Gramco im 27 april 2012

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Gramco Infratech

Investment Advisor - Intellecap

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© Intellecap. All rights reserved • www.intellecap.com Proprietary and Confidential

Disclaimer

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Index

3

Sr.No Index Page No

1 Executive Summary 4

2 Industry Overview 7

3 Company Details

Gramco-Company Snapshot 14

Comprehensive Post Harvest Management Solutions Company 15

..helping “Iron Out” the duplication in the system 16

And yet follow a differentiated business model 17

Quality Infrastructure 18

And an Integrated Back End IT program… 19

…aiding expansion in a phased manner 20

Expansion Strategy 21

Creating Social Impact in the Post-harvest Value Chain 22

Led by an experienced Promoter 23

Proposed Organization Structure 24

4 Financial and Non Financial Summary 25

© Intellecap. All rights reserved • www.intellecap.com Proprietary and Confidential 4

Executive Summary


Key Investment Highlights

5

Favorable Macroeconomics

Early Mover Advantage

Quality storage and processing

facility close to the farm

Strong Promoter Background

Extremely Supply Constrained

Industry

Demand-Supply gap in the agri-warehousing sector is estimated to be 17 Mn MT Logistics is a fast growing industry and warehousing is the most profitable within the logistics segment Implementation of GST is expected to ease the inter-state movement of agricultural commodities Warehouse Act 2007 would make warehouse receipts negotiable and increase acceptability of warehouse

finance among both banks and farmers

Existing farmers and agri business players face shortage of quality post harvest infrastructure. Key to success lies in establishing early relationships with farming communities and agri business houses

Meticulously planned warehouses with infra-red cameras installed at strategic locations for constant surveillance.

Focusing on servicing the last mile & viably handling farm produce closest to growing locations Facilities planned to reduce manual handling to the minimum possible thus saving costs Developed on .NET 3.5 framework and SQL 2008 backend platform to help enable scale up. Multi lingual

functionality using unicode and barah keyboard ensuring scale up in most Indian languages.

Promoter group brings with them knowledge of local markets and relationships with agri-business houses which is crucial to the success of this business model

The promoter has an excellent understanding of the crops in the regions that Gramco will operate

India loses more than INR 580,000 Mn worth of agricultural food items every year due to lack of post harvest infrastructure, which represents a huge market opportunity for Post Harvest Management Solution companies

Integrated Model to create long term relationship with

the farmer

Input Supply- walk-in store in every location Procurement and processing Collateral management once 10-15 warehouses are operational Seeds Program – to provide quality seeds to farmers through a contract farming programme Local Weather updates- has already tied up with AccuWeather


Transaction Overview

Funding Requirement USD 2.5 million ~ INR 130 Mn

Number of Investors and current ownership

1-2, 100% owned by the promoter family

Expected Stake Significant Minority

Role of Investor Strategic direction through board representation Passive Role in Management

Financial Return Expected ROE ~ 36% in FY ’18

Exit Route Strategic Sale- Gramco will build a network of ~70 high quality locations in the next 5 years and these will be attractive to large companies in the agri-business sector

IPO within 7 years

Uses of Funds Expansion of Warehouse network from 2 currently to 41 in the next 3 years Expansion into allied activities for post harvest management. Investment in real and tangible assets

Strengths Promoter has 15+ years of experience , well known amongst the local farm community. He was formerly the co-founder of Gram Mandi, a online market place for agricultural produce

Highly fragmented and unorganized industry represents a massive growth opportunity

Threats Competition from Established Players Regulatory Risks

Opportunities and Additional Revenue Lines

Wholesale of FMCG products to village stores Collateral management in tie-up with commodity exchanges Partner with spot exchanges and act as an aggregator Partner with the Government in its procurement programmes


Industry Overview


Indian Logistics Industry : Overview

Highlights of the Sector Highly Fragmented Industry

Indian Logistics Industry is valued at INR 4,068 Bn

Logistics costs account for 13-14% of GDP which is higher

than that of developed nations at 10-11%. Key reason for

this is the relatively higher level of inefficiencies in the

system

Highly fragmented market with only 8% organized market

share

Strong demand leading to large scale investments from

logistics and warehousing players

Dismal state of warehousing currently

Inefficient facilities

Lack of Technology

Lack of skilled labor

Small and distributed warehouses due to current tax

structure

Most warehouses are primarily stocking points and are

very small in size

Indirect tax regime incentivizes companies to maintain separate warehouses in every state

Each company has 25-30 warehouses across India

Resulting in facilities which are often small and nothing more than poor quality godown

These facilities are typically managed by local C & F agents (Clearing and Forwarding), having poor knowledge of latest warehousing technology

Resulting in high inventory levels and low service standards (damages etc.)

