Nirman Agri NSE SME IPO review (May apply)

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Review By Dilip Davda on March 10, 2023

•    NAGL is in the business of producing, processing and marketing hybrid seeds, pesticides, and bio-organic for a variety of products.
•    It has posted growth in its top and bottom lines for the reported periods. 
•    The IPO appears fully priced based on its super earnings for FY23 so far. 
•    Well-informed investors may consider investing with a long-term perspective.
 
ABOUT COMPANY:
Nirman Agri Genetics Ltd. (NAGL) is one of the organized Agri-Input Companies in India engaged in the business of production, processing and marketing of high-quality hybrid seeds, Pesticides, and Bio-organic for different crops like corn, sunflower, cotton, paddy, grain sorghum, etc. and has recently forayed into micronutrients and bioproducts. It also produces non-hybrid seeds, primarily for paddy. 

NAGL currently has production, outsourced processing and R&D facilities in Maharashtra at Nashik and Nimgul and in Gujarat as well as Madhya Pradesh. NAGL's research mainly focuses on developing superior hybrids in different crops like corn, cotton, sunflower, paddy, bajra, etc. All the seed varieties developed by the R&D team are marketed under the brand name 'Nirman Agri Genetics'. 

In the year 2022, it began to market bio-pesticides, bio-fertilizers, micronutrients, fertilizer mixtures & plant growth regulators under the name and style of "Nirman Agri Genetics". Seeds, bio-fertilizers, micronutrients etc. are related products having the same end user i.e. the farmer and are usually sold through similar dealer networks. With a view of achieving the benefit of synergy in marketing the aforesaid products, it has recently added them to its product portfolio. 

It has a marketing network with loyal and committed distributors/dealers in Maharashtra Madhya Pradesh & Gujarat. Its focus is to become a leading crop solutions provider to the farmer by supplying high-yielding hybrid seeds and crop management through micronutrients, bioproducts etc. As of December 31, 2022, it had 40 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 2050800 equity shares of Rs. 10 each at a fixed price of Rs. 99 per share to mobilize Rs. 20.30 cr. The issue opens for subscription on March 15, 2023, and will close on March 20, 2023. The minimum application is to be made for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 34.40% of the post-IPO paid-up capital of the company. NAGL is spending Rs. 2.30 cr. for the IPO process indicating of arranged funding, and from the net proceeds, it will utilize Rs. 11.82 cr. for working capital, and Rs. 2.00 cr. for investment in strategic acquisition/JV, Rs. 0.45 cr. for purchase of computers/hardware, and Rs. 3.73 cr. for general corporate purposes.  

First Overseas Capital Ltd. is the sole lead manager and Bigshare Services Pvt. Ltd. is the registrar of the issue. NNM Securities Pvt. Ltd. is the market maker for the company. 

The company has issued/converted entire equity shares at par so far and has also issued bonus shares in the ratio of 255 for 1 in October 2022. The average cost of acquisition of shares by the promoters is Rs. 3.72 per share.  

Post-IPO, NAGL's current paid-up equity capital of Rs. 3.91 cr. will stand enhanced to Rs. 5.96 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 59.01 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, NAGL has (as per the proforma consolidated statement on a restated basis) posted a turnover/net profit of Rs. 2.59 cr. / Rs. 0.13 cr. (FY20), Rs. 7.78 cr. / Rs. 0.19 cr. (FY21), and Rs. 18.39 cr. / Rs. 2.73 cr. (FY22). For the first seven months of FY23 ended on October 31, 2022, it earned a net profit of Rs. 2.30 cr. on a turnover of Rs. 18.04 cr. According to the management, from this fiscal, it started bio-organic products marketing with three state Governments of Maharashtra, MP and Gujarat. This has lifted their top and bottom lines. They are putting major thrusts on these activities post-IPO to reap the benefits of good responses received. 

As per the restated financial performance, the company posted a turnover/net profit of Rs. 3.82 cr. / Rs. 0.05 cr. (FY21), Rs. 13.49 cr. / Rs. 2.56 cr. (FY22). For the period ended on October 31, 2022, of FY23, it earned a net profit of Rs. 2.30 cr. on a turnover of Rs. 18.04 cr. 

For the last three fiscals (till October 31, 2022), NAGL has reported an average EPS of Rs. 7.87 and an average RoNW of 72.11%. The issue is priced at a P/BV of 5.66 based on its NAV of Rs. 17.48 as of October 31, 2022, and at a P/BV of 2.23 based on its post-IPO NAV of Rs. 44.35 per share. 

If we annualize FY23 earnings and attribute them to post-IPO fully diluted paid-up equity capital, the asking price is at a P/E of 14.93. Thus the issue appears fully priced on the basis of super earnings of FY23 so far. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. 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, the company has shown Upsurge Seeds, Bombay Super Seeds, and Shreeoswal Seeds as their listed peers. They are currently trading at a P/E of 58.20, 148.23, and 126.87 (as of March 10, 2023.) However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 23rd mandate from First Overseas in the last five fiscals (including the ongoing one). Out of the last 10 listings, 2 opened at par and the rest were listed at premiums ranging from 2.50% to 43.53% on the listing date. 

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