Phoenix Overseas coming with IPO to raise Rs 36.03 crore

Phoenix Overseas

• Phoenix Overseas is coming out with an initial public offering (IPO) of 56,30,000 equity shares in a price band Rs 61-64 per equity share.
• The issue will open on September 20, 2024 and will close on September 24, 2024.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 6.10 times of its face value on the lower side and 6.40 times on the higher side.
• Book running lead manager to the issue is Khandwala Securities.
• Compliance Officer for the issue is Abhishek Chakraborty.

Profile of the company

Phoenix Overseas is recognized as Three Star Export house by the Ministry of Commerce and Industry, Govt. of India on October 01, 2023 and this recognition is valid for a period of 5 years. The group has always believed strongly in the concept of collaborative growth which leads to a business conglomerate dealing in various sectors, which include export of agricultural produce and commodities, manufacturing/exporting jute bags (www.bagsindia.com), purses, wallets, belts, and maintaining a multipurpose cold storage, with potato cold store. With the commitment to provide quality and competitive pricing, the group is constantly moving up the import export ladder of the global market.

The company is engaged into trading and marketing of animal feeds and agricultural produce and commodities such as corn, oil cakes, spices like dry red chilies, coriander, cumin seeds, food grains like rice, wheat, corn, sorghum and tea, pulses and agricultural feed like soya bean meal and rice bran de-oiled cake. It has engaged in import lentils, black urad dal and tur dal in India in bulk quantities. Its major exports are to Bangladesh among other Asian Countries. It is B2B traders, dealing majorly in corn / maize and oil cakes. It maintains stocks and distribute them to different institutional parties like manufacturers, exporters, etc. in bulk quantities. The company has developed business strategy to switch over exports/imports from one commodity to another with change in demand or inconsistency in pricing for any commodity during any season.

The company is also engaged in manufacturing of bags for men and women made of jute, cotton, canvas, and leather as well as various other fashion accessories for buyers based in European Countries like France, Italy, Germany, UAE and also in Australia. The company’s manufacturing facility is situated at Sodhpur, Kolkata. The company is also engaged in manufacturing of purse and wallets along with other shopping and fashion bags for its clients. The company is also engaged in food preservation business after acquisition of a multipurpose cold storage as well as potato storage facility. The division offers storage and preservation solutions for all types of food products ranging from apples, oranges, carrots, potatoes, chili, ginger, eggs, fish, ice creams, sweets. Further, the company also has a warehouse with the capacity of more than 10,000 MT for storage of corn, oil cakes and other commodities situated at Malda, near the Indo-Bangladesh Border.

Proceed is being used for:

• Funding working capital requirements 
• Pursuing inorganic growth initiatives
• General corporate purposes

Industry Overview

The agriculture sector is the largest source of livelihood in India. The country is one of the largest producers of agriculture and food products in the world. In 2022-23, India’s agriculture sector growth rate was estimated to be at 3.5% and it was 3.0% in 2021-22. The gross value added (GVA) in agriculture and allied activities grew a targeted 4% for 2022-23. The country produces many crops and food grains such as rice, wheat, pulses, oilseeds, coffee, jute, sugarcane, tea, tobacco, groundnuts, dairy products, fruits, etc. During 2021-22, India’s tea production stood at 1,344.40 million kg. Coffee production during the same period was 3,420 lakh tonnes, a 2.39% YoY increase. Tea production during April-August 2023 stood at 691.44 million kg. During 2021-22, oilseeds production in India crossed the estimated 37.15 million tonnes while other products such as rice, wheat, maize, pulses, mustard, and sugarcane reached a record high production.

India is one of the largest agricultural product exporters in the world. In April-August 2023, the overall value of export of agricultural products stood at $19.74 billion as against $22.72 billion over the same period of the last fiscal. In 2022-23, the agricultural exports from India stood at $52.50 billion. During 2021-22, the country recorded US$ 50.2 billion in total agriculture exports with a 20% increase from $41.3 billion in 2020-21. India’s agriculture sector primarily exports agri & allied products, marine products, plantation, and textile & allied products. Agri & allied products exports were valued at $37.3 billion, recording a growth of 17% over 2020-21.

Meanwhile, the India Cold Chain Logistics Market size is estimated at $11.64 billion in 2024, and is expected to reach $18.19 billion by 2029, growing at a CAGR of 9.72% during the forecast period (2024-2029). The rising demand for perishable goods has been propelling market growth. Due to a shift in consumer behavior, e-commerce and online pharmaceutical shopping are driving the market. The Indian cold chain industry is still in its infancy, making it one of the most promising fields in the cold chain warehousing and logistics industry. India is on track to become the world's fifth-largest economy by 2027. As a well-established key player in the global market, investment in India's supply chain infrastructure is expected to rise year on year. Fortunately, the Indian government is a driving force in developing the cold chain industry, and it encourages private participation through various subsidy schemes and grants. The Ministry of Food Processing Industries (MoFPI) launched a program dedicated to cold chain, value addition, and preservation infrastructure.