Source :Skill gaps in the Indian Logistics Sector : White Paper , KPMG


Warehousing is the most profitable business in logistics,

expected to grow at 35-40% p.a 3rd Party Logistics service to witness sharp growth

Supported by Key Growth Drivers

Warehousing accounts for 20% of total activity in the logistics sector

Source : Industry Report , Knight Frank Global 2008

Source : http://www.indiainfraguru.com/logistics/warehousing.html

Expansion Demand

Reorganization Demand

Growing Domestic Trade Infrastructure initiatives by

Public and Private Players

Outsourcing to private players Implementation of VAT and GST


Agri Business represents a massive Logistics Opportunity

Retail companies struggling to integrate backward

Organized retail was valued at USD 300 Bn in 2008 and expected to grow at a CAGR of 11% till FY 2015

Food and Vegetable (F&V) segment is loss making for the organized players

Key Challenge faced is managing the supply chain

None of the retail chains have been able to manage the supply chain efficiently

Duplication of costs that prevail in the system due to inefficient supply chain management

Limited grading and sorting facilities implies that standardizing the produce becomes difficult

Ensuring right quality of produce at the right price is the key

Most retailers in the organized segment have struggled to cope with the large number of intermediaries

Extending the supply chain and managing linkages to farmers has been plagued by inability to deal with a fragmented set of suppliers

Urgent need for intermediaries who can reliably link the farm to the markets after undertaking basic processing of the product

Warehouse capacity not growing in line with demand

Mandis : Malpractices by commission

agents No grading of produce Limited Price Transparency Located at a considerable

distance from farms

Private Warehouses: Highly unorganized Fragmented market Located close to the Mandis Catering to large traders

Government Procurement [MSP Linked] Storage in godowns of FCI,SWC

and CWC Warehouses in bad condition Capacity of only 60 Mn Tonnes 10% post harvest loss

FCI not building significant additional capacity

Additional capacity growing at a slow rate 91,050 tonne in 2009-10 177,300 tonne in 2010-11

60% farm produce retained by the farmer

Local Procurement

Food grain 216 Tonnes Oilseeds 23 Mn Tonnes F&V 103 Mn Tonnes

Storage in small rooms

Open storage High storage loss of 5-10%


…across various Industry Segments

Warehousing Needs

Public Agri Processors Others Private Agri Processors &

Traders Agri - Inputs Agri Outputs

Food Corporation of India

National Agricultural Cooperative Marketing

Federation of India Ltd. And others

Farm Equipment's

Pesticides and Fertilizers

Seeds

Wheat

Soya

Rice

Cattle feed and other ancillary

products

Disintermediation across Industry Segments


Favorable regulatory environment leading to increased private

attention

Increased Interest from Private Players

Sector has just begun to attract PE attention

Name Headquarters

SohanLal Commodity New Delhi

Shree Shubham Logistics Mumbai, Maharashtra

Adani Agro Logistics Ahmedabad, Gujarat

NCMSL Mumbai, Maharashtra

Star Agri Mumbai, Maharashtra

Legal and Regulatory Framework

Key Initiatives

Shift to GST Tax Regime

Warehousing Act

Government looking at PPP models

Infrastructure Developments

Major transition from Central Sales Tax to the existing VAT regime coupled with the introduction of Single-tax Goods & Services Tax (GST) allowing for convenience in inter state movement of goods

The Warehousing Act, 2007 introduced a negotiable warehouse receipt (NWR) system

Negotiability will make warehouse funding more attractive for the banks

Incentivizes the farmer to obtain money by pledging agri outputs

Food Corporation on India (“FCI”) has been giving 10 year leases to private warehouse players

Possibility of Private Players to tie up with Government bodies

Development of Commodity Exchanges –Gramco can act as a facilitator to link farmers to the exchanges

Company Investor Amount (USD Mn)

Sohan Lal Nexus/Mayfield

7.1

NCMSL IFC/Rabo 20

Star Agri IDFC PE 30.0


Company - Details


Gramco - Company Snapshot

About the Company Business Highlights

Founded in 2009 with an initial capital of INR 15 Mn

Provides integrated post harvest management solutions including warehousing, value addition, seed multiplication program, Inputs and Procurement

