Nova Agritech IPO: 5 Things to Know

The Indian IPO party isn't ending anytime soon!

Just 20 days into 2024, the market has already witnessed a staggering 8 IPOs open for subscription - an unprecedented 7 of them just this week.

This blistering pace shows no signs of slowing down, with experts predicting a record haul of over Rs 750 billion (bn) to be raised through IPOs this year, beating the 2023 mark of Rs 494.3 bn.

Fuelling the frenzy, 27 companies have already secured SEBI approval to raise Rs 285 bn, while another 36 are waiting for the green light to tap into a potential pot of Rs 405 bn.

Amid this ongoing surge, Nova Agritech IPO is gearing up to hit the market next week, adding another chapter to this thrilling saga.

#1 About Nova Agritech

Nova Agritech operates as an agricultural input manufacturer with a technology-driven, farmer-centric solution approach.

Its main focus lies in providing environmentally sustainable and nutritionally balanced products developed through extensive research and development efforts.

The company is involved in manufacturing, distributing and marketing a diverse range of products, including those for soil health management, crop nutrition, bio-stimulants, bio-pesticides, integrated pest management, crop protection, and innovative technologies.

The company possesses an extensive dealer network, totalling around 11,700 dealers spanning across 16 states in India.

Additionally, it has established marketing, distribution, and supply agreements with select third parties in Bangladesh, Sri Lanka, and Vietnam.

Currently, the company is in the process of obtaining the requisite permissions to commence business operations in these regions.

#2 A Look at the Financials

The company has experienced steady growth in both top-line and bottom-line performance in recent years.

The company reported a revenue of Rs 2.1 bn in FY23, which increased by 13.64% from Rs 1.8 bn in FY22. Revenue has grown at a rate of 14.5% CAGR since FY21.

While revenue scaled at a decent pace, the net profit of the company has expanded significantly, growing 50% in a year, from Rs 136.9 m in FY22 to Rs 204.9 m in FY23. These earnings have scaled at the rate of 80% CAGR since FY21.

The company's operating profit margins have also expanded 11.1% in FY21 to 14.9% in FY22 and finally at a strong 18.4% in FY23.

Nova Agritech Financial Snapshot (2021-23)

Particulars	31-Mar-21	31-Mar-22	31-Mar-23
Revenues (Rs in m)	1,609.30	1,856.10	2,109.30
Revenue Growth (%)	-	15.3	13.6
Net Profit (Rs in m)	63	136.9	204.9
Net Worth (Rs in m)	294.3	431.9	638.8

Data Source: Company's Red Herring Prospectus (RHP)

The debt-to-equity ratio, however, does remain a slight concern being just under 1x, although it has been reduced significantly from 1.7x in FY21 to 0.9x in FY23.

The company intends to broaden its presence in India and acquire patented molecules in the future.

#3 Peer Comparison

As per the company's red herring prospectus, these are the industry peers of Nova Agritech.

Peer Comparison

Company	Revenue from Operations (2023) (Rs in m)	EPS (Basic) (in Rs)	Return on Net Worth (%)
Nova Agritech	1,856.10	2.2	31.7
Aries Agro	4,439.40	10.2	5.9
Aimco Pesticides	3,128.30	11.1	21.1
Basant Agrotech	4,483.30	2.1	13.4
Best Agrolife	11,396.20	38.2	27.9
Bhagiradha Chemicals & Industries	4,365.10	43	18.8
Heranba Industries	14,697.20	47.3	26.5
India Pesticides	7,293.10	13.8	24.8
Madras Fertilizers	23,338.70	10.1	-32.1
Dharmaj Crop Guard	3,962.80	11.6	33.8

Data Source: Company's Red Herring Prospectus (DRHP)

Nova Agritech holds the position of the second smallest listed player, boasting a revenue of Rs 2.1 bn.

Meanwhile, the top-ranking company in terms of revenue is Best Agrolife Ltd, commanding a substantial Rs 15.1 bn.

The listed companies exhibit a median Price to Earnings (PE) ratio of 15.4x, with Aimco Pesticides and Madras Fertilizers excluded from consideration due to their negative returns.

At the upper limit of the price band, set at Rs 41, Nova Agritech commands a PE ratio of 12.6x based on its FY23 earnings.

Notably, the company demonstrates a superior performance in Return on Net Worth (ROE) with an impressive 38.27%, outshining its industry peers.

#4 Arguments in Favour of the Business

• The company has positioned itself as a comprehensive solution provider in farming by offering a wide range of products related to crop protection and soil nutrition. This diverse product portfolio makes it a one-stop destination for all farming needs.
• With a robust distribution network comprising 11,722 dealers, the company has established a significant market presence. In financial year 2023, 6,769 of these dealers actively sold the company's products, showcasing the effectiveness of its distribution strategy.
• The company focuses on strengthening its connection with farmers through the Nova Kisan Seva Kendra initiative. This program conducts grassroots-level workshops, fostering direct engagement with farmers to better understand their challenges and provide tailored solutions.
• The company adopts a technology-driven approach in both product development and marketing. This emphasis on technological innovation positions it at the forefront of the industry, enabling the delivery of advanced and effective solutions to farmers.
• The company has already purchased a large parcel of land that has become its development & testing facility. Along with this, the company, on average spends 0.5-1% on R&D.

#5 Risk Factors

• Over the last three years, the company has experienced net positive cash flow only once. However, this achievement is attributed to using cash to pay off borrowings for deleveraging the balance sheet. This inconsistency raises concerns about the company's ability to generate sustained positive cash flows from its core operations.
• The field of business requires the company to constantly apply for licenses on every product they sell. So far, the company has 720 products and will continue to apply for a lot more, thereby incurring higher costs.
• As a supplier of products to farmers, the company is always at risk of high defaults in case of a bad farming year. As of H1FY24, the company had trade receivables of Rs 1.3 bn, of which it made provisions for approximately 10%. This signals that the company expects this money to not return to the business.
• The agricultural business is supported by the government in the form of subsidies. Any change in regulations can reduce or eliminate subsidies, thereby significantly affecting business.

Conclusion

An increase in awareness concerning environment-friendly usage of agrochemicals and the use of integrated pest management (IPM) mechanisms is expected to encourage the application of biopesticides.

The biopesticides market in India constitutes a small proportion, which provides an opportunity for the segment to grow moving forward.

Pesticide exports accounted for about 45% of the chemical export value during 2019-20.

To support the ambition of making India a US$ 5 trillion (tn) economy by 2025, the Indian agrochemical industry is estimated to make outbound shipments of around Rs 3.8 bn by 2025.

This target is also likely to encourage agrochemical/pesticide exports from India.

Any pesticide that goes off-patent provides an opportunity for the Indian industry to develop generic molecules.

Such an event thus opens up opportunities for Indian manufacturers to increase their exports.

An opportunity amounting to around US$ 5 bn is estimated to go off-patent by FY27. This is likely to support pesticide exports from India going forward.

Nevertheless, it is always prudent to conduct thorough research before making any investment decisions.

Ensure that the investment aligns with your financial objectives and matches your risk tolerance level.

For more information on IPOs, check out the list of upcoming IPO's.

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