Nova AgriTech IPO Review: The Agricultural sector continues to remain the largest employer in India, with 58% of the country’s population dependent on agriculture for their livelihoods. There is a growing population and a drop in arable land, all of this requires farmers to produce more grains than they did before.
Today we will talk about one such Company that produces consumables in the form of crop protection products. These products help farmers achieve better yields and make farming much more efficient.
Today we will talk about Nova AgriTech IPO Review a company that produces consumables in the form of crop protection products.
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Nova AgriTech IPO Review
This Company is coming up with its IPO issue of Rs. 143.81 Cr which will open on 22nd January 2024. The issue will close on 24th January and be listed on the exchange on 30th January 2024.
So let us understand what products the Company manufactures. And which states are its biggest market? We will also take a look at the competition faced by the Company. We will then check out its numbers to see how it has been scaling its revenue & profits. So wait until the end to see what we think about the Company.
About the Company
Nova AgriTech is an agri-input manufacturer engaged in soil health management, crop nutrition, and crop protection. The Company offers tech-based solutions & nutritionally balanced products that are ecologically sustainable.
Apart from soil management & crop nutrition products, the Company also offers bio-stimulant, bio-pesticide products, and integration pest Management and crop protection products.
It also has an agreement with a Taiwanese company to import & distribute the formulation of Emamectin Benzoate Technical 95% in India for 5 Years. The product is an insecticide used to control pests in various crops, vegetables, and cotton.
The Company operates from a dealer network of 11,722 dealers spread across Andhra Pradesh, Telangana, Maharashtra, Madhya Pradesh, Karnataka, Rajasthan, and 10 other states.
The Company earned a majority of its revenue from the state of Telangana. Andhra Pradesh contributes to nearly 15%-20% of the Company and its subsidiaries’ revenue and Karnataka stands third contributing to 7%-10% of the Company’s revenue.
The Company has a dedicated Research and Development facility that supports the technology of new products with an on-site process improvement and incubation center. The Company has taken 67.13 Acres of land in Andhra Pradesh as part of its R&D initiative to test the efficacy of its products on various crops.
About The Industry
The Indian economy years ago diversified away from being an agrarian production-based to a service-oriented IT-based economy. Today Agriculture contributes to less than 20% of the Gross Value added (GVA) figures of the country and these numbers drop every year.
The country’s arable land suitable for cultivation remains at around 154 million hectares, which dropped from 160 million hectares a year ago. On the other hand, India’s population has risen from 1.06 billion people to reach 1.4 billion in 2023.
To meet this demand, in the last 5 years, the total foodgrain production in India has grown at a CAGR of 3.2% from 285 million tonnes in 2018-19 to 324 million tonnes in 2022-23. This rate of population growth & fall in arable land create a requirement for higher utilization of land, to cultivate more produce on the same parcel of land.
Crop solutions like fertilizers, pesticides, and soil management solutions play a key role in increasing the productivity of the land. There is also. As per reports, India’s Yield per hectare remains at less than half of its peers like Australia, the USA, Belgium, the Netherlands, and Egypt.
The current landscape of the industry is in the right spot to benefit the Company immensely, as farmers use fertilizers encouraged by subsidies offered by the Government. For FY24, the Government allocated a budget of Rs. 2.25 Lakh Cr of which Rs. 1.31 Lakh Cr was allocated towards urea-based fertilizers itself.
The market for biofertilizers is expected to continue to grow in the coming years. This will be backed by a higher understanding of environmental hazards caused by the use of synthetic agrichemicals, primarily the pollution and contamination of soil and growing health concerns that come along with it.
Nova AgriTech IPO Review – Financials
The Company reported a revenue of Rs. 211 Cr in FY23, which increased by 13.64% from Rs. 186 Cr in FY22. Revenue has grown at a rate of 14.5% CAGR since FY21.
While revenue scaled at a decent pace, the Net Profits of the Company have expanded significantly, growing 50% in a year, from Rs. 13.69 Cr in FY22 to Rs. 20.5 Cr in FY23. These earnings have scaled at the rate of 80% CAGR since FY21.
Revenue for H1FY24 was at around Rs. 103 Cr, while Net Profits were at Rs. 10.38 Cr. EBITDA Margins of the Company have expanded 11.08% in FY21 to Rs. 14.97% in FY22 and finally at a strong 18.39% in FY23.
Return on Equity and Capital Employed remain at a respectable level of 27.25% and 38.27% respectively. The Debt to Equity does remain a slight concern being just under 1.11x, although it has been reduced significantly from 1.74x in FY21 to 0.92x in FY23.
