IPO Analysis: Nirman Agri Genetics Ltd.

IPO Analysis

Nirman Agri Genetics Ltd. is one of the organized Agri-Input Company in India engaged in the business of production, processing and marketing of high-quality hybrid seeds, Pesticides, Bio-organic for different crops like corn, sunflower, cotton, paddy, grain sorghum, etc. and have recently forayed into micronutrients and bioproducts. They also produce non-hybrid seeds, primarily for paddy. 

Their Promoter and Managing Director, Pranav Kailas Bagal, is a Diploma holder in Agriculture from National Backward Krushi Vidhyapeeth, Solapur, Maharashtra. He has around six years of experience in the field of Marketing of Agriculture inputs, managing customer relations and trade terms, managing manufacturing and supply chain strategies, managing costs and establish strategic partnerships with farmers, vendors and service providers etc. He has been associated with our Company as Director since incorporation. Prior to starting of Company, he has done Agri-inputs business in Proprietary concern M/s. Nirman Agri Genetics from 2018 till the time same is taken over by our Company and before that he has worked as Marketing Manager with Shivam Krushi Sheti Udhyog Kendra engaged in whole sale and retail distribution of seeds, pesticides, fertilisers and agriculture related equipments. 

Nirman Agri Genetics Ltd. have attained over four years of experience in this seed business through our Company and Proprietary concern of our Promoter and are working towards our objective of developing seeds having superior yield potential, drought tolerance, tolerance to pests and diseases etc. 

They currently have production, outsourced processing and R&D facilities in Maharashtra at Nashik and Nimgul and in Gujarat as well as Madhya Pradesh. Their research mainly focuses on developing superior hybrids in different crops like corn, cotton, sunflower, paddy, bajra, etc. All the seed varieties developed by our R&D team are marketed under the brand name of ‘Nirman Agri Genetics’.

In the year 2022, Nirman Agri began to market bio-pesticides, bio-fertilizers, micronutrients, fertilizer mixtures & plant growth regulators under the name and style of “Nirman Agri Genetics”. Seeds, bio-fertilizers, micronutrients etc. are related products having the same end user i.e. the farmer, and are usually sold through similar dealer networks. With a view of achieving the benefit of synergy in marketing the aforesaid products they have recently added them to their products portfolio. Nirman Agri believe that this addition of products would enable them to address the needs of the farmers like plant protection and nourishment.Nirman Agri have marketing network with loyal and committed distributors/dealers in Maharashtra Madhya Pradesh & Gujarat. 

Company’s focus is to become a leading crop solutions provider to the farmer by supplying high yielding hybrid seeds and crop management through micronutrients, bioproducts etc. For achieving this, They are engaging in research and development efforts in the areas of superior breeding programmes and biotechnology tools that will enable us to develop highly effective and differentiated hybrid seeds, micronutrients and bioproducts. 

Industry Research:

India has emerged as the fastest-growing major economy in the world and is expected to be one of the top three economic powers in the world over the next 10-15 years, backed by its robust democracy and strong partnerships. 

Strong economic growth in the first quarter of FY 2022-23 helped India overcome the UK to become the fifth-largest economy after it recovered from repeated waves of COVID-19 pandemic shock. Real GDP in the first quarter of 2022–23 is currently about 4% higher than its corresponding 2019-20, indicating a strong start for India's recovery from the pandemic. Given the release of pent-up demand and the widespread vaccination coverage, the contact-intensive services sector will probably be the main driver of development in 2022–2023. Rising employment and substantially increasing private consumption, supported by rising consumer sentiment, will support GDP growth in the coming months. 

Future capital spending of the government in the economy is expected to be supported by factors such as tax buoyancy, the streamlined tax system with low rates, a thorough assessment and rationalisation of the tariff structure, and the digitization of tax filing. In the medium run, increased capital spending on infrastructure and asset-building projects is set to increase growth multipliers, and with the revival in monsoon and the Kharif sowing, agriculture is also picking up momentum. The contact-based services sector has largely demonstrated promise to boost growth by unleashing the pent-up demand over the period of April-September 2022. The sector's success is being captured by a number of HFIs (High-Frequency Indicators) that are performing well, indicating the beginnings of a comeback. 

