What you must know about Nova AgriTech IPO?

Nova AgriTech Ltd in a company based out of Hyderabad and was incorporated in the year 2007. The company manufactures products that help farmers grow crops better. At a broad product focus level, Nova AgriTech Ltd is into; Soil health, plant nutrition and crop protection; and the products manufactured by Nova AgriTech Ltd fit into one of these categories. Nova AgriTech Ltd manufactures these products using technology and is designed to be environmentally friendly and protects soil nutrition and fertility. Typically, Nova AgriTech Ltd collaborates with the farmers and then uses these insight into their needs to develop customized solutions. Its product portfolio includes soil health products, crop nutrition products, bio-stimulants, bio-pesticides, integrated pest management products, and crop protection products.

As of date Nova AgriTech Ltd has already secured a total of 629 product registrations. These registrations are divided into 4 broad categories viz., soil health management, plant nutrition, biopesticides and crop protection. Overall, the company has got 7 registrations in soil health management, 168 registrations in plant nutrition, 4 registrations in bio-pesticides and 450 registrations in crop protection segment. Nova AgriTech Ltd also has a total of 13 Kisan Mitras and 253 Kisan Sevaks at its base. It also operates through a team of 32 NKSK Coordinators, having Agricultural Sciences degrees. This ensures personal contact with the farmers at the grassroots level and enables delivery of right solutions to the last mile customer and stakeholder. A team of 215 employees manage brand sales, distribution channels, and product promotion.

The IPO of Nova AgriTech Ltd is a combination of a fresh issue and an offer for sale. The fresh issue proceeds of the company will be used by Nova AgriTech Ltd to invest in its subsidiary, Nova Agri Sciences to set up a formulation plant, funding capex for expansion and for the working capital needs of the company and its subsidiary. The IPO will be jointly lead managed by Keynote Financial Services and Bajaj Capital ltd. Bigshare Services Private Ltd will be the registrar to the issue.

Highlights of the Nova AgriTech IPO issue

Here are some of the key highlights to the public issue of Nova AgriTech IPO.

• Nova AgriTech IPO will be open from January 22nd, 2024 to January 24th, 2024; both days inclusive. The stock of Nova AgriTech Ltd has a face value of ₹2 per share and the price band for the book building IPO has been set in the range of ₹39 to ₹41 per share. The final price will be discovered within this band through the process of book building, at the price where the demand can be fully met.
   
• The IPO of Nova AgriTech Ltd will be a combination of a fresh issue and an offer for sale. As you would be aware, a fresh issue tends to bring in fresh funds into the company, but is also EPS and equity dilutive. On the other hand, OFS is just a transfer of ownership and does not entail dilution of equity or of EPS.
   
• The fresh issue portion of the IPO of Nova AgriTech Ltd comprises the issue of 2,73,17,073 shares (273.17 lakh shares approximately), which at the upper price band of ₹41 per share will translate into a fresh issue size of ₹112 crore.
   
• The offer for sale (OFS) portion of the IPO of Nova AgriTech Ltd comprises the sale of 77,58,620 shares (77.59 lakh shares approximately), which at the upper price band of ₹41 per share will translate into an offer for sale (OFS) size of ₹31.81 crore.
   
• Promoters currently hold 84.27% in the company. None of the promoters or promoter group are selling shares in the IPO. The entire OFS quantity of 77.59 shares is being sold by investor shareholder (Nutalapati Venkata Subbarao), who will sell his entire 11.9% stake in the company. The promoter stake, post the issue will stand reduced to 59.39%.
   
• The overall IPO of  Nova AgriTech Ltd will be a combination of a fresh issue and an offer for sale. The overall issue will, therefore, comprise of the fresh issue and sale of 3,50,75,693 shares (350.76 lakh shares approximately), which at the upper price band of ₹41 per share translates into total IPO size of ₹143.81 crore.

The IPO of Nova AgriTech Ltd will be listed on the NSE and the BSE on the IPO mainboard.

