Started in 2004, Sarveshwar Foods Ltd is primarily engaged in the business of processing and marketing of branded and un-branded basmati and non-basmati rice in the domestic and international markets. SFL is one of the few Indian companies with a presence across the entire rice value chain, which includes procurement, storage, milling, sorting, packaging, branding and distribution. Company's product portfolio comprises of Basmati and non-Basmati rice of various kinds including white raw rice, steam rice, broken rice, brown rice and parboiled rice. Besides conventional Basmati and non-Basmati rice, Company has also forayed into procurement, storage, milling, sorting, packaging, branding and distribution of 'Organic' Basmati and non-Basmati rice. SFL's 'Organic' business also includes organic food products such as dry fruits and nuts, pulses, lentin, flours, porridge, spices, garam masalas and super foods like chia seeds, flax seeds, quinoa seeds, etc. Company markets and distributes these organic food products under its brand 'Nimbark'. Company has recently in May, 2017 launched its flagship retail store in the name of 'Nimbark - Living the Satvik Way' for organic products at Channi Himmat, Jammu. Company is selling organic products through this store viz. rice, red rice, brown rice, flours, pulses, nuts & dry fruits, spices & condiments, jaggery & sugar, breakfast cereals, edible oils, saffron, flaxseed, sesame seed. Whilst SFL procures Basmati and non-Basmati paddy from J&K, Punjab, Haryana, Himachal Pradesh, Uttar Pradesh and Delhi. Company also has 125 procurement agents across India for procuring basmati and non-basmati paddy from 'mandis', except J&K. SFL currently operates through two rice milling and processing facilities i.e. at Seora (Unit I) and SIDCO (Unit II). SFL has an extensive distribution network which enable its products reach states in India like J&K, Delhi, Telangana, Andhra Pradesh and cities like Chennai, Pune. In the international markets, its products are sold and distributed in the USA, Europe and Middle East. Most of its exports are bulk exports or sold under third party labels. In addition to this, SFL also exports basmati and non-basmati rice (both organic and conventional) under its own brand 'Sarweshwar' and 'Nimbark'. Company has arrangements for distribution of Basmati and non-Basmati rice with cash and carry outlets like Walmart's 'Best Price' outlets and the Shri Mata Vaishnodevi Shrine Board, a Hindu pilgrimage centre at Jammu. On financial performance front, SFL has posted turnover/net profits of Rs. 103.07 cr. / Rs. 5.50 cr. (FY13), Rs. 241.37 cr. / Rs. 7.29 cr. (FY14), Rs. 262.50 cr. / Rs. 7.99 cr. (FY15), Rs. 355.19 cr. / Rs. 5.54 cr. (FY16) and Rs. 419.89 cr. / Rs. 12.96 cr. (FY17). For H1 of 2018, it has reported net profit of Rs. 7.93 cr. on a turnover of Rs. 259.39 cr. Thus it has shown consistent growth in top-line and bottom lines for all these years, except setback for FY16 in bottom line. For last three fiscals it has posted an average EPS of Rs. 7.09 and an average RoNW of 18.93% on an equity base of Rs. 9.05 crore. If we annualise latest earnings and attribute it to fully diluted equity post issue, then asking price is at a P/E of around 13 on upper price band. Asking price is at a P/BV of 2 on upper price bands (on its NAV of Rs. 43.05 as on 30.09.17). As per offer documents, listed peers are trading in range of P/E of 20 to 35. So issue is reasonably priced as per latest earnings. On merchant banker's front, total four BRLMs are associated and all combined handled 11 SME IPOs before this. Out of recent 10 listings, 1 opened below issue price, 2 opened around at par and the rest with premiums ranging from 2% to 20% on the day of listing. As per financials, company's growth is consistent, RoNW is 18.93% for last three fiscals and issue looks reasonably priced as per latest earnings. Company is in agriculture related sector (specifically processing and marketing of rice) and Government is focused for growth of this sector, so SFL may continue to perform for next couple of years with same growth rate. So, we give SUBSCRIBE rating to this SME IPO.
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