Indian Market Size:

• India’s nominal gross domestic product (GDP) at current prices is estimated to be at Rs. 232.15 trillion (US$ 3.12 trillion) in FY22.
  
•  India is the third-largest unicorn base in the world with over 100 unicorns with a total valuation of US$ 332.7 billion.
  
•  India needs to increase its rate of employment growth and create 90 million non-farm jobs between 2023 and 2030s, for productivity and economic growth. The net employment rate needs to grow by 1.5% per year from 2023 to 2030 to achieve 8-8.5% GDP growth between 2023 and 2030.
  
• According to Mr. Piyush Goyal, Minister of Commerce and Industry, Consumer Affairs, Food and Public Distribution and Textiles, Indian exports are expected to reach US$ 1 trillion by 2030. 

According to Inc42, the Indian agricultural sector is predicted to increase to US$ 24 billion by 2025. Indian food and grocery market is the world’s sixth largest, with retail contributing 70% of the sales. As per the third advance estimates, foodgrain production in India is estimated to be 314.51 MT in FY 2021-22. Rapid population expansion in India is the main factor driving the industry. The rising income levels in rural and urban areas, which have contributed to an increase in the demand for agricultural products across the nation, provide additional support for this. In accordance with this, the market is being stimulated by the growing adoption of cutting-edge techniques including blockchain, artificial intelligence (AI), geographic information systems (GIS), drones, and remote sensing technologies, as well as the release of various e- farming applications.  India is one of the major players in the agriculture sector worldwide and it is the primary source of livelihood for about 58% of India’s population. India has the world's largest cattle herd (buffaloes), largest area planted to wheat, rice, and cotton, and is the largest producer of milk, pulses, and spices in the world. It is the second-largest producer of fruit, vegetables, tea, farmed fish, cotton, sugarcane, wheat, rice, cotton, and sugar. Agriculture sector in India holds the record for second-largest agricultural land in the world generating employment for about half of the country’s population. Thus, farmers become an integral part of the sector to provide us with means of sustenance. 

Consumer spending in India will return to growth in 2021 post the pandemic-led contraction, expanding by as much as 6.6%. The Indian food industry is poised for huge growth, increasing its contribution to world food trade every year due to its immense potential for value addition, particularly within the food processing industry. The Indian food processing industry accounts for 32% of the country’s total food market, one of the largest industries in India and is ranked fifth in terms of production, consumption, export and expected growth. 

Investment Rationale:

The Indian seed industry has had a long history spreading over more than a century. It initially began with trading in vegetable and flower seeds in the early part of this century. Seed related reforms pertaining to hybridization began in the early 1980’s, when the GoI decided to provide public-bred breeder seed to private companies for multiplication and distribution. Further, starting in the mid-1980’s accessibility to research institutions, both international and national was provided to private seed firms for directly obtaining breeder seed. The seed related reforms initiated in 1980’s thus catalysed growth of the private seed sector in the country. As a consequence, the Indian seed industry is experiencing quantitative and qualitative changes in composition, market expansion and production technologies. Along with the increasing size of the seed market, its composition is also rapidly changing, with more and more private companies not only intensifying but also diversifying their market as well as product coverage. 

The Indian seed market is among the top ten largest in the world, estimated to be about US$5.5 billion in 2022. (Source: ISF Secretariat) Aside from our Company, the notable seed companies in India include Pioneer, Mahyco, Monsanto India, ProAgro, Syngenta and Nuziveedu Seeds. 

The Government is concerned about the stagnation in the production and productivity of pulses. A critical deficiency is the availability and quality of certified seeds. Government therefore proposes to expand the Integrated Oilseeds, Oil palm, Pulses and Corn Development programme. There will be a sharper focus on scaling up the production of breeder, foundation and certified seeds. The Indian Institute of Pulses Research (IIPR), Kanpur, the National and State level seeds corporations, agricultural universities, ICAR centres, KRIBHCO, IFFCO and NAFED as well as large private sector companies will be invited to submit plans to scale up the production of seeds. Government will fund the expansion of IIPR, Kanpur, and offer the other producers a capital grant or concessional financing in order to double the production of certified seeds within a period of three years. (Source: Union Budget : Finance Minister’s speech) 

India is a major producer of agricultural goods in the world and we are the second largest producer of crops in the world, our cropping pattern does a show a very welcome trend. The following are certain features noticed in our cropping pattern: 

• Majority of our farmers are engaged in growing subsistence crops like food grains, cereals, pulses, etc. which are basic crops, not very lucrative from the point of view of earnings.
  
