What you must know about Baba Food Processing India IPO?

Baba Food Processing India Ltd, incorporated in 2015, is a renowned brand when it comes to Agro-products manufacturing in Eastern India. Baba Food Processing India Ltd  essentially operates in the branded consumer and the bulk food market; producing wide range of Wheat Flour Products. To maintain the quality, the business model is backward integrated from the farmer stage to the marketing stage so that there is total control over all the stages of the manufacturing and selling process. The focus of their products has not only bee on quality but also on retaining the taste and aroma of purity. The company has established an ultra-modern Highly Automated Buhler’s Swiss Technology Pesa Mill for manufacturing of stoneless high fibre atta with installed capacity of 200 tonnes per day (TPD). It has an extensive market network across Jharkhand & Odisha for and its products are largely sold under the brand name of “Panchakanya” and “Bhajan”

The manufacturing plant is located at Nagri, Ranchi (the capital of Jharkhand) with an aggressive expansion plan into Bihar. The company has more than 120 employees at present. Their products are currently marketed through more than 100 dealers / wholesalers / large retailers as well as a network of over 1,000 Kirana Stores. Some of its prestigious clients on the B2B side include ITC, HAFED, Parle, Smart Bazaar and Anmol, among others. Apart from its 120 direct employees, the company also has over 500 indirect employees apart from a backward integrated linkage with more than 10,000 farmers. Its products reach out to more than 5 lakh customers on a continuous basis. Its policy is based on automation, owning the value chain, zero additives, quality, freshness, consistency, nutritional value, and safe storage.

Key terms of the Baba Food Processing India IPO (SME)

Here are some of the highlights of the Baba Food Processing India Ltd IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 03rd November 2023 and closes for subscription on 07th November 2023; both days inclusive.
   
• The company has a face value of ₹10 per share and it is a book building issue. The issue price for the fresh issue IPO has been fixed in the price band of ₹72 to ₹76 per share. Being a book built issue, the final price will be discovered via book building process.
   
• The IPO of Baba Food Processing India Ltd has only a fresh issue component with no book built portion. It must be remembered that the fresh issue portion is EPS dilutive and equity dilutive, but OFS is just a transfer of ownership and  hence it is not EPS or equity dilutive.
   
• As part of the fresh portion of the IPO, Baba Food Processing India Ltd will issue a total of 43,42,105 shares (43.42 lakh shares approximately), which at the upper IPO band price of ₹76 per share aggregates to a total fund raising of ₹33 crore.
   
• Since there is no offer for sale portion, the total size of the fresh issue will also be the total size of the IPO. Hence the total IPO size will also comprise of 43,42,105 shares, which at the upper price band of ₹76 per share will aggregate to ₹33 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker allocation of 2,17,600 shares. The market maker for the issue is Nikunj Stock Brokers Ltd and they will provide two-way quotes to ensure liquidity on the counter post listing and low basis costs.
   
• The company has been promoted by Yogesh Kumar Sahu. The promoter holding in the company currently stands at 99.99%. However, post the fresh issue of shares in the IPO, the promoter equity holding share will get diluted to 73.42%.
   
• The fresh issue funds will be used by the company for investment in its wholly owned subsidiary (Panchakanya Foods), financing purchase of machinery to make Besan and Sattu as well as to fund working capital needs.
   
• Horizon Management Private Ltd will be the lead manager to the issue, and MAS Services Ltd will be the registrar to the issue. The market maker for the issue is Nikunj Stock Brokers Ltd.

IPO allocation and minimum lot size for investment

Baba Food Processing India Ltd has allocated 5.11% of the issue size for the market makers to the issue, Nikunj Stock Brokers Ltd. The net offer (net of market maker allocation) will be divided between the qualified institutional buyers (QIBs), retail investors and the HNI / NII investors. The breakdown of the overall IPO of Baba Food Processing India Ltd in terms of the allocation to various categories are captured in the table below.

The minimum lot size for the IPO investment will be 1,600 shares. Thus, retail investors can invest a minimum of ₹121,600 (1,600 x ₹76 per share) in the IPO. That is also the maximum that the retail investors can invest in the IPO. HNI / NII investors can invest a minimum of 2 lots comprising of 3,200 shares and having a minimum lot value of ₹243,200. There is no upper limit on what the QIBs as well as what the HNI / NII investors can apply for. The table below captures the break-up of lot sizes for different categories.

Key dates to be aware of in the Baba Food Processing India IPO (SME)

The SME IPO of Baba Food Processing India Ltd IPO opens on Friday, November 03rd, 2023 and closes on Tuesday, November 07th, 2023. The Baba Food Processing India Ltd IPO bid date is from November 03rd, 2023 10.00 AM to November 07th, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is November 07th, 2023.

It must be noted that in ASBA applications, there is no refund concept. The total application amount is blocked under the ASBA (applications supported by blocked amounts) system. Once the allotment is finalized, only the amount is debited to the extent of the allotment made and the lien on the balance amount is automatically released in the bank account.

Financial highlights of Baba Food Processing India Ltd

The table below captures the key financials of Baba Food Processing India Ltd for the last 3 completed financial years.

Data Source: Company DRHP filed with SEBI

Here are some of the key takeaways from the financials of the company for the last 3 years.

• The revenue spike has been sharp in the latest year, although previous numbers have been fairly erratic. This top line is likely to see much higher traction as the company makes its big foray into the Bihar region in a big way.
   
• The net margins have been in the range of 1.50-2.50% in the last 3 years. That is quite low even if you consider the front loading of marketing and expansion costs, indicating limited value addition benefits for investors. Even ROE is only meaningful for the latest year of FY23 but relatively lower in previous years.
   
• Being a capital light business, the asset turnover ratio or the asset sweating ratio has been above 2 on a consistent basis. This may not be too representative as here the expenses ratio would matter more than the asset turnover ratio, in this sector.

The company has latest year EPS of ₹4.20 and weighted average EPS of ₹4.18 for the last 3 years; so, EPS has been largely consistent with little growth. However, a lot will depend on what level the EPS sustains in the long run since growth has not translated into higher EPS in this case. By latest year valuations, the company looks reasonably priced, so it is the sustainable EPS that will matter. Markets will be watching how the aggressive expansion plans work out. For now, the focus would be on the stock as a high risk investment. Food is a perpetual business and this is a good bet on the food market getting organized. Investors in the IPO must be prepared for higher levels of risk.