Sunoor Kaul of Origo tells how they offer complete post-harvest management services for agricultural commodities.
First of all, how are you and your family doing in these COVID-19 times?
Sunoor Kaul: Like everyone else, the family and I had to stay home and respect social distancing norms. The pandemic has altered people’s way of life, and our ability to adapt to any crisis scenario was tested immensely. On the flip side, it gave us an opportunity to reflect and spend quality time at home. Personally, I love to spend time with my family. As a family, we believe in doing activities together and usually go cycling on Sundays and play indoor board games.
Tell us about you, your career, how you founded Origo?
Sunoor Kaul: I graduated with a Bachelors in Engineering from one of India’s finest technical institutions, IIT Delhi, and pursued an MBA in Finance from the prestigious Stephen M. Ross School of Business, University of Michigan. After completing my education, I started working at GE Healthcare as a Financial Planning Analyst (Jun 1999 – Jul 2004) at first, and then as an Associate at the Bank of America Merrill Lynch (Jul 2006 – Mar 2009). Before founding Origo, I worked at Ortus Capital as Managing Partner (Mar 2009 – Feb 2011).
The initial days of founding Origo were challenging, as we had to convince investors by showcasing the India story, with agriculture as a platform for future growth. Moreover, given that there was value in the proposition, investors took interest in the possibilities and decided to invest in Origo. They believed that the idea could take shape and flourish faster than imagined. Business models need to have a unique value proposition so that they can attract capital. Having worked in this sector for about a decade, there is a genuine concern at the ground level about the fate of Indian agriculture. The thought was to simply uplift farmers from their struggles and provide real solutions that can benefit the smallholder farmers.
How does Origo innovate?
Sunoor Kaul: Origo’s vision is to create an agricultural economy that is less fragmented, with equitable access for everyone in the system, in line with the country’s financial inclusion agenda. With the penetration of formal capital in agriculture being as low as 5%, the company is focusing on the untapped market, which has an estimated $100 billion market potential. Origo’s pioneering securitized solution will allow investors to secure their transactions by subscribing to PTCs, which is rated A1 by ICRA. Additionally, Origo can provide quick payments to suppliers through cost-efficient procurement and storage while ensuring just-in-time delivery to clients. Origo has become the largest service provider to the government with its warehousing capabilities and network. Furthermore, we are also spearheading a technological transformation in Agri supply chain financing through the flagship agri-trade finance platform, TradeFi.
Farmers, traders, and suppliers now have a national trade finance platform with better price discovery options. Going forward, Origo seeks to expand its trade finance business to meet the large unmet demand for institutional finance across the country. We currently have around 400 warehouses, which are all managed and leased properties. We are analysing options to build our sites as well. We expect a 10-15 percent increase in the number of warehouses in the next financial year.
How the coronavirus pandemic affects your business, and how are you coping?
Sunoor Kaul: Our business addresses two different aspects. One is structured trade finance, and the other is warehousing. Concerning warehousing, we service government entities, as well as exchanges and some private parties. During Covid times, the government-related business wasn’t impacted at all, as we were still stocking farmers’ produce and ensuring supply for PDS distribution. During the lockdown period, we had special passes to operate, and we functioned with full capacity for stocking and releases.
Structured finance was impacted initially because mandis were closed for six weeks during the initial period of the lockdown. Subsequently, mandis opened up, and by June end, they were fully operational. The current Kharif season is helping us make up for the volumes for the financial year. Structured finance volumes will remain strong in the current fiscal and going forward.
Revenues in the previous year from trade finance were Rs 165 crore. From the warehousing segment, they were about Rs 130 crore. This year, we plan to up trade finance to about Rs 350 crore. Revenues from warehousing will also grow 15%.
Also, in 2021, we aim to close almost 100% more contracts as compared to FY 20. In revenue terms, we will end up higher, and profitability should be similar or better than last year.
Did you have to make difficult choices, and what are the lessons learned?