• Agri-productivity over the past few decades has increased, but it is still less than the global average, being just 30-40% of the global average.
  
• The number of people engaged in agriculture has reduced from 70% at independence to 50% presently.
  
• The crop pattern has changed with a very satisfactory trend, i.e. growing more cash crops like fruit and vegetables instead of food grains. 
• Shifted to horticulture: Since good inputs (seeds and know-how) are available, farmers are growing horticultural crops along with or as an alternative to food grains. India produces 10% of the world production of fruits, and holds the first place in case of fruits like papaya, mango, and banana, among others. 
• Urbanization: The change in land use pattern and cropping pattern is vastly affected by rapid urbanization. The higher cultivable area has been achieved by bringing large acreage of uncultivable land into cultivation. 
• Another trend in our agricultural cropping pattern is that our production of wheat and rice is not increasing as fast as our population.
  
• Water intensive to water efficiency patterns: Some water intensive Food grains (paddy) and cash crops (such as sugarcane) losing interest in favour of water efficient crops or pulses and oil seeds. These are not only water efficient but also climate resilient. 
• India’s population is also projected to grow at a rapid pace by 2039, as per report of Plannig Commission titled “Population Growth – Trends, Projections, Challenges and Opportunities”. As people become wealthier, they consume more and higher quality food. The International Food Policy Research Institute forecasts a 40% increase in demand for grain by 2040. The United Nations projects that world population will increase from 8 billion people in 2022 to 9.2 billion people in 2038. 

India is expected to achieve the ambitious goal of doubling farm income by 2022. The agriculture sector in India is expected to generate better momentum in the next few years due to increased investment in agricultural infrastructure such as irrigation facilities, warehousing and cold storage. Furthermore, the growing use of genetically modified crops will likely improve the yield for Indian farmers. India is expected to be self-sufficient in pulses in the coming few years due to concerted effort of scientists to get early maturing varieties of pulses and the increase in minimum support price. 

In the next five years, the central government will aim US$ 9 billion in investments in the fisheries sector under PM Matsya Sampada Yojana. The government is targeting to raise fish production to 220 lakh tonnes by 2024-25. Going forward, the adoption of food safety and quality assurance mechanisms such as Total Quality Management (TQM) including ISO 9000, ISO 22000, Hazard Analysis and Critical Control Points (HACCP), Good Manufacturing Practices (GMP) and Good Hygienic Practices (GHP) by the food processing industry will offer several benefits. The agri export from India is likely to reach the target of US$ 60 billion by the year 2022. 

Some major investments and developments in agriculture are as follows: 

• According to the Department for Promotion of Industry and Internal Trade (DPIIT), the Indian food processing industry has cumulatively attracted Foreign Direct Investment (FDI) equity inflow of about US$ 2.55 billion between April 2000-March 2022. 
• In 2022, the Government of India is planning to launch Kisan Drones for crop assessment, digitization of land records, spraying of insecticides and nutrients. 
• India’s agricultural and processed food products exports stood at US$ 5,987 million in the first quarter of FY 2022-23, up by 14% YoY. 
• In FY 2021-22, agriculture and allied products exports stood at US$ 50.21 billion. 
• Gross Value Added by the agriculture and allied sector was 18.8% in FY 2021-22 (until 31 January, 2022) 
• Agriculture and allied activities recorded a growth rate of 3.9% in FY 2021-22 (until 31 January, 2022) 
• Consumer spending in India will return to growth in 2022 post the pandemic-led contraction, expanding by as much as 7%. 
• Private consumption expenditure (at constant prices) was estimated at Rs. 80.8 trillion (US$ 1.08 trillion) in FY22 against Rs. 75.6 trillion (US$ 1.01 trillion) in FY20. 
• The organic food segment in India is expected to grow at a CAGR of 10% during 2015-¬25 and is estimated to reach Rs. 75,000 crore (US$ 10.73 billion) by 2025 from Rs. 2,700 crore (US$ 386.32 million) in 2015. 
• The processed food market in India is expected to grow to Rs. 3,451,352.5 crore (US$ 470 billion) by 2025, from Rs. 1,931,288.7 crore (US$ 263 billion) in FY20 on the back of government initiatives such as planned infrastructure worth US$ 1 trillion and Pradhan Mantri Kisan Sampada Yojna. The food processing industry employs about 1.77 million people. The sector allows 100% FDI under the automatic route. 
• From 2017 to 2020, India received ~US$ 1 billion in agritech funding. With significant interest from the investors, India ranks third in terms of agritech funding and number of agritech start-ups. By 2025, Indian agritech companies are likely to witness investments worth US$ 30-35 billion. 

