Freshara Agro Exports coming with IPO to raise Rs 75.39 crore

Freshara Agro Exports

• Freshara Agro Exports is coming out with an initial public offering (IPO) of 64,99,200 equity shares in a price band Rs 110-116 per equity share.
• The issue will open on October 17, 2024 and will close on October 21, 2024.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 11.00 times of its face value on the lower side and 11.60 times on the higher side.
• Book running lead manager to the issue is GYR Capital Advisors.
• Compliance Officer for the issue is Ajay Kumar Rana.

Profile of the company

Freshara Agro Exports is engaged in the procurement, processing and exporting of preserved Gherkins and other pickled commodities from India to different countries of the world. Its procurement process involves direct sourcing from accredited farms and farmers dedicated to sustainable agricultural methodologies. The company concludes buy-back agreements with the farmers and in turn supplies the farmers the necessary sowing material such as seeds to the identified small and marginal farmers. The company meticulously process the procured Gherkins and other pickled vegetables within its processing facility, adhering to stringent quality and preservation protocols prior to exportation. Gherkins and other pickled vegetables are processed in its processing facility situated in Tirupattur District, Tamil Nadu on a high-quality measure and packed in food-grade drums, glass jars and metal tins as processed products. Gherkins are savored pickle vegetable relished globally & consumed in the markets of Europe, USA, Australia, Russia, etc. as a delicacy with other food items.

Moreover, for product testing it uses its own laboratory inside the processing facility with a dedicated team. Due to its rigorous quality assurance program, the company is accredited by a number of leading organizations, including Food Safety and Standards Authority of India (FSSAI), United States Food & Drug Administration (FDA), Star-K Kosher, Agricultural and Processed Food Products Export Development Authority (APEDA), International Featured Standards, Brand Reputation through Compliance Global Standard (BRCGS), these food safety certifications ensures that all of its products meet or exceed industry standards and helps in exporting to countries like Russia, United States, United Kingdom, various countries in Europe, Middle-East, North America and South America, etc. The company has been recognized as a 100% Export House by Ministry of Commerce & Industry, Government of India.

The company has been at the forefront of the processing and export industry for the past nine years, specializing in the production of high-quality gherkins, cucumbers and pickled vegetables. Over the years, it has continually strived for innovation and diversity in its product offerings. While staying true to traditional pickling techniques, it has also embraced modern methods to expand its range of products and cater to evolving consumer preferences. From classic favourites like pickled cucumbers and carrots to unique blends featuring exotic vegetables. It recognizes the vital role that agriculture plays in its business. To ensure a consistent supply of high-quality vegetables, it has forged strategic partnerships with the local farmers of Tamil Nadu, Karnataka and some parts of Andhra Pradesh through its contract farming program. Central to its contract farming model is a rigorous quality assurance process. 

Proceed is being used for:

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

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 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 first advance estimate of GVA in agriculture sector for 2023-24 is expected to be 5.5%. The country produces many crops and food grains such as rice, wheat, pulses, oilseeds, coffee, jute, sugarcane, tea, tobacco, groundnuts, dairy products, fruits, etc. Moreover, the food processing industry in India is still in its early stages, contributing less than 10% to the total food output. According to a Deloitte study on Level of Food Processing in India in 2020-21, processing levels were at 2.7% for vegetables, 4.5% for fruits, 15.4% for fishery, 21.1% for milk, and 34.2% for meat.

Meanwhile, Gherkins, often referred to as “cucumber on steroids,” are small cucumbers that are harvested before reaching maturity and pickled in vinegar or brine. These tangy, crunchy delights have gained immense popularity in international cuisines, particularly as condiments, toppings, or ingredients in salads, sandwiches and hamburgers. Gherkins are exported under two categories cucumbers and gherkins, which are prepared and preserved by vinegar or acetic acid and cucumbers and gherkins, which are provisionally preserved. On an average, a gherkin farmer produces 4 metric tonne per acre crop and earns about ?80,000 with a net income of ?40,000. Gherkin has a 90-day crop and the farmers take two crops annually. Processing plants of international standards have been established here to cater to the requirement of foreign buyers. All the gherkin manufacturing and exporting companies are either ISO, BRC, IFS, FSSC 2000 certified or possess all the certifications. Many of the companies have adopted social audits. This ensures all statutory benefits are given to the employees. The Agricultural and Processed Food Products Export Development Authority (APEDA) is also focusing on value-addition of gherkins to increase the export value of the product.

