New Delhi, Aug 22 — Gemini Edibles & Fats India Ltd -- maker of the Freedom Oils brand -- has flagged significant raw material, supply chain, regional concentration and regulatory risks in its draft red herring prospectus (DRHP) filed with market regulator Securities and Exchange Board of India for its proposed initial public offering.
The Hyderabad-based company is proposing an IPO comprising an offer for sale of up to 4.11 crore equity shares by existing shareholders with no fresh issue of shares.
The company said its operations remain highly exposed to fluctuations in crude edible oil prices, which are influenced by weather, crop yields, currency movements, government policies, global inventories and geopolitical developments.
Crude edible oil accounted for about 97.5 per cent of its materials and related costs in each of the three financial years ended March 2021, while materials and related costs represented more than 92 per cent of total expenses, according to the DRHP.
The company also depends on a limited number of suppliers. Its 10 largest crude edible oil suppliers accounted for 90.8 per cent of purchases in fiscal 2021, exposing it to potential supply disruptions and pricing risks.
Imports constitute another key vulnerability. About 89.5 per cent of the company's edible oil purchase cost in fiscal 2021 was linked to imports with crude sunflower oil sourced primarily from Ukraine, Russia and Argentina and crude palm oil largely from Indonesia and Malaysia.
Currency fluctuations, geopolitical disruptions, natural disasters and higher shipping costs could therefore affect operations, it added.
Gemini Edibles also flagged concentration risks, with its three refineries located in Andhra Pradesh. The southern region accounted for 85.6 per cent of revenue from operations in fiscal 2021, while Odisha contributed another 10.3 per cent.
The company warned that floods, cyclones, social or political disruptions and changes in government policies in these regions could adversely affect its business.
Food safety and regulatory compliance are also identified as risks. As of June 30, 2021, the company had received 39 notices from food safety authorities, alleging, among other things that product samples were sub-standard or misbranded.
The company said product contamination, labelling errors or recalls could result in regulatory action, litigation, reputational damage and financial losses.
Other risks highlighted in the DRHP include intense competition in the edible oils market, dependence on key industrial customers, manufacturing disruptions, outstanding legal proceedings, adequacy of insurance coverage, reliance on third-party transportation providers and potential conflicts of interest involving promoters and directors.
The company's top 10 industrial customers accounted for 68.7 per cent of revenue from its industrial consumer vertical in fiscal 2021, the filing showed.