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Rajgor Castor Derivatives

• Rajgor Castor Derivatives is coming out with an initial public offering (IPO) of 95,61,000 shares of Rs 10 each in a price band Rs 47-50 per equity share. 
• The issue will open for subscription on October 17, 2023 and will close on October 20, 2023.
• The shares will be listed on NSE Emerge.
• The face value of the share is Rs 10 and is priced 4.70 times of its face value on the lower side and 5.00 times on the higher side.
• Book running lead manager to the issue is Beeline Capital Advisors.
• Compliance Officer for the issue is Parin Shah.

Profile of the company

Rajgor Castor Derivatives is engaged in activity of manufacturing/dealing/trading of Castor Seeds, Castor derivative products, other merchandise etc. and leasing activity. The company has commenced manufacturing of Refined Castor Oil First Stage Grade (F.S.G.), Castor De-Oiled Cake and High Protein Castor De-Oiled Cake for the domestic market. It is currently operating on a B2B business Model and offers its customers Castor Oil and its derivatives. As it is currently operating under a B2B business Model, it focuses on operations relating to quality control, inventory management and business development. Being a customer centric company, its prime focus is to attain the utmost client satisfaction by offering them quality products. The company strives at all times is to provide products that offers its customers the designs with desired finish and quality. Moreover, its ethical trade practices, transparent business dealings and timely delivery of products help it in maintaining cordial relations with its customers.

It has its testing laboratories within the premises of manufacturing units. Its manufacturing facility has fully equipped quality control department with experienced staff to facilitate smooth manufacturing process. It has in-house testing laboratory and necessary infrastructure to test its raw materials and finished products to match the quality standards and as specified by the relevant customers. All the products are being manufactured strictly as per quality norms using the expertise of its experienced team to provide quality output to its customers at competitive prices. The company has marked its presence in domestic markets. It supplies its products in states such as Gujarat, Delhi, Madhya Pradesh, Maharashtra, Punjab, Rajasthan, Telangana, Uttar Pradesh and Uttarakhand.

Proceed is being used for:

• Meeting working capital requirements
• General corporate purpose
• Meeting public offer expenses

Industry overview

In India, agriculture is the primary source of livelihood for around 55% of the population. At current prices, agriculture and allied sectors account for 18.3% of India's GDP (2022-23). As First Advance Estimates of the country’s Agriculture and allied activities recorded a growth rate of 3.5-4% in FY 2021-22. As per the third Advance Estimates of National Income, 2021-22 released by the National Statistical Office (NSO), Ministry of Statistics & Programme Implementation, the agriculture and allied sectors contributed approximately 18.6% of India's GVA at current prices during 2021-22. As per the Budget 2022-23, Rs 20 lakh crore agricultural credit targeted at animal husbandry, dairy and fisheries. For the year 2022-23, an export target of $23.56 billion has been fixed for the agricultural and processed food products basket and an export of $17.435 billion has already been achieved in eight months of the current fiscal. Between April 2000-December 2022, FDI in agriculture services stood at $4.43 billion. 

According to the Center for Environment and Agriculture (CENTEGRO) and Crop Care Federation of India (CCFI), India can become the global agricultural hub for other countries, which have harsh weather, scarce labour and lands and are seeking to outsource their agriculture. High level of agricultural production - large livestock base, wide variety of crops, inland water bodies and a long coastline, help increase marine production.

The Agriculture Ministry would offer agricultural institutes with a grant of up to Rs 10 lakh for the procurement of drones. The Agricultural Technology Management Agency (ATMA) Scheme has been implemented in 704 districts across 28 states and 5 UTs to educate farmers. Grants-in-aid are released to the State Government under the scheme with the goal of supporting State Governments' efforts to make available the latest agricultural technologies and good agricultural practices in various thematic areas of agriculture and allied sector. As per the Economic Survey 2022-23, Rs 13,681 crore) sanctioned for Post-Harvest Support and Community Farms under the Agriculture Infrastructure Fund.

