Godrej Agrovet IPO Oversubscribed 97 Times, Analysts Expects 25% Listing Gains

Godrej Agrovet, a subsidiary of Godrej Industries, its Initial Public Offering (IPO) has been subscribed 97 times. The offer that opened on 4^th October picked up the subscription on its last day and is now expected to list at 25% gains as per Analysts.

Till yesterday, the IPO was oversubscribed by 2.33 times only.

The company is raising Rs. 1,160 Cr. through the IPO of 1.80 Cr shares and has received bids for 162.56 Cr shares.  It has kept its price band at Rs. 450 – Rs. 460 per share.

Getting a huge response to its IPO on the last day of its subscription, the institutional investors was oversubscribed by 155.17 times while the retail investors oversubscribed by 7.55 times. The non-institutional investors also took active participation with 238.68 times.

All the major analysts had recommended a buy considering strong financials, parent company and reasonable valuations and estimate the shares to list at 25% gains from upper end of its price band.

About Godrej Agrovet

Godrej Agrovet, India’s largest animal feed maker, is a diversified, research and development focused agri-business company with operations across five business verticals viz. animal feed, crop protection, oil palm, dairy, and poultry and processed foods.

Godrej Agrovet has two joint ventures in Bangladesh—poultry farm owner Godrej Tyson Foods Ltd. and ACI Godrej Agrovet Pvt. Ltd., the fourth-largest feed producer in that country.

Mr. Nadir B. Godrej and Mr. Adi B. Godrej are the promoters of GIL.

The company’s focus has been to shift from low margin to high margin business. So far the company has been earning its revenue from animal feed however its slowly moving to crop insurance business that is growing with high margins.

To build a portfolio, the company, in 2015, acquired a majority stake in Astec Lifesciences Ltd., the maker of agrochemicals—including fungicides and herbicides.

Godrej Agrovet IPO: Things to Know

The proceeds from the fresh issue of Rs. 292 Cr. would be used by the company to repay its working capital facilities worth Rs. 100 Cr. and at the same time repay the commercial papers worth Rs. 150 Cr. and the remaining would be used for general business purposes.

Godrej Industries, the parent company, holds 63.67% stake in the company and would raise money worth Rs. 300 Cr. and at the same time, V-sciences which holds 19.99% would raise Rs.565 Cr from the issue by selling a part of their stake.

SBICap Securities in its report said that, “At the price band of Rs. 450-460, the issue is priced at 34-34.7 times of its FY17 earnings, whereas it is available at 18-18.4 times FY17 EV/EBITDA. For FY17, the pre-issue return on equity and return on capital employed stood at 28.4 per cent and 28.9 per cent respectively.”

The company has been maintaining a healthy balance sheet with net debt to equity ratio of 0.6, average net working capital days of nearly 30 and robust return on equity at 28 per cent.

Kotak Mahindra Capital Company, Axis Capital and Credit Suisse Securities (India) Private Limited are book keepers for the company’s issue. The shares are proposed to be listed on the BSE and the NSE.

Godrej Agrovet Financial Performance

The revenue of the company has grown by 15.5% on an annual basis whereas net profit by 26.7% compounded last 5 years till March 2017.

For the latest quarter ending June, revenue stood at Rs. 1,363 Cr whereas the net profit at Rs 72.5 crore. Earnings before interest, tax and depreciation and amortization (EBITDA) grew with a CAGR of 22.6%, and the EBITDA margins have consistently stood in range of 7-9% for the last five years.

For the quarter ended June, EBITDA and EBITDA margin stood at Rs 124 crore and 9.3 percent, respectively.

The company’s cash conversion cycle(CCC) has improved to 15 days from 25 days in last five years till March 2017, which is remarkable and indicates a sound financial health of the company and its ability to generate cash faster.

Analysts recommended a buy on Agrovet IPO

“Considering the diversified business model, strong management bandwidth, efficient working capital cycle and impressive return ratios coupled with reasonable valuation, we recommend subscribe to the issue,” said Reliance Securities.

ICICI Securities observed that the issue’s valuation is seen at MCap/Sales of 1.8x, P/E of 35.4x, EB/EBITDA of 21.5x & P/B of 8.8x.

“On SOTP valuation methodology basis, we arrive at fair market cap of Rs 11,000 crore for Godrej Agrovet as compared to targeted IPO market capitalization of Rs 8,850 crore at upper price (Rs 460) of the price band (Rs 450-460),” ICICI Securities said in a report.

ICICI Direct values Godrej Agrovet at Rs 575 per share, implying a potential upside of 25 percent from Rs 460, the upper end of the price band.

GEPL Capital said that “the company stands to gain from operating leverage and highlighted that a PE of 40.17 times of FY17 earnings is seen. Further, it said that a unique business model and strong growth metrics will make it lucrative and hence it recommends a positive view on the issue.”

IIFL Investment Managers, which have a subscribe rating on the issue, said that “the company has successfully reaped the rewards of astute business integration. Its synergies across various businesses drive growth, optimize capital efficiency and define its competitive edge.”