Recommendation

SUBSCRIBE With a Long Term View

BACKGROUND

Background:- Karnimata Cold Storage Limited is engaged in the business of providing cold s torage facility to local farmers and traders on rental

bas is. Karnimata Cold Storage Limited was incorporated on

29th April 2011, with an authorized Capital of Rs. 1 Crore which was further increased to Rs. 8 crores. It has been engaged in the business of providing cold storage services for the storage of potatoes from March 2012.

The company has licensed storage capacity of 1,81,000

quintals which shall be increased by addition in the

financial year 2013 – 14 by addition of further capacity for

storage of 75,000 quintals of potato and is located at

West Medinipur, West Bengal. Karnimata Cold Storage

Limited is engaged in providing cold storage facility to

local farmers and traders on rental basis. The facility is

favorably located in the Jungle Mahal area in the district

of West Medinipur, West Bengal, an area with high output

of potato. There are around 70-80 cold storages operating

in West Medinipur for storage of potato. The company

commenced its commercial operations in March 2012.

The project was setup with a total cost of around Rs. 8.75

crore, which was financed by a term loan of Rs. 6.00 crore

and the balance through promoter's contribution. During

the first year of its operation, i.e., FY 2011 – 12 the

company achieved 88% of its storage capacity and in the

second year, i.e., FY 2012 – 13 the company achieved

100% of its storage capacity. .

Price Band

Bidding Rate

Book Running Leading manager

Registrar

Sector Telecommunications

Object of Issue-

The Object of the Issue is to raise funds to:

Augment our capital base for providing of Seasonal Loans to farmers/trader

Meet Issue related Expenses

Fund General Corporate Purposese. Further, we expect to receive the

benefits of listing on the SME Platform of BSE Ltd.

Value and Recommendation-

Being engaged in the business of providing cold storage facility to local farmers and traders on

rental basis its strong business model. It is a complete storage services provider to the farmers

productcompany, enjoying a well diversified and loyal clientele and commanding a clear superior

edge over the unorganized players in its industry. However, despite its vast business prowess, the valuations constrain our recommendation on this. However, the company’s aggressive expansion plans coupled with strong presence in niche

segments and healthy management bandwidth provides long term growth prospects. We

recommend subscribing the issue with a long term view as it may have limited listing gains.

Financial Snapshot- Particulars FY12 FY13 FY14

Revenue 1.9 36.3 38.3

%growth 1.9 26.6 20.8

EBIDTA 0.5 0.3 0.7

%margin 0.47% 1.19% 25.96% PAT %margin

0.30% 0.75% 2.09%

Minimum Retail Application- Detail At Cut off Price

No. of shares 10000

Application Money 140000

Amount Payable 140000

Discount of Retail Nil

Business:-

Our company was incorporated as “Karnimata Cold Storage Pvt. Ltd” on April 29, 2011 under the

Companies Act, 1956 vide Certificate of Incorporation issued by the Registrar of Companies, West

Bengal. For further details regarding the change in the name of our company, please refer to the

Chapter titled “History and Certain Corporate Matters” beginning on page 90 of this Draft Prospectus.

We are engaged in the business of cold storage and trading of agricultural commodities currently

specializing in potatoes. We have set up and made operational our first cold storage unit in Medinipur

District, West Bengal having an installed capacity of 1,81,000 quintals for preservation of potatoes.

Produces to be stored as per requirement of the entrepreneur Capacity (quintals) Temp Zone (0 C)

Relative Humidity (%) 1. Table and Seed Potato 1,81,000 1 to 2 88 to 90% This first project has been set

up on a 6.27 acre plot (free hold land) in order to cater to the localised demands of different growers

and traders at Village – Chekuasole, P.O.–Jogerdanga, P.S. – Goaltore, Dist.–Paschim Medinipur, West

Bengal. We believe that the need for setting up and construction of cold storage facilities is highly

required for the preservation of potatoes which is a cash crop and the same shall be equally beneficial

to both producers and consumers and shall there by strengthen the rural economy of perishable

commodities. Our project envisages perfect backward and forward linkage of marketing activities as an

essential pre-condition. Further it has become a practice to accommodate necessary finance to hirers of

the cold storage against their stocks stored in the cold storage in order to keep the price or potato

steady and allow the support price to the growers of potato. Providing this seasonal finance is an

important factor in the growth of our business. Since we have recently commissioned our first facility

we have only completed one full financial year of operations. We have been able to report ̀ 377.27 lacs

of Total Income and ` 172.25 lacs in EBITDA for the FY 2012-13. In addition to the chambers aggregating

to 1,81,000 quintals which we commissioned in March 2012, we are currently in the process of

expanding our capacity by setting up additional chambers aggregating to 75,000 quintals at the same

location. The construction of the same has begun and is expected to be completed by the first quarter of

FY 2014-15.