In the year 2020-21, India had shipped 2,23,515 metric tonnes of cucumber and gherkins with a value of $223 million and in 2022 India emerged as largest exporters of cucumbers and gherkins in the world. In the FY 2023-24, India exported 2,44,243.54 metric tonnes of pickled cucumbers and gherkins in which India exported Rs 2,127.09 crore worth of pickled gherkins and cucumbers, followed by 2,27,699.01 metric tonnes in FY2022-23 translating into Rs 1,761.12 crore worth of exports and in the FY 2021-22, India exported 2,17,521.42 metric tonnes which was around Rs 1,487.33 crore of pickled gherkins and cucumbers. This showed a compounded annual growth rate of 3.93% overall in the exports and a compounded annual growth rate (CAGR) of 12.66% in value of exports which shows an increase in the price of pickled gherkins and cucumbers due to the superior quality produced by Indian farmers and favorable climate prevailing in India for the cultivation and also Indian exporters availed benefit of off-season period when other exporters in other parts of the world couldn’t fill up the supply-demand cycle. 

Pros and strengths

Good relationship with the contract farmers: Through its contract farming initiative, it empowers local farmers by providing them with technical assistance, training, and access to high-quality seeds and inputs. By adhering to best agricultural practices, it helps farmers maximize yields, enhance crop quality, and improve their livelihoods. The company develops fair and transparent agreements with its contract farmers. It provides competitive pricing, transparent contracts, and timely payments, ensuring that farmers are fairly compensated for their efforts and dedication. Its dedication to ethical business practices has earned the trust and respect of its rural communities. The company sources raw materials from multiple regions and suppliers, mitigating the risk of shortages due to regional issues like bad weather or local supply chain disruptions.

Advanced in-house processing facilities: The company’s modern production facilities are equipped with advanced and modern machineries and adhere to the highest industry standards. It maintains strict hygiene and safety protocols to ensure the integrity and purity of its products at every stage of the manufacturing process. Its investment in advanced manufacturing facilities and cost competitiveness is driven by its commitment to customer satisfaction. It understands that affordability is a key consideration for its customers, and it continuously strives to deliver products that offer exceptional value for money. It prioritizes waste reduction, process optimization, and continuous improvement to eliminate inefficiencies and drive down costs. By minimizing waste and maximizing resource utilization, it ensures that every aspect of its operations adds value to its products without inflating costs.

Comprehensive product portfolio: One of the key strengths of its product portfolio is its adaptability to local preferences and cultural nuances. It understands that tastes vary from region to region, and it leverages its global presence and market insights to tailor its products accordingly. Whether it's adjusting spice levels, incorporating regional ingredients, or adhering to dietary preferences, it ensures that its products resonate with local consumers wherever they may be. Its comprehensive product portfolio serves as a cornerstone for building long-term partnerships with customers worldwide. By offering a diverse range of high-quality products and exceptional service, it earns the trust and loyalty of its customers, fostering mutually beneficial relationships that endure the test of time. 

Risks and concerns  

Maximum revenue comes from top 10 customers: The company’s top ten customers have contributed 43.50%, 42%, 42% and 53% of its revenues for the six-month period ended of September 30, 2024 and for the year ended March 31, 2024, March 31, 2023 and March 31, 2022 respectively based on Restated Financial Statements. However, its top customers may vary from period to period depending on the demand and thus the composition and revenue generated from these customers might change as it continues to add new customers in normal course of business. Since its business is concentrated among relatively few significant customers, it could experience a reduction in its results of operations, cash flows and liquidity if it loses one or more of these customers or the amount of business, it obtains from them is reduced for any reason, including but not limited on account of any dispute or disqualification. While it has maintained good and long-term relationships with its customers, there can be no assurance that it will continue to have such long-term relationship with them. It cannot assure that it shall generate the same quantum of business, or any business at all, from these customers, and loss of business from one or more of them may adversely affect its revenues and profitability.

