Nova AgriTech IPO Review – GMP, Details, Pricing & More

Nova AgriTech IPO Review: The agricultural sector continues to be the largest employer in India, with 58% of the Indian population dependent on agriculture for their livelihood. Population is growing and arable land is decreasing, forcing farmers to produce more crops than ever before.

Today we will talk about a 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.

Nova AgriTech IPO Review

The company is planning an initial public offering (IPO) of 500 billion won. 143.81 Cr will be released on January 22, 2024. The issue will close on January 24 and be listed on the exchange on January 30, 2024.

Now, let’s find out what products the company produces. And which state is the biggest market? We’ll also look at the competition the company faces. Let’s then check the numbers to see how revenue and profits have expanded. So wait till the end to find out what we think about the company.

About Us

Nova AgriTech is an agricultural input manufacturer engaged in soil health management, crop nutrition and crop protection. The company offers ecologically sustainable, technology-based solutions and nutritionally balanced products.

In addition to soil management and crop nutrition products, the company also offers biostimulants, biopesticide products, integrated pest management and crop protection products.

It has also signed an agreement with a Taiwanese company to import and distribute Emamectin Benzoate Technical 95% formulation in India for a period of five years. This product is an insecticide used to control pests in various crops, vegetables, cotton, etc.

The company operates through a dealer network of 11,722 dealers across Andhra Pradesh, Telangana, Maharashtra, Madhya Pradesh, Karnataka, Rajasthan and 10 other states.

The company earned most of its revenue from the state of Telangana. Andhra Pradesh contributes nearly 15-20% of the revenue of the company and its subsidiaries, while Karnataka ranks third by contributing 7-10% of the company’s revenue.

The company has a dedicated research and development facility that supports new product technologies through on-site process improvement and incubation centers. The company has acquired 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.

industry information

A few years ago, the Indian economy diversified from an agricultural production base to a service-oriented IT-based economy. Today, agriculture contributes less than 20% of the country’s gross value added (GVA) figures, and this figure declines every year.

The country’s arable land suitable for cultivation remains at around 154 million hectares, down from 160 million hectares a year ago. On the other hand, India’s population increased from 1.06 billion to 1.4 billion in 2023.

To meet this demand, over the last five years, India’s total grain production 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 and decline in arable land requires increased land utilization to grow more agricultural products on the same land.

Crop solutions such as fertilizers, pesticides and soil management solutions play a key role in increasing land productivity. There is also. According to the report, India’s yield per hectare is less than half that of competing countries such as Australia, the United States, Belgium, the Netherlands and Egypt.

The current industrial environment is well positioned to deliver huge profits to the company as farmers use fertilizers encouraged by subsidies provided by the government. The government has earmarked a budget for FY24 of Rs. 2.25 Lakh Cr out of which Rs. 1.31 Lakh Cr has been allocated for urea-based fertilizer itself.

The biofertilizer market is expected to continue to grow in the future. This will be supported by a better understanding of the environmental risks posed by the use of synthetic pesticides, primarily contamination and contamination of soil, and the resulting increasing health problems.

Nova AgriTech IPO Review – Finance

The company reported revenue of Rs. 211 Cr in FY23, an increase of 13.64% from Rs. 186 Cr in FY 2022. Revenues have grown at a CAGR of 14.5% since FY21.

While sales grew at a moderate pace, the company’s net profit expanded significantly, rising 50% from Rs. 13.69 Cr in FY22 to Rs. 20.5 Cr in FY23. These revenues have grown at a CAGR of 80% since FY21.

The revenue in H1FY24 was around Rs. 103 Cr, the net profit was Rs. 10.38Cr. The company’s EBITDA margin increased by 11.08% in FY21 to Rs. It rose to 14.97% in FY22 and finally to 18.39% in FY23.

Return on equity and capital employed remain at decent levels of 27.25% and 38.27%, respectively. Debt-to-equity has declined significantly from 1.74x in FY21 to 0.92x in FY23, but remains a bit of concern at just below 1.11x.

