Swasth Foodtech India Ltd. IPO: Key Details

Swasth Foodtech India

• Swasth Foodtech India is coming out with an initial public offering (IPO) of 15,87,600 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 94 per equity share.
• The issue will open on February 20, 2025 and will close on February 24, 2025.
• The shares will be listed on SME Platform of BSE.
• The share is priced 9.40 times higher to its face value of Rs 10. 
• Book running lead manager to the issue is Horizon Management.
• Compliance Officer for the issue is Seema Agarwal.

Profile of the company

Swasth Foodtech India is in the business of processing of rice bran oil from crude oil, for sale to oil manufacturers and packers. It manufactures various rice bran oil under various grades and colours, based on the requirement of its customers. Rice bran oil is healthier than the other options available in the market, on account of it having an ideal balance of polyunsaturated fats and monounsaturated fats, in almost a 1:1 ratio. Since rice bran oil is made from rice bran, it is rich in Vitamin E, an antioxidant and Oryzanol. Rice bran oil is a healthy oil extracted from the germ and inner husk of rice kernels. It has gained popularity in recent years due to its numerous health benefits. The advantages of rice bran oil include support heart-healthy; high smoke point makes it a good choice for stir-frying, sauteing, and other high-heat cooking methods; and Neutral flavor makes it a versatile oil that can be used in a variety of dishes. It has crafted its business model in such a manner that it markets and sells, its finished products, being rice bran oil, as well as the residue and the byproducts generated while processing its products. Therefore, it markets and sells, fatty acid, gums, spent earth and wax in the open market.

Processing of rice bran oil mainly involves refining the extracted crude rice bran oil. The company has capacity of 125 MT per day as on the date of this Prospectus. It owns and operates one manufacturing facility in district of Purba Burdwan, in the State of West Bengal, which is strategically located in India. Its manufacturing facility has a refining unit which enables integrated processing of rice bran oil. At present, it manufactures rice bran oil in bulk form to third party brands and oil manufacturers. It intends to utilise a portion of the Net Proceeds towards setting up of a packaging unit at its existing manufacturing unit, to package, brand and sell its products under its own brands to small retailers, warehousing agents, directly for sale to end use customers. It also intends to undertake the packaging at the new packaging unit for third party brands. Setting up a packaging unit will provide it the ability of (i) building its own brand and (ii) scaling its operations by adding additional products as part of its product portfolio, thus contributing immensely towards its business operations and market position. 

Proceed is being used for:

• Setting up of a packing line at its existing manufacturing unit
• Funding of working capital requirements of the company
• General corporate purposes. 

Industry Overview

Edible oils and Fats are essential ingredients for a wholesome and balanced diet and they are vital items of mass consumption. The Department of Food and Public Distribution deals with issues related to the Vegetable Oil Processing Industries, Price Control, Inter State trade & commerce and also supply & distribution of vanaspati, oilseeds, vegetable oil, cakes and fats. The Directorate of Sugar and Vegetable oils is staffed with qualified technical people who assist the Ministry in the coordinated management of Vegetable Oils Policy, particularly relating to production/availability and monitoring of prices. India is a vast country and inhabitants of several of its regions have developed specific preference for certain oils largely depending upon the oils available in the region. For example, people in the South and West prefer groundnut oil while those in the East and North use mustard/rapeseed oil. Likewise, several pockets in the South have a preference for coconut and sesame oil. Inhabitants of northern plain are basically consumers of fats and therefore prefer Vanaspati, a term used to denote a partially hydrogenated edible oil mixture of oils like soyabean, sunflower, ricebran and cottonseed oils.

The country has to rely on imports to meet the gap between demand and supply. Import of edible oil is under Open General License. In order to harmonize the interests of farmers, processors and consumers and at the same time, regulate large import of edible oils to the extent possible, import duty structure on edible oils is reviewed from time to time. The import duty with effect from June 14, 2018 on all crude and refined edible oils was raised to 35% and 45% respectively while the import duty on Olive oil was increased to 40%. With effect from January 1, 2020, the import duty on Crude and Refined Palm Oil was revised to 37.5% and 45% respectively. With effect from January 8, 2020, import policy of Refined Palm Oil is amended from ‘free’ to ‘Restricted’ category. With effect from November 27, 2020, the import duty on crude palm oil has been revised from 37.5% to 27.5%. With effect from October 14, 2021, basic duty on Crude Palm Oil, Crude Soyabean Oil and Crude Sunflower Oil is Nil. The Agri-cess on these Oils has been brought down 5% for Crude Palm Oil, Crude Soyabean Oil and Crude Sunflower Oil. The basic duty on Refined Soyabean and Refined Sunflower Oil has been slashed to 17.5% and for RBD Palmolein Oil basic duty has been reduced to 12.5%. The present import duty structure has been extended till March 31, 2024.

As India the world’s largest importer of vegetable oil tries to meet edible oil shortage caused by global supply constraints, rice bran has become a sought-after commodity. Rice bran is traditionally used for cattle and poultry feed as it is a by-product in rice milling. Rice bran is popular among health conscious consumers but has historically been more expensive than rival oils while in recent years’ oil mills have begun to extract rice oil. As it is one of the fastest growing edible oils, it forms a small part of the total consumption of veg-oil in India. Production and imports are set to increase to meet the demand. Indonesia's ban on palm oil exports and disruptions to sunflower oil shipments from Ukraine have eroded rice bran oil's traditional premium over rival oils recently. Since it has flavor properties similar to sunflower oil, this has increased the demand for bran oil. 