Now let’s take a look at how Nova Agritech compares against its listed peers in the industry.
Nova Agritech is the 2nd smallest listed player with a revenue of Rs. 210 Cr, and the largest Company by revenue is Best Agrolife Ltd with a revenue of Rs. 1510 Cr.
In terms of Price to Earnings, the Companies on this list trade at a median PE of 15.44x. (Aimco Pesticides and Madras Fertilizers have been ignored due to their negative returns).
At a higher end of the price band of Rs. 41, the Company trades at a PE of 12.6x based on its FY23 earnings. In terms of Return on Net Worth, the Company outperforms its peers with an ROE of 38.27%.
Strengths of the Company
- One-Stop Solution for Soil Health Management: By offering a host of products related to crop protection & soil nutrition, the Company has become a one-stop solution for all consumers in farming.
- Strong Distribution Network: The Company operates a strong distribution network of 11,722 dealers, of which 6769 of them have been active in selling its products in FY23
- Nova Kisan Seva Kendra Program (NKSK): The NKSK is a farmer outreach program that organizes grassroots-level workshops with fellow farmers to understand their problems & give customized solutions.
- Experienced Managers & Promoters: The Company is run by experienced professionals with great industry experience. The promoter Kiran Kumar Atukuri has over 23 years of experience in Agri Chemical, seed & fertilizer Companies.
- Well-equipped Research & Development facility: The Company has already purchased a large parcel of land that has become its development & testing facility. Along with this, the company on average spends 0.5%-1% on R&D.
Weaknesses of Company
- Negative Cash Flows: In the last 3 Years of business operations, the Company has reported Net positive cash flow only once. However, this is a result of cash being used to pay off borrowings to deleverage the balance sheet.
- Requirement for licenses & permits: The field of business requires the Company to constantly apply for licenses on every product they sell. So far the Company has 720 products and will continue to apply for a lot more, thereby incurring higher costs.
- Risk of Defaults: As a supplier of products to farmers, the Company is always at the risk of high defaults in case of a bad farming year. As of H1FY24, the Company had trade receivables of Rs. 129 Cr, off which it made provisions for ~10%. This signals that the Company expects this money to not return to the business.
- Risk of policy changes: The agricultural business is supported by the government in the form of subsidies. Any change in regulations can reduce or eliminate subsidies, thereby significantly affecting business.
Nova AgriTech IPO Review – GMP
The shares of Nova AgriTech Ltd traded at a 0% premium in the grey market on January 17th, 2024. The shares in Grey Market traded at Rs 41. This gives it a premium of Rs 0 per share over the cap price of Rs 41.
Key IPO Information
|Rs. 143.81 Cr
|Rs. 112 Cr
|Offer for Sale (OFS)
|Rs. 31.81 Cr
|22 January 2024
|24 January 2024
|Rs. 39 - 41
|Minimum Lot Size
|1 Lot (365 Shares)
|Maximum Lot Size
|13 Lots (4745 Shares)
|30 January 2024
Promoters: Surakshaagri Retails (India) Pvt Ltd, Yeluri Family Trust, Malathi S and Kiran Kumar Atukuri
Book Running Lead Manager: Keynote Financial Services Ltd and Bajaj Capital Ltd
Registrar to the Offer: Bigshare Services Pvt Ltd.
The Objective of the Issue
- Rs. 14.2 Cr of the Net Proceeds will be used as an investment in Nova Agri Sciences Pvt Ltd to set up a formulation plant
- Rs. 10.48 Cr will be used for Capital Expenditure towards expansion of the existing plant.
- Rs. 26.65 Cr will be used for funding the working capital requirement of the Company.
- Rs. 43.35 Cr will be used for funding the working capital requirements of its subsidiary, Nova Agri Sciences Pvt Ltd.
The Company, Nova AgriTech looks like a strong contender in the agro-products space, with Strong revenue & profitability numbers. Alongside earnings, the Company continues to scale its ROE & ROCE metrics and has maintained it in the 25%-30% range.
Nevertheless, it did have quite an exposure to debt, which it has consistently reduced in the previous years. The purpose of the IPO issue is to fund its capital expansion plans that will help the Company scale its revenue & expand its market share.
Added to all these positives that we see in the Company, it also trades at a quite moderate valuation of 12.6x PE. So what do you as an investor make of this Company? Do you think the Agricultural sector is worth betting on? Let us know in the comments below.
Written by Nasir Hussain
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