Present at 2 locations near Indore in Madhya Pradesh; plans to scale up to 70 locations in the next 5 years

Also provides allied services like cleaning and testing

5000 tonne warehousing capacity between the current two locations, plans to operationalize another location with a 5000 tonne capacity by Q4 FY 2013

Tied up with Bank of India to provide warehouse finance to farmers

Proximity to the farm (catchment area has a radius of 15km) compared to most others players who are located 30-40 kilometers away

Provides multiple services to the farmers thus building long term relationships and ensuring client stickiness

Forging Key Alliances in early stages of its growth; tied up with a leading Oil seed processor & edible oils company for procuring seeds. Promoters have strong relationships with other prospective buyers across the chain Bank. Tie up with Bank of India for WR pledge finance; in talks with other players in the eco system

On ground infrastructure to be backed by a comprehensive IT platform which will assist in monitoring all aspects of operations

Tied up with AccuWeather to provide daily/hourly weather feed for 29,000 locations across India. Company is developing a unique application – marrying weather and farm activity.

A mixture of owned and leased locations to assist in quick scale-up of operations


Comprehensive Post – Harvest Management Solutions Company

Four Key Revenue Streams

Div

ersi

fied

Rev

enu

e Li

nes

Procurement Warehousing Trading Agri-Input Sales

Cleaning Income Pledge and Warehousing

Finance Seeds Program

Ancillary Revenue Streams

Direct Procurement for agri business houses/retailers Revenue : Commission on the procured quantity .

Quality warehouses with processing facilities Revenue : Capacity shortages will ensure utilization of ~80%

Procurement of goods and trading on its own books Revenue : Huge upside potential due to seasonality of the farm produce

Financing the farmer on collateral of his stock Revenue : Fee from the farmers on the total amount financed.

Procured quantity and warehouse capacity utilized is the key driver Revenue : Fee based income on the amount of goods procured and cleaned

Acts as a last mile reach enabler for companies producing/manufacturing farm inputs Revenue : % commission and markups on the agri inputs supplied

Engage in contract farming arrangement with farmers to provide quality seeds Revenue : Through sale of seeds bought back from contract farmers


..helping “Iron-Out” the Duplication in the System

Farm Produce Mandi Trader Processing

House/Company Godown

Retail Outlets

INR 25-60 transportation cost per quintal

Loading Unloading Charge of INR 6-7 per quintal

Traditional Market Approach

Loading Unloading charge of INR 4-5

Local Distribution Charges Handling, Wastage, Spillage charges add upto INR 10-15

Gramco Approach

Total costs add upto INR 45 – 87 plus local distribution and transportation charges applicable Mandi Onwards

Farmers Gramco Warehouses Company

Godown/Processing House

Retail Stores

INR 10- 15 transportation cost per quintal

INR 15-25 depending on location Local Distribution Charges

Total Costs add upto INR 25-40 plus local distribution expenses, resulting in significant cost and time savings for retailers/processing houses


And yet follow a differentiated business model

NCMSL Star Agri ITC Choupal Gramco

Key selling point

Promoted by NCDEX

and the banks, the

credibility is high

Excellent connections in the

trading community

Internal customer base for

produce

Massive reach – 10 states and

40,000 villages

Closer to the farm than any other

player. Excellent ties with

processors. Located in the heart of

major industrial / cash crop belt

Who is the primary client?

Traders and banks Traders and banks Internal ITC business groups and

the farmer

Agri-Processors and the farmers

Business Model

Focus primarily on

warehousing and

collateral management.

Provide support to the

commodity exchanges and

traders by providing

warehousing facilities and also

dematting stocks held by it so

that the dematted receipts

can be traded.

A more integrated model with a

hub located close to the

town/city and a e-choupal

located in the village. E-Choupal

serves as an information

dissemination point rather than

as a service point

Locations provide an integrated set

of services & are located, so that

farmer can access them easily.

Offering state of the art services

with total transparency .

Scalability Leased storage capacity

and limited set of

services implies high

scalability . Focused on

Hedging community &

speculators

Scalable as it follows the

rented model, poses

restrictions on the number of

services that the company

might add

Sagar Choupals are highly capital

intensive, located mainly on

Highways. E-choupals are highly

scalable as it follows a low capex

model in e-choupal.

Scalable with the ability to provide

full set of services as the company

shall follow a buy plus lease model .

