Apex Frozen Foods IPO – Should you Invest in this IPO?

Apex Frozen Foods IPO - Should you Invest in this IPOApex Frozen Foods IPO – Should you Invest in this IPO?


Apex Frozen Foods IPO would open for subscription on 22nd August, 2017. Apex Frozen Foods Ltd is one of the integrated producer and exporter of shelf stable quality aquaculture products. Its revenues grew at 29% CAGR in last 5 years. It earned low profits of 3.5% for FY17. What are the positive factors in Apex Frozen Foods IPO? Are there any hidden factors in Apex Frozen Foods Ltd IPO?  Is Apex Frozen Foods IPO Price is reasonably priced? In this article, I would provide some interesting insights and do Apex Frozen Foods Limited IPO Review. You should read complete review of this IPO before you make investment decisions.

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About Apex Frozen Foods Ltd


Company is one of the integrated producer and exporter of shelf stable quality aquaculture products. They supply its ready-to-cook products to a diversified customer base consisting of food companies, retail chains, restaurants, club stores and distributors spread across the developed markets of USA, UK and various European countries. Its output majorly comprises of variants of processed Vannamei shrimp (White shrimp) and are sold under the brands owned by its customers and also through its brands namely Bay fresh, Bay Harvest and BayPremium.

For over two decades, its promoters have been associated with aquaculture business in Andhra Pradesh. Company leased a shrimp processing facility and commenced operations in the year 1995 after which they set-up its own MODERN shrimp processing facility in the year 2004. Its processing facility is located at Kakinada, Andhra Pradesh with a capacity to process approximately over 9,240 MTPA of finished products and an additional non-exclusive pre-processing and processing arrangement at a facility owned by Royale Marine Impex Private Limited located at Bapatla, Andhra Pradesh, for a capacity to process around 3,000 MTPA of finished products. Further, Company has entered into an addendum to lease agreement dated April 09, 2017 with Royale Marine Impex Private Limited for an additional processing capacity of 3000 MTPA of finished products. The processing facilities are supplemented by cold storage facilities located at Kakinada and Bapatla. Along with this, to further assuage its operations, they have its own fleet of vehicles with freezing capabilities.

Apex Frozen Foods IPO Issue details


  • IPO open date: 22-August-2017
  • IPO close date: 24-August-2017
  • Face Value: Rs 10 per share
  • Issue price band: Rs 171 to Rs 175 per share
  • Issue size: Rs 152 Crores on higher price band
  • Apex Frozen Foods IPO Lot size: 80 shares
  • Minimum investment:  Rs 13,680 on lower price band
  • Leading Managers: Karvy Investor Services Ltd
  • Listing: BSE / NSE
  • Download Apex Frozen Foods IPO RDH Prospectus from SEBI website at this link.

Objects of the Apex Frozen Foods Ltd IPO issue


1) The Offer for Sale: Company will not receive any proceeds from the Offer for Sale by the Selling Shareholders and the proceeds received from the Offer for Sale will not form part of the Net Proceeds.

2) Setting up a new shrimp processing unit with a proposed capacity of 20,000 MTPA at East Godavari District, Andhra Pradesh;

3) General corporate purposes.

Company Financials (reinstated)


1) The company generated revenue of Rs 255.4 Crores for the year ended Mar-13 and Rs 709.6 Crores for the year ended Mar-17.  

2) The company posted profit of Rs 9.4 Crores for the year ended Mar-13 and profit of Rs 24.9 Crores for the year ended Mar-17.

3) Its restated basic EPS for FY ending Mar-17 is Rs 10.17 and last 3 years weighted EPS was Rs 9.04.

http://www.sebi.gov.in/filings/public-issues/aug-2017/apex-frozen-foods-ltd_35588.html

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What are Apex Frozen Foods Key Strenghts?


Here are Apex Frozen Foods strengths.

1) Economies of scale on account of integrated operations

2) Strategically located processing plant.

3) Established Customer Relationships.

4) Focus on quality control measures and research &development initiatives.

5) Proven and experienced management.

6) Procurement of raw materials from its farms.

7) Robust Financial Performance.

What are Apex Frozen Foods Ltd Key Strategies?


Company is focusing on few key strategies.

1) Setting up a new processing facility.

2) Increase its value-added products portfolio.

3) Further expand its global footprints.

4) Continue to focus on strengthening the goodwill of its name.

