Reasons to invest in Apex Frozen Foods IPO
Its posted strong revenue growth in the last 5 years. Its revenues grew at 29% CAGR in last 5 years.
Well established business where it sells its products in US, UK and other European regions.
Risk Factors / Reasons not to invest in a Apex Frozen Foods Ltd IPO
It earns low margins of 2.6% to 3.7% in the last 5 years. However with the kind of business it does,
one cannot expect high returns.
Company generates majority of its revenues through export of shrimp to United States of America,
United Kingdom and a few countries in European Union. Any adverse developments or changes in these
markets may adversely impact its business, financial condition and results of operations.
They have not entered into long term contracts with its suppliers and in the absence of which its
Company is to exposed to volatility in the prices of raw materials thereby adversely impact the overall
profitability and financial performance of its business and may also adversely impact the pricing and
supply of its products and have an adverse effect on its business.
Its aquaculture farms operate in an environment sensitive industry. they do not possess any control
on the bio security measures employed at different level of operations. Improper measures may lead to
risk of development of new infections/ diseases and the shrimp it produces may be prone to certain
diseases, epidemic, bacteria and viruses spread in the environment.
They derive a significant portion of its revenue from a few customers, they do not have long term
contractual arrangements with most of them, and the loss of one or more such customers, the
deterioration of their financial condition or prospects, or a reduction in their demand for its products
could adversely affect its business, results of operations, financial condition and cash flows.
Its processing facility and procurement operations are concentrated in Andhra Pradesh region and
any adverse developments affecting these regions could have an adverse effect on its business, results
of operations and financial condition.
They intend to utilize a portion of the Net Proceeds for setting up an additional processing unit at
Peddapuram Mandal, G. Ragampeta Village, East Godavari district, Andhra Pradesh. They are yet to
place orders for plant and machinery and apply for requisite government approvals for the proposed
processing unit. Any delay in undertaking such and not adhering to the schedule of implementation
could have an adverse effect on its business growth and prospects and results of operations.
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Company is involved in a legal proceeding. Any adverse decision in such proceeding may adversely
affect its business, results of operations and financial condition.
Any shortage, disruption or non-availability of power and water may adversely affect its entire
farming, pre processing and processing requirements and have an adverse impact on its business,
results of operations and financial condition
Company is required to procure imported plant & machinery for the purpose of its business. The
same are required for its pre-processing plants and processing plants. The plant & machinery are
imported and are subject to risk arising from foreign exchange fluctuation.
For the last three financial years certain amounts were paid by its Company to its Promoter,
relatives of its Promoter and Group Entities on account of managerial remuneration and as unsecured
loan repayment. they may continue to make such payment in future, which may affect its cash flows
and results of operations.
Its Group Entity, Karutturi Global Exports Private Limited is authorised to engage in a similar line of
business as us, which could create conflicts of interest, which may have an adverse effect on its
business.
Its hatchery situated at Annayyapeta and a considerable amount of its farming operations are
located on leased locations.
They have certain contingent liabilities, which, if materialise, may adversely affect its financial
condition.
Other risk factors (Internal and external) can be viewed in the draft prospectus.
Also Read: Best Largecap Equity Mutual Funds to invest in 2017
Recommendation / Investment strategy – Apex Frozen Foods IPO
1) On the upper price band of Rs 175 and on FY17 EPS of Rs 10.17, P/E ratio works out to 17.2x. Even based
on last 3 years EPS of Rs 9.04, P/E ratio works out to 19.3x. Means, company is asking higher price band of
Rs 175 in the P/E ratio of 17.2x to 19.3x. Its listed peers like Zeal Aqua is trading at P/E ratio of 100.24
(Highest) and The Water Base Ltd at P/E Ratio of 28.54 (Lowest) and Industry average is 54.52. Hence the
issue price of Rs 175 is reasonably priced.
2) Company revenues grew at 29% CAGR in last 5 years. However it earns low margins. Its issue price is
reasonably priced. Stock markets are taking correction. Recent SIS IPO listed with 8% premium, however
closed 4% down on the day of listing. Cochin Shipyard IPO which was expected to make good debut has
closed with 22% profits on the day of listing. Considering these factors, high risk investors can invest in this
IPO with 2 to 3 years time frame. However, one may or may not get listing gains.
Zerodha (Trading & Demat Account)
RHP
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