Sarveshwar Foods Ltd.

Sarveshwar Foods Ltd. Reco: Subscribe 27 th Feb 2018 Public Issue of 64,67,200 Crore Equity Shares of Face Value Rs 10/- each (Rs. 55 Crs) as Fresh Issue (Price band of Rs. 83-85 per share) Issue Opens: 5 th March 2018 Issue Closes: 7 th March 2018 I. Sarveshwar Foods Ltd.( SFL ) Background and Product profile: Sarveshwar Foods Ltd. ( SFL ), founded in 1890 by Late Shri Mulamalji and currently promoted by Mr. Rohit Gupta, is headquartered in Jammu & Kashmir. SFL is engaged in the business of processing & marketing different types of rice domestically and internationally under the brand Sarveshwar comprising of Basmati and non-basmati rice including white raw rice, steam rice, broken rice, brown rice and parboiled rice. Himalayan Bio Organic Foods Private Limited ( HBOFPL ), a wholly owned subsidiary of SFL is engaged in Organic business which includes procurement, storage, milling, sorting, packaging, branding and distribution of Organic Basmati and non-basmati rice under the brand Nimbark. The Organic Business includes organic food products like dry fruits and nuts, pulses & lentil, flours, porridge, spices and Super Foods like chia seeds, flax seeds and quinoa seeds. SFL s rice milling and processing facilities are located at Seora (Unit I) and SIDCO (Unit II) with a total capacity of 14 TPH, spread across 17.22 acres with ISO 22000:2005, BRC & HACCP certifications, APEDA registration, USFDA and GFSI Certification from Costco Wholesale. II. Financials at a Glance Particulars (Rs. in Crs.) H1FY18 FY17 FY16 FY15 FY14 FY13 Equity Capital (FV - 10) 18.1 18.1* 9.05 9.05 9.05 9.05 Net Worth 78 70 35 30 22 15 Trade Receivables 149 66 85 22 24 11 Inventories 234 224 159 231 161 117 Debt 205 178 198 189 169 115 Total Income 259 420 355 262 241 103 EBITDA 23 37 31 28 23 14 PAT 8 13 5 8 7 5 EPS 8.81* 7.12 6 8.83 7.73 5.52 BVPS 43.27* 38.97 38.98 33.15 24.3 16.57 Debt/Equity 2.62 2.55 5.65 6.30 7.68 7.67 EBITDA Margin (%) 9% 9% 9% 11% 9% 14% PAT Margin (%) 3% 3% 1% 3% 3% 5% ROE (%) 20% 19% 14% 27% 32% 33% *EPS, BVPS and RONW is Annualised for FY18 **Bonus Issue in the ratio of 1:1 in FY17

Critical Analysis: Positives: SFL has shown consistent financial performance from FY 2013-17 with revenue at a staggering CAGR of 42% to Rs. 420 Crs (Rs. 103 Crs). The company s EBITDA at a CAGR of 29% to Rs. 37 Crs (Rs. 14 Crs) with stable margins at 9%. Negatives: The company s Debt/Equity ratio remains at a high of 2.62 with thin PAT margins of 3%. The burden of an estimated 9-11% finance cost on the short term debt of Rs. 204 Crs, along with highly capital intensive nature of business, would impact the company s bottom line. We believe this anomaly could be corrected if the company emphasizes on improving its capital structure and is able to reduce the working capital cycle substantially. III. SFL: Key Highlights: SFL has been successful in conversion of more than 9000 hectares of conventional agricultural land into Organic Farming situated in the states of Jammu and Kashmir, Himachal Pradesh and Uttar Pradesh. SFL has recently launched its flagship retail store in the name of Nimbark - Living the Satvik Way for organic products at Channi Himmat, Jammu. SFL also has arrangements for distribution of Basmati and non-basmati rice with: Cash and carry outlets like Walmart & Future Group; Mata Vaishnodevi Shrine Board, a Hindu pilgrimage centre at Jammu; The Indian Armed and Paramilitary Forces based in the State of J&K; SFL supplies to the domestic markets such as J&K, Delhi, Telangana, Andhra Pradesh and cities like Chennai and Pune through 64 distributors across 30 districts with an access to 1,843 retailers. IV. SFL: Business Strategy SFL plans to invest part of the proceeds in its wholly owned subsidiary HBOFPL for fulfilling its working capital requirements of setting up Processing Units for Organic Products to capitalize on the anticipated demand for Rice, Rice Flour, Whole Grain Flour, Spices and Pulses, both domestically and globally. SFL has initiated brand building exercises launched its flagship retail store in the name of Nimbark - Living the Satvik Way for organic products at Channi Himmat, Jammu in May 2017. SFL also intends to aggressively advertise and promote the brand 'Nimbark' and products through television, radio, web promotion and SMS marketing, hoardings at prominent places, advertisements in magazines and local newspapers, health magazines. The company aims to market its products over the internet by various methods such as Search Engine