Govt. Initiatives will be the growth driver for Agriculture sector:

• In the Union Budget 2022-23:  Rs. 1.24 lakh crore (US$ 15.9 billion) has been allocated to Department of Agriculture, Cooperation and Farmers’ Welfare & Rs. 8,514 crore (US$ 1.1 billion) has been allocated to the Department of Agricultural Research and Education. 
• In July 2022, PM Formalisation of Micro food processing Enterprises (PMFME) scheme was launched for providing financial, technical and business support for setting up/ upgradation of micro food processing enterprises in the country with an outlay of Rs. 10,000 crore (US$ 1.27 billion). 
• The Indian government is planning to launch Kisan Drones for crop assessment, digitization of land records, spraying of insecticides and nutrients. 
• NABARD will assist the creation of a blended capital fund with a focus on the agricultural start-up ecosystem which will be used to fund agriculture and rural enterprise startups that are related to the farm product value chain. 
• A network of 729 Krishi Vigyan Kendras has been established at the district level across the country to ensure that newer technologies such as improved variety seeds of crops, new breeds/ strains of livestock and fish, and improved production and protection technologies reach farmers. 
• Ministry of Civil Aviation launched the Krishi UDAN 2.0 scheme in October 2021. The scheme proposes assistance and incentive for movement of agri-produce by air transport. The Krishi UDAN 2.0 will be implemented at 53 airports across the country, largely focusing on Northeast and tribal regions, and is expected to benefit farmers, freight forwarders and airlines. 
• In October 2021, Agricultural and Processed Food Products Export Development Authority (APEDA) signed a Memorandum of Understanding (MoU) with ICAR-Central Citrus Research Institute (ICAR-CCRI), Nagpur, for boosting exports of citrus and its value-added products. 
• In October 2021, the Union Ministry of Agriculture and Farmers Welfare announced that 820,600 seed mini-kits will be distributed free of cost in 343 identified districts across 15 major producing states under a special programme. This programme is likely to boost production and productivity by speeding up the seed replacement rate and subsequently, help in increasing farmer’s income. 
• In September 2021, Prime Minister Mr. Narendra Modi launched 35 crop varieties with special traits such as climate resilience and higher nutrient content 
• The Indian government has initiated Digital Agriculture Mission for 2021-25 for agriculture projects based on new technologies such as artificial intelligence, block chain, remote sensing and GIS technology, drones, robots and others. 
• In September 2021, the Union Ministry of Agriculture and Farmers’ Welfare signed five MoUs with CISCO, Ninjacart, Jio Platforms Limited, ITC Limited and NCDEX e-Markets Limited. This MoU will have five pilot projects, which will help farmers make decisions on the kind of crops to grow, variety of seeds to use and best practices to adopt to maximise yield. 
• With a budget of US$ 1.46 billion, the ‘Production-Linked Incentive Scheme for Food Processing Industry (PLISFPI)’ has been approved to develop global food manufacturing champions commensurate with India's natural resource endowment and to support Indian food brands in international markets. 
• Under Pradhan Mantri Formalisation of Micro Food Processing Enterprises (PM FME), an outlay of Rs. 10,000 crore (US$ 1.34 billion) over a period of five years from FY21 to FY25 has been sanctioned. 
• In April 2021, the Government of India approved a PLI scheme for the food processing sector with an incentive outlay of Rs 10,900 crore (US$ 1,484 million) over a period of six years starting from FY22. 
• The Agriculture Export Policy, 2018 was approved by the Government of India in December 2018. The new policy aimed to increase India’s agricultural export to US$ 60 billion by 2022 and US$ 100 billion in the next few years with a stable trade policy regime. 
• The Government of India is going to provide Rs. 2,000 crore (US$ 306.29 million) for computerization of Primary Agricultural Credit Society (PACS) to ensure cooperatives are benefitted through digital technology. 
• The Government of India launched the Pradhan Mantri Krishi Sinchai Yojana (PMKSY) with an investment of Rs. 50,000 crore (US$ 7.7 billion) aimed at development of irrigation sources for providing a permanent solution from drought. 
• Government plans to triple the capacity of food processing sector in India from the current 10% of agriculture produce and has also committed Rs. 6,000 crore (US$ 936.38 billion) as investments for mega food parks in the country, as a part of the Scheme for Agro-Marine Processing and Development of Agro-Processing Clusters (SAMPADA). 
• The Government of India has allowed 100% FDI in marketing of food products and in food product E-commerce under the automatic route. 

