Dear Readers,
Welcome to Shares and the City!
It’s tough to decipher why I am starting a blog knowing fully that writing is something that doesn’t come naturally to me. Let’s just say, the topic “Finance and Personal Investments” incites me to give it a shot nonetheless. The possibility to research, learn or engage in a discussion has given me a thrust to start something I planned a long time ago. So let’s get started!
Company Overview
Godrej Agrovet (GAVL) is into agri-business with a consolidated revenue of Rs. 4923 crore and a net profit of Rs. 249 crore as per FY17 reports. It operates in 5 verticals
Product Portfolio
| Sr. No | Business | Revenue Contribution |
| 1 | Animal Feed | 53% |
| 2 | Dairy | 20% |
| 3 | Crop Protection | 15% |
| 4 | Palm Oil | 10% |
| 5 | Processed Food | 1% |
Financials
The revenue of GAVL grew by 17% CAGR from FY ’14-17 led by higher growth in the crop protection and the dairy business. The FY ’17 revenue stood at Rs. 4923 crores, registering a 31% YoY topline growth. EBIT increased 42% YoY to Rs. 465 crore led by higher margins in the palm oil business in which it is the largest Indian producer. While the revenue growth looks promising, the company’s operating margin (~10%) and net profit margin (~5) have stagnated in the last 3 years.
With a net worth of Rs. 1073 crore, the EPS as per FY ’17 profits come out to be around 12 with a book value of Rs 58 per share. The company has a debt of Rs. 715 crore out of which Rs. 250 crore will be repaid from the proceeds of this issue.
Valuation
At a time when retail investors are starting to join the IPO frenzy, it’s important to not get carried away by just the brand name and the business (SBI Life and ICICI Lombard issue!).
At an upper band of Rs 460, the IPO looks fairly priced at a PE of 38x and 27x as per FY 17 and FY 18(E) earnings.
Peer Valuation
The 2 listed companies which come closest to GAVL’s diversified business are as follows:
- Gujarat Ambuja Exports is a Rs. 3400 crore agro-processing company with products comprising of vegetable oils, animal feed ingredients and maize processing. With a similar EBIT margin of 6.6%, it is trading at a historical PE of 12x which is much cheaper compared to GAVL’s valuation
- Venky’s India has a revenue of Rs 2500 crore from businesses like poultry, oil seeds and animal health segment. It has a company level EBIT margin of 11.4% and is trading at a PE of 23x of its current earnings. Even though not as diversified as GAVL, Venky’s is available much cheaper given it’s valuation and higher growth and profitability compared to GAVL
The IPO looks fully priced and may not have much to offer in the short term post the listing gains.
Conclusion
GAVL IPO looks attractive for listing gains given the recent IPO frenzy, its diversified businesses and strong parentage. Unlike previous IPOs like Pratap Snacks and ICICI Lombard, it is not overly expensive.
The grey market is active on this issue with a premium of Rs. 100 as on 4th October, 2017. One can expect a listing gain of around 25% with not much juice post that.
Subscribe Gojrej Agrovet for decent listing gains!
Comments and Opinions are Welcome!