Pros and strengths

Strong presence in agro commodities trading segment: The company has a strong presence in agro commodities trading segment thereby enabling it to strategize and switch over exports/imports from one commodity to another in accordance with change in demand or inconsistency in pricing for any commodity during any season. The company’s senior management team continuously monitors and undertakes deep research of the current trends and demand of agricultural produce and commodities in the market and accordingly it easily switches over to the agricultural produce or commodity in demand. This policy adopted by the management ensures that the company does not pass through a lean period during the year.

Long term relationship with clients and repeat business: The company enjoys a good reputation and despite increase in competition, have received repeat orders from several of its prominent clients. Its clients are spread across the country and overseas and have been associated with it for a long term period. The company constantly tries to address its clients’ requirements which help it to maintain a long term working relationship with its clients and improve its retention strategy. The portfolio of its existing clients gives it a competitive advantage in gaining new clients and increasing its business.

Experienced management team with proven project management: The company has an experienced management team which has positioned its business well for continued growth and development. Its management team has significant experience in the areas of finance, trading in agricultural commodities, quality control, strategy, material sourcing and business development. The knowledge and experience of its management team provides it with a significant competitive advantage as it seeks to grow in its existing markets and enter new segments and geographies. Its experienced management team has enabled it to improve its financial results over the years and increase portfolio of its products as well as its markets. The company’s management team has demonstrated its ability to execute its business plan and has the skills and experience needed to implement its strategic objectives related to its business and expansion in the future. 

Risks and concerns  

Maximum revenue comes from few clients: The company is engaged in the business of export trade of agricultural produce and commodities for sale to various end users including merchants and distributors. Its business operations are highly dependent on only few of its customers. The company has garnered around 61.80%, 61.43% and 52.89% of its revenue from its top 5 customers in FY24, FY23 and FY22 respectively. The loss of one or more of these significant customers or a reduction in the amount of business it obtains from them could have an adverse effect on its business, results of operations, financial condition and cash flows. 

Majority of the revenue comes from the Merchant export division: The company is engaged in manufacturing of fashion accessories, merchant export and cold storage/food preservation business. The company has garnered revenue of Rs 54,298.73 lakh Rs 44,481.43 lakh and Rs 37,325.80 lakh from Merchant Export Division in FY24, FY23 and FY22, while it has garnered Rs 305.00 lakh, Rs 286.82 lakh and Rs 258.29 lakh from Fashion Accessories Division and Rs 311.38 lakh, Rs 363.36 lakh and Rs 212.88 lakh from Food Preservation Division in FY24, FY23 and FY22, respectively. The company’s business is therefore subject to diverse and constantly changing economic, regulatory, social and political conditions in the jurisdictions in which it operates and seeks to operate. Any disruption in the merchant export division of the company may impact its result of operations. In case of any contingencies in the future, which will cause it to be unable to operate effectively in these export markets, its operations, revenues, and profitability may be adversely affected.

Stiff competition: The agricultural produce and commodities industry in India is competitive with both organized and unorganized markets. However, it is required to compete both in the domestic and international markets. The company may be unable to compete with the prices and products offered by its competitors (local as well as international). It may have to compete with new players in India and abroad who enter the market and are able to offer better quality agricultural commodities. Its competitors may have access to greater financial, 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

Phoenix Overseas trades and markets animal feeds, agricultural produce, and commodities, including corn, oil cakes, spices like dry red chillies, coriander, cumin seeds, food grains, tea, pulses, soya bean meal, and rice bran de-oiled cake. Phoenix Overseas Limited is a B2B trading company primarily specialising in corn/maize and oil cakes. The company's strong presence in agro commodities trading allows it to switch between exports and imports based on changes in demand or pricing for any commodity during any season. Also, the company's clients are nationwide and international and have been long-term partners. On the concern side, the company depends on a few customers of its products, for a significant portion of its revenue, and any decrease in revenues or sales from any one of its key customers may adversely affect its business and results of operations. Moreover, major exports of the company are to Bangladesh and this expose it to higher degree of risk with constantly changing economic, regulatory and social conditions. Any change in political or economic conditions in Bangladesh can adversely affect its business, financial condition and results of operations.

The company is coming out with a maiden IPO of 56,30,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 61-64 per equity share. The aggregate size of the offer is around Rs 34.34 crore to Rs 36.03 crore based on lower and upper price band respectively. On performance front, total income has increased by 21.68% from Rs 45,131.61 lakh in FY23 to Rs 54,915.10 lakh in FY24. The Increase was because of better macro conditions and preparedness of the company to avail the benefits of the tail winds. Net Profit after tax, extraordinary items and Minority interest has increased by 44.92% from Rs 371.49 lakh in FY23 to Rs 538.38 lakh in FY24. In order to reduce costs and gain a competitive advantage over its peers, the company aims to improve operational efficiency. It will be addressing the increase in operational output through continuous process improvements, quality check and technology development. Its employees are regularly motivated to increase efficiency with error free exercise. This can be done through continuous process improvements. Further, this can be done through domestic presence and economies of scale. It controls costs by eliminating unnecessary intermediaries for procuring products in cost efficient manner. Going forward, the company plans to establish its presence in the more geographical regions by exporting to new countries in the world. Its emphasis is on expanding the scale of its operations as well as growing its supply chain network, which will provide attractive opportunities to grow its client base and revenues.