Sarveshwar Foods IPO Review

 

Sarveshwar Foods IPO Background

Sarveshwar Foods comes from the business of processing of food items, especially basmati and non-basmati rice. The company was established in 1890 and has its head office in Jammu. Although Sarveshwar Foods procures rice from few of its neighbouring states such as Punjab, UP, Haryana, Delhi, Himachal Pradesh etc, it exports its products to international markets as well.

Furthermore, its just not the processing, but other operations within the complete value chain of rice where Sarveshwar Foods has its feet. For instance, the business looks into aspects such as storage, procurement, packaging, sorting and more, which invariably gives Sarveshwar Foods an edge as compared to its peer companies.

Apart from Basmati rice, Sarveshwar Foods has recently forayed into edible products including dry fruits and nuts, pulses, porridge, lentils, spices, flour, garam masalas, flax seeds, quinoa seeds, etc.

The business owns a brand named “Nimbark” primarily used for organic foods. Under the brand name Nimbark, Sarveshwar Foods has recently opened up its first retail store where different products ranging from rice, red/brown rice, dry fruits, nuts, edible oils, jaggery and other related food items are sold.

Here are some of the products offered Sarveshwar Foods in the rice segment:

• Sarveshwar Traditional Basmati Rice
• Sarveshwar Super Basmati Rice
• Sarveshwar Ultra Long Basmati Rice

Some quick facts about Sarveshwar Foods business and this IPO:

• Sarveshwar Foods currently owns 2 rice milling and processing facilities.
• The business has an extensive distribution network in the states of Delhi, Tamil Nadu, Andhra Pradesh, Maharashtra etc.
• Basmati and non-basmati rice from Sarveshwar Foods are exported to USA, European markets under third-party label names.
• Sarveshwar Foods has access to more than 9000 hectares of land for procurement of organic basmati rice.
• Sarveshwar Foods will be the first private company from the state of Jammu and Kashmir to be listed on a stock exchange.

Sarveshwar Foods is coming up with an IPO in the coming days, however, you can certainly have a quick look at all Upcoming IPOs as well.

Sarveshwar Foods – Management

Sarveshwar Foods was founded back in the year 1890 by Shri Mulamal Ji and currently, the business is being managed by the fourth generation of the family.

Mr Suraj Prakash Gupta and Mr Rohit Gupta are the two directors of the company where former is the father of the latter. The duo has taken the business to a different level while bringing international exposure to the brand.

Mr Suraj Prakash also holds the position of Chairman of the company and carries an experience of around 40 years in the rice industry.

At the same time, Mr Rohit Gupta, a bachelor of commerce in education, is the managing director of the company and holds a reasonable stake in the business. He has an experience of around 2 decades in this space and has been instrumental in carrying forward this business in the past few years.

Before the company gets listed, Rohit Gupta holds 99.94% of stake in Sarveshwar Foods.

Sarveshwar Foods IPO Data Points

This SME IPO Valuation from Sarveshwar Foods is worth ~₹58 Crore and it opens up this 5th March 2018. In total 64,67,200 shares are being opened up by the management of the company, especially the stake of Mr Rohit Gupta.

The Face value of the IPO has been kept at ₹10 while the IPO Price Band is  ₹83 to ₹85. In case you choose to bid for this IPO, then you will need to bid for at least 1600 shares in a single lot. This takes the overall bid value to ₹1,36,000 considering the upper price limit of the IPO.

You will have 3 days to bid for this IPO until 7th March while it will finally get listed on the NSE SME Emerge platform once the IPO subscription is complete.

Retail allocation of this IPO has been kept at 50%, like any other SME IPO.

Sarveshwar Foods Financial Performance

This is how Sarveshwar foods, as a business, has performed in the last few years in terms of revenue and profit from its different business lines (primarily rice):

 

If you observe closely, revenue and profit growth has not been consistent with each other, implying that the operational cost or any external entity cost (R&D for instance) has not been kept under control even though the business has been able to scale up in the last 2 years or so.

To view the complete progress of Sarveshwar foods in a graph, here is how it looks:

Similarly, if we talk about the performance of the profit growth over the last 5 years or so, this is how the performance of this company looks like:

As clearly visible in the graph above, Financial Year 2016 was not a great year for Sarveshwar foods in terms of the profit the business was able to achieve. In fact, it saw a drop of 40% profit as compared on a YoY basis with FY2015. The reason for this drop was due to fall in exports in that financial year, which is the major profit bucket for the business.

At the same time, here are some of the crucial metrics that you must be looking at before putting your hard-earned money in this IPO:

 

Sarveshwar Foods IPO Objective

There are different business goals for this public fundraising. Sarveshwar foods, through this IPO, looks to cater to the following business needs at this point in time with a specific budget allocated to each of these goals:

• The major chunk of this IPO (more than 50% i.e. ₹30 Crore) funding will go towards the long-term working capital of the business. This move will allow the company to explore new avenues for the business along with putting some money into research and development.
• Sarveshwar foods has a subsidiary company titled Himalayan Bio-Organics Pvt. Limited and the business is looking to invest a capital of ₹15 Crore out of the total funding raised from this SME IPO.
• Rest of the funding will be spent in General Corporate Purposes and to take care of the expenses paid in this issue raise.

Looking at the objectives stated by the company, it seems the company is relatively unsure of the usage of this capital since there are no specific goals attached to the working capital consideration.

Yes, apart from these goals, the business will get due visibility and added trust factor while it gets listed on one of the major indices of the Indian Stock Market.

Sarveshwar Foods IPO Events

If you are looking to invest your money in this particular issue, then you need to be aware of the specific dates as mentioned below:

 

As shown in the table above, the IPO opens on 5th March 2018 and is open for bidding for 3 days until 7th March 2018. The final decision on which investors’ bids are successful for allocation will be done by 13th March. In case, you applied for the IPO and did not get the allocation, you will be notified by 14th March and your blocked amount will be unblocked in your bank account (in case you applied IPO by ASBA).

If you are able to get an allocation, the corresponding number of shares will be credited to your demat account by 14th March 2018 itself.

After all the IPO process is complete, Sarveshwar Foods will finally get listed on the NSE SME Emergy Platform on 15th March 2018.

Sarveshwar Foods – Contact Information

In case you are looking to get in touch with Sarveshwar foods for any specific information, you can get in touch with the team through the following contact details:

Sarveshwar Foods IPO – Our Recommendation

Honestly, there are way too many confusions around the overall financial performance and the business objectives to be taken care of from the funds raised.

As discussed in the financial performance section above, there are a couple of unexplained financial years where the business performance and especially the growth percentage of the company has seen an unexpected drop. At the same time, the objective of the IPO is primarily towards long-term working capital requirement without any clear goal on which kind of operations or business initiatives Sarveshwar foods is looking to use the money for.

All these hints certainly take our recommendation of this IPO towards a negative front and that is why we would recommend you to avoid this particular SME IPO.

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* The recommendation is just our viewpoint and you are advised to check with your financial advisory and/or stockbroker before investing any money in this IPO. A Digital Blogger bears no responsibility in such investments and the corresponding profits/losses