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Rajputana Biodiesel

• Rajputana Biodiesel is coming out with an initial public offering (IPO) of 19,00,000 equity shares in a price band Rs 123-130 per equity share.
• The issue will open on November 26, 2024 and will close on November 28, 2024.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 12.30 times of its face value on the lower side and 13.00 times on the higher side.
• Book running lead manager to the issue is GYR Capital Advisors.
• Compliance Officer for the issue is Rohit Kumar Gauttam.

Profile of the company

Rajputana Biodiesel is engaged in the business of manufacturing and supplying of bio-fuels and its by-products namely glycerine and fatty acids. It intends to add value to its by-products and explore the export potential of bio-diesel. The company’s manufacturing unit is operational at G24 RIICO Industrial Area, Phulera, Rajasthan spread over 4,000 Square Meters. It has an approved production capacity of 30 kilo liters per day (klpd) and an installed production capacity of 24 kilo litre per day (klpd). The company’s products cover majorly biodiesel, glycerine and fatty acid. The company has full flexibility in its manufacturing facility to handle the multiple feed stocks as per market requirements.

The company was promoted and pioneered by Sarthak Soni, and Tanay Attar. They have been associated with the company since its inception. Thereafter, Sudeep Soni had joined the business in March, 2017. Its Promoters have a background of almost 7 years in biodiesel industry and its operation. Their experience and expertise has guided the company in expanding its operations by taking strategic initiatives. 

Proceed is being used for:

• Loan to its Subsidiary, Nirvaanraj Energy Private Limited (NEPL) in Meerut, Uttar Pradesh, for capital expenditure requirements towards expansion of its existing manufacturing facility
• Funding working capital requirements of the company
• General corporate purposes

Industry Overview

India has quickly joined the ranks of major biofuel producer and consumer thanks to a set of coordinated policies, high political support, and an abundance of feedstocks. India is now the world’s third largest producer and consumer of ethanol thanks to nearly tripling production over the past five years. It has potential to expand further with the right policies, keeping costs in check and securing sustainable feedstocks. In 2018 India released its National Policy on Biofuels which set blending targets for ethanol (20% blending by 2030) and biodiesel (5% by 2030), feedstock requirements for different fuels and laid out the responsibilities of 11 ministries to coordinate government actions. Beyond blending targets, India established guaranteed pricing, long-term ethanol contracts, and technical standards and codes. Financial support for building new facilities and upgrading existing ones was also provided. Buoyed by its success, the Government moved the 20% volume blending target for ethanol forward by 5 years to 2025-26, which was enshrined in an updated National Policy on Biofuels in 2022.

Achieving 20% ethanol blending on average across India will require increasing the fleet of vehicles capable of accepting higher ethanol blending levels. India is encouraging flex-fuel vehicles and retrofits are possible for older vehicles, including two wheelers. In addition, a greenhouse gas (GHG) measurement and reporting requirement would help India assure and improve GHG reductions from biofuel use in the transport sector. India will also need to continue to diversify feedstocks to help avoid shortages as it experienced at the end of 2023. New cellulosic ethanol plants, one completed last year, and three others under development, will help. India has other opportunities to expand biodiesel for use in diesel vehicles and biojet fuel as a replacement for jet fuel. The government has already established a 5% biodiesel target by 2030 which would require almost 4.5 billion litres of biodiesel per year according to IEA estimates.

Mobilising production will require a similar mix of policies as provided for ethanol including production support, guaranteed pricing and feedstock support, especially for mobilising residue oils like used cooking oil and vegetable oils grown on marginal land. Biojet fuel is another growth area. On 25 November 2023, the Ministry of Oil, Petroleum and Natural Gas announced indicative blending targets of 1% by 2027 and 2% by 2028 for international flights leaving India. This would require near 100 million litres of biojet fuel per year, likely to come from residue or vegetable oils grown on marginal land. However, future growth could come from other technologies such as alcohol-to-jet using ethanol and gasification technologies whereby agricultural, forestry and municipal solid waste can be converted into jet fuel. India has already demonstrated how to quickly accelerate biofuel use. It now has an opportunity to extend those lessons learned to other biofuel types. Its leadership with the Global Biofuels Alliance is a welcome addition to international efforts to accelerate sustainable biofuels demand. 

Pros and strengths

Major customers base is Government PSUs: The company’s primary strength lies in generating substantial revenue through its strong and enduring relationships with government Public Sector Undertakings (PSUs). This strategic alignment not only provides it with a stable and reliable income stream but also enhances its reputation and credibility in the industry. By consistently delivering high-quality services and solutions to its government partners, it has established itself as a trusted and indispensable contributor to their projects and initiatives. This solid foundation with PSUs allows it to navigate market fluctuations with greater resilience and ensures sustained growth and profitability.

