What you must know about Hariom Atta & Spices IPO?

About HOAC Foods India IPO (Hariom Atta & Spices)

HOAC Foods India Ltd (Hariom Atta & Spices) was incorporated in the year 2018 to manufacture flour (atta), spices, and other food products. The products manufactured by the company are marketed under the brand name "HARIOM". Apart from chakki atta, HOAC Foods India Ltd (Hariom Atta & Spices) also sells herbs & spices, unpolished pulses, grains, and yellow mustard oil. Its primary markets are in and around Delhi-NCR region and they are marketed through exclusive brand outlets only. Out of its 10 exclusive brand outlets (EBOs), 4 are owned by the company and 6 are franchisees. Its manufacturing facility is located at Gurugram near Delhi. The product portfolio of HOAC Foods India Ltd (Hariom Atta & Spices) comprises of a total of 153 product SKUs (stock keeping units) which include a combination of ground and blended spices. The company employs over 50 personnel.

Highlights of the HOAC Foods India (Hariom Atta & Spices) IPO

Here are some of the highlights of the Hariom Atta & Spices IPO (HOAC Foods India) on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 16th May 2024 and closes for subscription on 21st May 2024; both days inclusive.
   
• The stock of the company has a face value of ₹10 per share and it is a fixed price issue. The price for the fixed price issue is set at ₹48 per share. Being a fixed price issue, the question of price discovery does not arise.
   
• The IPO of HOAC Foods India Ltd (Hariom Atta & Spices) has only a fresh issue component and no OFS portion. While the fresh issue portion is EPS dilutive and equity dilutive, the OFS is just a transfer of ownership and  hence is not EPS or equity dilutive.
   
• As part of the fresh issue portion in the IPO, HOAC Foods India Ltd (Hariom Atta & Spices) will issue a total of 11,55,000 shares (11.55 lakh shares), which at the fixed IPO price of ₹48 per share aggregates to fresh fund raising of ₹5.54 crore.
   
• Since there is no offer for sale (OFS) portion, the fresh issue will also double up as the overall IPO size. Therefore, the overall IPO will also comprise of the issue of 11,55,000 shares (11.55 lakh shares) which at the fixed IPO price of ₹48 per share will aggregate to overall IPO size of ₹5.54 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation of 93,000 shares. Giriraj Stock Broking Private Ltd will be the market makers to the issue. The market maker provides two-way quotes to ensure liquidity on the counter and low basis costs, post listing.
   
• The company has been promoted by Rambabu Thakur, Gayatri Thakur, and Yashwant Thakur. The promoter holding in the company currently stands at 99.99%. However, post the fresh issue of shares, promoter equity holding share will get diluted to 69.95%.
   
• The fresh issue funds will be used by the company for funding the working capital expenses and for general corporate expenses.
   
• GYR Capital Advisors Private Ltd will be the lead manager to the issue, and KFIN Technologies Ltd will be the registrar to the issue. The market maker for the issue is Giriraj Stock Broking Private Ltd.

The IPO of HOAC Foods India Ltd (Hariom Atta & Spices) will be listed on the SME IPO segment of the NSE.

HOAC Foods India Ltd (Hariom Atta & Spices) IPO – Key Dates

The SME IPO of HOAC Foods India Ltd (Hariom Atta & Spices) IPO opens on Thursday, 16th May 2024 and closes on Tuesday, 21st May 2024. The HOAC Foods India Ltd (Hariom Atta & Spices) IPO bid date is from 16th May 2024 at 10.00 AM to 21st May 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is 21st May 2024.

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. The credit of shares to the demat account on May 23rd 2024, will be visible to investors under the ISIN Code – (INE0S6S01017). This allocation to the demat account is only applicable to the extent of the allocation of shares and if no allocations are made in the IPO, then no credit would be visible in the demat account.

IPO allocation and minimum investment lot size

HOAC Foods India Ltd (Hariom Atta & Spices) has already announced the market maker allocation at 93,000 shares as inventory for market making. Giriraj Stock Broking Private Ltd will be the market maker for the IPO. The net offer (net of market maker allocation) will be divided between the QIB investors, retail investors and the HNI / NII investors. The breakdown of the overall IPO of HOAC Foods India Ltd (Hariom Atta & Spices) in terms of allocation to various categories are captured below.

Data Source: Company RHP

The minimum lot size for the IPO investment will be 600 shares. Thus, retail investors can invest a minimum of ₹1,44,000 (3,000 x ₹48 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 6,000 shares and having a minimum lot value of ₹2,88,000. 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.

There are no upper limits for investments by HNIs / NIIs in the IPO of HOAC Foods India Ltd (Hariom Atta & Spices).

Financial highlights: HOAC Foods India (Hariom Atta & Spices)

The table below captures the key financials of HOAC Foods India Ltd (Hariom Atta & Spices) for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI

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

• The revenues have grown at a healthy pace in the last 2 years and in the latest year FY23, the total sales are up 63% over FY21. More importantly, this has been accompanied by growth in the net profit levels, albeit on a much smaller base.
   
• While net margins of the company are still relatively low at 4.86%, it has built up traction in the last 3 years. The return on equity (ROE) has grown sharply to 37.48% in FY23, while the return on assets (ROA) is robust at 11.96% in FY23.
   
• The asset turnover ratio or the sweating ratio has been healthy at 2.46X and that is understandable considering the limited capital intensity of the business. However, this sweating ratio also gets supported by the robust levels of return on assets (ROA).

The company has latest year EPS of ₹3.19 and we have not included the weighted  average EPS, since the previous year data is not exactly comparable. The latest year earnings are being discounted by the IPO price of ₹48 per share at 15-16 times P/E ratio. One has to look at the P/E ratio from two perspectives. Since the company is yet to announce the FY24 results, we can use available data to extrapolate. The 9-month EPS for FY24 stands at ₹2.84 per share and when extrapolated to full-year EPS of ₹3.79, it translates into a more reasonable P/E ratio of 12-13 times earnings.

In addition, HOAC Foods India Ltd (Hariom Atta & Spices) also brings some intangible advantages to the table like a diversified food products portfolio, an omni-channel approach, gradual traction in same-store sales etc. However, a lot will depend on its ability to build on the net margins in the coming quarters. Considering its small size, competitive risks just get magnified. Only investors with a higher risk appetite and waiting period should look at this IPO closely.