K.P.R. Agrochem Limited IPO

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(i) K.P.R. Agrochem Limited is an agri-input Company focused on manufacturing, distribution and retailing of a wide range of crop yield-enhancing and protection products.

(ii) The company product portfolio includes Crop protection, Crop nutrients, seeds, and Veterinary feed supplements. Further, in order to secure supply of sulphuric acid, one of the key ingredients, they also ventured into manufacturing of sulphuric acid. They produce sulphuric acid as well as other sulphuric acid-based chemicals like LABSA, DMS, and Oleum that have wider applications across industries like agrochemicals, veterinary feed supplements, pharmaceuticals, synthetic detergents etc.

(iii) Majority of the sales is from branded products like “FAST” (application has been made for trademark registration), “MOTOX – 10G” (trademark registered), “SAMRAT ATRAZINE 50% WP” (application has been made for trademark registration) and “MEGA IMIDA” (application has been made for trademark registration) brands for crop protection; “AJAY (14-35-14)” (trademark registered) and “AJAY (20-20-0)” (trademark registered) for NPK mixture crop nutrient products; “ANNADATA SINGLE SUPER PHOSPHATE” for single super phosphate; “ABHAYA CAL MIX” (trademark registered) for di-calcium phosphate and “APURVA SEEDS” (application has been made for trademark registration) for seeds.

(iv) To ensure timely supply and availability of the products as well as achieve last mile connectivity with the farmers, they have set-up Company operated depots at 11 locations across India that are established based on the agricultural belts and/or having ease of connectivity with our dealer network. They have also appointed C & F Agents in 8 locations. The products are distributed from the depots/manufacturing location based warehouses/ C & F Agents to a network of approximately 8,000 dealers spread across various states in India.

(v) Further, the company has also set-up a chain of company-operated retail outlets known as Kisan Seva Kendras in the East and West Godavari, Vizianagaram, Srikakulam, Visakhapatnam and Krishna districts of Andhra Pradesh; Warangal district of Telangana; and Koppal, Raichur, Bellary and Gadag districts of Karnataka where our primary manufacturing operations are conducted as a channel of direct sales to our end customers.

Objects of the K.P.R. Agrochem Limited IPO:

(i) A fresh issue of 34,426,229 Equity Shares aggregating up to 210 Cr. and OFS of sale up to 12,000,000 Equity Shares. (ii) Retail and Employees Discount Rs.3. (iii) Employee Quota Up to 4,30,000 Shares

K.P.R. Agrochem Limited IPO Details:

Total Shares: 46,426,229
Face Value: ₹ 10 Per Equity Share
Issue Type: Book Building
Issue Size: 283.2 Cr.
Lot Size: 200 Shares
Issue Price: ₹ 59-61 Per Equity Share
Retail Discount: 3
Listing At: NSE,BSE

Promoters And Management:

(i) Papa Reddy Kovvuri, aged 81 years, is the Chairman and Whole-time Director and a Promoter of our Company. He has experience of over four decades in the agricultural business. He has not had a formal education. He has been on the Board since the incorporation of our Company. As the Chairman and Whole-time Director of our Company, he is involved in the overall administration of existing operations of our Company. (ii) Venkata Mukunda Reddy Karri, aged56 years, is the Managing Director and a Promoter of our Company. He holds a Bachelor’s degree in Arts from Andhra University. He has experience of over two decades in the business 193 of the agrochemical industry and related business. He has been on the Board since the incorporation of our Company. As the Managing Director of our Company, he is involved in the business operations and marketing activities of our Company. (iii) Rajasekhar Reddy Kovvuri, aged40 years, is the Whole-time Director and Executive Director and a Promoter of our Company. He holds a Bachelor’s degree in Science (Computer Science) from University of Madras. He has experience of over a decade in the business of chemical, agrochemical and other related industry. He has been on the Board since the incorporation of our Company. As the Whole-time Director of our Company, he is involved in the strategic planning, project implementation, general management and corporate finance of our Company.

