Nova AgriTech Ltd. IPO
Published by Sharekhan Education | January 23, 2024
Amit Pathak | Sharekhan Education
Nova AgriTech Ltd IPO is coming up with an issue size ₹ 144 Cr with a Price Band: ₹ 39-41. The issue opens on Tuesday, 23rd Jan 2024 and closes on Thursday, 25th Jan 2024
Company Overview:
Nova AgriTech is a leading agri-input manufacturer, specializing in soil health management, crop nutrition, and crop protection products. It has a robust product portfolio with 720 registrations across categories and an extensive dealer network of approximately 11,722 dealers. The company has also entered into marketing, distribution, and supply agreements with certain third parties in Bangladesh, Sri Lanka, and Vietnam. It emphasizes ecologically sustainable and nutritionally balanced products developed through extensive research and development. Nova AgriTech runs a farmer outreach program called Nova Kisan Seva Kendra program (NKSK), through which it educates farmers on various crop management practices.
Objects of the Issue:
Nova AgriTech Ltd. IPO consists of a fresh issue of equity shares aggregating to Rs 112 crores, and an offer for sale (OFS) of up to Rs 32 crores by existing shareholders. The proceeds from the fresh issue will be used for expanding the existing formulation plant and establishing a new formulation plant. The minimum application is to be made for 365 shares and in multiples after that. Post allotment, shares will be listed on BSE and NSE.
Industry Overview:
The crop nutrition industry primarily consists of fertilizers (chemical, organic, and bio-fertilizers) and bio-stimulants. The fertilizer production is primarily divided into urea and non-urea fertilizers where urea dominates the total output with an average share of 59% and non-urea contributing the remaining 41% on average. These fertilizers receive huge amounts of subsidy from the government. The micronutrient market is likely to grow at a CAGR of around 8-10% by 2025. Micronutrients can deal with a wide range of soil conditions & and problems. The Indian pesticides market is estimated to grow at a CAGR of around 6-6.5% by 2027-28 on account of an upward growth expected in the export market and a likely increase in domestic usage of pesticides.
Competitive Strengths:
The company has a diversified branded product portfolio and offers a varied range of products as a complete one-stop solution for agricultural requirements. It uses technology to understand the evolving dynamics of the market and assess farmer needs to enhance its product portfolio. Their NKSK program ensures that they can penetrate the grassroots level of the agricultural ecosystem and have a personalized connection with the farmer network. It has tie-ups with various universities to get access to process know-how, innovation, R&D, and technology transfer.
Business strategy:
The company’s strategic expansion aligns with its goal of offering a diverse range of high-margin, patented formulations. It plans to invest in obtaining registrations and licenses, expanding its presence in domestic and international markets. The company plans to enhance farmer engagement by offering a comprehensive crop advisory platform, focusing on educating them about evolving trends and new agricultural methods. It aims to introduce a subscription model, encouraging farmers to use modern technologies like Agribot and Bhuparikshak at minimized rates.
Key Concern:
The company’s business is vulnerable to climatic conditions, including adverse weather patterns and seasonal variations. Weather-related factors, such as droughts and heavy rains, can influence demand for crop protection products and lead to fluctuations in sales. It relies on imports from China for crucial raw materials. Procedural lapses, such as delays in regulatory filings for past corporate actions, potentially expose it to regulatory actions and penalties.
Financials:
The company has delivered revenue growth of 14.5% CAGR over FY21-23. EBITDA has increased by 46.2% CAGR over the same period. EBITDA margins have expanded from 11.3% to 18.5%. As a result, RoCE has increased from 14.5% to 19.7%. Debt to Equity ratio has contracted from 1.7 to 1.1. At the upper end of the price band (₹39-41) the issue seems reasonably priced at 18.3x post-issue FY24 annualized earnings.
Source: IPO Red Herring Prospectus
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