Services Storage and

Preservation

Collateral

Management

Procurement and

Supply Chain

Warehousing

Storage

Logistics

Collateral Management

Cleaning and Testing

Social and Farm Forestry

Watershed Development

Agricultural Productivity

Women Empowerment

Livestock Development

Procurement

Warehousing

Agri Input Sales

Seeds Program

Pledge financing

Processing

Gramco’s focus is on the key link in the agri-supply chain i.e., farmer, which will enable it to control other links in the chain

Scalability is the function of cash flow management and capital expenditures by the Company, Gramco plans to follow a combination of Buy-Lease models that shall help it to increase revenue lines and also rapidly scale

Gramco has limited competition in the category that it operates given its unique business model


Quality Infrastructure

State of Art technology put in place to provide the best quality outputs

Gramco shall serve as “one stop shop” for all farmer needs

Funnel shaped hopper from which the contents are passed into the elevators

From the Elevator the material is then passed on to the cleaner and finally stored in a Silo

Typical Gramco Warehouse Unit

Use of Infra Red Cameras to avoid pilferage and track movements


and an Integrated Back End IT Program…

Technology Implementation across locations to monitor growth

MIS developed on the .NET 3.5 Framework

Key Features Include :

Language Independence Simplified Deployment (Ease of

Installation & Maintenance) Enables Safe and Secure

Transactions

3 Inter-Linked Core Modules

Web Modules Desktop Modules Kiosk Modules

Installed on Warehouse Managers Computer, source of

input for all transactions

Report Generator, providing customized information for the

end user

Main Module to be hosted locally and on

the server

Warehouse Manager

Mandi Manager

Pricing Manager

Commodity Manager

Finance Manager

Basic Registration Details

Commodity Inward/Outward Flow

Receipts

Inspection Accounts

Farmer Accounts

Account Module

Insurance Module

Weather Forecast Reports

Farming Practices

Farmer Assistance

Lo

cal R

eso

urc

es

on

Eac

h M

od

ule

(In

dic

ativ

e Li

st)

Each time a new farmer is registered in the Gramco System , an unique ID card is issued.

‘ The id card Stores key relevant data of

the customer Quickens the internal processes each

time the Farmer enters the warehouse system

Enables the farmer to keep track of his goods and income from Gramco


…aiding expansion in a phased manner

~75,000 tonnes warehouse capacity

15 Operational warehouses

41 operational warehouses

205,000 tonne warehouse capacity

Expansion into ancillary services

70 warehouses with a strong presence in Western India

Tie up with all major players involved in the agri industry

350,000 Tonnes of warehouse capacity

Short Term Goals ( FY ‘14)

Medium Term Goals ( FY ‘16)

Long Term Goals ( FY ‘18)

Headquarters

Short Term Expansion Plans

Medium Term Expansion Plans

Long Term Expansion Plans

Zonal/Regional Offices

FY 2014 Expansion plans within Madhya Pradesh


Expansion Strategy

21

Service driven model which leverages existing warehouse infrastructure without any additional investment

Strong growth in commodity futures markets creates scope of rapid expansion

Collateral management

Leasing land for warehouse

network expansion Increasing shareholder returns through reduced CAPEX intensity

Reducing risk inherent in identifying, owning and monitoring land in diverse locations

Selling warehouse capacity to state

agencies Maximizing capacity utilization by supplementing direct farmer produce with orders from state warehousing corporations

Reducing volatility in rental incomes with consistent capacity utilization by tying up with high volume customers


Creating Social Impact in the Post-harvest Value Chain

22

Increases farmer bargaining power in the market by preventing distress sales during harvest season

Provides rudimentary value addition activities like cleaning, sorting and grading services that can fetch higher prices for farmers

Boosts farmer income by allowing them to store their produce during harvest time, when prices are low; receive credit, using the product as collateral; and wait until prices are more favorable for selling

Facilitates linkages of farmer organizations to local and national markets as appropriately competitive

So

cia

l Im

pa

ct


Led by an Experienced Promoter

Promoter Profile

Mr. Raman Singh Saluja, Founder & Managing Director Gramco

15 + years of experience across industries like manufacturing, renewable energy , international trade

and agriculture sector

Co Promoted Agro Web Online Private Limited (Gram Mandi) between 2000 -02. This was an online

effort and first of its kind to integrate agri supply chain

Headed the diversification in clean energy for Sterling Structurals, a local steel mill. Negotiated a

technology transfer/collaboration agreement for assembly of high capacity WEG between Sterling and

Norwin A/S of Denmark.