Pros and strengths

Modern and strategically located manufacturing facilities: The company’s processing facility is strategically located near the ports of West Bengal. Its manufacturing unit is fully automated, made with high grade Stainless Steel 304, equipped with state of the art equipments and machinery for refining of crude oil and extracting by-products in an efficient manner, without any physical intervention of workforce. Its total refining capacity as at September 30, 2024 was 125 MT per day. Its processing unit has advanced equipment and technology supplied by Technior India Engineering. Technological developments are key in maintaining process efficiencies in refining and it has consistently invested in enhancing its refining infrastructure. It has invested in a high level automation at its facilities, which gives it an edge in production efficiencies, as well as ensuring consistent quality. Location and access to ports (land as well as sea) enable it to procure its raw materials at cost competitive prices, by reducing the expenses incurred towards logistics, especially given the high volumes that it procures from traders who import.

Easy availability of crude oil around its manufacturing facility: Crude oil is procured from local solvent units in West Bengal and other parts of the country and local traders. Its raw materials are therefore easily available for its manufacturing unit. Further, owing to the close proximity of ports and easy access of roads, it is able to easily procure its raw materials at low prices from its local traders and importers at low prices. The ease of availability of crude oil in abundance, which is its main raw material, ensures the smooth operations of its manufacturing facility, and production and sale of its finished products. In addition to the ease in availability, crude oil is also available to it at a competitive price which in turn enhances its ability to compete aggressively in pricing of its finished product as compared to its competitors.

Quality assurance and quality control of its products: The company is committed towards quality of its products. Its determination towards quality is demonstrated by well-defined quality and safety procedures at various stages of its manufacturing process from procurement of raw material to distribution of its products. Owing to the expertise of its experienced and trained team forming part of its Quality Division, all its products are manufactured strictly as per the regulatory standards. All its manufacturing facilities have a fully equipped Quality Division with experienced and qualified staff to carry out quality checks and inspections at all the stages of its manufacturing process. It has necessary infrastructure to test its raw materials and finished products to match the quality standards as specified by the relevant customers and FSSAI Standards. Its Quality Division and in-house quality laboratories are well-equipped for ensuring the quality and compliance with regulatory standards.

Risks and concerns

Maximum revenue comes from limited customers: The company is in the business of processing of rice bran oil from crude oil, for sale to oil manufacturers and packers. As part of its business model, it manufactures products as per the specification of its customers, which helps it to improve its offerings and achieve overall efficiencies. While it typically has long term relationships with its customers, it has not entered into long terms agreements with its customers and the success of its business is accordingly significantly dependent on it maintaining good relationships with its customers and suppliers. The actual sales by the company may differ from the estimates of its management due to the absence of long term agreements. The loss of one or more of these significant or key 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.

Geographical constrain: The company generates major sales from its customers situated at selected geographical regions. Such geographical concentration of its business in these regions heightens its exposure to adverse developments related to competition, as well as economic and demographic changes in these regions which may adversely affect its business prospects, financial conditions and results of operations. Further, any significant interruption to its operations directly or indirectly as a result of any severe weather or other natural disasters could materially and severely affect its business, financial condition and results of operations. Similar adverse consequences could follow if war, or war-like situation were to prevail or terrorist attacks, etc. In such instance, it may have to completely halt its operations which may severely impact its business operations. Any such disruption for any reason could result in significant increase of costs and delays in execution of orders.

Limited operating history: The company has a limited operating history. Due to its limited operating history, the investors may not be able to evaluate its business, future prospects and viability. Further, on account of its operating history, it may not have sufficient experience to address the risks relating to manufacturing its products and carrying out its business operations. Additionally, at an early stage, it may not be able identify risks involved in such operations and therefore could fail to achieve timely fulfilment of orders and the quality requirements of its products.

Outlook

Swasth Foodtech India is engaged in processing rice bran oil for sale to oil manufacturers and packers. The company produces various grades of rice bran oil, rich in Vitamin E and Oryzanol, offering heart-healthy benefits, high smoke point, and versatile, neutral flavor for cooking. The company has arrangements with institutional oil manufacturers for supply of rice bran oil. It has quality assurance and quality control of the products. On the concern side, the company depends on a few customers for 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, the company generates its major portion of sales from its operations in certain geographical regions. Any adverse developments affecting its operations in these regions could have an adverse impact on its revenue and results of operations.

The company is coming out with an IPO of 15,87,600 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 94 per equity share to mobilize Rs 14.92 crore. On performance front, the company’s revenue from operations for the fiscal year ended March 31, 2024 was Rs 13,324.98 lakh which was about 99.20% of the total revenue and which comprises of revenue from sale of Rice Bran Refined Oil manufactured by it, byproducts derived from Rice Bran during manufacturing of rice bran refined oil, and trading sales of rice bran crude oil. Moreover, the company’s profit after tax for the fiscal year ended March 31, 2024 was Rs 215.81 lakh. 

The company is in the business of processing of rice bran oil from crude oil and selling in bulk to oil manufacturers and packers. While, it leverages on its ongoing relationship with reputed brands and institutional oil manufacturers, however it also intends to expand its customer base and product reach, by packaging products on its brands in smaller quantities for sale to retailers and wholesalers etc. It also intends to utilise the packaging unit for third parties. Thus, it intends to create a brand presence of its products, which indirectly are already well placed in market, on account of being rebranded and sold by its institutional customers. It intends to utilise an amount of Rs 329.87 lakh towards setting up of a packaging line at its existing manufacturing unit in the district of Purba Burdwan. Its quality of products and efficient production process positions it well in the Indian market to capitalize on the demand for healthier cooking oils.