Courtesy: https://www.chittorgarh.com/
Proventus Agro NSE SME IPO review (Avoid)
• PAL is engaged in the trading of integrated health foods.
• It posted inconsistency in its top and bottom lines for the reported periods.
• It incurred a huge loss for FY20 and has translated its last three fiscals EPS in red.
• Based on FY23 working, the issue is aggressively priced discounting all near-term positives.
• There is no harm in skipping this pricey bet.
ABOUT COMPANY:
Proventus Agrocom Ltd. (PAL) is an integrated health food brand with a presence in the entire range of dry fruits, nuts, seeds and berries and healthy snacking products across the value chain. Its approach in the space focuses on diversifying across the baskets and intensifying presence across the value chain; in the end, being a ‘one-stop shop’ for consumers.
The motto of Proventus is to create expertise in healthy food products and build the revenue stream by moving across the value chain from origination to distribution and creating an integrated business model – from “farm to homes”. The fundamental cornerstone of its approach is to capture the demand and supply stream by developing a stable base of sourcing and distribution.
There is a large vacuum in the “healthy snacking” space in India especially in the dry fruits, nuts, seeds and berries category. In the last few years, there has been a shift in consumer preference from unbranded/loose produce to branded products all the way down to Tier 2 city Kirana stores also. As consumer preference gravitates towards better quality branded produce, they are looking for a trustworthy brand offering innovative products from natural to flavour-augmented healthy snacks – this is where ‘ProV’ is positioned with its wide range of healthy snacks in the dry fruits, nuts, seeds and berries category. With its Pan-India distribution and easy availability, ProV aims to be THE brand consumers think of whenever they want to buy nuts or dry fruits.
With growing consumer awareness, health and nutrition increasingly forming an inextricable attribute of new-age food culture, our snacking items as well as habits are gravitating towards healthy snacking in general. Also, post the Covid-19 pandemic, the world has evolved – be it business or lifestyle. And since this has not been restricted merely to urban areas and big cities but is also developing demand in rural pockets, healthy snacking has become a top priority. Indian households are likely to increase their spending on health-focused foods and beverages in the next few years, as consumers are increasingly shifting to healthier alternatives and buying foods with better ingredients.
As health and hygiene increasingly become the deciding factor for consumers, they are now consciously avoiding open unpackaged dry fruits and unhealthy snack offerings. Instead, they are increasingly moving to packaged dry fruits and healthy snacks. In the recent past, the Covid-19 pandemic scare and increased focus on healthy lifestyle has particularly given a fillip to such packaged products, thereby increasing their demand. Its activities are likely to be disturbed by the shift of its operation place as its lease is getting over in the near term and the company has to shift to new premises. As of March 31, 2023, it has overall 39 employees on its payroll and 145 contract labour (including its subsidiary).
ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 901920 equity shares of Rs. 10 each at a fixed price of Rs. 771 per share to mobilize Rs. 69.54 cr. The issue comprises 671773 fresh equity shares (Rs. 51.80cr.) and 230147 equity shares (Rs. 17.74 cr.) by Offer for Sale (OFS). The minimum application to be made is for 160 shares and in multiples thereon, thereafter. The issue opens for subscription on May 24, 2023, and will close on May 26, 2023. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.32% of the post-IPO paid-up capital of the company. PAL is spending Rs. 1.74 cr. (including expenses of Rs. 1.25 cr. for fresh equity issue) for this IPO process and from the net proceeds it will utilize Rs. 9.91 cr. for working capital and Rs. 29.86 cr. for working capital of its subsidiary – Prov Foods Pvt. Ltd., and Rs. 10.78 cr. for general corporate purposes. Excluding the market maker reserved portion of 45120 shares, it has allocated 428480 shares for HNI and 428320 shares for Retail investors.
Sundae Capital Advisors Pvt. Ltd. is the sole lead manager and Bigshare Services Pvt. Ltd. is the registrar of the issue. Ajcon Global Services Ltd. is the market maker of the company.
Having issued initial equity shares at par, the company issued further equity shares in the price range of Rs. 197 – Rs. 240 between March 2016 and June 2017. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 10.00, Rs. 199.34, Rs. 206.00, Rs. 208.14, and Rs. 240.00 per share.
Post-IPO PAL’s current paid-up equity capital of Rs. 2.76 cr. will stand enhanced to Rs. 3.43 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 264.27 cr.
FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, PAL has posted a turnover/net profit – (loss) of Rs. 900.89 cr. / Rs. – (21.90) cr. (FY20), Rs. 301.74 cr. / Rs. 1.88 cr. (FY21), and Rs. 404.35 cr. / Rs. 1.14 cr. (FY22). For 9M of FY23 ended on December 31, 2022, it earned a net profit of Rs. 1.90 cr. on a turnover of Rs. 319.10 cr. Thus while its top line marked inconsistency post the drastic fall in FY21, its bottom line too posted inconsistency.
For the last three fiscals, PAL has reported an average EPS of Rs. – (8.91) and an average RoNW of 2.43%. The issue is priced at a P/BV of 3.45 based on its NAV of Rs. 223.80 as of December 31, 2022, and at a P/BV of 2.33 based on its post-IPO NAV of Rs. 331.05 per share.
If we annualize FY23 earnings and attribute them to fully diluted post-IPO equity capital, then the asking price is at a P/E of 104.61. Thus the issue is aggressively priced.
DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy post-listing, based on its financial performance and future prospects.
COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Krishival Foods as their listed peer. It is currently trading at a P/E of 157.56 (as of May 19, 2023). However, they are not truly comparable on an apple-to-apple basis.
MERCHANT BANKER’S TRACK RECORD:
This is the 1st mandate from Sundae Capital and has no track record of its past performance.
Conclusion / Investment Strategy
The company operates in a highly competitive and fragmented segment with many big players around. Its recent performance marked inconsistency in its top and bottom lines. Based on FY23 earnings, the issue appears aggressively priced. Post-IPO, tiny paid-up equity capital also indicates longer gestation for migration to the mainboard. There is no harm in skipping this pricey bet.
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/