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Shanthala FMCG Products

• Shanthala FMCG Products is coming out with an initial public offering (IPO) of 17,66,400 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 91 per equity share.
• The issue will open for subscription on October 27, 2023 and will close on October 31, 2023.
• The shares will be listed on NSE Emerge Platform.
• The share is priced 9.10 times higher to its face value of Rs 10.
• Book running lead manager to the issue is First Overseas Capital.
• Compliance Officer for the issue is Snehal Ravindra Bhagwa. 

Profile of the company

The company was operating its distributorship business through two proprietary firms viz. M/s Shanthala Enterprises and M/s Shanthala Traders. M/s Shanthala Traders was started in 1996 as a proprietorship firm, committed to provide its customers with quality products in a time bound manner. It have incorporated Shanthala Traders in 2014 and transferred entire business of M/s Shanthala Traders, proprietary concern to the Company and business of M/s Shanthala Traders, proprietary concern was discontinued. The company strives to bring the best global products to its customers by providing last mile connectivity to large consumer product companies. M/s Shanthala Enterprises is still existing as on the date and carries on distribution business in different geography viz. Kushal Nagar.

The company is a FMCG product distributor for the large size FMCG Companies in India for whom it distributes Branded packaged foods, Personal care products, Education & Stationery products, Matches & Agarbatti and tobacco products. It is also distributors for one of the largest FMCG MNC Company in India. It distributes branded Beauty & wellbeing, Nutrition, Personal care & Home care products for them. It also distributes Oil, Sugar and Atta for M. K. Agrotech sold under their brand name Sunpure. At present its area of operation is in the district of Coorg, Karnataka where customers are scattered across large area which makes it a difficult market to service for new entrants and it has been home for Shanthala and promoters for more than 20 years. As it has been catering to this place since its inception, it has a deeper understanding of its customers’ needs which makes it indispensable to large consumer companies.

Proceed is being used for:

• Funding additional working capital requirements
• General corporate purposes

Industry overview

The FMCG sector in India expanded due to consumer-driven growth and higher product prices, especially for essential goods. FMCG sector provides employment to around 3 million people accounting for approximately 5% of the total factory employment in India. FMCG sales in the country were expected to grow 7-9% by revenues in 2022-23. The key growth drivers for the sector includes favourable Government initiatives & policies, growing rural market and youth population, new branded products and growth of e-commerce platforms. Resilience needs to be the key factor in the manufacturing process, daily operations, retail and logistic channels, consumer insights and communication that will help FMCG companies to withstand the test of time and create more value for consumers in the long run.

FMCG market reached $56.8 billion as of December 2022. Total revenue of FMCG market is expected to grow at a CAGR of 27.9% through 2021 to 2027, reaching nearly $615.87 billion. In 2022, urban segment contributed 65% whereas rural India contributed more than 35% to the overall annual FMCG sales. Good harvest, government spending expected to aid rural demand recovery in FY24. The sector had grown 8.5% in revenues and 2.5% in volumes last fiscal year. In the January-June period of 2022, the sector witnessed value growth of about 8.4% on account of price hikes due to inflationary pressures. In Q2, CY22, the FMCG sector clocked a value growth of 10.9% Y-o-Y - higher than the 6% Y-o-Y value growth seen in Q1.

Rural consumption has increased, led by a combination of increasing income and higher aspiration levels. There is an increased demand for branded products in rural India. On the other hand, with the share of unorganised market in the FMCG sector falling, the organised sector growth is expected to rise with increased level of brand consciousness, augmented by the growth in modern retail. Another major factor propelling the demand for food services in India is the growing youth population, primarily in urban regions. India has a large base of young consumers who form majority of the workforce, and due to time constraints, barely get time for cooking.

Pros and strengths:

Distribution of variety of Products: It distributes Branded packaged foods, Personal care products, Education & Stationery products, Matches & Agarbatti, tobacco products, branded Beauty & wellbeing, Nutrition, Personal care & Home care products as well as food products like Oil, Sugar and Atta. These products diversification helps it in getting more large brands in its portfolio. These range of products also helps it in diversifying its risks.

