Aristo Bio-Tech NSE SME IPO Review (May apply)

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Review By Dilip Davda on January 10, 2023

•    ABLL is engaged in the manufacturing and marketing of agrochemicals.
•    Though it suffered a setback in its top lines for FY21 and FY22, it earned higher profits.
•    Based on its recent financials, the issue appears fully priced. 
•    As the segment is getting crowded, margin sustainability is a major concern.
•    Well-informed investors may consider it for long-term rewards.

ABOUT COMPANY:
Aristo Bio-Tech and Lifescience Ltd. (ABLL) is an agrochemical company engaged in the manufacturing, formulation, supplying, packaging, and job work services in various Pesticides such as Insecticides, Herbicides, Fungicides, Plant Growth Regulators, and a wide variety of other Agrochemicals for India as well as for Export. 

Agrochemical industries are very vast fields and deal with the production and distribution of pesticides and fertilizers to increase crop yields. Agrochemicals (Crop protection products/pesticides) are designed to protect crops from insects, diseases, and weeds. Currently, the company has 182 products registered with CIB&RC for manufacturing and sales.

ABLL supplies its products across 20 states i.e. Assam, Andhra Pradesh, Bihar, Chhattisgarh, Gujarat, Haryana, Jammu & Kashmir, Jharkhand, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Odisha, Punjab, Rajasthan, Tamil Nadu, Telangana, Uttarakhand, Uttar Pradesh, West Bengal, and 15 Countries i.e. Armenia, Australia, Bangladesh, Belgium, Cambodia, Germany, Italy, Kenya, Moldova, New Zealand, Poland, South Africa, UAE, Ukraine, and Vietnam.

The Company manufactures agrochemicals such as Insecticides, Herbicides, Fungicides, and Plant Growth Regulators which are directly sold to customers, and is also engaged in Job work as per customer requirements. As of September 30, 2022, the Company has 55 employees on the payroll.

It has also entered into agreements with some of the parties to undertake the marketing of products produced by the company on the terms & conditions as discussed mutually. The products are marketed by the brand names of the respective parties.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 1812800 equity shares of Rs. 10 each at a fixed price of Rs. 72 per share to mobilize Rs. 13.05 cr. The issue opens for subscription on January 16, 2023, and will close on January 19, 2023. The minimum application to be made is for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.63% of the post-issue paid-up capital of the company. ABLL is spending Rs. 1.20 cr. for this IPO process and from the net proceeds, it will use Rs. 9.35 cr. for working capital and Rs. 2.50 cr. for general corporate purposes. 

Beeline Capital Advisors Pvt. Ltd. is the sole lead manager for this issue and Link Intime India Pvt. Ltd. is the registrar of the issue.  Sunflower Broking Pvt. Ltd. is the market maker for this company.
 
The company has after issuing initial equity shares at par, issued further equity shares at a fixed price of Rs. 15 per share in March 2012. It has also issued bonus shares in the ratio of 4 for 1 in September 2018. The average cost of acquisition of shares by the promoters is Rs. 2.12, Rs.  2.16, and Rs. 3.00 per share. 

Post-IPO, ABLL's current paid-up equity capital of Rs. 5.00 cr. will stand enhanced to Rs. 6.81 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 49.02 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, ABLL has posted a turnover/net profit of Rs. 201.24 cr. / Rs. 1.01 cr. (FY20), Rs. 167.23 cr. / Rs. 1.08 cr. (FY21), and Rs. 166.03 cr. / Rs. 1.46 cr. (FY22). For H1 of FY23 ended on September 30, 2022, it earned a net profit of Rs. 2.59 cr. on a turnover of Rs. 129.07 cr. The sudden boost in the net profits for the last 18 months raises eyebrows. 

For the last three fiscals, ABLL has reported an average EPS of Rs. 2.52 and an average RoNW of 9.05%. The issue is priced at a P/BV of 2.06 based on its NAV of Rs. 34.90 as of September 30, 2022, and at a P/BV of 1.67 based on its post-IPO NAV of Rs. 43.01 per share. 

If we annualize FY23 super earnings and attribute it to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of around 9.46. Thus the issue appears fully priced. 

DIVIDEND POLICY:
The company has not declared any dividends in the last five fiscals. It will adopt a prudent dividend policy post-listing based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, ABLL has shown Dhanuka Agritech and Meghmani Organics as their listed peers. They are currently trading at a P/E of 15.58 and 7.65 (as of January 10, 2023). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 7th mandate from Beeline Capital in the current fiscal. Out of the last 6 listings, 1 opened at par and the rest with premiums ranging from 3.96% to 63.64% on the day of listing.

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