KPR Agrochem IPO – Flat Revenues – Should you Invest or Avoid?

KPR Agrochem Limited IPO ReviewKPR Agrochem Limited IPO Review


After the announcement of IndiaMart InterMesh IPO, one more IPO is in queue. KPR Agrochem Limited IPO is going to hit the market next week. Investors are looking to make some quick bucks in new IPOs that are coming now. KPR Agrochem IPO would open for subscription on 28th June, 2019. They are in the agri-input and company focused on manufacturing, distribution and retailing of a wide range of crop yield enhancing and protection products. K P R Agrochem Limited IPO Size is Rs 277.5 Crores. What are the various positive factors an investor should consider before investing in KPR Agrochem IPO? Should you invest in the KPR Agrochem Ltd IPO or avoid? In this article, let me do KPR Agrochem IPO Review.

Also Read: IndiaMart InterMesh IPO Opens on 24th June – Should you invest?

About KPR Agrochem Limited


They are an agri-input and Company focused on manufacturing, distribution and retailing of a wide range of crop yield enhancing and protection products. Its product portfolio includes crop protection, crop nutrients, seeds, veterinary feed supplements. Further, in order to secure supply of sulphuric acid, one of its key ingredients, they also ventured into manufacturing of sulphuric acid. They produce sulphuric acid as well as other sulphuric acid based chemicals like LABSA and oleum that have wider applications across industries like agrochemicals, veterinary feed supplements, pharmaceuticals, synthetic detergents etc. its range of product encompasses products across the agri-value chain viz., from seeds to crop nutrients products to crop protection products and also veterinary feed supplements.

KPR Agrochem IPO Issue details


KPR Agrochem Limited IPO Details

KPR Agrochem IPO RHP Prospectus can be downloaded at this link

What are the Objects of the KPR Agrochem IPO?


Here are the objects of the IPO issue.

1) Offer for the sale (OFS) of equity shares by the Selling Shareholders. The company will not receive any proceeds from the Offer and the entire proceeds from the Offer will go to the Selling Shareholders.

2)  Repayment / prepayment, in full or part, of certain borrowings availed by our Company.

3) To meet additional working capital requirement of the Company.

4) General corporate purposes.

Who are the Company Promoters?


The Promoters of the company are Papa Reddy Kovvuri, Venkata Mukunda Reddy Karri, Rajasekhar Reddy Kovvuri, Satyanarayana Reddy Kovvuri, Satyanarayana Reddy Kovvuri and Cresco Technology LLP.

How is the company doing in terms of Financial Performance (Reinstated-Consolidated)?


1) Company revenues decreased from Rs 615.9 Crores for the year ended Mar-14 to Rs 600.8 Crores for the year ended Mar-18. Revenues for the 9 months ended Dec-2018 are at Rs 483.2 Crores.

2) Company profits increased from Rs 28.6 Crores for the year ended Mar-14 to Rs 29.6 Crores for the year ended Mar-18. Profits for the 9 months ended Dec-2018 are at Rs 27.5 Crores.

3) Its EPS for FY2018 is Rs 3.47 and 3 years average EPS is at Rs 3.1. Its EPS for 9 months ended Dec-2018 is Rs 3.23.

KPR Agrochem Limited IPO - Consolidated financials - FY2015 to DEC-2018

How is the company is doing in terms of Financial Performance (Reinstated-Standalone)?


1) Company revenues decreased from Rs 595.8 Crores for the year ended Mar-14 to Rs 573.4 Crores for the year ended Mar-18. Revenues for the 9 months ended Dec-2018 are at Rs 463.1 Crores.

2) Company profits increased from Rs 26.9 Crores for the year ended Mar-14 to Rs 28.2 Crores for the year ended Mar-18. Profits for the 9 months ended Dec-2018 are at Rs 26.5 Crores.

3) Its EPS for FY2018 is Rs 3.31 and 3 years average EPS is at Rs 2.96. Its EPS for 9 months ended Dec-2018 is Rs 3.11.

What is the of KPR Agrochem Credit Rating?


Credit rating is not required for issue of equity shares, hence, they have not approached any credit rating agency for credit rating.

What is the KPR Agrochem IPO GMP now?


Currently there is no GMP available for KPR Agrochem Limited IPO GMP.

What are the key strengths of KPR Agrochem Limited?


Every investor should understand company key strengths so that one can compare with its competitors to know how unique is such company in their business. Their investment decision would change based on these facts. Here are the key strengths of the company.

1) Wide agri-input product portfolio with presence across the agri-value chain enabling diversification of revenue risk.

2) Strong and growing distribution network.

3) Material sourcing capabilities.

4) Certified manufacturing facilities.

5) Experienced Promoters and management team.

What are the various strategies of KPR Agrochem Ltd?


Company strategies would help investors to know what company is intending to do in the future and whether these strategies would help in revenue or margin growth. Such information would help investors to decide whether to invest for short term, medium term or for the long term. Here are the company strategies.

1) Enhance product offering.