Promoter holdings and investor quota allocation quota

The company was promoted by Suraksha Agri Retails (India) Private Limited, Malathi S, and Kiran Kumar Atukuri. Currently the promoters hold 84.27% stake in the company, which will get diluted post the IPO to 59.39%. As per the terms of the offer, not more than 50% of the net offer is reserved for the qualified institutional buyers (QIBs), while not less than 35% of the net offer size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors. The table below captures the gist of the allocation to various categories.

It may be noted here that the Net Offer above refers to the quantity net of employee quota, as indicated above. There is no employee offer that has been communicated by the company. The anchor portion, will be carved out of the QIB portion and the QIB portion available to the public will be reduced proportionately.

Lot sizes for investing in the Nova AgriTech IPO

Lot size is the minimum number of shares that the investor has to put in as part of the IPO application. The lot size only applies for the IPO and once it is listed then it can be even traded in multiples of 1 shares since it is a mainboard issue. Investors in the IPO can only invest in minimum lot size and in multiples thereof. In the case of Nova AgriTech Ltd, the minimum lot size is 365 shares with upper band indicative value of ₹14,965. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the IPO of Nova AgriTech Ltd.

It may be noted here that for the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Key dates for Nova AgriTech IPO and how to apply?

The issue opens for subscription on 22nd January 2024 and closes for subscription on 24th January 2024 (both days inclusive). The basis of allotment will be finalized on 25th January 2024 and the refunds will be initiated on 29th January 2024. In addition, the demat credits are expected to also happen on 29th January 2024 and the stock will list on 30th January 2024 on the NSE and the BSE. Nova AgriTech Ltd will test the appetite for such agri tech related stocks in India. The credits to the demat account to the extent of shares allotted will happen by the close of 29th January 2024 under ISIN (INE02H701025). Let us now turn to the practical issue of how to apply for the IPO of Nova AgriTech Ltd.

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. Investors can apply in the retail quote (up to ₹2 lakh per application) or in the HNI / NII quota (above ₹2 lakh). Minimum lot sizes will be known after pricing.

Financial highlights of Nova AgriTech Ltd

The table below captures the key financials of Nova AgriTech Ltd for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI (FY refers to Apr-Mar period)

There are few key takeaways from the financials of Nova AgriTech Ltd which can be enumerated as under

1. In the last 3 years, revenue growth has been robust and steady. However, what stands out about Nova AgriTech Ltd is that the net profit margins have grown very sharply in the last 3 years.
    
2. The latest year ROE at 32.08%, ROA at 11.33% and the PAT margins at 9.71% are relatively very attractive. This is a high growth segment where attractive margins can sustain for much longer. This is more of value addition and margin game.
    
3. The company has had comfortable sweating of assets over 1X all throughout. In addition, the ROA is still robust and the asset turnover ratio should get better in the coming quarters when the sales pick up momentum and profits keep pace.

Let us turn to the valuations part. On the latest year diluted EPS of ₹3.27, the stock price of Rs41 gets discounted at a P/E ratio of 12.54 times. That is a relatively low P/E ratio if you compare with the similar P/E ratio of the peer group. A lot will predicate on the company being able to maintain the current rate of sales growth and the current net margins, and gradually improving upon the same. Higher ROE will be needed to justify the price.

Let us look at 2 qualitative advantages that Nova AgriTech Ltd brings to the table.

• Established distribution network across cities as well as a very strong farmer outreach program ensures high degree of buy-in for its products.
   
• Its solutions are environment friendly and offerings are one-stop with well-equipped R&D facility and employees with substantial combined experience of man years.

It is a high growth business and the potential huge. Investors in the IPO can look at the stock with a longer term perspective with the appreciation that margins will be under pressure in this business and it is inherently a risky business. Investors with a higher risk appetite and willing to wait for over a year can look at this IPO from a longer term standpoint. However, it is an interesting play on AgriTech space in India.