Experienced promoter: The company’s Promoters, Managing Director, Whole Time Director and senior management have significantly contributed to the growth of its business, and its future success is dependent on the continued services of its senior management team. Its Managing Director Sarthak Soni and Whole Time Director Tanay Attar, have been associated with the company since its incorporation and continue to remain associated till date. They are having experience of almost 7 years in bio-fuel Industry which is beneficial for the company.

Well-equipped infrastructure facilities: The company’s registered office and manufacturing unit are well-equipped for its business operations to function smoothly. The company has made the necessary arrangements for regular uninterrupted power supply at its manufacturing unit. It has availed a power connection from Jaipur Vidhyut Vitran Nigam Limited for its manufacturing unit premises with a sanctioned load of 120 HP, which is sufficient to meet its plant requirement. Moreover, water is mainly required for the production process, washing of the products, casting of the products, fire safety, drinking, and sanitation purposes. The company consumes water from the government supply in the Rajasthan Government approved Industrial Area for its manufacturing unit.

Risks and concerns 

Maximum revenue comes from limited customers: The company’s top ten customers have contributed 79.64%, 89.72%, 85.98% and 100% of its revenues for the financial year ended on 2021-22, 2022-23, 2023-24 and for period ended July 31, 2024 based on Restated Financial Statements. It derives its major part of revenue from Government PSUs through a tender based process. However, its top customers may vary from period to period depending on the demand and thus the composition and revenue generated from these customers might change as it continues to add new customers in normal course of business. Since its business is concentrated among relatively few significant customers, it could experience a reduction in its results of operations, cash flows and liquidity if it loses one or more of these customers or the amount of business it obtains from them is reduced for any reason, including but not limited on account of any dispute or disqualification.

Top ten suppliers contribute majority of its purchase: The company’s top ten suppliers contributed 61.18%, 69.75%, 83.67% and 98.41% of its total purchases for the financial year ended on 2021-22, 2022-23, 2023-24 and for period ended July 31, 2024. However, its top suppliers may vary from period to period depending on the demand-supply mechanism and thus the supply process from these suppliers might change as it continues to seek more cost-effective suppliers in normal course of business. Since its business is concentrated among relatively few significant suppliers, it could experience a reduction in its purchases and business operations if it loses one or more of these suppliers, including but not limited on account of any dispute or disqualification.

Geographical constrain: The company manufactures its products from its sole manufacturing facility in Phulera, Rajasthan, which substantially caters to its domestic demand. Any disruption in the operations due to shortage in supply of power, fire outages, labour problems or industrial accidents at this unit could hamper or delay its ability to continue production. Any disruption or suspension in the production process in this facility can significantly impact its ability to service its customer needs and relation with its customers and have a material adverse effect on its business, revenues, reputation, results of operation and financial condition.

Outlook

Rajputana Biodiesel produces and supplies biofuels and their by-products, namely glycerine and fatty acids. To increase domestic biodiesel production, the company plans to develop sustainable local feedstocks and expand its production capacity. This strategy includes building new facilities, upgrading existing ones, and optimizing processes to enhance efficiency. By reducing dependency on imports and strengthening local supply chains, it aims to ensure reliability and support the local economy. On the concern side, the company’s top ten customers contribute majority of its revenues from operations. Any loss of business from one or more of them may adversely affect its revenues and profitability. Moreover, the company’s top ten suppliers contribute majority of its purchases. Any loss of business with one or more of them may adversely affect its business operations and profitability.

The company is coming out with a maiden IPO of 19,00,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 123-130 per equity share. The aggregate size of the offer is around Rs 23.37 crore to Rs 24.70 crore based on lower and upper price band respectively. On performance front, the revenue from operations of the company for fiscal year 2024 was Rs 5,345.97 lakh against Rs 2,340.85 lakh for Fiscal year 2023, an increase 128.38% in revenue from operations. This increase was due to good demand and purchase from government PSU’s. Moreover, profit after tax for the Fiscal 2024 was at Rs 450.16 lakh against profit after tax of Rs 169.01 lakh in fiscal 2023, an increase of 166.35%.

The company has strategically acquired 75.21% stake in Nirvaanraj Energy, a biodiesel producer based in Meerut, valued at Rs 2.5 crore. This acquisition is a milestone in its expansion strategy, aligning with its mission to enhance its production capacity and market presence in the renewable energy sector. Moreover, to achieve these ambitious goals, the company is investing in cutting-edge technology and entering into backward integration. By preparing its own feedstock, it will not only ensure a consistent supply of raw materials but also reduce dependency on external sources, leading to greater control over production costs and quality. Going forward, the company’s expansion plans also include a strategic foray across the country. Additionally, the absence of certified empanelled biodiesel players in majority of the states of India, presents opportunity for market entry.