GODREJ AGROVET LIMITED IPO

COMPANY OVERVIEW

Godrej Agrovet is India based agri-business Company offering products including Animal Feed, Crop Protection, Oil Palm, Dairy and Poultry and Processed Foods. Godrej Agrovet is leading animal feed company and the largest crude palm oil producer in India.

Business Verticals:

1. In animal feed business, the products comprises cattle feed, poultry feed (broiler and layer), aqua feed (fish and shrimp) and speciality feed. The products are produced at 35 facilities and sold through 4000 distributors across India.

2. In crop protection business, company produces plant growth regulators, organic manures, generic agro-chemicals and specialised herbicides. The products are sold in India and 24 countries. Company has over 6000 distributors in this business segment.

3. In oil palm business, the products include crude palm oil, crude palm kernel oil and palm kernel cake. Company owns five palm oil mills.

4. The dairy business is operate through a subsidiary Cream-line Dairy. Company sell milk and milk based products under the ‘Jersey’ in 5 south India states. Company own nine milk processing units. Company has 2,500 milk product distributors and 50 retail parlors.

5. Company also produce processed poultry and vegetarian products under the brands ‘Real Good Chicken’ and ‘Yummiez’.

ISSUE DETAILS 

• Issue Open    :   04th October, 2017
• Issue Closes  :   06th October, 2017
• Issue Type     :   Book Built Issue IPO
• Face Value     :   Rs 10/ Equity Shares
• Issue Price     :   Rs.450 – Rs.460/ Equity Share
• Valuation       :   Rs 1145 to 1157 Cr.(Approx.)
• Market Lot    :    32 Shares 
• Minimum Order Quantity: 32 Shares and in multiples
• Listing At       :    BSE, NSE

ISSUE OBJECTS

1. Offer for Sale: Each of the Selling Shareholders will be entitled to the respective portion of the proceeds of the Offer for Sale.

2. Fresh Issue: Company proposes to utilise the proceeds from the Fresh Issue towards:

• repayment or prepayment of working capital facilities availed;

• repayment of commercial papers issued by the Company; and

• general corporate purposes.

COMPANY PROMOTERS

Companies promoters non other than the promoters of Godrej Industries Limited Mr Nadir B. Godrej and Mr Adi B. Godrej.

INDUSTRY OVERVIEW

India has the fourth largest economy in the world by purchasing power parity (Source: https://www.cia.gov/library/publications/the-world-factbook/geos/in.html). Against a background of global instability, India registered a growth of 7.6% during the financial year 2016, becoming the fastest growing major economy in the world. During the same period, macroeconomic parameters such as inflation, fiscal deficit and current account balance all exhibited signs of improvement. The financial year 2016 has also witnessed the launch of several government programs and initiatives designed to boost manufacturing, industrial growth, foreign direct investment and ease of doing business. At the sectoral level, growth of agriculture and allied sectors improved significantly in the financial year 2017, following the normal monsoon in the current year. Favourable weather and moisture conditions suggest an increase in production of wheat and pulses. The growth rate for agriculture and allied sectors is estimated to be 4.1% for the financial year 2017. (Source: Economic Survey 2015-16, available at indiabudget.nic.in)

The following table sets forth the size of the Indian animal compound feed industry:

The following chart sets forth the structure of the poultry feed industry:

VALUATIONS

As far as Valuations are concerned the IPO seems little bit overvalued  with a P/E of 42x  at the upper price band and 41.10x on lower price band on consolidated basis, on upper price band on standalone basis P/E stands at 53.11x while on lower price band it’s 51.96x. (As per Diluted EPS ).

#Alternatively if we see P/E on taking average EPS both on Consolidated as well as Standalone then we find it @45.90x & 55.75x respectively(Both @ Upper Price Band)

EARNINGS PER SHARE

• As per Consolidated Financial Statements  

• As per Standalone Financial Statements 

NAV

RoNW

• As per Consolidated Financial Statements  

• As per Standalone Financial Statements 

RESTATED CONSOLIDATED FINANCIAL POSITION SUMMARY

RESTATED CONSOLIDATED STATEMENT OF PROFIT & LOSS ACCOUNT

RESTATED STANDALONE FINANCIAL POSITION SUMMARY

RESTATED STANDALONE STATEMENT OF PROFIT & LOSS ACCOUNT

ANALYSIS & SUBSCRIPTION SUGGESTIONS BY AUTHOR

Fellas we have in this fiscal year seen so many IPO’s having unique business models and having no listed peers and that seems interesting.Even in this IPO this is the major boost as the company is said to have no listed peers.

Although we may consider this as a positive thing but we have few major positive as well as negative thing to consider before rushing to put money in the company:

• Valuations: Valuations here is a bit hard to evaluate as even though company seems to have high on Valuations with a PE @ or around 42 approx. but the company(as per RHP) doesn’t seems to have any listed peers so it can’t be exactly evaluated on the basisi of industry PE but we should be cautious on this point(as PE is 42),

• RoNW/EPS: The company has posted consistent rise in EPS over the years  while it has also shown consistent decline in RoNW over the years but here what we have plus point is that the company in last fiscal year has started paying off its “Long Term Borrowings” which has resulted in lower finance cost and higher set of net earnings. Along with this what is noticeable that in the fiscal year 15-16 it had Exceptional Earnings of around Rs.945 cr. while in the fiscal year 16-17 that has declined to Rs.200 Cr. only, we shall rather take that in a positive manner as “Earnings before Exceptional Items & Tax” has shown surge of around 41% which seems promising.

• CAGR: Companies consolidated  revenues grew @ 16%CAGR in the last 5 yrs. It has posted consistent margins(Consolidated) between 5.5% to 6.8% in the last 5yrs. We have these on our positive side.

• Earnings: Companies earnings have seemed to be promising as it have consistent growth in “Revenue From Operations” over the years which is necessary for any business to run exponentially over the years.

• Promoters: Companies promoters includes; Mr Nadir B. Godrej, Mr Adi B. Godrej, GIL(holding 63% holdings), V-Sciences Investments Pte Limited(holding 19.97% holdings), etc. All these high promoter holdings reflects good long term investment perspective.

After all above points there seems to have been a mixed view(only due to Valuations & RoNW) but overall company’s profile, earnings, promoters holdings and last but not the least Unique Business Model  along with having no listed peers we give neutral rating for listing benefits(Although it may provide listing benefits if the issue is over subscribed around 27-30 times or higher) but we shall consider the company good for medium to long term investment(subject to companies consistently good fundamentals).*

 

 

*Disclaimer: Author may or may not have interest in the issue, before getting to conclusion consult your Financial Adviser. The Author shall not be responsible for any kind of loss of gain arising out of any investments. All data was taken from RHP filled to SEBI from the company.