Pros and strengths

Quality control and quality assurance: It has the practice of testing the products for quality before they are dispatched to the customers and have the quality control department which looks after the quality, strength and the durability of the products. All the products are being manufactured strictly as per quality norms using the expertise of its experienced team. Its commitment of providing quality products is boasted by it industry knowledge. Its manufacturing facility has fully equipped quality control department with experienced and qualified staff to facilitate smooth manufacturing process. It has in-house testing laboratory and necessary infrastructure to test its raw materials and finished products to match the quality standards and as specified by the relevant customers.

Diversified business model and customer base: In this dynamic and extremely competitive environment, it has developed a diversified business model with its offerings ranging from castor doc and seeds to castor oil. Its revenue mix also signifies that it have been able to maintain a market in its products. Such diversified business model reduces its dependency on a particular industry and ensures flow of revenues throughout the year. Further, a diversified business model gives it a competitive edge over the peers. Also, it serves a diverse mix of end markets across industry.

Scalable Business Model: Its business model is customer centric and order driven and requires optimum utilisation of its existing resources, assuring quality supply and achieving consequent economies of scale. The business scale generation is basically due to development of new markets both domestic and international by exploring customer needs and by maintaining the consistent quality output.

Risks and concerns

Dependent on few numbers of customers: Top ten customers of the company for the period ended June 30, 2023 and for the FY2022-23, FY 2021-22 and FY 2020-21 contributed for 75.37%%, 72.30%, 100% and 100%, respectively of its sales. The company is engaged in the business of manufacturing of castor products. Its business operations are highly dependent on its customers and the loss of any of its customers may adversely affect its sales and consequently on its business and results of operations. While it typically have long term relationships with its customers, it have not entered into long term 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 obtain from them could have an adverse effect on its business, results of operations, financial condition and cash flows.

Changes in technology: It business is significantly dependent on the efficient and uninterrupted operation of its technology infrastructure that ensures smooth operations through various automated machines. Changes in technology may render its current technologies obsolete or require it to make substantial capital investments. Its technology and machineries may become obsolete or may not be upgraded in a timely manner, hampering its operations and financial conditions and it may lose its competitive edge. 

Operate in competitive business environment: The Castor oil segment is highly competitive. Increasing competition may subject it to pricing pressures and require it to reduce the prices of its products and services in order to retain or attract customers, which may have a material adverse effect on its revenues and margins. 

Outlook

The company is engaged in activity of manufacturing/dealing/trading of Castor Seeds, Castor derivative products, other merchandise etc. and leasing activity. The company has commenced manufacturing of Refined Castor Oil First Stage Grade (F.S.G.), Castor De-Oiled Cake and High Protein Castor De-Oiled Cake for the domestic market. It is currently operating on a B2B business Model and offers its customers Castor Oil and its derivatives. On the concern side, its business operations are highly dependent on its customers and the loss of any of its customers may adversely affect its sales and consequently on its business and results of operations. The loss of one or more of these significant or key customers or a reduction in the amount of business it obtain from them could have an adverse effect on its business, results of operations, financial condition and cash flows.

The issue has been offered in a price band of Rs 47-50 per equity share. The aggregate size of the offer is Rs 44.94 crore to Rs 47.81 crore based on lower and upper price band respectively. On performance front, the revenue from operations for the FY 2022-23 was Rs 42,878.06 lakh as compared to Rs 3,967.21 lakh during the FY 2021-22 showing an increase of 980.81%. Revenue from operations for FY 2022-23 was increased because during FY 2021-22 and FY 2020-21 the revenue from operation comprise of only sale of Hexene to Mangalam Global Enterprise, which is essential to run the plant. Profit after tax (PAT) Increased from Rs 52.19 lakh in the FY 2021-22 to Rs 554.47 lakh in FY 2022-23 showing Increase of 962.41%. Meanwhile, the company has well established domestic sales in India. In order to cater increasing demands for Castor oil and to capitalize on the opportunities in the international market, the company has decided to foray into export operations. Its growth strategy for exports will vary from country to country. It may either form important relationships with companies with strong local presence or alternatively appoint local distributors through which it can undertake its business.