What you must know about Crop Life Science IPO

Crop Life Science Ltd, is an SME IPO on the NSE which is opening for subscription on 18th August 2023. The company, Crop  Life Science Ltd, was incorporated in the year 2006. The company is engaged in the business of manufacturing, distributing, and marketing agrochemical formulations. Here is a quick word about its specific products. Crop Life Science Ltd manufactures agricultural chemicals like micro fertilizers and pesticides which includes Insecticides, fungicides, herbicides, and weedicides. It has a manufacturing plant that is located at the GIDC (Gujarat Industrial Development Corporation) Ankleshwar in the state of Gujarat. The facility spans a total area of 5,831 SQM. Crop Life Science Ltd exports its manufactured products to other countries like Indonesia, Bangladesh, Egypt, Myanmar, Vietnam, and Sudan among others. Its product portfolio comprises more than 85 agrochemical products.

Apart from its main business, Crop Life Sciences also has two group companies. CLSL Pack Science Private Ltd into the manufacturing of induction sealing wads and other flexible packaging products. It has just about started generating revenues in FY22 and it is still making losses on a net basis. The other group company of Crop Life Sciences Ltd is Hetban Spechen Ltd. It has a modern and multipurpose plant to manufacture various technical grades of insecticides, fungicides, herbicides, and PGR and is located at Dahej in Gujarat. This group company still does not have any revenues of its own as its factory has been leased to Crop Life Sciences Ltd.

Key terms of Crop Life Science SME IPO

Here are some of the highlights of the Crop Life Science IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 18th August 2023 and closes for subscription on 22nd August 2023; both days inclusive.
   
• The company has a face value of ₹10 per share and it is a fixed price issue. The issue price for the fresh issue IPO has been fixed at a fixed rate of ₹52 per share.
   
• The company will issue a total of 51.40 lakh shares which at the fixed price IPO of ₹52 per share aggregates to a total fund raising of ₹26.73 crore.
   
• There is no offer for sale portion in this IPO and hence the fresh issue size of ₹26.73 crore will also be the total size of the IPO of Crop  Life Science Ltd.
   
• Like every SME IPO, this issue also has a market making portion with a market maker portion allocation of 260,000 shares. The market maker for the issue is Nikunj Stock Brokers Ltd and they will provide two-way quotes to ensure liquidity on the counter post listing and low basis costs.
   
• The company has been promoted by Rajesh Lungariya and Ashvin Kumar Lungariya. The promoter holding in the company currently stands at 100.00%. However, post the fresh issue of shares, the promoter equity will be diluted to 70.01%.
   
• The fresh issue funds will be used by the company for meeting its working capital funding gaps and for general corporate purposes. Part of the funds raised will also go towards issue related expenses.
   
• While Interactive Financial Services Ltd will be the lead manager to the issue, Purva Share Registry India Private Ltd will be the registrar to the issue. The market maker for the issue is Nikunj Stock Brokers Ltd.

IPO allocation and minimum lot size for investment

The company has allocated 10% of the issue size for qualified institutional buyers, 45% for the retail investors and the balance 45% for the HNI / NII investors. The break up in terms of minimum and maximum allowed quota has been captured in the table below.

The minimum lot size for the IPO investment will be 2,000 shares. Thus, retail investors can invest a minimum of ₹104,000 (2,000 x ₹52 per share) in the IPO. That is also the maximum that the retail investors can invest in the IPO. HNI / NII investors can invest a minimum of 2 lots comprising of 4,000 shares and having a minimum lot value of ₹208,000. There is no upper limit on what the QIBs as well as what the HNI / NII investors can apply for. The table below captures the break-up of lot sizes for different categories.

Key dates to be aware of in the Crop  Life Science IPO (SME)

The SME IPO of Crop  Life Science Ltd IPO opens on Friday, August 18th, 2023 and closes on Tuesday August 22nd, 2023. The Crop  Life Science Ltd IPO bid date is from August 18th, 2023 10.00 AM to August 22nd, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is August 22nd, 2023.

It must be noted that in ASBA applications, there is no refund concept. The total application amount is blocked under the ASBA (applications supported by blocked amounts) system. Once the allotment is finalized, only the amount is debited to the extent of the allotment made and the lien on the balance amount is automatically released in the bank account.

Financial highlights of Crop Life Science Ltd

The table below captures the key financials of Crop  Life Science Ltd for the last 3 completed financial years.

Data Source: Company DRHP filed with SEBI

The company has reported net margins of around 3% to 3.5% while the ROE stands in the range of 8% to 10% in the last couple of years. The sales have been largely erratic and while FY21 can be blamed on the COVID aftermath, it is hard to see why the sales have fallen in FY22 also. The company is in a space where the margins are not too high, but the competition from the unorganized sector is relatively high. That adds to the operational risk of the business and the low levels of net margins and the low levels of ROE could put pressure on the valuations of the stock in the quarters ahead.

The weighted average EPS of the company for the last 3 years is ₹2.65, which would value the IPO price of ₹52 per share at above 20 times P/E. If you compare with the industry average, this is closer to the upper end of the valuation band of the particular sector. That could limit the upsides on the stock and leave little for the shareholders on the table. For the investors this would remain higher on the risk scale in terms of the cost-benefit trade-off.