Nova Agritech IPO review (May apply)
• The company is engaged in agri-input tech based products.
• The company has posted growth in its financial performance for the last three fiscals.
• H1 of FY24 indicates muted growth indicating static performance.
• Based on FY24 annualized earnings, the issue appears fully priced.
• Well-informed investors may park funds for the medium to long term rewards.
ABOUT COMPANY:
Nova Agritech Ltd. (NAL) is an agri-input manufacturer offering soil health management, crop nutrition and crop protection products focused on tech-based farmer driven solution approach, wherein it mainly offers ecologically sustainable and nutritionally balanced products based on Research and Development. The company manufactures, distributes and market a wide range of product categories consisting of (a) soil health management products; (b) crop nutrition products; (c) bio stimulant products; (d) bio pesticide products (e) Integrated Pest Management products; (f) new technologies; and (g) crop protection products. Currently, the crop protection products are manufactured by its subsidiary Nova Agri Sciences Private Limited.
As on November 30, 2023, it has received a total of 720 product registrations comprising of 7 registrations in the soil health management category, 176 registrations in the crop nutrition category, 4 registrations in bio pesticide category, 7 registrations under Technical Indigenous Manufacture and 526 registrations in the crop protection category. All of the 526 registrations in the crop protection category are in the name of Nova Agri Sciences Private Limited. Further, NAL has applied for 14 registrations for new products across various categories in the name of Nova Agri Sciences Private Limited (NASPL) and 22 new registrations in the name of Nova Agritech Limited (NAL).
The company has a total dealer network comprising of approximately 11,722 dealers out of which approximately 6,769 dealers are active to whom it has distributed and sold products during the current financial year. Its dealer network is currently spread across 16 states of India namely Andhra Pradesh, Telangana, Maharashtra, Karnataka, Madhya Pradesh, Rajasthan, Chhattisgarh, Tamil Nadu, Uttar Pradesh, Odisha, West Bengal, Bihar, Gujarat, Jharkhand, Uttarakhand and Jammu & Kashmir and 02 in Nepal.
It has also entered into marketing, distribution and supply agreements with certain third parties in Bangladesh, Sri Lanka and Vietnam and are currently awaiting the necessary permission to start business in these jurisdictions. Significant amounts of its revenue is generated from the distribution of its products in the three southern states of Andhra Pradesh, Karnataka and Telangana. As of November 30, 2023, it had 283 employees on its payroll.
ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden combo IPO of fresh equity issue worth Rs. 112 cr. (27316965 shares at the upper band), and an Offer for Sale (OFS) of 7758620 shares (worth Rs. 31.81 cr. at the upper band). The company has announced a price band of Rs. 39 – Rs. 41 per share having a face value of Rs. 2 each. The overall size of the IPO will be for 35075585 shares worth Rs. 143.81 cr. The issue opens for subscription on January 22, 2024, and will close on January 24, 2024. The minimum application to be made is for 365 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 37.91% of the post-IPO paid-up capital of the company. From the net proceeds of the fresh equity issue, the company will utilize Rs. 14.20 cr. for investment in subsidiary for new formulation plant, Rs. 10.49x cr. for expansion capacity of own formulation plant, Rs. 26.65 cr. for working capital, Rs. 43.36 cr. for working capital of its subsidiary, and the rest for general corporate purposes.
The joint Book Running Lead Managers (BRLMs) to the issue are Keynote Financial Services Ltd., and Bajaj Capital Ltd., while Bigshare Services Pvt. Ltd. is the registrar to the issue.
Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 3.00 – Rs. 25 (on the basis of Rs. 2 FV) between March 2010 and January 2023. It has also issued bonus shares in the ratio of 3 for 1 in March 2014, and 3 for 1 in March 2018. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NIL, Rs. 0.79, Rs. 1.41, and Rs. 2.32 per share.
Post-IPO, company’s current paid-up equity capital of Rs. 13.04 cr. will stand enhanced to Rs. 18.50 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 379.33 cr.
FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total revenue/net profit of Rs. 160.93 cr. / Rs. 6.30 cr. (FY21), Rs. 185.61 cr. / Rs. 13.69 cr. (FY22), and Rs. 210.93 cr. / Rs. 20.49 cr. (FY23). For H1 of FY24 ended on September 30, 2023, it earned a net profit of Rs. 10.38 cr. on a total revenue of Rs. 103.24 cr.
For the last three fiscals, the company reported an average EPS of Rs. 2.53 and an average RoNW of 30.17%. The issue is priced at a P/BV of 4.02 based on its NAV of Rs. 10.19 as of March 31, 2023, and at a P/BV of 2.13 based on its post-IPO NAV of Rs. 19.29 per share (at the upper cap). Surprisingly, the offer document as well as the IPO price band ad is missing its NAV as of September 30, 2023.
If we attribute FY24 annualized earnings to company’s post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 18.30. Thus the issue appears fully priced.
The company has reported PAT margins of 3.92% (FY21), 7.38% (FY22), 9.73% (FY23), 10.06% (H1-FY24), and RoCE margins of 19.87%, 23.81%, 27.25%, 12.87% respectively for the referred periods.
DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It has already adopted a dividend policy in February 2023, based on its financial performance and future prospects.
COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Aries Agro, Aimco Pesticides, Basant Agrotech, Best Agrolife, Bhagiradha Chem., Heranba Ind., India Pesticides, Madras Fertilizers, and Dharmaj Crop as their listed peers. They are trading at a P/E of 16.82, 00, 30.26, 86.09, NA, 24.60, NA, NA, and 20.18 (as of January 17, 2024). However, they are not comparable on an apple-to-apple basis.
MERCHANT BANKER’S TRACK RECORD:
The two BRLMs associated with the issue have handled 2 IPOs in the last two fiscals, and all closed above the offer price on the listing date.
Conclusion / Investment Strategy
The company is operating in a highly competitive segment of agri-input. It posted growth for the last three fiscals, but H1 of FY24 indicates static performance. Based on FY24 annualized earnings, the issue appears fully priced. Well-informed investors may park funds for the medium to long term rewards.
Review Author
DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. With entry barriers, SEBI wants only well-informed investors to participate in such offers. With crazy listings in the past, SME IPOs drew the attention of investors across the board. However, as SME issues have entry barriers and continued low preference from the broking community, any reader taking decisions based on any information published here does so entirely at own risk. The above information is based on information available as on date coupled with market perceptions. The Author has no plans to invest in this offer.
(SEBI registered Research Analyst-Mumbai).
About Dilip Davda
Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.
Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.
Email: dilip_davda@rediffmail.com
Courtesy: https://www.chittorgarh.com/