He also has the distinction of been appointed as the Nodal Officer for Madhya Pradesh, by

Government of India, Ministry of Agriculture, under MANAGE. His responsibilities included to

promote & implement program to train agri graduates in MP for setting up Agri clinics. A role which

he executed successfully between 2001-2003

Youngest amongst the 18 invitee members of the Steering Committee formed by TERI under the - Tata

Energy Research Institute's Repository of Environmental Activities & Technologies (TREAT), in 1998/99

with an objective to draft recommendations to assist in advising the government in framing policies

and mechanisms for development of CDM under Kyoto Protocol

MBA from Institute of Management Studies, Indore. and B.A from D.A.V college Chandigarh. Did his

schooling from one of India’s best residential schools Daly College, Indore 1977-89.

Raman Singh Saluja

comes from a successful

business family with a

track record of building

organizations from

scratch

Managed expansion for

Gram Mandi, achieved

procurement worth INR

140 Mn in less than 18

months; the other

promoter of Gram Mandi

is part of the family which

runs the largest oilseed

processor in India

Family, Co Promoter of

one of the largest private

steel mills in Sri Lanka


Proposed Organizational Structure

Proposed Organization Structure Proposed Team Structure

Head Office based out of Indore will be a lean office to house the heads of corporate functions such as Financial Resources, Human Resources and Information Technology

Head Office

Regional Office

Warehouses/ Locations

Are the point for service delivery. They are the key to relationship building with the farmers

Regional presence shall help in scaling operations within different states

Managing Director (Raman Singh Saluja)

Finance Head

Support Staff

Operational Head

Warehouses & Seeds

Support Staff

Technology Head

Support Staff

Regional Manager

Assistant Manager

Support Staff

Corporate Office

State/Regional Office Warehouse

Warehouse Manager

Site Supervisor

Mall In charge

Support Staff


Financial and Non Financial Summary


Key Operational Indicators

Financial Indicators

FY 2013 E

FY 2014 E

FY 2015 E

FY 2016 E

FY 2017 E

FY 2018 E

Income (INR Mn)

33 176 585 1,230 1,878 2,637

Expenses (INR Mn)

43 196 580 1,162 1,721 2,391

PBT (INR Mn) -10 -19 6 68 156 246

PAT (INR Mn) -10 -19 6 75 136 209

PAT Margin -30% -11% 1% 6% 7% 8%

Net worth (INR Mn)

123 103 259 334 470 679

D:E 47% 217% 147% 207% 191% 166%

RoE -8% -17% 3% 25% 34% 36%

RoA -1% 1% 6% 11% 13% 15%

Outreach Indicators

FY 2013 E

FY 2014 E

FY 2015 E

FY 2016 E

FY 2017 E

FY 2018 E

Operational Warehouses

2 15 28 41 55 70

Total Employees

25 114 203 292 392 485

Sales/Employee (INR Mn)

1.3 1.5 2.9 4.2 4.8 5.4

-10 -19 6

68

156

246

-10 -19 6

75

136

209

-50

-

50

100

150

200

250

300

FY 2013 E FY 2014 E FY 2015 E FY 2016 E FY 2017 E FY 2018 E

PBT (INR Mn) PAT (INR Mn)

-8%

-17%

3%

25%

34% 36%

-1% 1%

6%

11% 13% 15%

-20%

-10%

0%

10%

20%

30%

40%

FY 2013 E FY 2015 E FY 2015 E FY 2016 E FY 2017 E FY 2018 E

ROE ROA


Contact Details

Mumbai 512 Palm Spring, Link Road, Malad (West), Mumbai 400 064 Tel: +91 22 40359222 Email: [email protected]

Hyderabad 5th Floor, Building no 8-2-682/1, Road No 12, Banjara Hills, Hyderabad 500 034 Tel:+91 40 4030 0216 Email: [email protected]

Delhi 261 Kohat Enclave, Pitampura, Delhi 110 034 Tel: +91 11 47093361 Email: [email protected]

USA Mountain View, 1909 Rock St, #7, Mountain View, CA 94043, Tel: +1 650 207 0880 Email: [email protected]

27

Disclaimer : This report is not to be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. We are not soliciting action based upon this material. This material is for the general information of clients of Intellecap. It does not take into account the particular investment objectives, financial situation or needs of individual clients. Before acting on any advice or recommendation in this material, a client should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice.

The material is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. Opinions expressed are our current opinions as of the date appearing on this material only.

Investor Relations

Gramco im 27 april 2012