Business Strategy:

1. Venturing in to high value segments:

Nirman Agri is already a volumes player, and they intend moving up the value chain in each of the crops being serviced by them, while retaining the hold on the volumes segment. They have already made progress in moving up the value chain in development of high yielding hybrids in corn, sunflower, cotton and paddy. Through continuing R&D efforts and further market penetration, our strategy is to ensure that they continue moving up the value chain through new and improved products which we hope will lead to better and higher margins and realisations. 

2. Venturing in to new Crops:

Their product portfolio has variety and gives us a natural hedge against dependence on any particular crop(s). However, there is untapped market potential presented by various other crops. They are identifying suchcrops from time to time and try to gain a foothold in the markets where we believe that we have a significant opportunity to expand. For example, They have recently forayed into development of some new hybrids in vegetables as well as pesticides and fertilizers. 

In the year 2022, They began to market bio-pesticides, bio-fertilizers, micronutrients, fertilizer mixtures & plant growth regulators under the name and style of “Nirman Agri Genetics”. Seeds, bio-fertilizers, micronutrients etc. are related products having the same end user i.e. the farmer, and are usually sold through similar dealer networks. With a view of achieving the benefit of synergy in marketing the aforesaid products we have recently added them to our products portfolio. We believe that this addition of products would enable us to address the needs of the farmers like plant protection and nourishment. 

3. Expansion in to new geographies:

They are primarily focused on serving the farmers in parts of Maharashtra, Gujarat and Madhya Pradesh. However, we are looking to expand our footprint to other areas, especially North, South and some parts of East India. Our strategy is to expand our reach both for our existing and proposed products in these areas. One of the objects for this Issue is to create infrastructure forour proposed expansion into different parts of Indian markets, which we believe presents significant growth potential for them.

4. Expanding Distributor Base:

The challenge in the agri-inputs business lies in reaching a geographically dispersed end-user at the right time at the right place with the right product. It also involves ensuring that the end user has the necessary awareness of what raw material (agri-inputs) he requires to meet his specific requirements. Due to the seasonal and on-time nature of our business, best of R&D and production activities and best of quality production would not be realized if their products did not reach the end consumer in a timely manner, or if the consumer was not aware of the product. This makes a strong marketing and distribution network critical. 

Business Model &Product Portfolio:

Company is involved in manufacturing and distribution of high yield hybrid seeds and  also manufacture bio pesticides and fertilizers. Some of the most revenue generating products of company are as follows:

Corn: 

Presently, Company has 4 varieties of corn seeds (Fortuner, Nirman 111, 745, 216) in the market. Corn is the major driver of their revenues. In the Rabi season of 2018, they have launched a hybrid under the name ‘Fortuner’ and the launch has been commercially successful in the market. The demand for corn has increased because of its multi-dimensional usage now. Earlier it was used only for fodder whereas now it is also used for inter alia, human consumption, by-products, poultry, animal feed etc.

