IPO Analysis: Nova Agritech Ltd

IPO Rating: Apply for the long-term

About the Issue   

Nova Agritech Ltd primarily operates as an agricultural input manufacturer with a technology-driven, farmer-centric solution approach. It is launching its initial public offering (IPO) for equity shares valued at Rs 2 each. The IPO price range is set between Rs 39 and Rs 41 per equity share, resulting in a total issue size of Rs 143.81 crore at the upper price band.   

The IPO is scheduled to commence on January 22, 2024, and will conclude on January 24, 2024. The market lot size for the IPO is 365 shares, with the option to apply for multiples of this lot. Individual retail investors have the opportunity to apply for a maximum of 13 lots, equivalent to 4,745 shares or a total investment of Rs 1,94,545 assuming the upper price band.    

Objects of the Issue   

The offer encompasses both the fresh issue and the offer for sale. It's important to note that the company will not accrue any proceeds from the offer for sale. The company plans to allocate the net proceeds raised from the fresh issue for the following purposes: 

1. Investment in the subsidiary, Nova Agri Sciences Pvt Ltd for setting up a new formulation plant 
2. Funding capital expenditure in the company, towards the expansion of the existing formulation plant 
3. Funding of working capital requirements of the company 
4. Investment in the subsidiary, Nova Agri Sciences Pvt Ltd, for funding working capital requirements 
5. General corporate purposes 

Promoter holding   

Suraksha Agri Retails (India) Private Limited, Yeluri Family Trust, Malathi S, and Kiran Kumar Atukuri are the promoters of the company. The promoters currently hold a pre-issue shareholding stake of 84.27 per cent in the company.    

Company profile   

Nova Agritech Ltd produces items designed to enhance crop growth for farmers. The company primarily operates as an agricultural input manufacturer with a technology-driven, farmer-centric solution approach. Its main focus lies in providing environmentally sustainable and nutritionally balanced products developed through extensive research and development efforts. 

The company engages in the manufacturing, distribution, and marketing of a diverse range of product categories, including products for soil health management, crop nutrition products, bio-stimulant products, bio-pesticide products, integrated pest management products, crop protection products and innovative technologies. 

The company possesses an extensive dealer network, totalling around 11,700 dealers spanning across 16 states in India. Additionally, it has established marketing, distribution, and supply agreements with select third parties in Bangladesh, Sri Lanka, and Vietnam. Currently, the company is in the process of obtaining the requisite permissions to commence business operations in these regions. 

The company has obtained a total of 720 product registrations and has submitted applications for 14 registrations for new products under the name of Nova Agri Sciences Pvt Ltd and 22 new registrations under the name of Nova Agritech Ltd across different categories. 

Financials   

The company has experienced steady growth in both top-line and bottom-line performance in recent years. In the fiscal year 2023, the revenue saw a notable growth of 13 per cent, reaching Rs 211 crore compared to Rs 186 crore in FY22. Similarly, the net profit witnessed a substantial surge of 43 per cent, reaching Rs 20 crore. 

The figures for the first half of fiscal year 2024 were also impressive and aligned with the performance of the previous year. The company boasts a return on equity (RoE) and return on capital employed (RoCE) of 38 per cent and 30 per cent, respectively, for the fiscal year 2023.   

Valuation and outlook   

The issue is priced with a P/BV ratio of 3.46 times, calculated using its Net Asset Value (NAV) of Rs 11.84 as of September 30, 2023. When we calculate the PE ratio for the company by considering the annualized FY24 earnings relative to the post-IPO fully diluted paid-up equity capital, the resulting PE ratio stands at 12. In comparison to its listed peers, the company demonstrated superior performance. 

Being a one-stop solution for soil health management, boasting a robust distribution network and a state-of-the-art research and development facility, coupled with enticing initiatives such as the Nova Kisan Seva Kendra Program, sustained financial growth, and favourable valuation, we recommend investors to consider subscribing to the issue with a long-term perspective.