Mumbai: With agriculture contributing one-fifth to India’s national income and employing about two-thirds of its workforce, Star Agriwarehousing and Collateral Management Ltd has an addressable market for its services more than most start-ups can hope to take aim at.
The Jaipur-based firm offers what it calls post-harvest management services and is scaling beyond plain warehousing services. Two years into its existence, it turned in revenues of Rs3 crore for the year to March and a net profit of Rs86 lakh.
Huge potential: Amith Agarwal, director of Star Agriwarehousing
A bulk of its income, almost 70%, comes from warehousing services that it provides to farmers, primarily in Rajasthan and Gujarat, markets that have weak storage infrastructure. In the past six months, it has also expanded into Haryana, Punjab and Madhya Pradesh.
The other service in Star Agriwarehousing’s bouquet is collateral management. After receipts are issued in favour of warehoused produce, the paper then acts as the collateral on which the farmers borrow from banks. Star Agriwarehousing has tie-ups with ICICI Bank Ltd, IndusInd Bank Ltd, Development Credit Bank Ltd, and the State Trading Corp. of India Ltd for this.
Amith Agarwal, a director and one among four co-founders of Star Agriwarehousing, says the firm currently has a loan portfolio of Rs400 crore, and in the next 12-24 months, the target is to expand this to Rs1,500 crore, and over 24-36 months, to further double it.
The company charges a fee from banks, which are mandated to make 18% of their loan advances to farm borrowers, on the management of the collateral, that contributes around 25% of revenues.
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A third revenue stream comes from selling insurance products to farmers, providing logistics support for transport of commodities and lab testing for quality of produce as also commissions on bulk buying of commodities by the likes of KS Oils Ltd, Britannia Industries Ltd or ITC Ltd.
“The opportunity for such integrated post-harvest management companies arises from the creation of private markets as opposed to APMC (Agriculture Produce Marketing Committee) mandis (local markets),” says Akhilesh Tilotia, director of Park Financial Advisors Pvt. Ltd, a Mumbai-based investment advisory firm.
Tilotia says the potential before Star Agriwarehousing is as vast as the agriculture market in India (valued at some Rs6 trillion), but the challenge will be scaling up and being acceptable across the country.
Acknowledging a downside in Star Agriwarehousing’s business model, Agarwal says the expertise of his core group in commodities is limited to foodgrain, oilseeds and coriander. “This will be a challenge when we expand into other markets,” he says, adding that recruiting local people in different offices could plug this gap.
The 125-strong company aims to have zonal offices in Delhi, Kota, Ahmedabad, Indore, Mumbai and Hyderabad, and branches in 26 cities by March-end 2010.
The Star Agriwarehousing director’s overriding concern, however, is frequent changes in government regulations. “Agriculture is one sector where there is constant government intervention. The only thing they (the government) seem to do in order to control inflation is to tinker with agri-commodity prices,” says Agarwal.
In order to meet operating costs, especially salaries, the company is on the lookout for Rs10-20 crore funds from a venture capital firm. Star Agriwarehousing has bought at least 50 acres of land spread over 10 plots in order to set up warehouses. Financing for construction will come from banks, Agarwal expects. Over the next two-three years, the company wants to increase its warehousing space, both rented and owned, from the current capacity of 150,000 tonnes to 2 million tonnes.
Star Agriwarehousing and Collateral Management Ltd and Mantis Technologies Pvt. Ltd are among the nominated companies at the Tata NEN Hottest Startups competition, of which Mint is the official print media partner. Competition details can also be accessed at www.livemint.com/hotteststartups