Bajra: 

Company has 3 varieties of Bajra. Bajra has been a steady contributor to our total sales, and with our entry into the Madhya Pradesh markets, we expect a higher contribution from Bajra in the future. They have a strong germplasm collection required for this crop improvement program. 

Cotton: 

Company has four varieties of cotton. It is another significant product in our portfolio. We believe that the sub-licensing agreement with Navkar Hybrid Seeds Private Limited for Bt. cotton would enable them to bring highly effective hybrid varieties of seeds into the market. They have launched 2 varieties of Bt. cotton into the market in 2018 and 2019 and the response has been satisfactory. 

Soyabean:

Company is engaged in the production of Soyabean seeds. Soyabean is also an important element of their Company’s product portfolio 

Paddy: 

Company is engaged in the production of paddy seeds. Paddy is an important from the point of view of possible future growth in this area, hybrid paddy enjoys a price premium of approximately three to four times over open-pollinated paddy. With technology now in place to allow hybrids to replace a large portion of the cultivation of OP paddy, several companies are entering the market and investing in hybrid paddy and have created positive momentum for market growth. 

Besides the above crops, they are also into grain sorghum, mustard and vegetable crops like watermelon, tomato, okra, chilli, etc. Though their present contribution is insignificant, we believe that they hold a promising future 

Key Managerial Personnel:

1. Pranav Kailas Bagal, aged 22 years is the Promoter & Managing Director of Company. He has completed Diploma in Agriculture from National Backward Krushi Vidhyapeeth, Solapur, Maharashtra. He has around six years of experience in the field of Marketing of Agriculture inputs, managing customer relations and trade terms, managing manufacturing and supply chain strategies, managing costs and establish strategic partnerships with farmers, vendors and service providers etc. He has been associated with Company as Director since August 2020 and has been elevated to Managing Director’s position in October 2022. Prior to starting Company, he has done Agri-inputs business in Proprietary concern M/s. Nirman Agri Genetics from 2018 till the time same is taken over by the Company and before that he has worked as Marketing Manager with Shivam Krushi Sheti Udhyog Kendra engaged in whole sale and retail distribution of seeds, pesticides, fertilisers and agriculture related equipments. He is currently responsible for managing marketing and business development functions of the Company. 

2. Avinash Bhimrao Bagal, aged 47 years is the Non-Executive Director of Company. He is an under graduate. He has around 25 years of experience in the field of Agriculture. He has run his own proprietorship by the name of M/s. Shivam Krushi Sheti Udhyog Kendra engaged in whole sale and retail distribution of seeds, pesticides, fertilisers and agriculture related equipments since 1997 creating a reliable name amongst farmers. He has been associated with our Company as Director since November 2022. He is assisting Company in creating a trusted names amongst farmers and suppliers. 

3. Prakash Narayandas Sawana, aged 51 years is the Independent Director of Company. He is a Law graduate from Nagpur University. He has around 25 years of experience of handling legal, financial and intellectual property matters. He has been associated with Company as Director since October 2022 and has been appointed as Independent Director’s position to meet with corporate governance requirements. He will be assisting Company in the field of compliance and legal matters. 

4. Abhishek Shivnarayan Gupta, aged 23 years is an Independent Director of the company. He is a Commerce graduate from Savitribai Phule Pune University having experience of one year as a consultant. Mr. Abhishek Shivnarayan Gupta has more than 5 years of experience of managing as a proprietor of his own Food and Agri business. He has been appointed as Independent Director in Company on December 07, 2022 to meet with corporate governance requirements. He will be helpful to Company in the finance and compliance related matters. 

5. Riddhi Nitin Aher, aged 22 years is an Independent Director of Company. She has done Bachelors of Business Administration from Savitribai Phule Pune University. She has around 3 years of experience in the field of finance and administration. She has been associated with Company as Director since December 07, 2022 to meet with corporate governance requirements. 

Financial:

Balance Sheet:

Profit & Loss:

Cash Flow:

Investment Risk:

1. Change in Export Policy
2. HIgh Competition among the rival players
3. Low Business margin due to high transportation cost, raw material cost, fuel cost.

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