Nova AgriTech IPO Analysis: The agricultural sector remains India’s primary employer, supporting 58% of the population for their livelihoods. With a growing population and diminishing arable land, farmers face the challenge of increasing grain production to meet rising demands.
Let’s discuss a company today that manufactures crop protection products as consumables. These items play a crucial role in enhancing yields and improving the overall efficiency of farming practices.
In today’s discussion, we’ll delve into the Nova AgriTech IPO Review, focusing on a company that manufactures crop protection products as consumables.
The company is set to launch its IPO worth Rs. 143.81 Cr, commencing on January 22, 2024. The subscription period will conclude on January 24, with listing on the exchange scheduled for January 30, 2024.
Let’s delve into the Company’s product lineup and identify its prominent markets. Examining its competition, we’ll then analyze its financials to gauge revenue and profit scaling. Stay tuned until the end to discover our insights on the Company.
About Nova AgriTech
Nova AgriTech specializes in manufacturing agricultural inputs, focusing on soil health management, crop nutrition, and crop protection. The company provides ecologically sustainable, technology-based solutions and nutritionally balanced products.
In addition to products for soil management and crop nutrition, the company provides bio-stimulants, bio-pesticides, integrated pest management, and crop protection solutions.
The company has entered into a five-year agreement with a Taiwanese firm to import and distribute the formulation of Emamectin Benzoate Technical 95% in India. This insecticide is utilized for pest control in diverse crops, vegetables, and cotton.
The company functions through a network of 11,722 dealers, spanning across Andhra Pradesh, Telangana, Maharashtra, Madhya Pradesh, Karnataka, Rajasthan, and 10 additional states.
A significant portion of the company’s revenue is generated in Telangana. Andhra Pradesh accounts for approximately 15%-20% of the revenue for both the company and its subsidiaries, while Karnataka holds the third position, contributing 7%-10% of the company’s revenue.
The company possesses a specialized Research and Development facility, aiding in the advancement of new product technologies, along with an on-site process improvement and incubation center. As part of its R&D initiative, the company has acquired 67.13 acres of land in Andhra Pradesh to assess the effectiveness of its products on various crops.
Industry Overview
Years ago, the Indian economy shifted from an agrarian, production-based model to a service-oriented, IT-based economy. Currently, agriculture contributes to less than 20% of the Gross Value Added (GVA) in the country, and these figures continue to decline annually.
The nation’s cultivable land, suitable for agriculture, stands at approximately 154 million hectares, a decrease from the 160 million hectares recorded a year ago. Meanwhile, India’s population has increased from 1.06 billion to reach 1.4 billion in 2023.
In the past five years, to address this demand, India has witnessed a Compound Annual Growth Rate (CAGR) of 3.2% in total foodgrain production. This figure has increased from 285 million tonnes in 2018-19 to 324 million tonnes in 2022-23. Given the population growth and diminishing arable land, there is a need for more efficient land utilization to cultivate increased yields on the same land parcel.
A crucial factor in enhancing land productivity is the use of crop solutions such as fertilizers, pesticides, and soil management products. According to reports, India’s yield per hectare is less than half of that achieved by its counterparts, including Australia, the USA, Belgium, the Netherlands, and Egypt.
The present industry scenario is favorable for the company, with farmers adopting fertilizers incentivized by government subsidies. In FY24, the Government allocated a budget of Rs. 2.25 Lakh Cr, with Rs. 1.31 Lakh Cr earmarked specifically for urea-based fertilizers.
The biofertilizer market is anticipated to witness ongoing growth in the upcoming years. This expansion is supported by an increased awareness of environmental hazards stemming from the use of synthetic agrichemicals, particularly issues related to soil pollution and contamination, as well as growing health concerns.
Financial Highlights
In FY23, the company posted a revenue of Rs. 211 Cr, marking a 13.64% rise from Rs. 186 Cr in FY22. The revenue has demonstrated a compound annual growth rate (CAGR) of 14.5% since FY21.
While the revenue exhibited commendable growth, the company’s net profits witnessed a substantial expansion, surging by 50% within a year, advancing from Rs. 13.69 Cr in FY22 to Rs. 20.5 Cr in FY23. These earnings have demonstrated an impressive compound annual growth rate (CAGR) of 80% since FY21.
H1FY24 revenue stood at approximately Rs. 103 Cr, with net profits reaching Rs. 10.38 Cr. The company’s EBITDA margins witnessed a growth from 11.08% in FY21 to 14.97% in FY22, culminating in a robust 18.39% in FY23.
Return on Equity (ROE) and Return on Capital Employed (ROCE) are maintained at a commendable level, standing at 27.25% and 38.27%, respectively. While the Debt to Equity ratio remains a slight concern, just below 1.11x, it has undergone a substantial reduction from 1.74x in FY21 to 0.92x in FY23.
Now, let’s examine how Nova Agritech stacks up against its counterparts within the industry.
