Godrej Agrovet a diversified, research and development focused agri-business of the Godrej Group, plans to tap the capital market with an IPO to mobilise about Rs. 1,160 crore. The Godrej Agrovet IPO comprises a fresh issue of shares aggregating up to ₹292 crore by the company, an offer for sale by promoter Godrej Industries Ltd. aggregating up to ₹300 crore, and up to 12,300,000 equity shares by investor V-Sciences Investments Pte. Ltd of Temasek Holding totalling up to ₹565 crore.
Related Post: Godrej Agrovet IPO: Consolidated Brokerage Views & Run up to IPO
Godrej Agrovet IPO Details:
| Issue Period | 4th Oct’17 – 6th Oct’17 |
| Price Band | Rs. 450 – 460 |
| Face Value | Rs. 10 |
| Bid Lot | 32 Shares and in multiple thereof |
| Issue Size (No. of Shares) | Fresh Issue of Rs 2915.12 million Shares & OFS upto 12,300,000 Equity Shares and upto Rs. 3000 million 25,158,956 – 25,444,711 |
| Issue Size ( Rs.) | Rs.1,145 -1,157 Cr |
| Employee Reservation | 20 cr |
| Issue Structure : | Retail 35%, 410 crores (89,05,651 shares) Applications for 1x Retail; 2,78,302 |
| BRLMs | Axis Capital, Kotak Mahindra, Credit Suisse Securities (India) |
| Registrar | Karvy Computershare Pvt. Ltd. |
About The Company
Godrej Agrovet Limited (“GAVL”) which was incorporated as ‘Godrej Agrovet Private Limited’ in the year 1991 in the state of Gujarat is part of the Godrej group, which commands considerable goodwill and presence in the Indian market.
Godrej Agrovet Limited is a diversified, Research and Development focused Agri-business Company with operations across five major business verticals: Animal Feed, Crop Protection, Oil Palm, Dairy and Poultry & Processed
Foods. The company is the Leading Compound Animal Feed Company in India, on the basis of installed capacity for the financial year 2016. As of June 30, 2017, Godrej Agrovet conducted its operations through 35 manufacturing facilities for its animal feed business, four facilities for the crop protection business, five palm oil mills for oil palm business, nine milk processing units and one milk powder plant for the dairy business and two processing plants for the poultry and processed food business.
In Bangladesh, their joint venture, ACI Godrej was the 4th largest Feed Producer, in terms of sales volume, during the financial year 2016. GAVL is the largest Crude Palm Oil producer in India.
Godrej Agrovet: Major Business Verticals & Their Contribution
| Rs.In millions | ||||
| Business vertical | 3m June 2017 | 2017 | 2016 | 2015 |
| Animal feed | 6,344.64 | 26,208.22 | 25,442.02 | 25,429.88 |
| % of Total Revenues | 46.94% | 53.46% | 68.44% | 77.72% |
| Crop protection | 2,780.51 | 7,647.25 | 4,959.38 | 3,352.48 |
| % of Total Revenues | 20.57% | 15.60% | 13.34% | 10.25% |
| Oil palm | 1,309.09 | 5,066.42 | 4,041.92 | 3,937.98 |
| % of Total Revenues | 9.69% | 10.34% | 10.87% | 12.04% |
| Dairy | 3,082.32 | 10,099.17 | 2,728.90 | 0 |
| % of Total Revenues | 22.80% | 20.60% | 7.34% | – |
| Total Revenues | 13,516.56 | 49,021.06 | 37,172.22 | 32,720.34 |
Besides the above numbers, Godrej Agrovet also has revenues from joint venture entities which are reported separately as follows
| Business vertical | Rs.in Millions | |||
| 3m, June 2017 | 2017 | 2016 | 2015 | |
| Animal feed* | 881.31 | 3,020.24 | 2,676.34 | 1,985.53 |
| Poultry and processed foods | 560.22 | 2,184.76 | 2,206.68 | 1,918.88 |
- Animal Feed Business: company’s portfolio of products comprises Cattle Feed, Poultry Feed (broiler and layer), Aqua Feed (fish and shrimp) and
Specialty Feed. GAVL is the Leading Compound Animal Feed Company in India, on the basis of installed capacity for financial year 2016. Its animal feed products are manufactured at 35 facilities, of which 10 facilities are owned by Godrej Agrovet, and seven are operated by it. - Crop Protection Business: GAVL manufactures a wide range of Agro
Chemical products that cater to the entire crop lifecycle of the crops including
organic manures, seed treatment, fungicides, plant growth regulators,
herbicides, insecticides and fungicides - Oil Palm Business: GAVL is the largest crude palm oil producer in India,
and produces a range of
products including crude palm oil, crude palm kernel oil and palm kernel cake. - Dairy Business: GAVL in October 2015
acquired a majority equity interest in Creamline Dairy, which currently sells
milk and milk based products under the ‘Jersey’ brand. our dairy distribution network included approximately 4,000 milk distributors, approximately 3,000 milk product distributors and 50 retail parlors, as well as direct sales to institutional customers. - Poutry & Processed Foods: GAVL manufactures and market processed poultry and vegetarian products
through their brands ‘Real Good Chicken’ and ‘Yummiez’. in 2008, Godrej Agrovetp entered into a joint venture with Tyson India Holding Limited, a subsidiary of Tyson Foods Inc., U.S.A. - GAVL operates a 11.25 MW wind power project comprising 4 windmills in
Dhule, Maharashtra. - In October 2015, GAVL acquired a majority equity interest in Astec LifeSciences and they currently own 55.7% of the outstanding equity shares of Astec LifeSciences. Astec LifeSciences manufactures agrochemical active ingredients (technical), bulk and formulations as well as intermediate products and sells its products in India as well as exports them to
approximately 24 countries
Financials:
| Rs. In Crore | ||||
| 2017(3) | FYE 2017 | FYE 2016 | FYE 2015 | |
| Revenue from Operations | 1,363.27 | 4,926.40 | 3,754.96 | 3,311.82 |
| Revenue Growth (%) | – | 32.20% | 13.40% | – |
| Profit Before exceptional items & tax | 107.85 | 354 | 241.99 | 234.25 |
| Profit Before Tax | 107.85 | 374 | 336.58 | 270.7 |