Sunoor Kaul: As mentioned earlier, the initial days are always challenging for start-ups like us, as we have to build on knowledge resources, organization structure and develop several service instruments. When we founded Origo, the first six months were an uphill task. While we had a relatively clear understanding of finance and supply chain concepts, which also happens to be the larger vision for Origo. The initial period just went into investing our time and resources in learning about the world of Agri commodities and how universal solutions of logistics and finance could fit in. India is a country that largely depended on pre-existing systems and traditional methods. Therefore, we had to devise strategies that could address the gaps and appeal to seed investors in terms of the range of solutions we are offering.
What specific tools, software, and management skills are you using to navigate this crisis?
Sunoor Kaul: Origo has already introduced many tools, and we are currently working on several solutions that have not been tried in the Indian Agri space earlier. For instance, the mobile app-based trade finance platform, TradeFi, offers multiple commodity trading solutions within a single platform. It is backed by advanced blockchain technology, which allows provides several advantages to all the agri stakeholders. It gives them the option of connecting with Agri stakeholders on a platform, making quick purchases, procuring quality-tested commodities, and offering off-balance-sheet financing for suppliers, among others. Users will be able to assess commodity transactions, commodity prices, the status of procurement & transportation, etc., making it a transparent alternative to traditional systems.
Further to this, Origo’s IoT-enabled storage and warehousing practices ensure proper handling of produce, which plays a significant role in making the agricultural processes sustainable. It is a known fact that India suffers from food wastage and rotting of grain due to unviable practices every year, which also impacts climate change severely. Reducing the carbon footprint and practising sustainable methods is important to navigate the food crisis, and Origo is at the forefront of using technology to deliver sustainable results for suppliers, investors, and others.
Who are your competitors? And how do you plan to stay in the game?
Sunoor Kaul: Our top competitors include top Trade Finance and warehousing companies in India. However, we received a head-start over our competition, considering that we were the first in the sector to offer securitized debt instruments. We securitized ~INR 5 crores worth Maize from Gulab Bagh, Bihar and raised money from investors who purchased the crop with the guaranteed coupon. We were able to securitize other Agri commodities in subsequent months, with only institutional investors. We have plans to increase the pace of commodity securitization in 2021 to eventually open the space to retail investors as well. Moreover, we have also spearheaded efforts in warehousing, and we are helping clients with solutions for 20+ commodities.
In addition to this, we have received an A1 rating from one of India’s prestigious rating agencies ICRA for the above-securitized transaction. The ratings indicate the reliability of our securitized instruments and the progress we have made in the space as compared to some of our competitors thus far.
In a bid to address the difficulties people face in procuring commodities during harvest and throughout the year, the firm decided to introduce the Forward contracts. Forward contracts are a reliable instrument for investors who wish to get a sense of balance between risk-taking and returns on investment. They get to conclude one-on-one contracts for commodities for up to 12 months.
Thus far, Origo has purchased INR 180 crores worth of Kharif crop, amounting to 60,000 MT. It mainly includes Paddy, Soybean, Cotton, and Maize. Forward contracts allow entities to purchase commodities off balance sheets, while a contract issuing entity ensures quality and seamless processing. Investors and buyers can then enter into a contract with an issuing firm like Origo.
Your final thoughts?
Sunoor Kaul: There are many changes taking place in our country and its economy. The agriculture sector is at the cusp of transitioning into a modern industry that can address the needs of the 21st century. Be it an improvement in supply chains, warehouse management, and disintermediation where farmers easily find customers without middlemen, the opportunities are many. Furthermore, processes will likely become more transparent now that purchased commodities can be tracked in real-time, and agri stakeholders can identify prices and transactions accurately.
Additionally, agritechs and agri-based entities are receiving support from the government in reforming the system. However, if governments can push for more investments in improving warehousing infrastructure in BOT or PPP mode, the sector will grow faster. The farm laws are a step in the right direction, however, speeding up the redressal of Agri stakeholders’ concerns could spell success for the sector in the coming years.
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