Investment Rationale- 1. Corporate Information:

Karnimata Cold Storage Limited was incorporated as a private limited company

on 29th of April, 2011 later on converted into a public limited company w.e.f. 4th December, 2012 under

the provisions of the Companies Act, 1956. The company is engaged in cold storage business. It initially

set up during FY 2011-12, 18,000 M.T. Cold storage in Medinipur district (West Bengal) for preservation

of potatoes and during the FY 2013-14 the capacity was increased by 7,500 M.T. The company came

with Initial Public Offering (IPO) of Rs 303.6 Lakhs during the year and was listed on SME Platform BSE

Limited on 18th March 2014.

2. Basis of preparation of financial statements:

The financial statements have been prepared and presented under the historical cost

convention on the accrual basis of accounting following generally accepted accounting principles in India

(GAAP) and comply with the Accounting Standards issued by the Institute of Chartered Accountants of

India & notified under the Companies (Accounting Standards) Rules 2006 as amended and the relevant

provisions of the Companies Act, 1956. The financial statements are presented in Indian rupees.

3. Summary of significant accounting policies:

a. Use of estimates: The preparation of the financial statements in the conformity with the GAAP

requires management to make estimates and assumptions that affect the reported amounts of assets

and liabilities and the disclosure of contingent liabilities on the date of the financial statements. Actual

results could differ from those estimates. Any revision to accounting estimates is recognized

prospectively in current and future periods.

b. Fixed Assets: Fixed assets are stated at historical cost of acquisition/construction inclusive of duties,

taxes, incidental expenses and erection/commissioning expenses up to the date the asset is ready for

intended use.

c. Depreciation and amortization: On fixed assets, depreciation is provided on straight line method. The

rates of depreciation prescribed in Schedule XIV of the Companies Act, 1956, are considered as

minimum rates.

d. Impairment of assets: At each Balance Sheet date, management assesses, using external and internal

sources, whether there is an indication that an asset may be impaired. Impairment occurs where the

carrying value exceeds the present value of future cash flows expected to arise from the continuing use

of the asset and its eventual disposal. The impairment loss to be expensed is determined as the excess

of the carrying amount over the present value as determined above. Actual results could differ from

those estimates.

e. Inventories: Items of inventories are measured at lower of cost or net realizable. Stock of stores,

spares and consumables valued at weighted average basis.

f. Revenue recognition:

i. Sales: Revenue is recognized to the extent that it is probable the economic benefits will flow to

the company and revenue can be reliably measured. Revenue from sale of goods is when all the

significant risks & rewards of ownership of the goods have been passed to the recognized buyers,

usually on delivery of the goods. The provisions of AS-9 are complied with the extent applicable to the

company.

ii. Income and expenditure: Income and Expenditure are accounted for on accrual basis, wherever

ascertainable.

g. Employee benefits: Short-term employees’ benefits are recognized as an expense in the Statement of

Profit and Loss of the year in which the related service is rendered.Regarding post employment benefits,

the registration under LIC Group Gratuity scheme is under process. Provision for gratuity has been made

in the accounts on the basis of Actuarial valuation made by LIC. Provisions of Employees Provident Funds

and Miscellaneous Provisions Act, 1952 are, at present, not applicable to the company.

h. Foreign exchange transactions: Since the company did not have any foreign exchange transactions,

the provisions of AS -11 are not applicable to the company

i. Borrowing cost: Borrowing cost that are directly attributable to the acquisition/

construction of the qualifying asset are capitalized until the time all the substantial activities necessary

to prepare such assets for the intended use are complete. All other borrowing costs are recognized as

expenditure during the period in which they are incurred

j. Government grants: Government Grants related to fixed assets are adjusted with the value of fixed

assets/credited to capital reserve.Govt Grants related to revenue items are adjusted with the related

expenditure/taken on income.

k. Share issue expenses has been written off against securities premium account

l. Contingencies: Contingent liability is a possible obligation that arises from past events

and the existence of which will be confirmed only by the occurrence or non-occurrence of one or more

uncertain future events not wholly within the control of the enterprise, or is a present obligation that

arises from past events but is not recognized because either it is not probable that an outflow of

resources embodying economic benefits will be required to settle the obligation, or a reliable estimate

of the amount of the obligation cannot be made.

m. Taxation: Tax expense comprises of current and deferred tax. Current income tax is measured at the

amount expected to be paid to the tax authorities in accordance with the Income -tax Act, 1961 enacted

in India. Deferred income taxes reflects the impact of current year timing differences between taxable

income and accounting income for the year and reversal of timing differences of earlier years.

