Broiler chicks feed at a poultry farm (Photographer: Dhiraj Singh/Bloomberg)

Godrej Agrovet IPO: Here’s All You Need To Know

Godrej Agrovet Ltd.’s initial public offering opens on Wednesday as India’s largest animal feed maker looks to raise funds betting on higher demand for agri-products in Asia’s third-largest economy.

The company, backed by Singapore government’s investment fund Temasek Holdings, is looking to raise close to Rs 1,157 crore by offering 2.52 crore shares at Rs 450-460 apiece. It raised more than Rs 340 crore from anchor investors on Tuesday.

Parent Godrej Industries Ltd. will sell stake worth Rs 300 crore and Temasek’s arm, V-Sciences, will offload a third of its nearly 20 percent holding through the IPO. The company will also raise Rs 291.5 crore by issuing new stock to repay short-term loans.

Godrej Agrovet IPO: Here’s All You Need To Know

Business

Godrej Agrovet is a research and development-focused agri-business company. It’s been shifting focus from animal feed to crop protection business that offers higher margins.

Godrej Agrovet IPO: Here’s All You Need To Know

In 2015, it acquired a majority stake in Astec Lifesciences Ltd., the maker of agrochemicals—including fungicides and herbicides.

Godrej Agrovet IPO: Here’s All You Need To Know

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.

Godrej Agrovet IPO: Here’s All You Need To Know

Financial Highlights

Godrej Agrovet IPO: Here’s All You Need To Know
  • Godrej Agrovet’s net worth stood at Rs 1,073 crore for the quarter ended June. As of August 31, it’s total consolidated debt stood at Rs 990 crore. After the initial share sale, its total debt-to-equity ratio will fall to 0.7 times.
  • The company's revenue rose at a compounded annual growth rate of 15.5 percent and net profit increased at 26.7 percent over five years to March. Revenue and net profit for the quarter ended June stood at Rs 1,363 crore and Rs 72.5 crore, respectively.
  • Earnings before interest, tax and depreciation and amortisation grew at a CAGR of 22.6 percent, while the EBITDA margins have stayed in the range of 7 percent to 9 percent in the last five years.
  • For the quarter ended June, EBITDA and EBITDA margin stood at Rs 124 crore and 9.3 percent, respectively.
  • The cash conversion cycle for the company improved from 25 to 15 days in five years to March. It’s an indicator of overall health of a company and signals how fast it can generate cash.
  • Return on equity and capital employed remained more less stable except for the year to March when the company funded its acquisitions.
Godrej Agrovet IPO: Here’s All You Need To Know

Peers And Valuations

Godrej Agrovet has no direct listed peers. Its different business verticals compete with private and public companies.

Godrej Agrovet IPO: Here’s All You Need To Know

After issuing new shares, earnings per share at the upper end of the price band works out to Rs 15 for the year to March 2018 on an annualised basis, according to BloombergQuint’s calculations. The price-earnings ratio stands at 30.4 times.

Godrej Agrovet IPO: Here’s All You Need To Know

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.

Godrej Agrovet IPO: Here’s All You Need To Know

Shareholding Pattern

Promoter Godrej Industries Ltd. will sell shares worth Rs 300 crore, bringing its holding down to 69 percent.

Godrej Agrovet IPO: Here’s All You Need To Know

Brokerage Take

All brokerages that BloombergQuint reached out to have a ‘subscribe’ rating for the IPO.

Considering the diversified business model, strong management bandwidth, efficient working capital cycle and impressive return ratios, coupled with a reasonable valuation, we recommend ‘subscribe’ to the issue.
Reliance Securities
Given the healthy balance sheet, strong return ratios and growing business verticals, we believe that the IPO provides a good investment opportunity for the long-term.
IDBI Capital
Godrej Agrovet possesses a strong distribution network and established brands, diversified businesses with synergistic benefits, strong parentage, healthy balance sheet and a robust return ratio profile. We advise ‘subscribe’.
ICICIdirect Research
Godrej Agrovet has room for growth as several sectors in which the company operates are largely unorganised. Also, cost leadership will be a key driver for the company to increase the market share of its products. With the optimistic view on the company and its financials, we rate it ‘subscribe’.
KRChoksey Research
We assign a subscribe rating to the IPO considering its diversified business profile, decent margins, strong return ratios, healthy balance sheet and a strong history of its parent.
Angel Broking