Optimization (SEO), social media websites, online brand management, banner promotions on various popular websites, POP displays etc. Through participation in various trade fairs around the world, SFL aims to penetrate the high margin international markets such as Middle East, USA, Europe and Africa. SFL is currently in the process of increasing its domestic market penetration by entering markets such as Maharashtra, Gujarat, Rajasthan, Karnataka, Madhya Pradesh and Goa. V. SFL vs. Peers: Market Capitalization (Rs. in Crs.) D/E P/E* LT Foods Ltd. 3041 1.2 21.4 KRBL Ltd. 13629 0.1 29.3 Kohinoor Foods Ltd. 247 3.5 - Chaman Lal Setia Exports Ltd. 820 0.2 19.4 SFL** 209 2.6 13.1 *P/E is estimated for FY18 **Est. MCAP at the highest price band and assuming the entire issue is subscribed for SFL VI. Valuation: 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 and has established a formidable brand in this sector. At a higher price band of Rs. 85 per share, the IPO is priced at a Price to Earnings multiple of 13.11 times its FY18E EPS of Rs. 6.48, which is an attractive pricing as against its peers and considering the steep FMCG sector valuations. The rising penetration of modern retail stores and increasing purchasing power of consumers has aided the growth of basmati consumption in the domestic market. The domestic market becoming as strong as the export market for most basmati companies in the organized sector and with the shift from unbranded to branded basmati, SFL stands to grow as tall as its listed peer companies on the main board in the years ahead. In the Union Budget 2018, a big boost has been offered by the Government of India to the farmers by offering a Minimum Support Price (MSP) that s 50% above the cost of production of remaining rabi (winter) crops as well as kharif (summer) crops. Rice crop being backed by MSP will further boost the industry in achieving higher margins and better realizations. With the increasing thrust of Shri Narendra Modi led BJP Government on implementation of revolutionary reforms like GST, Pradhan Mantri Fasal Bima Yojna ( PMFBY ) and Restructured Weather Based Crop Insurance Scheme ( RWBCIS ) along with the strong boost to the agriculture sector in Union Budget, 2018; enterprises such as SFL with its strong financial performance over the years stands with a huge growth potential for the times ahead.

SFL in its Organic Business has a huge potential to grow domestically and internationally with the strong boost by the Government of India to encourage organic farming and if the company provides thrust on improving the capital structure, SFL will become an extremely successful business. We recommend all investors to SUBSCRIBE to this issue. CONTACT US IMMEDIATELY FOR APPLICATION FORMS AND GET IN TOUCH WITH US TO DESIGN A PROFITABLE INVESTMENT STRATEGY IPO Subscription Details: Minimum Order Quantity 1600 equity shares and in multiples of 1600 thereafter Contact Details: Corporate Office Address: 702, Embassy Centre, Nariman Point, Mumbai 400 021 Tel.:+91 22 61539100/21, Fax: +91 22 61539134 Email: info@nvswealthmanagers.com Website: www.nvswealthmanagers.com

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