Godrej Agrovet IPO – Should you invest in this IPO?

Godrej Agrovit IPO Review - Should you investGodrej Agrovet IPO – Should you invest in this IPO?


Godrej Agrovet IPO would open for subscription on 4th October, 2017. Godrej Agrovet Ltd is a diversified, research and development focused agri-business company. Its consolidated revenues grew at 16% CAGR in last 5 years. It is generating consistent profits. It posted margins of 5.5% for FY2017. There is mixed reactions in several investor forums across India about this IPO indicative positive and negative comments. What are the positive factors in Godrej Agrovet Ltd IPO? What are the hidden factors in Godrej Agrovet IPO? Is Godrej Agrovet IPO Price is reasonably priced? In this article, I would provide some interesting insights and do Godrej Agrovet Limited IPO Review.

Also Read: 10 Top Rated Mutual Funds to invest in 2017

About Godrej Agrovet Ltd


They are a diversified, research and development focused agri-business company with operations across five business verticals, animal feed, crop protection, oil palm, dairy, and poultry and processed foods. They are the leading compound animal feed company in India, on the basis of installed capacity for the financial year 2016. In Bangladesh, its joint venture, ACI Godrej was the fitsth largest feed producer, in terms of sales volume, during the financial year 2016. They are also the largest crude palm oil producer in India, in terms of market share, as of March 31, 2017.

Godrej Agrovet IPO Issue details


  • IPO open date: 4-Oct-2017
  • IPO close date: 6-Oct-2017
  • Face Value: Rs 10 per share
  • Issue price band: Rs 450 to Rs  460 per share
  • Issue size: Approx Rs  865 Crores on higher price band
  • Godrej Agrovet IPO Lot size: 32 shares and 32 shares there-off
  • Minimum investment: Rs 14,720
  • Leading Managers: Axis Capital, Kotak Securities and Credit Suisse Securities India.
  • Listing: BSE / NSE
  • Download Godrej Agrovet IPO RHP Prospectus at this link.

Objects of the Godrej Agrovet Ltd IPO issue


The Issue comprises the Fresh Issue and the Offer for Sale.

a) Offer for Sale


Each of the Selling Shareholders will be entitled to the respective portion of the proceeds of the Offer for Sale net of their proportion of Issue related expenses. Company will not receive any proceeds from the Offer for Sale. Except for listing fees which shall be solely borne by its Company, all Issue expenses will be shared, upon successful completion of the Issue, between its Company and the Selling Shareholders on a pro-rata basis, in proportion to the Equity Shares issued and allotted by its Company in the Fresh Issue and the Equity Shares sold by the Selling Shareholders in the Offer for Sale.

b) Fresh Issue


Company proposes to utilise the Net Proceeds from the Fresh Issue towards:

(i) repayment or prepayment of working capital facilities availed by its Company;

(ii) repayment of commercial papers issued by its Company

(iii) general corporate purposes, subject to the applicable laws

Company Financials (reinstated-consolidated)


1) The company generated revenue of Rs 2,771.5 Crores for the year ended Mar-13 and Rs 4,983.2 Crores for the year ended Mar-17.  

2) The company posted a profit of Rs 96.5 Crores for the year ended Mar-13 and profit of Rs 273.5 Crores for the year ended Mar-17.

3) FY17 EPS is Rs 11.42 and 3 years average EPS is Rs 10.48.

Consolidated Financial Summary of Godrej Agrovit IPO

Company Financials (reinstated-standalone)


1) The company generated revenue of Rs 2,771.8 Crores for the year ended Mar-13 and Rs 3,661.9 Crores for the year ended Mar-17. 

2) The company posted a profit of Rs 97.1 Crores for the year ended Mar-13 and profit of Rs 206.7 Crores for the year ended Mar-17.

3) Its FY17 EPS is Rs 9.04 and 3 years average EPS is Rs 8.62.

Standalone Financial Summary of Godrej Agrovit Ltd IPO

What are the key strengths of Godrej Agrovet Limited?


Here are the key strengths of the company.

1) Pan-India Presence with Extensive Supply and Distribution Network.

2) Diversified Businesses with Synergies in Operations.

3) Strong R&D Capabilities.

4) Strong Parentage and Established Brands.

5) Experienced Promoters and Management Team.

Also Read: How to identify multibagger stocks for long term investment?

What are the Strategies of Godrej Agrovet  Ltd?


Here are the key strategies of Godrej Agrovet which it want to focus.

1) The primary elements of its business strategy are to continue to grow its existing businesses, leverage synergies between its businesses and opportunistically evaluate inorganic opportunities.

