Neha International to leverage low cost production bases for floriculture

Neha International Ltd has announced that the Company is engaged in the business of floriculture (cut flowers - roses) since 1993. Significant cost arbitrage is available between production bases in low cost areas in Africa South America and Asia, as compared to those in the developed world, which accounts for most of the consumption. The Company intends to capitalize on the outsourcing opportunity by exporting to these developed markets. International trade in flowers is estimated at US$ 12b.

Ethiopia with its conducive climate, low freight and labour costs, supportive Government, abundant and cheap land and labour etc. has been identified as a country with great potential for this sector.

With reference in the earlier announcement dated September 13, 2007 the Company is acquiring a 100% stake in Globeagro Holdings, Mauritius at a consideration of Rs 41.32 crores. This Company has substantial stake in three Ethiopian floriculture Companies, namely Holetta Roses Plc, Alliance Flowers Plc and Oromia Wonders Plc.

This acquisition is being partly funded by way of further issue of 23 lakh equity shares on preferential basis, to persons other than Promoters at Rs 42 per share and 42.5 lakh convertible share warrants, on preferential basis, to promoters and others, at a price of Rs 42 as per SEBI Guidelines. The balance consideration will be dischareged by way of a share swap and will entail issuance of 75.23 lakh equity shares of Rs 10 each to the shareholders of Globeagro Holdings, without receiving payment in cash.

These farms in Ethiopia have a total acreage of more than 100 hectares, with about 25 hectares of cultivation under green houses, besides having a world-class plant propagation unit. They are located at more than 8,000 feet altitude and have around 1,000 employees. They have been set up to grow and cut flower roses to international quality standards, using world-class production methods, with a view to marketing the flowers in the prime markets of Europe and Far-East in competition with the best in the world. Significant investments have already been made in green houses, irrigation and fertigation systems, post harvest equipment, cold chain, disease and pest management and post harvest in management.

The farms grow some of the best T-Hybrid roses which are sold at a premium through leading auctions of the world based in Netherlands. Vba and Flora Holland. Until recently, Vba was owned only by growers in the European Union. The owenership has now been opened to importer growers and one of the farms that is being acquired has become one of the first international owners of the Vba. As co-owner, its has unrestricted access to the auction is paying lower commissions and is entitled for a share in the profits of Vba.

The Company intends to expand area under cultivation by 30 hectares immediately by utilising the existing infrastructure on the acquired farms. This would increase its capacity by more than 100% of the year 08-09.

In continuation with the above strategy, on an ongoing basis, the Company evaluates proposals to build / acquire farms. The objectives is to achieve global scale and integrate the various activities propagation, growing, transportation, wholesaling and distribution, which would result in economies of scale, effective marketing and control over logistic thereby building brand "Neha" and improving the top and bottom lines of the Company.

The stock was trading at Rs.55.35, up by Rs.2.60 or 4.93%. The stock hit an intraday high of Rs.55.35 and low of Rs.55.35. The total traded quantity was 8100 compared to 2 week average of 10380.

Source : Equity Bulls

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