KPR Agrochem IPO review (Avoid)

Review By Dilip Davda on Jun 24, 2019

· KPRAL is an agri-input company with manufacturing and distribution network.

· It has also ventured into sulphuric acid related derivatives.

· The company is coming out with a combo offer.

· BRLM has poor track records.

 
ABOUT COMPANY:

KPR Agrochem Ltd. (KPRAL) is an agri-input 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 the key ingredients, KPRAL also ventured into manufacturing of sulphuric acid. It produces 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.

 
Company's 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. Majority of its sales is from branded products like "FAST" (trademark registered), "MOTOX - 10G" (trademark registered), "SAMRAT ATRAZINE 50% WP" (trademark unregistered) and "MEGA IMIDA" (trademark unregistered) branding for crop protection; "AJAY (14-35-14)" (trademark registered) and "AJAY (20-20-0)" (trademark registered) being brands for NPK mixture crop nutrient products; "ANNADATA SINGLE SUPER PHOSPHATE" (trademark unregistered) being brand for single super phosphate; "ABHAYA CAL MIX" (trademark registered) being brand for di-calcium phosphate and "APURVA SEEDS" (trademark registered by Subsidiary) being brand for seeds.

 
To ensure timely supply and availability of its products as well as achieve last mile connectivity with the farmers, it has set-up Company operated depots at 11 locations across India that are established based on the agricultural belts and/or having ease of connectivity with the dealer network. The company has also appointed C & F Agents in 4 locations. It has approximately 8,000 dealers spread across various states in India. Further, the Company has also set-up a chain of company-operated retail outlets known as Kisan Seva Kendras in the East and West Godavari, Vizianagaram, Srikakulam, Visakhapatnam and Krishna districts of Andhra Pradesh; Warangal district of Telangana; and Koppal, Raichur, Bellary and Gadag districts of Karnataka where its primary manufacturing operations are conducted as a channel of direct sales to end customers.

 
KPRAL has an installed capacity of 555,000 MTPA of crop nutrient products, 21,560 MTPA of crop protection products, 34,560 MTPA for veterinary feed supplements, 175,800 MTPA for chemicals and the installed capacity of the seed processing unit is 15,000 MTPA. The aggregate capacity of its waste heat recovery power plants is 2.5 MW which meets its captive power requirements.


However, it is worthwhile to note that it has around 49 litigations pending for criminal, civil and tax proceedings, which raises concern.

KPRAL
ISSUE DETAILS/CAPITAL HISTORY:

To part finance its plans to repayment/pre-payment of certain borrowings (Rs. 30 cr.), working capital needs (Rs. 120 cr.) and general corpus funds (Rs. 52.5 cr.), KPRAL is coming out with a maiden combo IPO (primary + secondary) via book building process. It has fixed a price band of Rs. 59 – Rs. 61 per share. The company is issuing approx. 34426200 equity shares of Rs. 10 each (based on upper price band of Rs. 61 per share) by way of fresh equity issue worth Rs. 210 crore and Offer for Sale of 12000000 shares by existing stakeholders. Thus the overall size of the IPO will be approx 46426200 shares. KPRAL mulls mobilizing around Rs. 273.91 cr. – Rs. 283.20 cr. (based on lower and upper price bands). The issue opens for subscription on 28.06.19 and will close on 02.07.19. Minimum application is to be made for 200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE/NSE. The company has reserved 430000equity shares for eligible employees and from the balance portion fixed 25% quota for QIBs, 35% for HNIs and 40% for Retail investors. It is offering a discount of Rs. 3 per share to employees and Retail investors. Issue constitutes 38.73% of the post issue paid up equity capital of the company.

 
Having issued initial equity at par, KPRAL raised further equity at Rs. 50 per share in March 2009 and March 2010. It has issued bonus shares in the ratio of 1 for 2 in January 2009 and 5 for 1 in February 2014.

 

The average cost of acquisition of shares by the selling shareholders is Rs. 1.73, Rs. 1.90, Rs. 2.48, Rs. 2.59, Rs. 2.67 and Rs. 9.38 per share. KPRAL's current paid up equity capital of Rs. 85.46 cr. will stand enhanced to around Rs. 119.89 cr. post this issue. FY18 end its (consolidated) debt-equity ratio was 1.65.

 
The issue is solely lead managed by PL Capital Markets Pvt. Ltd. while Karvy Fintech Pvt. Ltd. is the registrar to the issue.