2) Continue to Grow its Overall Market Share by Leveraging its Presence in Existing Business Verticals.

3) Inorganically Grow its Business Offerings.

Reasons to invest in Godrej Agrovet IPO


1) It posted strong revenue growth of 16% CAGR (consolidated) in the last 5 years.

2) It posted consistent margins between 5% to 6.8% in the last 4 out of 5 years (consolidated). Its standalone margins are between 4.4% to 5.8% in the last 4 out of 5 years.

Risk Factors / Reasons not to invest in a Godrej Agrovet Ltd IPO


1) Unfavitsable local and global weather patterns may have an adverse effect on its business, results of operations and financial condition.

2) They operate in five business verticals and its inability to manage its diversified operations may have an adverse effect on its business, results of operations and financial condition.

3) They derive a significant portion of its revenue from its animal feed business and any reduction in demand or in the production of such products could have an adverse effect on its business, results of operations and financial condition.

4) They do not have long-term agreements with suppliers for its raw materials and an increase in the cost of, or a shortfall in the availability of such raw materials could have an adverse effect on its business and results of operations.

5) The improper handling, processing or storage of raw materials or products, or spoilage of and damage to such raw materials and products, or any real or perceived contamination in its products, could subject us to regulatory and legal action, damage its reputation and have an adverse effect on its business, results of operations and financial condition.

6) Company, its Directors, its Subsidiaries, Promoters and certain of its Group Companies are involved in certain legal proceedings. Any adverse decision in such proceedings may render us/them liable to liabilities/penalties and may adversely affect its business and results of operations.

7) Certain of its businesses are subject to seasonal variations that could result in fluctuations in its results of operations

8) Outbreaks of livestock diseases in general, and poultry and shrimp disease in particular, can significantly restrict its ability to conduct its operations.

9) Certain of its operations are concentrated in the state of Andhra Pradesh and any adverse developments affecting this state could have an adverse effect on its business, results of operations, financial condition and cash flows.

10) A slowdown or shutdown in its manufacturing operations or under-utilization of its manufacturing facilities could have an adverse effect on its business, results of operations and financial condition.

11) They do not own the “Godrej” trademark and logo.

12) They are subject to business risks inherent to the oil palm industry that may adversely affect its business.

13) Other risk factors (Internal and external) can be viewed in the prospectus.

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Recommendation / Investment strategy – Godrej Agrovet IPO


1) On the upper price band of Rs 460 and on consolidated restated FY17 EPS of Rs 11.42, P/E ratio works out to 40.2x. Even based on last 3 years restated consolidated EPS of Rs 10.4, P/E ratio works out to 43.8x. Means, company is asking higher price band of Rs 460 in the P/E ratio of 40.2x to 43.8x. There is no listed peers to check whether the issue price is highly priced or under priced.

2) Company consolidated revenues grew at 16% CAGR in the last 5 years. It has posted consistent margins (consolidated) between 5.5% to 6.8% in the last 5 years. The issue price cannot be ascertained whether it under priced or overpriced. Considering these positive factors, investors can invest in this IPO with 2-3 years tenure. One may or may not get listing gains.

Disclaimer: I 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.

Readers, What is your view on this IPO? Do you fee one would get listing gains? Guess what could be the listing gains !!!

If you enjoyed this article, share it with your friends and colleagues through Face book and Twitter.

Suresh

Godrej Agrovet IPO – Should you invest in this IPO

17 comments

  • RK

    Hello Suresh,

    Two of my family applied for this IPO and not alloted to both of them.

    Do you have any strategy  in terms of IPO allotment (Like Investing more than 2Lakh as HNI)

    Please advise.

     

     

    • RK, One of the strategy which I was successul is opening an new demat account in my spouse name and I am always getting atleast one lot. I feel it is based on “new investor” category, my spouse is getting. While I would try to check other methods, you can adopt this as immediate approach

  • Tahir

    You mentioned that they don't own the Godrej brand or logo. But how you missed that the company "Godrej" has 61% stake in godrej agrovit.

  • AN Sircar

    PE of >40 and still a great investment? How dumb can people get?

    • Hi Sircar, As indicated in the article conclusion there are no listed peers, hence we cannot conclude whehter it is over priced or under priced. However considering the financial performance, one can invest in such IPOs.

  • Shiva

    I am scared about the high P/E ratio.

  • RAJAGOPALAN

    YOUR DETAILED REPORT IS EYEOPENER TO ALL WHO ARE SITTING IN THE FENCES.THANK YOU FOR THE SAME

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