Sresta Natural Bioproducts

SRESTA NATURAL BIOPRODUCTS PVT LTD

Company Report: India-Organic Food-Unlisted 8 DECEMBER 2014

www.indiabusinessreports.com

COMPANY BACKGROUND

Beginning

Incorporated in March 2004, Sresta Natural Bioproducts (Sresta) is a leading organic produce company of India. It is certainly among the better funded, having raised several rounds of equity funding from 2 different VC funds – VentureEast and Peepul Capital. Together, the two funds own over 70% of equity of the company, and appear to have pumped in close to Rs 500m.

Powered by VC funding, Sresta has reported strong

growth. In the 5 year period from 2009-14, it has

grown from a revenue of Rs 106m to Rs 769m, a CAGR

of almost 50%.

It has taken the spirit of organic farming and sustainability to over 20,000 farmers working on 30 plus projects over an area of 1,00,000 acres. It has named its products 24 Mantra.

Today Sresta, under the 24 Mantra Organic food brand

has presence across India and abroad in 1500+ outlets

and its own stores.

Board of Directors

Name Designation

Balasubramanian Narayanan Whole-time director

Seelam Rajshekar Reddy Managing director

Sarath Naru Director

Mohana Krishna Reddy Director

Sundaresan Suryanarayanan Director

Address

203, PAVANI ANNEXE,ROAD NO.2, BANJARA HILLS, HYDERABAD - 500034, ANDHRA PRADESH

Financial Summary

Year ending June 30 FY12 FY13 FY14

Net Sales (Rs mn) 270.00 469.61 796.31

PAT (Rs mn) 0.06 1.93 2.06

Net worth (Rs mn) 263.67 418.53 521.71

Debt (Rs mn) 18.80 25.02 143.88

Sales Growth (%) 50.0 73.9 69.6

PAT Growth (%) -72.7 3115.0 6.8

ROE (%) 0.0 0.6 0.4

ROCE (%) 0.8 0.7 0.0

D/E (x) 0.1 0.1 0.3

To get a free copy* of this report with full content, write to [email protected] from your

official id. Please note, do not send mails from gmail, yahoo etc *free for students, academicians, and researchers

mailto:[email protected]

India-Organic Food-Unlisted Sresta Natural Bioproducts 17 Nov’14

www.indiabusinessreports.com 2

Promoters

The key promoter is Seelam Rajshekar Reddy. In 1992, Raj Seelam was working in an agricultural products company, when he observed the alarming use and spread of chemical usage on farms, and the deep impact it had on rural indebtedness. Investment in pesticides and synthetic fertilisers meant farmers had to borrow money, which in turn was affecting the very sustainability of the farmer’s life and standard of living.

This sowed the seeds for Sresta. With a group of inspired colleagues, he set out on a lifelong journey of passion and commitment.

The two VC funds backing Sresta owned close to 70% of common equity as on Sep’14.

The funds further pumped in Rs 109m in May’14 as convertible preference shares. The holding pattern of these is as follows:

As of Sep’14

BUSINESS HIGHLIGHTS

Procurement

Sresta has a unique farming model: One which ensures alignment with processes and allows for round the year supervision.

The farming is currently organised into 30 or so projects. Spread in a radius of 15- 20 kms, the farms acreage could range from 200 to few thousand acres. Typically for every 100 – 150 farmers it has a Supervisor.

Sresta procures the crop from the farm. \ Procurement Centres are set up at the sites and farmers are contacted directly without any middlemen. In fact the payments are all done through banks and online transfers to ensure authenticity and transparency.

Sresta’s teams check out the farmer’s knowledge, attitude and more importantly, whether he has an adequate understanding of sustainable living.

Then comes the choice of the right soil – finding that particular soil well suited for a particular crop. Sresta’s people check the soil quality, cropping pattern, prevalent crop rotation and the nutrient levels in the soil. This determines the matching of the soil to the crop. While doing this, it ensures the region has a suitable weather and temperature.

Right land, right soil, right farmer and the right crop. That done, the next steps, are the right seeds. This is followed by the right farming and cultivation practices. Natural solutions to control pests, locally nurtured wisdom and an organic connect with the land, crop and nature are all Sresta’s dynamics and efforts at details. Storage is done through environment control and effective storage techniques are a result of homegrown wisdom, usage of local resources and proven learnings accumulated over a period of time.

Processing and storage

Sresta’s central storage and processing facility is located in Hyderabad with regional storage centers across various States. India’s first ECO2 treatment facility (Non Chemical fumigation system) has been installed by Sresta.



Grain Cleaning

Sresta has a state of art facility with pre-cleaners, aspirators, fine cleaners, gravity separators, destoners, suction blowers, sortex machines, dryers to clean , grade and pack grains of high purity. This set-up enables the farm grade material to be cleaned to a super clean material.