5) Augment its area under cultivation.

6) Improve its technology and research & development platform.

Reasons to invest in Apex Frozen Foods IPO


  • Its posted strong revenue growth in the last 5 years. Its revenues grew at 29% CAGR in last 5 years.
  • Well established business where it sells its products in US, UK and other European regions.

Risk Factors / Reasons not to invest in a Apex Frozen Foods Ltd IPO


  • It earns low margins of 2.6% to 3.7% in the last 5 years. However with the kind of business it does, one cannot expect high returns.
  • Company generates majority of its revenues through export of shrimp to United States of America, United Kingdom and a few countries in European Union. Any adverse developments or changes in these markets may adversely impact its business, financial condition and results of operations.
  • They have not entered into long term contracts with its suppliers and in the absence of which its Company is to exposed to volatility in the prices of raw materials thereby adversely impact the overall profitability and financial performance of its business and may also adversely impact the pricing and supply of its products and have an adverse effect on its business.
  • Its aquaculture farms operate in an environment sensitive industry. they do not possess any control on the bio security measures employed at different level of operations. Improper measures may lead to risk of development of new infections/ diseases and the shrimp it produces may be prone to certain diseases, epidemic, bacteria and viruses spread in the environment.
  • They derive a significant portion of its revenue from a few customers, they do not have long term contractual arrangements with most of them, and the loss of one or more such customers, the deterioration of their financial condition or prospects, or a reduction in their demand for its products could adversely affect its business, results of operations, financial condition and cash flows.
  • Its processing facility and procurement operations are concentrated in Andhra Pradesh region and any adverse developments affecting these regions could have an adverse effect on its business, results of operations and financial condition.
  • They intend to utilize a portion of the Net Proceeds for setting up an additional processing unit at Peddapuram Mandal, G. Ragampeta Village, East Godavari district, Andhra Pradesh. They are yet to place orders for plant and machinery and apply for requisite government approvals for the proposed processing unit. Any delay in undertaking such and not adhering to the schedule of implementation could have an adverse effect on its business growth and prospects and results of operations.
  • Company is involved in a legal proceeding. Any adverse decision in such proceeding may adversely affect its business, results of operations and financial condition.
  • Any shortage, disruption or non-availability of power and water may adversely affect its entire farming, pre processing and processing requirements and have an adverse impact on its business, results of operations and financial condition
  • Company is required to procure imported plant & machinery for the purpose of its business. The same are required for its pre-processing plants and processing plants. The plant & machinery are imported and are subject to risk arising from foreign exchange fluctuation.
  • For the last three financial years certain amounts were paid by its Company to its Promoter, relatives of its Promoter and Group Entities on account of managerial remuneration and as unsecured loan repayment. they may continue to make such payment in future, which may affect its cash flows and results of operations.
  • Its Group Entity, Karutturi Global Exports Private Limited is authorised to engage in a similar line of business as us, which could create conflicts of interest, which may have an adverse effect on its business.
  • Its hatchery situated at Annayyapeta and a considerable amount of its farming operations are located on leased locations.
  • They have certain contingent liabilities, which, if materialise, may adversely affect its financial condition.
  • Other risk factors (Internal and external) can be viewed in the draft prospectus.

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Recommendation / Investment strategy – Apex Frozen Foods IPO


1) On the upper price band of Rs 175 and on FY17 EPS of Rs 10.17, P/E ratio works out to 17.2x. Even based on last 3 years EPS of Rs 9.04, P/E ratio works out to 19.3x. Means, company is asking higher price band of Rs 175 in the P/E ratio of 17.2x to 19.3x. Its listed peers like Zeal Aqua is trading at P/E ratio of 100.24 (Highest) and The Water Base Ltd at P/E Ratio of 28.54 (Lowest) and Industry average is 54.52. Hence the issue price of Rs 175 is reasonably priced.

2) Company revenues grew at 29% CAGR in last 5 years. However it earns low margins.  Its issue price is reasonably priced. Stock markets are taking correction. Recent SIS IPO listed with 8% premium, however closed 4% down on the day of listing. Cochin Shipyard IPO which was expected to make good debut has closed with 22% profits on the day of listing. Considering these factors, high risk investors can invest in this IPO with 2 to 3 years time frame. However, one may or may not get listing gains.

Disclaimer: I do not have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.

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Suresh

Apex Frozen Foods IPO – Should you Invest in this IPO

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