for the Indian economy and the livelihood of Indian cotton farmers. Cotton grows over 13.06 million hectares in India compared to 33.1 million hectares globally. The Indian cotton industry provides livelihood to about 60 million people in the country. 

India’s total production of cotton in the year 2023-24 (until November 2023) is 31.6 million bales (bales of 170 kg each). Total production of cotton in the year 2022-23 was 34.3 million bales and in 2021-22, it stood at 31.1 million bales. The Central Zone (which comprises states like Gujarat, Maharashtra, and Madhya Pradesh) was the biggest producer of cotton in India in 2022-23, with Gujarat being the highest producer of the Central Zone, contributing 9.49 million bales (bales of 170 kg each). Saurashtra constitutes about 70% of Gujarat’s cotton production, with farmers in Amreli - the state’s largest cotton district - playing a key role. Yavatamal, Buldhana, Akola Amravati Nagpur Washim, and Wardha are the districts of Vidarbha which are Maharashtra’s major cotton-producing areas.

The government has been implementing various policy initiatives and schemes to encourage cotton spinning millers in the country, including the announcement of key reforms under a Special Package that includes additional incentives under the Amended Technology Upgradation Fund Scheme (ATUFS), relaxation of Section 80JJAA of the Income Tax Act, and the introduction of fixed-term employment for the apparel sector. Under the Market Access Initiative (MAI) Scheme, the government offers rebates on state and central taxes and levies that are integrated into production, as well as aid to exporters. Schemes like SAMARTH (Scheme for Capacity Building in the Textile Sector) aim to address the shortage of skilled workers in the textile sector with a target of training 10 lakh people.

Pros and strengths

Raw material crop nearby/easy availability: The company strategically selects locations in close proximity to cotton-growing regions to ensure easy access to raw materials. This proximity minimizes transportation costs, reduces lead times, and ensures a consistent and reliable supply of high-quality cotton. By establishing operations near these areas, it capitalizes on the abundance of raw materials, optimizing efficiency and maintaining a competitive edge in the market.

Quality check of raw material on a regular basis: It prioritizes stringent quality control measures to maintain the superior quality of its raw materials. Regular inspections and quality checks are conducted at various stages of production to ensure compliance with industry standards and specifications. By implementing robust quality assurance protocols, it upholds product integrity, meet customer expectations, and safeguard its reputation for excellence in the market.

Increasing business scalability and captive consumption: Its increasing business scalability and captive consumption represent a formidable strength in the cotton industry. By expanding its operations and diversifying its product offerings, it enhances its ability to adapt to evolving market demands swiftly. Additionally, its focus on captive consumption allows it to optimize efficiency and cost-effectiveness by utilizing its own cotton products internally. This strategic approach not only ensures consistent revenue streams but also mitigates risks associated with external market fluctuations. With a strong foundation in scalability and captive consumption, it is well-positioned to drive sustained growth, maximize profitability, and maintain a competitive advantage in the dynamic cotton industry landscape.

Risks and concerns  

Do not have long term contracts with suppliers: The company has not entered into any supply agreement for the major raw materials required for production of its products. Its business largely depends on the availability of raw material and any shortage of it may adversely affect its financial condition and business operations. If it fails to procure good quality raw material, it may not be able to maintain its production and its business operations and financial results may be adversely affected.

Depend on few customers: The company's heavy reliance on a select few customers, particularly those within its top 10 client base, for a significant portion of its sales. This dependency presents a considerable vulnerability, as the loss of any one of these major clients could substantially impact the Company's revenue streams and overall profitability. Essentially, the company's financial health is intricately tied to the continued patronage of these key customers. Should any of them discontinue or reduce their business with the company, whether due to factors such as shifts in market dynamics, changes in their own business strategies, or dissatisfaction with the company's products or services, the repercussions could be significant.

Dependence upon transportation services: This emphasizes the critical reliance of its business on transportation services for both the supply of materials and the distribution of its products. However, it also acknowledges the inherent uncertainties and risks associated with this dependency. These risks encompass a range of potential disruptions, including but not limited to weather conditions, traffic issues, mechanical failures, and labor disputes. Importantly, it highlights the significant consequence of these risks: delays in delivery. Such delays have the potential to lead to the rejection of its products by customers. Therefore, it underscores the necessity for robust risk management strategies and contingency plans to mitigate these challenges and uphold its commitment to timely and reliable product delivery.

Outlook

Gajanand International is in cotton and textile industry where it takes kapas as raw material and process Indian Cotton Fiber Quality Standards by minimizing Trash and Moisture, Improving the Cotton Grade Standard and Cotton Packing Standard, and Providing Logistic Support to Ensure Timely Delivery. On the concern side, the market for textile industry intensely competitive and continuously evolving. Its competitors may have greater financial resources, a more effective or established local business presence. Some of its competitors may have advantages over it in terms of greater operational, technical, management or other resources well as know-how of regulatory and political challenges in the geographies in which it operates or into which it intends to expand its operations.

The company is coming out with a maiden IPO of 57,36,000 equity shares of Rs 10 each at a fixed price of Rs 112 per share to mobilize Rs 20.65 crore. On performance front, total Income for the Period ended March 31, 2024, it stood at Rs 10,874.81 lakh whereas in Financial Year 2022-23 it stood at Rs 7342.40 lakh representing an increase of 48.11%. There is increase in income is to increased trading of Chana which turned out to be profitable for the company. The restated profit after tax for the Period ended March 31, 2024, stood at Rs 223.73 lakh whereas in Financial Year 2022-23 it stood at Rs 141.06 lakh, on account of increased levels of operations, achieved primarily by incremental revenue from existing and new customer, addition of supply services, product offerings and better utilization of the resources, per employee better revenue generation. Meanwhile, it makes continuous efforts to improve efficiencies to achieve cost reductions so that it can be competitive in market. It can achieve the same by gaining economies of scale in its operations and continuous research and development. Its operations team including senior management adopts good practices in line with industry standards across its product facilities. Beside, it seeks to expand and enhance its presence in its existing business segments by identifying markets where it can provides cost-effective and quality products to prospective consumers.