Fumigation

Sresta’s team after years of research has developed the technology of using the safe carbon dioxide modified atmosphere to treat the grains and to prevent infestation. No chemicals are used for fumigating the grains and spices. This makes the sresta products even more safe and pure.

Flour Milling

Sresta’s whole wheat flour is ground in the traditional Chakki mill to give the taste and texture that is most preferred in the Indian homes. This traditional technology ensures that the natural balance of bran, germ and endosperm is kept intact in the flour. Sresta’s Whole wheat flour has maximum fiber content than any other whole wheat flour of other brands.

Sresta understands the need for handling allergens separately to avoid contamination and to deliver safe food its customers. All the non-glutinous grains like Sorghum, finger millet, chickpeas, maize, rice are handled in different line where they do not come in contact with gluten containing grain.

Aseptic processing

Sresta processes organic fruits into aseptically packed pulps, purees, juices and concentrates at audited and certified units with world class equipments and facilities. Facility is certified for Aseptic pulp lines have the capacity to process and pack 10 MT/ hour. Facility is certified for Kosher, ISO:22000 and FSSAI. Processing facility has a well equipped lab and trained technicians to continuously monitor, evaluate and process the product. All tropical fruits like Alphonso Mango Pulp, Totapuri Mango Pulp, Kesar Mango Pulp, White guava pulp, Pink Guava Pulp, Pineapple pulp and Juice, Red and Yellow Papaya Pulp, Banana puree are processed and packed.

Aseptic fruit concentrate line has a capacity of 6MT/hour. Clarified Mango juice concentrates, Mango Pulp Concentrates, Pineapple juice concentrates are also processed and aseptically packed.

Individually Quick Frozen

Sresta processes IQF at a one of the kind facility certified for BRC-Global Standard Food Safety. Sresta processes organic IQF mango dices, slices, Papaya dices, cubes, pomegranate kernels, banana slices and vegetables. Development team ensures that specifications as per the customer requirement are handled with ease. Processing facility is situated close to our project areas to maintain the ‘Just Picked” freshness of the fruits and vegetables.

Brands Sresta markets under the 24 Mantra brand. Under this brand, it sells as many as 200 products: 5 types of Rice 2 varieties of Poha 22 varieties of Spices 20 varieties of Dals/Pulses 14 varieties of Atta/Flours 4 varieties of Cold Pressed Oils 2 varieties of Sugar 2 varieties of Jaggery 4 varieties of Juices 5 varieties of Breakfast Flakes 5 varieties of Masala Powders 5 varieties of Masala Powders 3 varieties of Health Products 3 varieties of Jams 4 varieties of Ready to Cook Pastes 5 varieties of Teas 2 varieties of Papads 4 varieties of Cookies, 3 varieties of Chikkis



Retail Presence

24 Mantra organic food brand is available across India and abroad in 2500+ outlets and our own stores. Big hypermarkets (modern retail), neighborhood super markets and stores (general stores), dedicated organic stores, our own franchisees stores and a revolutionary new concept of self -dispensing bulk stores where consumers can buy loose and by the scoop are the different formats in which we are building the retail distribution channels.

24 Mantra organic is available in all leading retail chains ABRL, Auchan, Metro, Food Bazaar, Hyper City, Wal-Mart Best Price, Spencer’s, Godrej Nature’s Basket, Tesco Star Bazaar and many more.

The company also direct to consumer through its website www.24mantra.com

Exports

Export was 50% of Sresta’s sales mix in FY14. Share of exports has come down from 68% in FY09. It exports several products like Ready-to-eat rice, Curries, Chutneys, Pickles, Curry pastes, Masalas and Spices etc.

Subsidiaries

FYVE Elements LLC

FYVE Elements LLC is a wholly owned subsidiary of the Company which was incorporated on November 30, 2012 under the laws of the State of

Maryland, USA. Their main business is Whole-sale retail distribution of food products and related items, covering whole of USA. During the year under review, the Company has invested an amount of Rs. 13.9 Million.

Sresta Global FZE

Sresta Global FZE is a wholly owned subsidiary of the Company which was incorporated on 3 rd October 2012 under the laws of the State of RAK, UAE. Their main business is trading of food products and related items. During the year under review, there is no further investment made by the Company.

MANUFACTURING FACILITIES

Sresta has its manufacturing facility and storage facilities in Hyderabad as described in the earlier section. However, its gross block is much smaller compared to say Morarka Organic Foods, which has an asset base 10x bigger than Sresta for roughly similar turnover.

FINANCIAL PERFORMANCE

Sresta has done extremely well on the revenue front, posting a CAGR of 50% over FY09-14. Around 50% of its revenue of Rs 796m comes from the local market, which shows that its efforts of building an organic food brand could be paying off.

