Nova Agritech IPO Closes Today: Check Subscription Status, GMP, Investment Recommendation

The initial public offer (IPO) of Nova AgriTech Ltd, which kicked off on Tuesday, January 23, will close for subscription today. The agri-input manufacturer is looking to raise Rs 143.81 crore through its IPO, which consists of a fresh issue of Rs 112 crore and an Offer for Sale (OFS) of Rs 31.81 crore.

Nova Agritech IPO Timeline & Details: Everything You Need To Know

• Nova Agritech IPO Price: The firm has announced a price band of Rs 39 to Rs 41 per share for its IPO.
• Nova Agritech IPO Subscription Dates: Subscriptions for the IPO started on Tuesday, January 23, and will conclude today on January 25.
• Nova Agritech IPO Size: The firm seeks to raise Rs 143.81 crore from its initial public offer.
• How to Apply for Nova Agritech IPO: Prospective investors can bid in lots, with each lot consisting of 365 shares of the company. To apply for the IPO, the minimum investment is set at Rs 14,965 (calculated as 365 x 41).
• Allotment Timeline: According to the IPO schedule, the Nova Agritech IPO share allotment is expected to be finalized on January 29. 
• Nova Agritech IPO Listing Date: The public offer is anticipated to debut on BSE and NSE on the 31^st of January, 2024.
• Nova Agritech GMP: According to market observers, shares of Nova Agritech are trading at a grey market premium of Rs 20 (a premium of 49% over IPO price) as of today.

Nova Agritech Subscription Status

As of the afternoon on January 25, the final day for bids, the IPO of Nova Agritech was oversubscribed by 53 times. The retail investor segment bid for 53.22 times the number of shares allocated to them, while high net-worth individuals (HNI) subscribed for 121.24 times their portion. Qualified institutional buyers (QIB) acquired 1.27 times the shares reserved for them. 

The IPO comprises a fresh issue of 2.73 crore shares valued at Rs 112 crore and an offer for sale of 77.58 lakh shares amounting to Rs 31.81 crore. 

Prior to this, on January 19, the firm secured Rs 43.14 crore from four institutional investors. AG Dynamic Funds invested in shares worth nearly Rs 13 crore of the company. Similarly, Neomile Growth Fund-Series I, Saint Capital Fund, and Quantum-State Investment Fund each invested in shares exceeding Rs 10 crore.

About Nova Agritech

Nova Agritech Ltd (NAL) specializes in producing, distributing, and selling a comprehensive range of agricultural chemical solutions. These include soil health management products, crop nutrition, crop protection products, bio stimulants, bio pesticides, and agricultural drones. Its crop protection division is managed through its subsidiary, Nova Agri Sciences Pvt Ltd (NASPL).

The company holds 720 product registrations and operates from a single manufacturing site in Telangana, which has a capacity of 9,166 MTPA. Its robust dealer network covers 16 states within India and extends into 2 regions in Nepal. Furthermore, the firm is expanding its reach by establishing marketing, distribution, and supply agreements in Bangladesh, Sri Lanka, and Vietnam, and is in the process of securing approvals to begin operations in these nations.

Strengths

• Impressive Financial Growth: Between FY21 and FY23, NAL demonstrated substantial financial growth. This includes a Compound Annual Growth Rate (CAGR) of 15% in Revenue from Operations, an increase of 47% in EBITDA, and a remarkable 80% surge in Net Profit.
• Strong Return Ratios: The firm’s Return on Capital Employed climbed from 23.8% in FY22 to 27.3% in FY23. The Return on Equity also showed strength, increasing from 37.7% in FY22 to 38.3% in FY23.
• Increasing Profitability Margins: Over the past three fiscal years, there has been a steady growth in EBITDA and Net Profit Margins, reaching 18.4% and 9.7% in FY23, respectively. By September 2023, these margins improved even more to 18.8% and 10.1%.
• Reduction in Debt-to-Equity Ratio: There has been a consistent decrease in the firm's Debt-to-Equity Ratio, moving from 1.74 in FY21 to 1.49 in FY22, then to 1.11 in FY23, with a further drop to 0.92 by September 2023.

Key Concerns 

• Negative Cash Flows: Over the past three years and the six-month period ending September 30, 2023, NAL experienced negative cash flows from its investing and financing activities. Persistent negative cash flows could negatively affect the firm’s business operations, financial health, and overall performance.
• Dependence on Specific Geographies: Despite operating across 16 states in India, a significant portion of the firm’s revenue is derived from Telangana, Andhra Pradesh, and Karnataka. Its business is heavily reliant on these states, and any changes in government policies, regulations, economic conditions, or climate in these regions could negatively impact the business operations and financial health.
• Considerable Working Capital Requirements: The firm typically requires substantial working capital, with about half of this funded through bank loans. It plans to allocate over 60% of the IPO proceeds towards working capital. Considering its debt-to-equity ratio of 0.9x, which is high compared to industry peers who mostly operate with minimal debt, the management needs to efficiently manage the debt and working capital to maintain a healthy balance sheet.
• Outstanding Trade Receivables: The firm has a significant amount of trade receivables, totalling Rs 128.96 crore as of September 2023. Failure to collect payments from customers or delays in collecting receivables could adversely impact our business and financial performance.

Final Verdict: Subscribe 

Nova AgriTech Ltd (NAL) has demonstrated impressive and steady revenue growth over the last three years, accompanied by a significant rise in net profit margins. The firm boasts an outstanding Return on Equity (ROE) of over 38% and a net profit margin of ~10%, indicating strong financial performance in a competitive sector.

In terms of valuation, the IPO is attractively priced. The Price-to-Earnings (P/E) ratio is pegged at 12.5x based on FY23 earnings, which is comparatively lower than its industry counterparts.

Given these factors, investors might consider subscribing to this IPO with a short-to-medium-term outlook. However, for long-term considerations, it's crucial to monitor the sustainability of profit margins and the company's growth path.

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