Maximum revenue comes from sale of Gherkins: The company derives substantial revenue from the sale of Gherkins. The company has generated 84.90%, 93.50% and 96.20% of revenue from sale of Gherkins in FY24, FY23 and FY22 respectively. Any decrease in demand for Gherkins can have an adverse impact on its business, results of operations, financial conditions and cash flows. Further, any disruption in the supply chain for these Gherkins, such as delays in delivery or quality issues, may impact its ability to meet customer demand and result in loss of sales. While there has not been any instance of any disruption in the supply chain of Gherkins in the last three Fiscals, it cannot assure that such instance will not arise in the future.

Derives a significant portion of its revenue from customers located overseas: The company generates a significant portion of its sales from customers located overseas, including in Russia. The company has garnered 23.23%, 33.02% and 38.26% of revenue from Russia in FY24, FY23 and FY22 respectively. Furthermore, there has been no significant impact on the company’s business operations from the ongoing war between Russia and Ukraine, as Russia maintains a friendly business relationship with India. The primary challenge has been the significant increase in freight charges since the onset of the war, although these costs have decreased as the situation has begun to normalize. However, any disruption due to the ongoing conflict, including major attacks, can adversely affect its business, operational results, financial condition, and cash flows. Additionally, disruptions in the supply chain within Russia may impact its ability to meet customer demand, potentially resulting in a loss of sales.

Outlook

Freshara Agro Exports procures, processes and exports preserved Gherkins and other pickled goods from India to various countries across the world. The company processes and exports pickled vegetables in 3 different packaging categories. The details of the 3 packaging categories: 1) Industrial packaging in food grade drums and pails; 2) Food packaging in plastic buckets and tin cans; and 3) Retail packaging in glass jars and tin cans. The company understands that a robust and efficient supply chain is the backbone of its business. By seamlessly integrating every stage of the supply chain from sourcing to delivery it ensures that its customers receive the highest quality products in a timely and cost-effective manner. On the concern side, the company derives significant portion of its revenue from sale of Gherkins as accounted for 84.90%, 93.50%, and 90.90% of its revenue from operations in Fiscal 2022, 2023 and 2024 respectively. An inability to anticipate and adapt to evolving consumer preferences and demand for particular products, or ensure product quality may adversely impact demand for its products and consequently its business, results of operations, financial condition and cash flows. Moreover, the company derives a significant portion of its revenue from customers located overseas, including in Russia, which is currently involved in a war with Ukraine.

The company is coming out with a maiden IPO of 64,99,200 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 110-116 per equity share. The aggregate size of the offer is around Rs 71.49 crore to Rs 75.39 crore based on lower and upper price band respectively. On performance front, for the period April 1,2024 to September 30, 2024, revenue from operations of the company was Rs 10,365.55 lakh, while the other income of the company was Rs 380.56 lakh. Moreover, profit after tax for the period April 1,2024 to September 30, 2024 was at Rs 1,137.81 lakh. The company’s strategic objective is to improve and consolidate its position as one of the leading exporters of gherkins and other vegetable pickles in India with a continuous growth philosophy and to capture more market share in this industry. It is also planning to expand its distribution channels by partnering with popular retail chains in Middle Eastern countries which will increase its product visibility and accessibility. And for its export expansion, it has identified and planned to enter new geographic markets where there is a demand for preserved and pickled vegetables and conducting market research to tailor its products to local tastes and preferences. To cater all these product and export expansions, it is also ensuring that it is products meet the regulatory standards of the new markets it is entering which includes understanding labelling requirements, food and safety standards, and import regulations. By implementing these strategies, it wants to leverage its industry expertise to diversify its customer base and increase the wallet share among existing customers through a more extensive and appealing product portfolio.