Freshara Agro NSE SME IPO review (May apply)

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Review By Dilip Davda on October 12, 2024

•    The company is an 100% EOU for Gherkins and other pickled vegetables and exports globally. 
•    It marked sudden boost in its bottom lines from FY23 onwards that raise eyebrows.
•    Debt equity ratio of 2.77 as of September 30, 2024 is a major concern.
•    Based on FY25 annualized super earnings, the issue appears lucratively priced. 
•    Well-informed investors may park moderate funds for medium to long term.

ABOUT COMPANY:
Freshaha Agro Exports Ltd. (FAEL) 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. It meticulously processes the procured Gherkins and other pickled vegetables within processing facility, adhering to stringent quality and preservation protocols prior to
exportation. 

Gherkins are savoured 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 own laboratory inside the processing facility with a dedicated team. Due to 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.

FAEL 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 product offerings. While staying true to traditional pickling techniques, it has also embraced modern methods to expand 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 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 contract farming program. It works closely with partner farmers to enforce strict quality standards at every stage of production, from planting to harvesting. In Export market, it is not dependent on distributors and retailers. 70% of products are "not ready to eat" and are supplied directly to factories who re-process the products and convert them to finished goods. Remaining 30% of its products are supplied to Food Brokers and Traders in the international market. There may be a very less significant number of Distributors in this entire supply chain. As of September 30, 2024, it had 135 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 6499200 equity shares of Rs. 10 each to mobilize Rs. 75.39 cr. (at the upper cap). The company has announced a price band of Rs. 110- Rs. 116 per share. The issue opens for subscription on October 17, 2024, and will close on October 21, 2024. The minimum number of shares to be applied is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 27.66% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, the company will utilize Rs. 8.80 cr. for capital expenditure, Rs. 56.00 cr. for working capital, and the rest for general corporate purposes. 

The IPO is solely lead managed by GYR Capital Advisors Pvt. Ltd., and Purva Sharegistry (India) Pvt. Ltd. is the registrar to the issue. Giriraj Stock Broking Pvt. Ltd., is the Market Maker for the company. 

The company has converted entire initial equity shares at par value. The average cost of acquisition of shares by the promoters is Rs. 10.00 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 17.00 cr. will stand enhanced to Rs. 23.50 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 272.59 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 118.41 cr. / Rs. 0.97 cr. (FY22), Rs. 127.00 cr. / Rs. 9.08 cr. (FY23), and Rs. 198.02 cr. / Rs. 21.83 cr. (For 2 broken periods of FY24). For H1 of FY25 ended on September 30, 2024, it earned a net profit of Rs. 11.38 cr. on a total income of Rs. 107.46 cr. Thus the company has reported steady growth in its top and bottom lines, but the sudden boost in its bottom lines in pre-IPO periods raises eyebrows and concern over its sustainability going forward. The company got converted in a public limited entity only in November 2023.

For the last two fiscals (FY22 and FY23), the company has reported an average EPS of Rs. 3.75 and an average RoNW of 29.70%. The issue is priced at a P/BV of 5.14 based on its NAV of Rs. 22.56 as of September 30, 2024, and at a P/BV of 2.40 based on its post-IPO NAV of Rs. 48.40 per share (at the upper cap).

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 11.98, and based on FY24 earnings, the P/E stands at 12.48. The issue relatively appears lucratively priced. However, its debt equity ratio of 2.77 as of September 30, 2024 remains major concern.

For the reported periods, the company has posted PAT margins of 0.87% (FY22), 7.21 % (FY23), 9.68% (FY24-up to January 23, 2024), 13.98% (FY24- January 24, 2024 to March 31, 2024), 10.98% (H1-FY25), and RoCE margins of 8.90%, 26.77%, 20.25%, 10.04%, 12.31% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not paid any dividends for the reported periods of the offer document. However, it has adopted a dividend policy in March 2024, based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has no listed peers to compare with.

MERCHANT BANKER'S TRACK RECORD:
This is the 27th mandate from GYR Capital in the last four fiscals (including the ongoing one).  Out of the last 10 listings, all opened with a premiums ranging from 36.36% to 305.44% on the date of listing. 

(NOTE: This data is given on the basis of its last IPO of Lakshya tally (Refer page 194 to 197). It is surprising that the Lakshya RHP filed on October 08, 2024 had different data of track record for Lead Manager and in this IPO RHP that was filed on October 10, 2024 has again a different tally (Refer page 224 and 225). This is really confusing and needs clarification from the lead manager.) 

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