.

Industry Prospects:-

India has occupied a remarkable position in global retail rankings; the country has high market potential,

low economic risk, and moderate political risk. In market potential, India ranks second after Brazil. Net

retail sales in India are also quite significant among emerging and developed nations; the country is

ranked third after China and Brazil.Cold storages in India preserve agricultural produce for a fixed period

of time (varying from one day and extending upto several months) at low temperature. Refrigerated

storage helps in eliminating sprouting, rottage and tuber moth damage and in reducing weight loss of

the agricultural produce. The edible products are generally not stored for more than one year. Several

cold storages store perishable products which require the storage temperature as low as -250 Celsius. As

a general practice, the arrangement of products within the cold storage is managed by the cold storage

staff members and not by the product owner, therefore the responsibility to deliver the product in

appropriate condition, remains in the hands of the cold storage owner or the insurance company.cold

storages are meant to preserve the perishable commodities of food items for a longer period with

retention of the original colour, flavour and taste. However, each commodity or item has certain life and

they cannot be stored even in a cold storage for indefinite period. Cold storages are used for high value

items or when prices crash down due to bumper crop or for such items which are grown during the

season but there is a demand round the year or for products like meat, fish or milk products which are

quickly perishable. They are mainly used for preservation of many food products since long. Their

location has to be strategic and they should have easy access. Cold storages have demand all over the

country. Cold storage facilities, essentially refrigerated warehouses, can reduce agricultural price

volatility, helping to minimize food waste and increase income for various supply chain stakeholders.

List of Perishable Commodities generally stored In Cold Storages:

Fruits Vegetables Apples Potato Oranges Potato seeds Mausami(sweet lemon) Potato with lesser sugar

content Grapes Green peas Pears(nashpati) Carrot Lichi Tomato Banana Mangoes All spices (including

red chillies), dry fruits, milk products (like ice cream, khoya etc.), medicines, jaggery, meat, fish and e ggs

are also stored in the cold storages Foods and many other commodities can be preserved by storage at

low temperature, which retards the activities of micro organisms. Micro organisms are the spoilage

agents and consist of bacteria, yeasts and molds. Low temperature does not destroy those spoilage

agents as does high temperature, but greatly reduces their activities, providing a practical way of

preserving perishable foods in their natural state which otherwise is not possible through heating. The

low temperature necessary for preservation depends on the storage time required often referred to as

short or long term shortage and the type of product.

India is agriculture based economy having a production of 63.5 million tons of fruits and 125.89 million

tons of vegetables, every year. India is also the largest producer of milk (105 million metric tons per

year) and produces 6.5 million tons of meat and poultry and 6.1 million tons of fish. In addition to huge

size of agro industry, the pharmaceuticals industry in India is the world’s third largest in terms of volume

and stands 14th in terms of value

Majority of the cold chain infrastructure in India was developed in 1960s which majorly supports the

storage of potatoes and potato seeds. About 75% of the total capacity of cold storages is suitable only

for potatoes. Cold chain Infrastructure for other temperature sensitive goods is at abysmal state right

now. On an average, about 30-40% of horticultural produce gets wasted annually in India. Even though

India is the second largest producer of vegetables worldwide but its share in global export of vegetables

is around 1.3% only. This is mainly caused by the lack of cold chain infrastructure which includes both

storage and transportation facilities.

According to recently published report by TechSci Research “India Cold Chain Market Forecast &

Opportunities, 2017” the cold chain market of India is anticipated to grow at the compounded annual

growth rate (CAGR) of 28% during 2012-2017, which will make it a whooping US$ 11.6 Billion (` 6,400

Crore) market. The Indian cold chain market is highly fragmented in which about 3500+ players are

present The current worth of Indian cold chain market is $3 billion. The market is nascent yet

increasingly demanding and expected to grow to $12.4 billion by the end of 2015.Uttar Pradesh has

maximum 1,579 cold chains followed by West Bengal at the second place with 531 cold storages,

Maharashtra 460, Punjab 420, Andhra Pradesh 350, Bihar 300, Gujarat 175, Haryana 140, Madhya

Pradesh 75, Karnataka 65 and Tamil Nadu 35.