Competitors
Nova Agritech is the second smallest listed player, boasting a revenue of Rs. 210 Cr, while Best Agrolife Ltd holds the position of the largest company by revenue, reporting Rs. 1510 Cr.
Regarding Price to Earnings, the companies in this list have a median PE ratio of 15.44x. (Aimco Pesticides and Madras Fertilizers have been excluded due to their negative returns).
At the upper limit of the price range at Rs. 41, the company has a Price to Earnings (PE) ratio of 12.6x, considering its FY23 earnings. Regarding Return on Net Worth, the company surpasses its counterparts, achieving an ROE of 38.27%.
| Name of the Company | Consolidated / Standalone | Total Income (Rs in Lakhs) | Face Value per Equity Share (Rs) | Closing Price on December 26, 2023 (Rs) | P/E | EPS (Basic) (Rs) | EPS (Diluted) (Rs) | RoNW (%) | NAV (Rs per share) |
| Nova Agritech Limited | Consolidated | 21,093.35 | 2.00 | – | – | 3.27 | 3.27 | 38.27% | 10.09 |
| Aries Agro Ltd | Consolidated | 48,107.54 | 10.00 | 203.35 | 15.44 | 13.17 | 13.17 | 6.82% | 186.75 |
| Aimco Pesticides Limited | Consolidated | 20,730.93 | 10.00 | 129.10 | (56.62) | (2.28) | (2.28) | (4.52)% | 48.30 |
| Basant Agrotech Limited | Standalone | 55,019.32 | 1.00 | 21.29 | 10.54 | 2.02 | 2.02 | 11.34% | 18.86 |
| Best Agrolife Limited | Standalone | 1,51,004.91 | 10.00 | 834.85 | 41.93 | 19.91 | 19.91 | 14.02% | 152.04 |
| Bhagiradha Chemicals & Industries Ltd | Consolidated | 50,335.03 | 10.00 | 501.00 | 11.30 | 44.35 | 44.35 | 17.95% | 301.04 |
| Heranba Industries Limited | Standalone | 1,33,796.00 | 10.00 | 373.05 | 13.56 | 27.52 | 27.52 | 14.39% | 203.96 |
| India Pesticides Limited | Standalone | 89,812.80 | 1.00 | 371.00 | 29.51 | 12.57 | 12.57 | 20.44% | 67.30 |
| Madras Fertilizers Limited | Standalone | 3,46,140.00 | 10.00 | 107.54 | 9.35 | 11.5 | 11.5 | (46.77)% | (17.82) |
| Dharmaj Crop Guard Limited | Standalone | 53,805.90 | 10.00 | 263.30 | 21.89 | 12.03 | 12.03 | 16.30% | 95.10 |
Source: RHP of the company
Strengths
- Comprehensive product portfolio covering soil health management, crop nutrition, bio-stimulants, bio-pesticides, Integrated Pest Management (IPM), and crop protection.
- Established distribution network spanning diverse geographies with numerous dealers.
- Enhanced farmer outreach via Nova Kisan Seva Kendra.
- Technology-driven product development and marketing strategies.
- Emphasis on ecologically sustainable and nutritionally balanced products.
- Experienced Management Team and dedicated promoters.
- Well-equipped Research & Development facility.
Weaknesses
- Potential risk due to negative cash flow in specific fiscal years, posing a threat to the company’s overall business, financial health, and operational outcomes.
- Susceptibility to weather variations, with changes in seasons and adverse weather conditions potentially impacting the business and financial situation.
- Challenges associated with managing, expanding, and maintaining robust dealer relations when utilizing a dealer network for marketing.
- Exposure to potential negative effects on the agri-input industry due to changes in government rules and regulations.
GMP
On January 17th, 2024, Nova AgriTech Ltd shares were neutral in the grey market, trading at par with the cap price of Rs 41, reflecting a 0% premium.
Key IPO Information
| Particulars | Details |
| IPO Size | Rs. 143.81 Cr |
| Fresh Issue | Rs. 112 Cr |
| Offer for sale (OFS) | Rs. 31.81 Cr |
| Opening date | 22 January 2024 |
| Closing date | 24 January 2024 |
| Face value | Rs. 2 |
| Price band | Rs. 39 – 41 |
| Lot size | 365 Shares |
| Minimum Lot Size | 1 Lot (365 Shares) |
| Maximum Lot Size | 13 Lots (4745 Shares) |
| Minimum Investment | Rs. 14,965 |
| Listing date | 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.
Conclusion
Nova AgriTech appears as a robust player in the agro-products sector, showcasing impressive revenue and profitability figures. In addition to solid earnings, the company has consistently elevated its Return on Equity (ROE) and Return on Capital Employed (ROCE) metrics, sustaining them within the 25%-30% range.
Despite a historical exposure to debt, the company has diligently decreased its debt levels over the preceding years. The IPO aims to secure funds for capital expansion initiatives, facilitating the company in scaling its revenue and broadening its market share.
