Nova Agritech IPO: Should you subscribe to Rs 143.8-crore issue?

Nova Agritech IPO: The price band for the issue, which will close on January 25, has been fixed at Rs 39-41 per share

The initial public offering (IPO) of Nova Agritech has been subscribed to over seven times so far on the first day of bidding. Several analysts have assigned a subscribe rating to the issue owing to fair valuation, decent financials, and strategic expansion plans.

The stock was commanding a premium of 48 percent in the grey market, which is an unofficial ecosystem where shares start trading before the allotment in the IPO and until the listing day. Most investors track the grey market premium (GMP) to get an idea of the listing price.

The business

Nova AgriTech is an agri-input manufacturer and offers soil health management, crop nutrition, and crop protection products focused on a tech-based farmer-driven solution approach, wherein it mainly offers ecologically sustainable and nutritionally balanced products based on its research and development (R&D). The production of crop protection products is facilitated by its subsidiary, Nova Agri Sciences.

Also Read: Nova Agritech IPO: 10 things to know before subscribing to Rs 143.8 crore issue

The company has a network of 11,722 dealers, of which 6,769 are active. The network is currently spread across 16 states in India and two in Nepal. The company has also entered into marketing, distribution, and supply agreements with certain third parties in Bangladesh, Sri Lanka, and Vietnam and is currently awaiting the necessary permission to start business in these jurisdictions.

Offer details

Nova Agritech plans to raise Rs 143.81 crore via the IPO. The public offer consists of a fresh issue of 2.73 crore shares worth Rs 112 crore and an offer-for-sale (OFS) of 77.58 lakh shares worth Rs 31.81 crore. The price band for the issue, which will close on January 25, has been fixed at Rs 39-41 per share. Suraksha Agri Retails (India), Malathi S, and Kiran Kumar Atukuri are the promoters of the company.

Out of the issue proceeds, Rs 14.20 crore will be used for investment in subsidiary Nova Agri Sciences to set up a new formulation plant, Rs 10.49 crore for funding the capital expenditure of Nova Agritech and the expansion of its existing plant, Rs 26.65 crore to meet the working capital requirements, and Rs 43.36 crore for investment in Nova Agri Sciences.

Anchor investors

The company raised Rs 43.14 crore from four institutional investors on January 19. AG Dynamic Funds is the biggest investor amongst them, buying nearly Rs 13 crore equity shares in the company, while Neomile Growth Fund - Series I, Saint Capital Fund, and Quantum-State Investment Fund picked up more than Rs 10 crore worth of shares each.

Financials

In the fiscal year 2023, revenue rose 13 percent to Rs 211 crore, compared to Rs 186 crore in FY22. Net profit surged 43 percent to Rs 20.49 crore in FY23. The net debt in the same period stood at Rs 10.8 crore.

Also Read: Nova Agritech IPO: Hunting for high growth capital, eyes ‘one-stop solution provider’ tag

The company reported a net profit of Rs 10.38 crore on total revenue of Rs 103.24 crore for the period ended on September 30, 2023. Profit after tax (PAT) margin and earnings before interest, taxes, depreciation, and amortisation (EBITDA) margin in the same period stood at 10.06 percent and 18.75 percent, respectively. As of November 30, 2023, the company’s total outstanding debt was Rs 44.17 crore.

Valuation 

The price-to-earnings (P/E) ratio based on diluted earnings per share (EPS) (Rs 3.27) for FY23 at the upper end of the price band works out to 12.53 times, which is cheaper than Best Agrolife (41.93x), India Pesticides (29.51x), Dharmaj Crop Guard (21.89x), Aries Agro (15.44x), and Heranba Industries (13.56x), but more expensive than Basant Agrotech (10.54x), Bhagiradha Chemicals & Industries (11.3x), and Madras Fertilisers (9.35x).

As of FY23, Nova Agritech had one of the highest return on equity (RoE) of 38.27 percent and a return on capital employed (RoCE) of 27.25 percent in its peer group. The debt-to-equity ratio stood at 1.11x in FY23.

Should you subscribe to Nova Agritech IPO? Here's what brokerage houses say

Arihant Capital: Neutral

The company's international presence and investments in manufacturing capacities signal a forward-looking approach.

“At the upper band of Rs 41, the issue is valued at a P/E of 18.3x based on H1FY24 EPS of Rs 1.66 (post issue), which is a rich valuation compared to listed peers. Hence, we have a Neutral rating as we remain cautious on the agrochemicals sector, which is facing headwinds,” said analysts at Arihant Capital.

Swastika: Apply for listing gains

Nova Agritech's financial performance has been impressive, with consistent growth over the past three years and expansion plans firmly in place. However, business is inherently linked to climatic conditions and relies on a limited geographical area for the majority of its revenue. Additionally, the agri-input sector is highly competitive.

Also Read: Nova Agritech IPO: Company raises Rs 43.14 crore via anchor book

“The issue is valued at a P/E of 13.05x, and its RoNW of 38.27 is also attractive. Thus, considering all the factors, we suggest applying for this IPO for listing benefits,” said analysts at Swastika Investmart.

Anand Rathi: Subscribe-long term

At the upper end of the price band, the company’s market cap stands at Rs 379.3 crore post-issue of equity shares, with a return on the net worth (RoNW) of 38.27 percent. “We believe that the valuation of the company is fairly priced and recommend a ‘Subscribe-long term” rating to the IPO,” said analysts at Anand Rathi.

BP Equities: Subscribe

“The valuation outlook hinges on Nova AgriTech's ability to maintain its current sales growth rate, preserve net margins, and gradually improve them. Based on the positives, we give the issue a ‘Subscribe’ rating,” said analysts at BP Equities.

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