What you must know about the Proventus Agrocom IPO

Proventus Agrocom Ltd, is an SME IPO on the NSE which is opening for subscription on 24th May 2023. The company was set up in 2015 as an innovative health food brand and its portfolio comprises of the total range of dry fruits, nuts, seeds, and berries. It is part of the healthy snack value chain. They are present in the entire value chain from origination to distribution; something like a farm to fork model. The healthy snack with a strong dry fruit presence is missing in India and their offerings comprise of dry fruits and berries like almonds, pistachios, cashews, walnuts, and raisins.

The company has tried to position itself as a one-stop shop for all healthy snacking solutions. It keeps progressively moving up the value chain to enhance margins. The idea behind the business model of Proventus Agrocom Ltd is to capture the demand and supply stream by developing a strong base of sourcing and distribution. In last few years, there has been a perceptible shift in consumer preference from unbranded products to branded products; and this trend is quite strong even in tier-2 cities and not just an urban phenomenon. The company sees this trend getting more pronounced in the coming years and wants to ride on that. It is sold under the brand name of PROV. The company will use the fresh funds for working capital of the parent and also its subsidiary.

Key terms of the SME IPO of Proventus Agrocom Ltd

Here are some of the highlights of the Proventus Agrocom Ltd IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 24th May 2023 and closes for subscription on 26th May 2023; both days inclusive on the SME IPO segment of the NSE.
   
• The company has a face value of ₹10 per share and the issue price for the fresh issue portion has a fixed price of ₹771 per share. That is a very premium pricing for the stock, but that is probably the image that the company wants to send across to investors.
   
• The IPO of Proventus Agrocom will comprise of a fresh issue and an offer for sale (OFS). The promoters will be partially hiving off their holding through the OFS component.
   
• On the fresh issue portion of the IPO, Proventus Agrocom Ltd will issue a total of 6,71,853 shares, which at the fixed IPO price of ₹771 per share will entail a total fresh issue size of ₹51.80 crore.
   
• On the offer for sale (OFS) portion of the IPO, Proventus Agrocom Ltd will issue a total of 2,30,147 shares, which at the fixed IPO price of ₹771 per share will entail a total offer for sale (OFS) size of ₹17.74 crore.
   
• Therefore, the aggregate IPO of Proventus Agrocom Ltd will comprise of the issue of a total of 9,02,000 shares, which at the fixed IPO price of ₹771 per share will entail a total aggregate issue size of ₹69.54 crore.
   
• The company has allocated 50% of the issue size for the retail investor while the balance 50% is allocated to HNI / NII investors.
   
• The minimum lot size for the IPO investment will be 160 shares. Thus, retail investors can invest a minimum of ₹123,360 (160 x ₹771 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 320 shares and having a minimum lot value of ₹246,720. There is no upper limit on what the HNI / NII investors can apply for.
   
• Like every SME IPO, this issue also has a marketing making portion with a market maker portion allocation of 45,100 shares. Ajcon Global Services will act as the market maker to the issue providing two-way quotes to ensure liquidity on the counter.
   
• The company has been promoted by Deepak Agarwal, Shalin Khanna and Shree JMD Investment Advisors LLP. The promoter stake in the company stands currently at 92.29%. Post the IPO, being a fresh issue of shares, the promoter stake will be get diluted proportionately to 70.84%.
   
• The pre-issue outstanding shares of the company are 27,55,568 shares. Post the IPO, the overall outstanding paid up capital will increase to 34,27,421 shares. The total outstanding shares will increase to the extent of the fresh issue since the OFS is just a transfer of ownership and will not result in any dilution of equity.

While Sundae Capital Advisors Ltd will also be the lead manager to the issue, Bigshare Services Private Limited will be the registrar to the issue.

Key dates to be aware of in the Proventus Agrocom Ltd IPO (SME)

Proventus Agrocom IPO opens on Wednesday, May 24th, 2023 and closes on Friday May 26th, 2023. The Proventus Agrocom Ltd IPO bid date is from May 24th, 2023 10.00 AM to May 26th, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is the 26th of May 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 Proventus Agrocom Ltd

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

Data Source: Company DRHP filed with SEBI

The profit margins have been fairly low and the sales growth has been quite erratic. Also, the sales have seen a sharp fall post the pandemic. However, the company has a model that is relatively futuristic in a fast growing market. Investors must remember that this is a traditionally low margin business. That could be an overhang on valuations. In addition, the P/E of the company at the IPO price is quite steep and may be a tough call, unless there is adequate risk appetite.