Shanthala FMCG Products Limited IPO

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The business model described here involves a distributorship business that operates through two separate entities:

1. M/s. Shanthala Traders – Prop. B. Manjunath (Proprietorship Firm): This entity was established in 1996 as a proprietorship firm with a commitment to delivering quality products to customers in a timely manner. Initially, it operated independently, distributing various products, including branded packaged foods, personal care products, education and stationery items, matches, agarbatti, and tobacco products. In 2014, Shanthala Traders Private Limited was incorporated, and the entire business of M/s. Shanthala Traders was transferred to the new private limited company. The business of the proprietorship firm was discontinued. The private limited company focuses on providing last-mile connectivity to large consumer product companies, acting as a distributor for their products.

2. M/s. Shanthala Enterprises – Prop. Mrs. Sharada Malya (Proprietorship Firm): This entity continues to exist and operates in a different geographical area, specifically Kushal Nagar. It is also involved in the distribution business, although there seems to be a reference to potential conflicts or issues with this entity, which are detailed in the prospectus.

The business model essentially revolves around acting as a distributor for various Fast Moving Consumer Goods (FMCG) companies in India. The product categories being distributed include branded packaged foods, personal care products, education and stationery items, matches, agarbatti, tobacco products, beauty and well-being products, nutrition products, personal care, home care products, as well as oil, sugar, and atta (flour) sold under the Sunpure brand name by M. K. Agrotech Pvt. Ltd.

The primary market of operation is the district of Coorg, Karnataka, which has been the home for Shanthala and the promoters for over 20 years. This long-standing presence in the area has led to a deep understanding of customer needs, making the business an essential link between large consumer product companies and customers in this region. The difficulty of servicing this scattered customer base creates a barrier to entry for new competitors, reinforcing the distributor’s position.

The reference to the “breakup of revenue from the sale of ITC products” likely indicates that the business also distributes products from ITC Limited, a prominent Indian conglomerate with interests in various sectors, including FMCG.

In summary, this business model involves acting as a distributor for FMCG companies, providing a vital link between these companies and customers in a specific geographic area. The business has evolved from proprietorship firms to a private limited company to enhance its operations and reach.

Competitive Strengths

1. Distributor of Choice

2. Distribution of a variety of Products

3. Experienced Promoter and management team with strong industry expertise and successful track record.

Objects of the Shanthala FMCG Products Limited IPO:

The company intends to utilize the Net Proceeds as following 1. Funding additional working capital requirements 2. General Corporate Purposes
DRHP of Shanthala FMCG Products Limited IPO
RHP of Shanthala FMCG Products Limited IPO

Shanthala FMCG Products Limited IPO Details:

Open Date: Oct 27 2023
Close Date: Oct 31 2023
Total Shares: 1,766,400
Face Value: ₹ 10 Per Equity Share
Issue Type: Fixed Price Issue IPO
Issue Size: 16.07 Cr.
Lot Size: 1200 Shares
Issue Price: ₹ 91 Per Equity Share
Listing At: NSE Emerge
Listing Date: Nov 08 2023

Promoters And Management:

i. B. Manjunath Mallya, aged 54 yearsis the founding promoter and director on the board of the Company since incorporation is redesignated as Chairman and Managing Director w.e.f. July 18, 2023. He has passed second year B. Com. He has more than 20 years of experience in the field of supply and distribution of FMCG products in Coorg district, Karnataka. He started business in a proprietary firm Viz. M/s. Shanthala Enterprises, due to his sheer hard work and dedication the company has grown to be become one of the trusted and sought after distributor of quality products in the region. His two decade long understanding of the market and personal relationship with clients helps us not just to retain clients but also helps us to become a dependable and reliable channel partner for companies. As managing Director, he plays an important role in strategizing for future growth plans for the company. ii. Shobitha Malya, aged 44 years is the founding promoter and director on the board of the Company since incorporation is redesignated as Executive Director w.e.f. July 18, 2023. She has completed five-year LL.B. degree course from Mangalore University in 2002. She has more than 10 years of experience in the field of office administration, coordinating and streamlining purchases. Due to her efficient purchasing abilities, the Company has been able to maintain just in time inventory and efficiently manage working capital cycle iii. Smita Arjun Patil aged 42 years, is the Non-Executive Independent Director of the Company. She has completed her Bachelor of Education from University of Mumbai. She has also done her M. A. from University of Mumbai. She is having 5 years of experience in the field of teaching Hindi and Marathi. She has been appointed as independent director w.e.f. May 09, 2023 to comply with corporate governance requirements.

Financials of Shanthala FMCG Products Limited IPO:

Particulars ( In Lakhs )
2021
2022
2023
5M-FY24
Revenue from Operations 3,930 3,226 4,052 1,574
Other Income 26 29 26 11
Total Revenue 3,956 3,255 4,077 1,586
Cost of Goods Sold 3,810 3,133 3,936 1,512
Employee benefits expenses 36 45 49 25
Other Expenses 44 29 23 19
EBITDA 65 48 69 30
Depreciation & Amortisation 1 2 2 1
Finance Cost 44 40 41 16
EBIT 64 46 67 30
OPM (%) 1.65% 1.47% 1.69% 1.92%
PBT 20 6 26 14
Tax 6 2 9 4
PAT 14 5 18 10
NPM (%) 0.36% 0.14% 0.43% 0.64%
No.of Shares 66.98 66.98 66.98 66.98
EPS 0.21 0.06 0.26 0.15

Comparison With Peers:

Notes: - There is no listed companies related to this company.

Recommendation on Shanthala FMCG Products Limited IPO:

Review and Recommendation of Shanthala FMCG SME IPO is 1/10 Business Overview

Shanthala FMCG Products is a distributor for major fast-moving consumer goods (FMCG) brands like ITC. The company has been operational for the last 20 years from Coorg and is involved in the distribution of a diverse range of products. These include branded packaged foods, personal care products, educational and stationery items, matches, incense sticks (agarbatti), and tobacco products.

Key Concerns

Lack of Competitive Moat

In the highly competitive FMCG sector, the company lacks a unique competitive advantage or 'moat,' making it vulnerable to market competition. This is a significant concern for any investor seeking long-term growth and stability.

Marginal Financial Growth

The company's revenue has remained stagnant from 2021 to 2023, showing no significant growth. This stagnation can be a warning sign for potential investors, raising questions about the company's future prospects.

Thin Profit Margins

The FMCG distribution business typically operates on relatively low margins. Given that Shanthala FMCG Products is a distributor and not a producer, the room for margin expansion seems limited.

Overvaluation

The company aims to enter the market with a valuation of INR 60 crores. However, its average profit over the last three years has been approximately INR 13 lakhs, resulting in a Price-to-Earnings (P/E) ratio of 468x. This high P/E ratio suggests that the shares are overvalued compared to the company's current earnings, representing a high level of risk for investors.

Conclusion

Given these factors, especially the high valuation and the lack of any competitive advantage, the IPO seems to present limited upside potential. The stagnant growth and thin profit margins further make this a less-than-attractive investment opportunity at the present moment.

Lead Manager of Shanthala FMCG Products Limited IPO:

  1. First Overseas Capital Limited

Registrar of Shanthala FMCG Products Limited IPO:

  1. Bigshare Services Private Limited

Company Address:

Shanthala FMCG Products Limited 7th Block, Gandhinagr Bye Pass Road Virajpet Kodagu - 571218 Phone: +91 82742 98999 Email: ipo@Shanthalafmcg.com Website: https://shanthalafmcg.com/

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