Potato popularly known as ‘The king of vegetables’, has emerged as fourth most important food crop in

India after rice, wheat and maize. In world scenario, India became the second largest producer of potato

(Scott and Suarez, 2011). India produced 42.34 million tons from 1.86 million hectare with an average

yield of 22.72 ton/ hectare of Potato during 2010-11 (Agricultural statistics at a glance, 2012). Annual

potato production in India was 1.66 million tons in 1950-51 which increased to 22.49 million tons in

2000-01. It showed an increasing trend and rose to as high as 42.34 million tons in 2010-11 which

represents the growth in production at 5.98% per annum at the national level. (Source: Analysis of

Potato Production Performance and yield variability in India, April 2013 – www.icar.org)

Also, the first advanced estimates released by the National Horticulture Board show that Potatoes in

India are primarily grown in Uttar Pradesh, West Bengal, Bihar, Gujarat and Punjab, with Uttar Pradesh

and West Bengal having over 30% and 25% share.

Value and recommendation:-

Although debt as a percent of total capital decreased at Karnimata Cold Storage Limited over the last fiscal year to 61.89%, it is still in-line with the Commercial Services and Supplies industry's norm. However, there are not enough liquid assets to satisfy current obligations. Accounts Receivable are among the industry's worst with 32.74 days worth of sales outstanding. This implies that revenues are not being collected in an efficient manner. Last, inventories seem to be well managed as the Inventory Processing Period is typical for the industry, at 83.77 days. Year over year, Karnimata Cold Storage Limited has been able to grow revenues from 36.3M INR to 38.3MINR. This was a driver that led to a bottom line growth from 277.0K INR to 664.0K INR. Total Assets is the sum of all assets, current and fixed. The asset turnover ratio measures the ability of a company to use its assets to efficiently generate sales. The higher the ratio indicates that the company is utilizing all its assets efficiently to generate sales. Companies with low profit margins tend to have high asset turnover

Financials:-

Income statement:-

Profit and loss account

Currency in Millions of Indian Rupees

As of:

Mar 31

2012

Mar 31

2013

Mar 31

2014

TOTAL REVENUES 1.9 36.3 38.3

Cost Of Goods Sold 0.0 9.7 17.5

GROSS PROFIT 1.9 26.6 20.8

Selling General & Admin Expenses, Total 0.1 1.6 1.7

Depreciation & Amortization, Total 0.3 4.7 4.4

Other Operating Expenses 1.2 10.8 6.9

OTHER OPERATING EXPENSES, TOTAL 1.2 10.8 6.9

OPERATING INCOME 0.4 11.1 9.5

Interest Expense -0.8 -11.8 -10.7

Interest And Investment Income 0.2 0.5 --

NET INTEREST EXPENSE -0.6 -11.3 -10.7

Other Non-Operating Income (Expenses) -- -- 1.9

Other Unusual Items, Total 0.8 0.4 --

Insurance Settlements -- 0.4 --

Other Unusual Items 0.8 0.1 --

EBT, INCLUDING UNUSUAL ITEMS 0.5 0.3 0.7

Income Tax Expense 0.0 0.0 --

Earnings From Continuing Operations 0.5 0.3 0.7

NET INCOME 0.5 0.3 0.7

NET INCOME TO COMMON INCLUDING EXTRA ITEMS 0.5 0.3 0.7

NET INCOME TO COMMON EXCLUDING EXTRA ITEMS 0.5 0.3 0.7

Balance sheet:-

Currency in Millions of Indian Rupees

As of:

Mar 31

2012 Restated

INR

Mar 31

2013 Restated

INR

Mar 31

2014 Press

Release

INR

Assets

Cash And Equivalents 2.3 9.4 2.1

TOTAL CASH AND SHORT TERM INVESTMENTS 2.3 9.4 2.1

Accounts Receivable 1.8 3.0 3.9

Notes Receivable 35.0 20.8 41.6

TOTAL RECEIVABLES 36.7 23.8 45.4

Other Current Assets 3.5 7.0 1.0

TOTAL CURRENT ASSETS 42.5 40.2 48.5

Gross Property Plant And Equipment 91.2 93.2 --

Accumulated Depreciation -0.3 -4.4 --

NET PROPERTY PLANT AND EQUIPMENT 90.9 88.8 122.2

Other Long-Term Assets 5.2 6.2 9.6

TOTAL ASSETS 138.6 135.2 180.3

LIABILITIES & EQUITY

Short-Term Borrowings 40.3 35.1 33.8

Other Current Liabilities, Total 11.0 9.9 12.5

TOTAL CURRENT LIABILITIES 51.3 45.0 46.4

Long-Term Debt 52.3 53.8 70.0

TOTAL LIABILITIES 103.6 98.8 116.4

Common Stock 33.4 35.7 50.8

Comprehensive Income And Other 1.7 0.7 13.1

TOTAL COMMON EQUITY 35.0 36.4 63.9

TOTAL EQUITY 35.0 36.4 63.9

TOTAL LIABILITIES AND EQUITY 138.6 135.2 180.3