Now let’s take a look at how Nova Agritech compares to its publicly traded peers in the industry.

main players

Nova Agritech is the second smallest listed company with a revenue of Rs. 210 Cr, and the largest company by revenue is Best Agrolife Ltd with a revenue of Rs. 1510Cr.

In terms of price-to-earnings, the companies on this list trade at a median PE of 15.44x. (Aimco Pesticides and Madras Fertilizers were ignored due to negative returns.)

At a higher price point of Rs. As of the 41st, the company is trading at a PER of 12.6x based on FY23 earnings. In terms of return on equity, the company outperforms its competitors with an ROE of 38.27%.

Company Strengths

1. One-stop solution for soil health management: By offering a wide range of products related to crop protection and soil nutrition, the company has become a one-stop solution for all consumers involved in agriculture.
2. Strong distribution network: The company operates a strong distribution network of 11,722 dealers, of which 6,769 were actively involved in selling its products in FY23.
3. Nova Kisan Seva Kendra Program (NKSK): NKSK is a farmer outreach program that organizes grassroots level workshops with fellow farmers to understand their problems and provide tailored solutions.
4. Experienced Managers and Promoters: The company is run by experienced professionals with great industry experience. Promoter Kiran Kumar Atukuri has over 23 years of experience in agricultural chemicals, seeds and fertilizer companies.
5. Well-equipped research and development facilities: The company has already purchased a large tract of land that will become a development and testing facility. Along with this, companies on average spend 0.5%-1% on R&D.

company’s weaknesses

1. Negative Cash Flow: Over the past three years of business operations, the company has reported net cash flow only once. However, this is a result of cash being used to repay borrowings to pay off the balance sheet.
2. License and Permit Requirements: In the business world, companies must continually apply for licenses for every product they sell. To date, the company has 720 products and will continue to apply for more, which will result in higher costs.
3. Default risk: As a company that supplies products to farmers, the company is always at high risk of default if farming conditions are poor. As of the first half of 2024, our trade receivables amount to 50 billion won. 129 Cr, of which ~10% was prepared. This is a signal that the company does not expect these funds to be returned to the business.
4. Policy change risk: Agricultural businesses are supported by the government in the form of subsidies. Changes to regulations could result in subsidies being reduced or eliminated, which could have a serious impact on your business.

Nova AgriTech IPO Review – GMP

Shares of Nova AgriTech Ltd were trading at a 0% premium in the gray market on January 17, 2024. The stock in Gray Market was trading at Rs 41. This gives a premium of Rs 0 per share over the ceiling price of Rs 41.

Key IPO Information

promoter: Surakshaagri Retails (India) Pvt Ltd, Yeluri Family Trust, Malathi S and Kiran Kumar Atukuri.

Book Operations Lead Manager: Keynote Financial Services Ltd and Bajaj Capital Ltd

Proposal registered by: Bigshare Services Pvt Ltd.

purpose of the problem

1. Of the net proceeds of Rs 14.2 Cr will be used for investment in Nova Agri Sciences Pvt Ltd to set up a formulation plant.
2. Rs 10.48 Cr will be spent as capital expenditure for expansion of the existing plant.
3. Rs 26.65 Cr will be used to finance the working capital requirements of the company.
4. Rs 43.35 Cr will be used to finance the working capital requirements of its subsidiary Nova Agri Sciences Pvt Ltd.

conclusion

The company, Nova AgriTech, looks like a strong contender in the agricultural product space, with strong sales and profitability numbers. Along with revenue, the company continued to expand its ROE and ROCE metrics and maintained them in the 25%-30% range.

Nonetheless, exposure to debt remains significant and has continued to decline over the past few years. The purpose of an IPO issue is to fund capital expansion plans that will help the company expand its revenues and expand its market share.

In addition to all these positives we see in the company, it is trading at a fairly modest valuation of 12.6x P/E. So what do you think about this company as an investor? Do you think the agricultural sector is worth investing in? Let us know in the comments below.

Written by Nasir Hussein

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