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Sohan Lal Commodity is yet to file its draft IPO papers with the Securities and Exchange Board of India.
Sohan Lal Commodity is yet to file its draft IPO papers with the Securities and Exchange Board of India.

Sohan Lal Commodity in talks with Rabo, IDFC to raise Rs100 crore

The deal, part of a pre-IPO round of funding, is expected to close in the next two months

Agri-warehousing firm Sohanlal Commodity Management Ltd is in talks with Rabo Equity Advisors, IDFC Private Equity and a North America-based investor to raise 100 crore as part of a pre-initial public offering (IPO) round of funding, said two people directly familiar with the development.

The firm is backed by private equity funds Everstone Capital, Mayfield Advisors and Nexus Venture Partners. The deal is expected to close in the next two months, said one of the persons cited above, requesting anonymity. “The agri-commodity segment faces a huge shortfall of warehousing and hence firms such as Sohan Lal which are targeting this space, are an interesting investment opportunity for private equity funds. Also, firms have added more revenue lines such as collateral management, started their own NBFCs (non-banking financial companies) and thus they have seen improvements in both their top line and margins," said the second person mentioned above, also requesting anonymity.

According to an 18 February report by a panel on strengthening negotiable warehouse receipts, set up by the Warehousing Development and Regulatory Authority (WDRA), under the Department of Food and Public Distribution, India’s total warehousing gap is estimated at 35 million tonnes.

The report said that the total warehousing capacity, as of October 2014, was 117.52 million tonnes, of which the private sector contributed 18.97 million tonnes, while the rest came from the Food Corporation of India, central and state warehousing corporations and cooperatives.

Sohan Lal Commodity has hired ICICI Securities Ltd and HDFC Securities to manage its IPO. It is yet to file its draft IPO papers with the Securities and Exchange Board of India.

Sohan Lal Commodity declined to comment for this story. “We do not comment on market speculation," said Rajesh Srivastava of Rabo Equity Advisors. An email sent to IDFC on Tuesday evening remain unanswered.

In November 2012, Everstone Capital and ICICI Bank’s Emerging India Fund jointly invested $23.5 million in Sohan Lal. In March 2011, Mayfield India and Nexus Venture Partners invested 35.5 crore in the firm.

This year, agri-warehousing firms have found traction from large investors across the globe, especially large international funds. In April, Singapore’s state-run investment firm Temasek Holdings Pte. Ltd invested 250 crore in IDFC-backed Staragri Warehousing and Collateral Management Ltd, while in July, Canadian investor Prem Watsa’s Fairfax India invested 800 crore in National Collateral Management Services Ltd to acquire a 74% stake.

“Most of the addition that has happened in recent years in agri-warehousing capacity has been on the private-sector side. In the last several years, there has been a lot of talk about the agri-supply chain and how the inefficiencies therein are impacting the economy, through high inflation, wastage, etc," said Sunil Kumar Sinha, principal economist and director, public finance, at India Rating and Research Pvt. Ltd.

He said financial incentives, such as the capital subsidy for warehousing introduced a few years, will alone not suffice to boost the sector. The policy has to look at other important aspects such as land acquisition, availability of power and its tariff, otherwise the growth of this industry will be subdued despite the high demand, he added.

Sohan Lal will be the second investment in agri-commodity warehousing for both IDFC and Rabo Equity Advisors. In February 2012, IDFC Private Equity invested 150 crore in Staragri Warehousing and Collateral Management Ltd for a minority stake; in May 2011, National Collateral Management Services Ltd raised almost 100 crore from Rabo Equity Advisors’ India Agribusiness Fund I, International Finance Corporation and other investors.

Founded in 2008 by Sandeep Sabharwal, the New-Delhi based Sohan Lal Commodity offers various warehousing services such as scientific storage for agriculture commodities, fumigation, testing and certification and funding against storage receipts. The firm offers its services to farmers, processors, traders and commodity exchanges.

According to the firm’s website, it handles more than 157 agriculture commodities including cotton, barley, bajra, castor seeds, wheat, pulses, maize and spices across India. As of June, Sohanlal network comprises more than 750 warehouses and 15 cold storages across 17 states, with a capacity of over 1.74 million tonnes spread over 9.49 million sq. ft.

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