Asset-light growth model: Expected savings of Rs 15,00,00,000 in future capex; operating leverage could come into play for this multibagger stock!

In the second half of FY25, then that could also additionally provide a good push to our gross margins and hence our net margins should start going up

In the realm of the stock market, tales of rags-to-riches are commonplace, yet each investor-turned-protagonist embarks on their unique journey of wealth accumulation. Some leverage competitive advantages, others scrutinize valuations, while some delve into management intricacies or operational leverage. In this exploration, we delve into the narrative of Prime Fresh Ltd., a company that has orchestrated a wealth crescendo for its shareholders, with its stock price soaring over 650 per cent in the last three years and delivering multibagger returns.

Company Overview:

Prime Fresh Ltd. operates primarily in two segments: a service business and a fruit and vegetable supply chain. The service arm encompasses a spectrum of activities, ranging from loading and unloading to cold storage management, catering primarily to clients in the agriculture and FMCG sectors. Notable clients include Reliance Fresh, Wagh Bakri Tea, Vasant Masala, and Intas Pharmaceuticals, with service business accounting for approximately 15 per cent of the company's sales in FY23. The company's strategic focus, however, is shifting towards the fruit and vegetable supply chain.

Business Model Insights:

Within the fruit and vegetable supply chain domain, Prime Fresh Ltd. engages in procurement, processing, and distribution. Procurement spans across 85 districts in Maharashtra, Rajasthan, Gujarat, UP, and Karnataka, involving various stakeholders such as farmers, local aggregators, and suppliers. Post-procurement, the company undertakes sorting, packing, and logistics, tailored to different buyer segments. Distribution channels encompass modern trade, e-commerce, APMCs, food processors, exporters, and a nascent foray into B2C and HoReCA verticals.

Geographical Expansion and Operational Dynamics:

Operating across 17 to 18 states and collaborating with 85 APMCs, Prime Fresh Ltd. has established a robust farmer base exceeding 120,000. With over 850 full-time employees and a network of 14 collection centers, including seasonal and full-time variants, the company operates primarily in Gujarat, Maharashtra, and Rajasthan. Anticipated growth vectors include modern trade, e-commerce, and penetration into northern, northeastern, and southern markets, facilitated by a segmented sales approach and targeted expansion strategies.

Unveiling Operating Leverage:

Despite modest margins hovering around 5 per cent, Prime Fresh Ltd. attributes its investment-intensive approach over the past three years to infrastructure augmentation, sales team expansion, and forays into exports, franchising, and B2C ventures. Management anticipates a margin upswing post-June/July, foreseeing optimal utilization of capacity and moderation in operational costs. With the completion of a preferential issue and consequent reduction in interest costs, FY25 promises improved margins and enhanced profitability. As per the investor conference management said “So, somewhere at some point of time, if you look at the capacity what we have built, we will get better utilized. And your staff cost and your capital cost, particularly the interest cost and the traveling cost will start kind of moderating or will not rise as much as your sales is rising. This will ensure that slowly we should get into a much better margin from the cost structure point of view. However, if we were to kind of get a good traction in our HoReCa or exports or B2C or franchise model, which we think we should get somewhere in the second half of FY25, then that could also additionally provide a good push to our gross margins and hence our net margins should start going up.”

Recent Milestone:

A recent triumph for Prime Fresh Ltd. is securing a 5-year lease tender for an APEDA-approved packhouse facility in Naroda, Ahmedabad, spanning 60,000 sq ft. This state-of-the-art facility bolsters the company's export capabilities and also it can help improve revenues from other verticals such as Domestic F&V Supply chain, Ripening, Storages and other packing & repacking services. The Facility is equipped with all the modern facilities, cold storages, ripening chambers and other infrastructure such as sorting, Grading & packing facilities. The cumulative capacity has a potential for 40 TPD of inwards and outwards of Agro produce once it starts stabilizing & operating at full capacity over the coming few years, while adhering to its asset-light growth model. Expected capex savings of Rs 15 crore further underscore the strategic significance of this acquisition.

Disclaimer: The article is for informational purposes only and not investment advice.