 
FINANCIAL PERFORMANCE:

On the financial performance front, for the last four fiscals, KPRAL has on a consolidated basis posted turnover/net profits of Rs. 600.57 cr. / Rs. 28.23 cr. (FY15), Rs. 581.41 cr. / Rs. 24.31 cr. (FY16), Rs. 590.70 cr./ Rs. 22.74 cr. (FY17) and Rs. 600.82 cr. / Rs. 29.65 cr. (FY18). For the 9MFY19 it has earned a net profit of Rs.27.59 cr. on a turnover of Rs. 483.28 cr. Thus its top line almost static since the last few fiscals and bottom line have shown declining trends from FY15 to FY17. Boost in bottom lines for pre-IPO years raise concern.

 
For the last three fiscals, on a consolidated basis, it has posted an average EPS of Rs. 3.10 and an average RoNW of 12.98%. The issue is priced at a P/BV of 2.09 on the basis of consolidated NAV of Rs. 29.14 as on 31.12.18 and at a P/BV of 1.62 on the basis of post issue NAV of Rs. 37.64 (based on upper price band).

 
If we annualize latest earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 20. Thus the issue is fully priced (based on boosted earnings). Industry composite is around 24 P/E.

 
COMPARISION WITH LISTED PEERS:

As per offer document, it has shown Coromandel Intl., Chambal Ferti., Deepak Ferti., Insecticides India, Excel Crop, Dhanuka Agri and Aarti Ind as its listed peers. They are currently trading at a P/Es of around 16, 10, 140, 10, 38, 16 and 33 (as on 24.06.19). However, they are strictly not comparable on an apple to apple basis.

LEAD MANAGER'S TRACK RECORDS:

On merchant banker's front, this is the 2 nd mandate from its stable. The only listing that took place so far closed below the issue price on the listing date.

KPRAL has nothing to do with listed KPR Mills or Sri KPR. The issue is fully priced based on its pre-IPO year's higher earnings. Major income is derived from the sale of fertilizers and insecticides. The southern region is witnessing water scarcity, which may dent KPRAL's business prospects. Company's capacity utilization is very low and receivable days are very long i.e. 160 to 180 days, that raises concern.


Conclusion / Investment Strategy

There is no harm in giving this issue a miss. Their financial performance largely depends on monsoon behaviour. Company has no plans for CapEx for the coming few years.

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on Jun 24, 2019

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).


About Dilip Davda

Dilip Davda, a freelance journalist

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

Email: dilip_davda@rediffmail.com

KPR Agrochem IPO FAQs

  1. 1. Why KPR Agrochem IPO?

    The initial public offer (IPO) of K.P.R. Agrochem Limited offers an early investment opportunity in K.P.R. Agrochem Limited. A stock market investor can buy KPR Agrochem IPO shares by applying in IPO before K.P.R. Agrochem Limited shares get listed at the stock exchanges. An investor could invest in KPR Agrochem IPO for short term listing gain or a long term.

  2. 2. How is KPR Agrochem IPO?

    Read the KPR Agrochem IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. KPR Agrochem IPO what should investors do?

    KPR Agrochem IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the KPR Agrochem IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.

  4. 4. Is KPR Agrochem IPO good?

    Our recommendation for KPR Agrochem IPO is to avoid.

  5. 5. Is KPR Agrochem IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to avoid the KPR Agrochem IPO.

  6. 6. When will KPR Agrochem IPO allotment status?

    The KPR Agrochem IPO allotment status will be available on or around Jul 5, 2019. The allotted shares will be credited in demat account by Jul 9, 2019. Visit KPR Agrochem IPO allotment status to check.

  7. 7. When will KPR Agrochem IPO list?

    The KPR Agrochem IPO list date is not yet available. The KPR Agrochem IPO is planned to list on Jul 10, 2019, at BSE, NSE.
More KPR Agrochem IPO Views / Analysis / Recommendations ...

3 Comments

Mukeshvicky
3. Mukeshvicky  Jun 25, 2019 00:41 I Like It. | I Don't Like It. | Report Abuse Reply
Consistent profitability from last 5 years , it is available at discounted price and Agrochem is good sector. So make application of shares as much as possible. It is surely 10 times subscribe. I advise subscribe with full force and don't loose opportunity for maximum profit in less time.
Kalpeshraja
2. Kalpeshraja  Jun 24, 2019 23:37 I Like It. | I Don't Like It. | Report Abuse Reply
IN GREY MARKET per application received rs.800 to 850 I e. Strong listing of Kpr Agrochem.I recommended for subscribe as much as possible it is opportunity for fantastic profit in minimum time
Kalpeshraja
1. Kalpeshraja  Jun 24, 2019 23:33 I Like It. | I Don't Like It. | Report Abuse Reply
Subscribe for 50% return it will surely listed between rs.90 - rs.100








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