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Experts reaction mixed to Aries Agro IPO

Published on Fri, Dec 14, 2007 at 22:00 | Source : Moneycontrol.com

Updated at Mon, Dec 17, 2007 at 11:40

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Nifty

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Aries Agro (AAL), a micronutrient and other nutritional products for plants and animals manufacturing company, has opened for subscription with an IPO of 45,00,000 equity shares of Rs 10 each for cash at a premium to be decided through the 100 per cent book building process.

The price band for the issue is at Rs 120 to Rs 130. The issue will close on December 19, 2007. The issue would constitute 34.61 per cent of the AAL's fully diluted post issue paid-up capital.

Moneycontrol conducted a poll on market experts to check whether to apply for the public issue or not. Experts opinion are mixed.

Experts/Company

Poll Result

Experts view

R S Iyer

(KR Choksey)

Apply

This is an opportunity issue as the market is doing well. If one feels that the market remains good for next 2-3 months, then one can apply for the issue for listing gains and not for holding purpose. But if the market gets setback of 1000-2000 points in near term then the stock may not list above issue price or not even at par.

SP Tulsian

(Investment Advisor)

Don't Apply

Aries Agro is into manufacturing of micronutrients and other nutritional products for plants at Mumbai, Hyderabad, Bangalore and Kolkata with installed capacity of 10,800 TPA, 5,400 TPA, 3,750 TPA and 1,650 TPA respectively, with total installed capacity being at 21,600 TPA.

The financial performance has been quite low and unconvincing. For FY 07, total income of the company was at Rs 77.41 crore with PAT of Rs 8.70 crore resulting in an EPS of Rs 10.25 on paid-up equity of Rs 8.50 crore.

Working capital pressure is quite high as evident from sundry debtors of Rs 32.34 crore as at 31-07-07, which implies debtor cycle of over 130 days. Inventory of Rs 22.60 crore as at 31-07-07 also looks high, but one could accept that, due to ensuing season of the company's products for second and third quarter. Due to this, total borrowing is at Rs 25.38 crore, against its net worth of Rs 27.73 crore, as at 31-07-07.

Considering the pressure and requirements of working capital post expansion, where capacity is likely to be raised by about 350%, the pressure of working capital would continue.

The sector enjoys very low discounting on the bourses and micro-nutrients and crop protection companies, broadly falling in the same category are ruling at a PE multiple of sub 10. Prominent amongst them are Excel Crop, Nagarjuna Agri, Bhagiradha Chem etc. Rallis India and Ciba speciality are ruling at a PE of 12 - 14 mainly because of strong parentage, huge real estate and better margins.

The share is being issued at a PE multiple of close to 12 based on expected FY 08 working which is definitely very expensive and leaves chances of share price ruling below its offer price in future. When much better established players are available in the secondary market, why to consider this company?

AAL manufactures a wide range of products spread across five main categories, viz. Plant multi-micro nutrients, Chelated micro-nutrients, Specialty soluble nutrients, Anti-bacterial products for agricultural use and nutritional products for animals. Micronutrients are a group of nutrients that are essential for plant growth. The company's existing manufacturing facilities are located at Bangalore, Mumbai, Hyderabad and Kolkata

As a part of its expansion plan, AAL mainly intends to set up new manufacturing units at Ahmedabad, Lucknow, Medak (Andhra Pradesh) and an additional unit in Maharashtra. AAL is embarking upon over a three-fold increase through this expansion, and would add 79,200 TPA to its existing manufacturing capacity of 21,600 TPA.

To increase its global reach, AAL proposes to acquire a stake in Golden Harvest Middle East (FZC), a company incorporated in UAE to make it a subsidiary company.

AAL would also create mobile shops through mobile vans for its products in order to reach the places where there is demand. Accordingly, the company is planning to buy around 100 such mobile vans at a cost of Rs 5.79 crore.

The total cost of proposed expansions would be Rs 47.54 crore.

The proposed issue will be lead managed by SREI Capital Markets Ltd and the Registrar to the issue will be Aarthi Consultants Pvt Ltd. The issue would be listed on BSE and NSE