What you must know about M.V.K. Agro Food IPO?

M.V.K. Agro Food Product IPO was incorporated in the year 2018 to manufacture integrated sugar and other related products. M.V.K. Agro Food Product Ltd has a licensed crushing capacity of 2,500 TCD and sells its by-products, Molasses, Bagasse, etc. These products are typically sold through brokers who, in turn, sell to export houses like PepsiCo Holdings India, Parle Biscuits and Britannia Industries. Apart from selling its products to brokers, the company also supply critical commodities to export-oriented traders and star export houses like Sakuma Exports, Indian Sugar Exim Corporation, Garden Court and HRMM Agro Overseas. M.V.K. Agro Food Product Ltd operates on a virtual zero-waste manufacturing model; with the waste generated is either sold or used to generate power. Its manufacturing unit is located at the Nanded district in Maharashtra. As of September 2023, the company has 160 employees across its various functions.

Key terms of the M.V.K. Agro Food Product IPO

Here are some of the highlights of the M.V.K. Agro Food Product IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 29th February 2024 and closes for subscription on 04th March 2024; both days inclusive.
   
• The stock of the company has a face value of ₹10 per share and it is a fixed price issue. The price for the book building issue is set at ₹120 per share. Being a fixed price IPO, the question of price discovery does not arise in this case.
   
• The IPO of M.V.K. Agro Food Product Ltd has only a fresh issue component and no offer for sale (OFS) portion. It must be remembered that the fresh issue portion is EPS dilutive and equity dilutive, but OFS is just a transfer of ownership and  hence it is not EPS or equity dilutive.
   
• As part of the fresh issue portion of the IPO, M.V.K. Agro Food Product Ltd will issue a total of 54,90,000 shares (54.90 lakh shares), which at the upper band of IPO price of ₹120 per share aggregates to fresh fund raising of ₹65.88 crore.
   
• Since there is no offer for sale (OFS) portion, the fresh issue size will also double up as the overall IPO size. Therefore, the overall IPO size will also comprise of the issue of 54,90,000 shares (54.90 lakh shares) which at the upper band IPO price of ₹120 per share will aggregate to overall IPO size of ₹65.88 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation of 2,74,800 shares. Nikunj Stock Brokers Ltd will be the market maker to the issue. The market maker provides two-way quotes to ensure liquidity on the counter and low basis costs, post listing.
   
• The company has been promoted by Marotrao Vyankatrao Kawale, Sagarbai Marotrao Kawale, Ganeshrao Vyankatrao Kawale, Kishanrao Vyankatarao Kawale and Sandip Marotrao Kawale. The promoter holding in the company currently stands at 100.00%. However, post the fresh issue of shares in the IPO, the promoter equity holding share will get diluted to 64.56%.
   
• The fresh issue funds will be used by the company for setting up a greenfield unit in Nanded in Maharashtra for the manufacture of ethanol and the generation & bottling of bio-CNG and fertilizers. Part of the funds will be also used for general corporate purposes.
   
• Horizon Management Private Ltd will be the lead manager to the issue, and MAS Services 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

M.V.K. Agro Food Product IPO has already announced the market maker allocation at 2,74,800 shares as inventory for market making. Nikunj Stock Brokers Ltd will be the market maker for the IPO. The net offer (net of market maker allocation) will be divided between the retail investors and the HNI / NII investors. The breakdown of the overall IPO of M.V.K. Agro Food Product Ltd in terms of the allocation to various categories are captured in the table below.

The minimum lot size for the IPO investment will be 1,200 shares. Thus, retail investors can invest a minimum of ₹144,000 (1,200 x ₹120 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 2,400 shares and having a minimum lot value of ₹288,000. 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 M.V.K. Agro Food Product IPO (SME)

The SME IPO of M.V.K. Agro Food Product IPO opens on Thursday, 29th February 2024 and closes on Monday, 04th March 2024. The M.V.K. Agro Food Product Ltd IPO bid date is from 29th February 2024 at 10.00 AM to 04th March 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is 04th March 2024.

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. The credit of shares to the demat account on February 14th 2024, will be visible to investors under the ISIN Code – (INE0SRI01019).

Financial highlights of M.V.K. Agro Food Product Ltd

The table below captures the key financials of M.V.K. Agro Food Product Ltd for the last 3 completed financial years.

Data Source: Company DRHP filed with SEBI

# - adjusted backward for 1:1 bonus shares issues on December 23, 2023.

Here are some of the key takeaways from the financials of the company for the last 3 years.

• Revenues have been erratic after leaping in FY22, they actually fell in FY23. However, the FY23 revenues are still nearly 4 times that of FY21 revenues,  which shows a good secular growth over the last 2 years. Profits have been steady in the last two years, despite the sharp fall in sales revenues.
   
• While net margins of the company have been relatively volatile and rather low, it is more because the costs have been front-ended. However, the ROE and return on assets in the latest year are more stable, especially the ROE at over 28% for the latest year.
   
• The asset turnover ratio or the sweating ratio has been low at 0.60 and that is one area for the company to improve upon to sustain the valuations in the future. With scale, the impact should be visible on profits too. However, with ROA will hold the key.

The company has latest year EPS of ₹3.77 and even through previous data may not really be comparable, the weighted average EPS of last 3 years stand at ₹3.23. The latest year earnings are being discounted by the IPO price at 31-32 times P/E ratio. One has to look at the P/E ratio from two perspectives. Firstly, the half year EPS for FY24 is much higher at ₹4.30, which makes the valuations look a lot more reasonable if the EPS is annualized and extrapolated. However, the real story is that the story becomes a lot more enticing once the economies of scale start to reflect on the bottom line numbers. That is likely to take some time, but this is an area that is worth betting on for the next few years, considering the qualitative advantages that the company already enjoys. Investors with a higher risk appetite and a longer time frame can surely look at this IPO.