| Net Profit after Tax | 74.29 | 274.39 | 261.09 | 210.13 |
| Net Profit Margin | 5.45% | 5.57% | 6.95% | 6.34% |
| Share Capital | 185.13 | 185.13 | 92.57 | 92.57 |
| Face Value | 10 | 10 | 10 | 10 |
| Reserves | 887.58 | 824.55 | 690.64 | 547.85 |
| EPS (Rs.) | 3.88 | 11.45 | 9.78 | 8.99 |
| Net worth | 1072.71 | 1,009.68 | 783.2 | 640.41 |
| RONW(%) | 6.75%* | 22.71% | 23.94% | 27.12% |
| Net Asset Value (Rs.) | 57.94 | 54.54 | 42.29 | 34.58 |
| IPO or Market Price | 460 | |||
| Equity Post IPO | 191.467 | |||
| EPS on Post IPO Equity | 13.60 | |||
| PE(Post Issue Equity) | 33.82 | |||
| P/BV (Fy17) | 8.43 | |||
| Market Cap | 8516 | Crore | ||
| Market Cap/Sales | 6.25 | |||
Objects of the Issue
The net proceeds of the fresh equity issue would be utilised by Godrej Agrovet to repay Rs. 100 crore of working capital debt, ₹150 crore towards repayment of commercial papers issued by the company and the balance for general corporate purposes.
Rationale for Investment
- Godrej Agrovet has diversified businesses with synergies in operations. The company has presence across five business verticals that enable it to grow its revenues and also geographic diversification provides a hedge against the risks associated with any particular industry segment
- Around 47 per cent of Godrej Agrovet’s revenue comes from animal feeds business, followed by dairy and crop protection at 23 per cent and 20 per cent, respectively. These business have good growth potential.
- Godrej Agrovet has a Pan-India Presence with Extensive Supply and Distribution Network. For animal feed business, company’s distribution network comprises approximately 4,000 distributors, whereas its distribution network in India for crop protection products comprises approximately 6,000 distributors, as of June 30,2017. In its oil palm business, Godrej Agrovet had access to approximately 61,700 hectares under oil palm plantations across nine states, or approximately one-fifth of India’s oil palm plantations. For Companies dairy business, its supply chain network includes procurement from six states through a network of 120 chilling centers. 4,000 milk distributors, approximately 3,000 milk product distributors and 50 retail parlors, as well as direct sales to institutional customers.
- Godrej Agrovet has Strong R&D capabilities allowing it to launch targetted products. In May 2014, the company consolidated its Animal feed R&D initiatives by setting up the Nadir Godrej Centre for Animal Research and Development in Nashik, Maharashtra and focused on leveraging its R&D capabilities to develop cost effective solutions to improve animal productivity. For oil palm business, it has set up an R&D facility at Chintampalli, Andhra Pradesh, Further its acquisition of Astec LifeSciences has provided access to strong R&D capabilities in the agrochemical active ingredients category, which we has been leveraged to introduce new fungicide products
- Godrej Agrovet has a Strong parentage and established brands. We are a part of the Godrej group, which is among India’s oldest and most prominent corporate groups. We believe that the ‘Godrej’ brand is recognizable in India due to its long established presence in the Indian market, the diversified businesses in which the Godrej group operates and the trust we believe it has developed over the course of its operating history
- Experienced promoters and management team.
Concerns
- Certain of Godrej Agrovet operations are concentrated in the state of Andhra Pradesh and any adverse developments affecting this state could have an adverse effect on its business.
- Sectors like poultry, shrimp and to some extent dairy business are prone to outbreak of disease.
- Being a Agri focused company, Godrej Agrovet operations are subject to seasonality and are also and is dependent on weather conditions and rainfall across India.
Assessment
- Godrej Agrovet IPO comes from House of Godrej, which is one of India’s oldest and respected corporate groups. The ‘Godrej’ brand is well recognized in the Indian market
- Godrej Agrovet has demonstrated the capability to operate joint ventures in and outside India with various partners is likely to pursue both organic and inorganic growth routes. Further the evolution of business verticals (offers value unlocking opportunities in future.
- The company has a well-diversified business verticals all these verticals seem poised for better prospects. Among these segments there is good potential in two segments ie. animal feeds, and crop protection spaces. This comes as farmers increasingly turn to organised and integrated players to help them address their animal protein and input needs. Poultry business is also expected to do well.
- The company has posted a strong revenue growth a CAGR of 16% from FY-13-FY-17.The company has strong cash flow from operations and has generated ROE of 20% plus for the last three financial years.
- The Godrej Agrovet IPO needs 2,78,302 applications for 1x Retail subscription and is likely to end up with 5-7x application wise subscription for retail.
- There is no listed peer, but the issue appears to be fairly priced at 34x PE . considering the strong group lineage, brand ,
R&D, market share, diversified nature of business and promising expansion in its high margin business. Hence I intend to subscribe to the issue as it is both a candidate for good listing gains and merits consideration as a portfolio stock.
Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. I may have vested interest in every stock I discuss and my views may be biased. Please do your own due diligence as stock market investments have high degree of inherent risk.