Strong and long-standing customer relationships: Its customers are local retailers and wholesalers located in its region. Its three-decade long experience and client relationships help it to get repeat business from its customers. Its client relationships also help it to cross sell its other products and services to them. Further, it has been mutually value creating, stable and long-term association with its customers through products offered by it. This has helped it maintain a long-term relationship with its customers and improve its customer retention strategy.

Distributor of Choice: It is a FMCG product distributor for the large size FMCG Companies in India. Its long-standing relationships with its suppliers have helped it in creating a distributor of choice image for many of these Companies. M/s Shanthala Enterprises was started in 1996 as a proprietorship firm, committed to provide its customers with quality products in a time bound manner. Shanthala Traders was incorporated in 2014 to do the business which was done in proprietary firm. The Company strives to bring the best global products to its customers by providing last mile connectivity to large consumer product companies. 

Risks and concerns

Dependent upon few suppliers: There were 2 suppliers during period ended August 31, 2023, which represented 100% of its Purchases. Further, there were 4 suppliers during FY 2023, which represented 100% of its Purchases and 3 suppliers during FY 2022 represented 100% of Purchases and 5 suppliers during FY 2021 represented 100% of Purchases. In the industry, generally there are no definitive agreements with the suppliers of the products it sells. It also does not have any long-term supply agreements with its suppliers or distributors and it procures its products on a purchase order basis. Since there are no fixed terms of trade, the discounts and schemes for its customers are decided based on the negotiation skills of the procurement team. If it is unable to continue to procure supplies at competitive prices, its margins and business will be adversely affected.

Depend on third parties for transportation: It does not have full-fledged in-house transportation facility and it depends on third party transportation service providers at every stage of its business activity including for procurement of products from its vendors or distributors and for transportation from its warehouse to various stores. For this purpose, it hires third party services of transportation. However, it have not entered into any definitive agreements with any third party transport service providers and engage them on a needs basis only.

Highly competitive industry: The segments of the industry in which it operates are subject to intense competition. Its principal competitors are other distributors of same manufacturers or suppliers for whom it is working as distributors as well as manufacturer and suppliers of the similar products it markets or distribute, including other major manufacturers with well-established and recognized brands. It also competes against large retail store chains and online platforms, who source their products directly from the manufacturers.

Outlook

The company is engaged in the distribution of FMCG products for few of the largest FMCG Companies in India. It distributes Branded packaged foods, Personal care products, Education & Stationery products, Matches & Agarbatti and tobacco products. On the concern side, it operates in a competitive market and competition is based primarily on quality of service, timely delivery and pricing of such products & services. To remain competitive in the market it strives to improve its sales & marketing efforts, reduce cost and improve operating efficiencies. If it fails to maintain its strengths, its competitors will gain an advantage over it, which would adversely affect its market share and results of operation.

The company is coming out with an IPO of 17,66,400 equity shares of Rs 10 each at a fixed price of Rs 91 per share to mobilize Rs 16.07 crore. On performance front, the revenue from operations for the FY 2023 was Rs 40.52 crore as compared to Rs 32.26 crore during the FY 2022 showing an increase of 25.60%. This increase is mainly due to increase in volume of business. Profit After TAX (PAT) after Extra-ordinary remained same as before extra-ordinary item and accordingly increased from Rs 4.52 lakh for the FY 2022 to Rs 17.73 lakh in FY 2023. Going forward, In addition to increasing the existing capabilities and leveraging existing products portfolio, it also intends to explore acquisition of businesses, which will help it entering into new geographies where considerable business opportunities would be available to grow its business. Strategic acquisitions of small distributors in different geographies which are near to its present area of operation targeted to increase product portfolio and penetrate newer markets will be the focus of the company going forward.