2) Geographical expansion.

3) Increase its market penetration.

Positive Factors to invest KPR Agrochem IPO


1) Its standalone profits improved from 4.5% in FY2015 to 4.9% in FY18. Even for 9 months ended Dec-2018, it generated profits of 5.7%. Improved margins would always reward investors by share price appreciation and by way of dividends.

2) K.P.R.Agrochem is leading agri-input company focused on manufacturing, distribution and retailing of a wide range of crop yield enhancing and protection products.

3) Retail investors and employees of the company would get a discount of Rs 3 per share in case of allotment to them. Means they can get shares at highest price of Rs 58 (Rs 61 minus Rs 3).

Major risk Factors to consider before investing in KPR Agrochem Limited IPO


These risk factors can impact company revenue and margins which would affect its share price. Investors should go through and understand these risk factors before investing.

1) There is no revenue growth in the last 5 years. It posted flat revenues. Investors should invest in consistent growth companies which would reward them in medium to long term.

2) The company has sought compounding of certain offenses under provisions of the Companies Act. While company has filed the aforesaid compounding applications, the concerned authorities may not accept its application to compound the offence, may levy applicable penalty and also initiate other appropriate actions under the Companies Act.

3) Agrochemical business is subject to extensive regulations, environmental and health and safety laws and regulations, which may subject to increased compliance costs. In the past, the relevant authorities have imposed certain fines on the Company and/or Company has paid compounding fees due to inspection of regulatory authorities and towards settling of deficiencies in its products. If they fail to comply with the regulations prescribed by the authorities of the jurisdictions in which they operate, its business, results of operations, cash flows and financial condition could be adversely affected.

4) In the past, certain survey operations were carried out by the Income Tax Department under section 133A of the IT Act against the company, pursuant to which, certain appeals are pending before the Commissioner of Income Tax (A)-2, Visakhapatnam. Any adverse determination by the tax authorities in this matter could increase its tax liability.

5) They have higher working capital requirements and if they are unable to secure financing for its working capital requirements, there may be an adverse effect on its business, growth prospects and results of operations.

6) Any defect in its products, may result in its manufacturing license being withdrawn and they could become liable to customers, suffer adverse publicity and incur substantial costs which in turn could adversely affect the value of its brand, and its sales could diminish if they are associated with negative publicity. Further, any alleged claims relating defect in its products could materially and adversely affect its business, financial conditions and results of operations.

7) They are subject to strict quality requirements, regular inspections and audits, and any failure to comply with quality standards may lead to cancellation of existing and future orders and could negatively impact its reputation and its business and results of operations and prospects.

8) Its Promoters and Directors have a pecuniary or equity interests in certain of its Group Entities, which may under their constitution be allowed to enter into similar businesses as the company, which may create a conflict of interest. Further, they do not enjoy contractual protection by way of a non–compete or other agreement or arrangement with such Group Entities.

9) They have certain contingent liabilities and its financial condition and profitability may be adversely affected if any of these contingent liabilities materialize.

10) Its pesticide business could be adversely affected by the introduction of alternative pest management and crop protection measures such as biotechnology products, pest resistant seeds or genetically modified crops.

11) Company, its Promoters and Directors are involved in certain legal proceedings. An adverse outcome in such proceedings may have a material adverse effect on its business, results of operations and financial condition.

12) For complete internal and external risk factors, you can refer the IPO RHP of the company.

KPR Agrochem IPO Schedule


Offer Opens – 28-June-2019

Offer Closes – 2-July-2019

Finalization of Basis of Allotment – 5-July-2019

Unblocking of ASBA and Initiation of Refunds – 8-July-2019

Credit of shares to Demat Accounts – 9-July-2019

IPO Shares Listing Date – 10-July-2019

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Is the issue price of KPR Agrochem IPO reasonably priced or over priced?


If we consider its standalone EPS of last year of Rs 3.31 on the higher price band of Rs 61, the P/E works out to be 18x. If we consider its standalone 9 months ended Dec-2018 EPS of Rs 3.11 and annualise it on the higher price band Rs 61, the P/E works out 19.6x. Means company is asking the higher price band of Rs 61 in the P/E ratio of 18x to 19.6x. Its Peers like Excel Crop Care share price is trading at 50x (Highest) and Deepak Fertilizers and Petrochemicals is trading at 7x (Lowest), hence KPR Agrchem IPO Price at P/E of 18x to 19.6x is reasonably priced.

KPR Agrochem IPO – Should you Invest or Avoid?


Company revenues are flat in the last 5 years. Company’s margins have improved in the last 5 years. Its issue price is also reasonably priced. I would have been excited if the company would have grown in terms of revenues. Considering some of these positive factors, High Risk Investors can invest in this IPO with a time frame of 3-5 years. Investors may or may not get listing gains.

Disclaimer: The information in this article is for information only. This is not a recommendation to invest in this IPO. Please consult your investment advisor before you invest in such high risk IPOs.

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Suresh

KPR Agrochem IPO – Should you Invest or Avoid

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