Crop Life NSE SME IPO review (Apply)

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Review By Dilip Davda on August 12, 2023

•    CLSL is an agrochemical company with having varied portfolio of products.
•    The company marked a setback for FY22 on account of the fire incident.
•    Based on FY23 annualized earnings, the issue appears fully priced. 
•    Well-informed investors may consider investment for medium to long-term rewards.

ABOUT COMPANY:
Crop Life Science Ltd. (CLSL) is an agrochemical company engaged in the business of manufacturing, distributing, and marketing a wide range of agrochemical formulations. Agriculture chemicals consist of Pesticides Micro fertilizers, and pesticides, the pesticides including Insecticides, Fungicides, Herbicides and Weedicides. 

With an aim to offer a wide product portfolio across the Agri-value chain, it continues to expand its product portfolio by introducing new products. In the year 2007, the company started production of more than 25 different ranges of agrochemical products. At present, it manufactures and sells various formulations of insecticides, fungicides and herbicides, plant growth regulators, micro fertilizers and weedicides. Currently, CLSL has a wide range of more than 85 agro-chemical products. In addition to marketing of own branded products in India, it is also supplying agrochemical formulations in bulk to reputed companies in India as well as to overseas customers.

At present in addition to manufacturing of own products, it is also undertaking job work for manufacturing pesticides and Micro Fertilizer. As of date, it has 133 trademark registrations under different classes/categories for branded products including its Logo and 19 trademark applications under different classes/categories which are under the process of various stages. Its formulations are sold as branded products to customers. The company has 8 Copyrights on its name under the Copyrights Act, of 1957. It has registered its bottle design under the Designs Act, 2000, and the Design Rules, 2001. CLSL also has 4 Patents registered on its name and 4 patents applied under The Patent Act, 1970 but yet not received as of the date of the Prospectus. As of June 30, 2023, it had 175 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 5140000 equity shares of Rs. 10 each at a fixed price of Rs. 52 per share to mobilize Rs. 26.73 cr. The issue opens for subscription on August 18, 2023, and will close on August 22, 2023. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME. The issue constitutes 29.99% of the post-IPO paid-up capital of the company. CLSL is spending Rs. 0.53 cr. for this IPO, and from the net proceeds, it will utilize Rs. 0.70 cr. for repayment of unsecured loans, Rs. 19.00 cr. for working capital, and Rs. 6.50 cr. for general corporate purposes. 

Interactive Financial Services Ltd. is the sole lead manager and Purva Sharegistry (India) Pvt. Ltd. is the registrar of the issue. Nikunj Stock Brokers Ltd. is the market maker for the company. 

Having issued initial equity shares at par value, the company issued further equity shares at a price of Rs. 60 per share in June 2013 and has also given bonus shares in the ratio of 5 for 1 in January 2018. The average cost of acquisition of shares by the promoters is Rs. 6.69, and Rs. 6.86 per share. 

Post-IPO, CLSL's current paid-up equity capital of Rs. 12.00 cr. will stand enhanced to Rs. 17.14 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 89.13 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, CLSL has posted a turnover/net profit of Rs. 135.31 cr. / Rs. 3.23 cr. (FY20), Rs. 119.50 cr. / Rs. 3.70 cr. (FY21), and Rs. 102.39 cr. / Rs. 2.81 cr. (FY22). For the 11 months of FY23 ended on February 28, 2023, it earned a net profit of Rs. 4.37 cr. on a turnover of Rs. 123.23 cr. The company suffered a setback in FY22 on account of a fire incident. According to management, it is now on a fast track with all things in place. 

For the last three fiscals, the company reported an average EPS of Rs. 2.65 and an average RoNW of 10.61%. The issue is priced at a P/BV of 1.55 based on its NAV of Rs. 33.65 as of February 28, 2023, and at a P/BV of 1.33 based on its post-IPO NAV of Rs. 39.16 per share. 

If we annualize FY23 earnings and attribute it to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 18.71. Thus issue appears fully priced. 

DIVIDEND POLICY:
The company has not paid any dividend for the reported periods of the offer document. It will adopt a prudent dividend policy on the basis of its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, CLSL has shown Aristo Bio-Tech, Dharmaj Crop, and Heranba Ind. as their listed peers. They are currently trading at a P/E of 13.58, 19.78, and 13.82 (as of August 11, 2023). However, they are not genuinely comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 11th mandate from Interactive Financial in the last three fiscals. Out of the last 10 listings, 2 opened at discount, 2 at par and the rest with premiums ranging from 0.79% to 20.74% on the day of listings.

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