However, profitability is still poor. While it is not making losses any more, net profit is almost negligible. It still has a carry forward loss of almost Rs 75m.

The company is well capitalized though, since PE funds have been supporting it with regular fund infusions.

http://www.24mantra.com/



VentureEast and Peepul together owned 71% of the issued share capital as on Sep’14.

They put in a further Rs 108m as preference capital in May’14.

.

FUNDING AND FUTURE PLANS

Sresta has raised several rounds of funding from the two PE funds. It appears well capitalized presently. The PE funds have been invested for several years now, and could be looking for an exit soon. As per their Shareholders Agreement, the company needs to give them an exit by Dec’15, or be prepared for drag along etc.

Some of the CCPSs held by the investors were converted into ordinary shares in May’14. This was a price of Rs 94.58 per share. If we apply this price to the outstanding equity capital as on Sep’14, then the company valuation comes to Rs 1356m, or Rs 135.6 crore. This is around 1.7x FY14 sales; and could be around 1.25x FY15 revenue, assuming 40% revenue growth.



FINANCIAL DETAILS

P&L

(Rs mn) FY09 FY10 FY11 FY12 FY13 FY14

Net Sales 106.5 101.0 180.0 270.0 469.6 796.3 PBDT -29.1 -22.3 2.1 1.8 2.8 0.0 Depreciation 0.0 1.4 1.6 0.0 0.0 0.0 PBT -29.1 -23.8 0.6 1.8 2.8 0.0 PAT -20.2 -17.0 0.2 0.1 1.9 2.1 PAT Margin (%) -19.0 -16.8 0.1 0.0 0.4 0.3

Balance Sheet

(Rs mn) FY09 FY10 FY11 FY12 FY13 FY14

Liabilities

Equity Capital 50.73 53.00 76.74 108.27 133.20 147.11 Reserves 63.06 64.12 110.38 155.40 285.23 374.00 Shareholder Funds 113.79 117.12 187.12 263.67 418.53 521.71 Debt 10.38 45.12 27.81 18.80 25.02 143.88 Deferred tax liability - - - - - - Other Long Term Lialilites - - 0.32 0.77 1.43 2.02 Total Liabilities 124.17 162.24 155.60 318.48 444.98 667.61

Assets

Fixed Assets (net) 11.84 11.75 12.00 24.93 38.91 38.97 Intangible Assets (net) - 3.04 2.62 - - - Investments 2.92 5.90 5.90 30.16 37.24 60.27 Total Long Term Assets 14.76 20.69 57.33 98.27 136.61 185.53 Inventories 29.84 21.22 42.35 92.83 131.57 186.91 Debtors 4.46 23.38 52.96 65.62 101.78 211.45 Cash 0.64 0.96 3.59 0.89 5.52 2.76 Loans & Advances 1.81 1.92 2.80 8.74 - - Other CA - - - 25.08 32.75 73.33 Total Current Assets, L&A 36.75 47.48 100.18 193.16 271.62 474.45

CL & Provisions 8.87 7.92 11.92 42.64 63.19 87.88 Net Current Assets 27.88 39.56 88.26 150.52 208.43 386.57 Misc Expenses 57.66 74.64 74.42 76.67 75.61 73.55 Total Assets

123.96 162.29 187.95 318.48 444.98 667.61



Ratios

FY10 FY11 FY12 FY13 FY14

Growth (%) Sales -5.2 78.2 50.0 73.9 69.6

PAT -16.1 -101.3 -72.7 3115.0 6.8

Balance Sheet Ratios ROE (%) -14.7 0.1 0.0 0.6 0.4

D/E (x) 0.4 0.1 0.1 0.1 0.3

Inventory t/o (days) 92.3 64.5 91.4 87.2 73.0

Debtors t/o (days) 50.3 77.4 80.2 65.1 71.8 WC Cycle (days) 119.3 128.3 154.7 130.6 122.0

About India Business Reports India Business Reports (IBR) is an initiative of experienced professionals with comprehensive experience across wide domains – Research, Investment Banking, Private Equity Funding, Consulting, Branding and Marketing. The single minded objective at IBR is to generate insightful reports based on hard facts. Our expertise is relevant not only for the financial fraternity, but also global MNCs looking to do business with India, and Indian companies looking to fine tune their growth strategies. So be it India entry strategies, growth strategies, M&A opportunities or private equity investments, our reports can become a powerful tool in many ways. IBR typically does custom research, on request from clients. The reports shown on our website are sample reports for marketing purposes. These are available free for students and academia. We may impose a charge for corporate users. Disclaimer This note is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. The content in this note is solely for informational purpose and is not a solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this note constitutes investment, legal, accounting and tax advice. India Business Reports or its owner-partners accept no liabilities for any loss or damage of any kind arising out of the use of this note. Contact [email protected]; +91 99 87 474021

mailto:[email protected]