Financials of K.P.R. Agrochem Limited IPO:

Year Revenue EBITDA OPM PAT NPM Equity EPS RONW
2015 6,005.68 1035 17.2% 282 4.7% 854.64 2.35 18.4%
2016 5,814.10 1048 18.0% 243 4.2% 854.64 2.03 14.1%
2017 5,907.00 1027 17.4% 227 3.8% 854.64 1.89 11.6%
2018 6,008.22 1054 17.5% 296 4.9% 854.64 2.47 13.2%
9MFY19 4,832.76 786 16.3% 275 5.7% 854.64 2.29 10.9%
Post-Issue 6,443.00 1048 16.3% 366 5.7% 1198.9 3.1 7.9%
IZ Review 1. The company has almost stagnated growth in terms of Revenue in the last 4 years. 2. The EBITDA Margins and PAT Margins are flat in the last 4 years. 3. As on 31.12.2018, the company has a long-term debt of 61 Cr and short-term debt of 234 Cr. The total debt on books is 295 Cr. The Net-Worth as on 31.12.2018 stands at 252 Cr. So D/E based on these figures is 1.17. However, post issue it would become less than <1. 4. The average collection period for Fiscal 2017, Fiscal 2016 and Fiscal 2015 are 154 days, 161 days and 158 days respectively on a consolidated restated basis. This shows that the company is not getting paid in time thereby, need to borrow debt to run the business. 5. The ROE and ROCE as on 31.12.2018 stand at 10.9% and 26%. 6. The asking P/E multiple is ~20x

Comparison With Peers:

Company Revenue Revenue Growth in 3 years OPM PAT PAT Growth in 3 years NPM
KPR Agro 644 4.44% 18.10% 36.00 10% 5.70%
Coromandel Int 13261 14.67% 11.10% 720.00 22.77% 5.40%
Chambal Fertilisers 10260 15.51% 12.78% 590.00 27.66% 5.8%
Deepak Fertilizers 6796 6.57% 7.6% 76.00 -32% 1.1%
Insecticides India Limited 1076 4.25% 14.2% 84.00 46% 8%
Dhanuka Agritech 1027 6.82% 16% 112.00 -2% 10.9%
Aarti Industries Limited 5016 25.89% 19.4% 498.00 23.83% 10%
Company Long-term debt Short-term debt Net-worth EPS P/E Mcap RONW Credit cycle
KPR Agro 61 234 252 3.01 20 731 7.90% 154 days
Coromandel Int 0 2937 3358 25 16.4 11996 21% 50 days
Chambal Fertilisers 4414 4279 2883 14 12.35714 7239 20.5% 171 days
Deepak Fertilizers 1770 1175 2097 8 15.625 1109 4% 74 days
Insecticides India 8 96 547 41 15.02439 1273 15% 79 Days
Dhanuka Agritech 0 22 642 23 16.73913 1817 17% 77 Days
Aarti Industries Limited 844 1290 2762 59 29.9322 15306 0.180304 58 days
Note: 1. All figures in Cr. 2. Revenue, PAT, Net-Worth, Debt, EPS, RONW and Credit Cycle are taken for FY19 financials on a consolidated basis. 3. The source is taken from Moneycontrol. 4. Aarti Industries is not strictly comparable as they are more into specialty chemicals. 5. Coromandel Int. is best among them in terms of Revenue and PAT growth. 6.  The asking P/E of 20x by KPR Agro looks aggressive as compared to Peers considering there is hardly any growth in the last 3 years.

Recommendation on K.P.R. Agrochem Limited IPO:

Review and Recommendation of K.P.R. Agrochem Limited IPO from IZ Team are 3/10. 1. The asking P/E of 20x by KPR Agro looks aggressive as compared to Peers considering there is hardly any growth in the last 3 years. 2. Some of the Promoters have provided personal guarantees as collateral for a significant portion of borrowings made by some of their Group Entities and one such group Entities, K.P.R. Industries (India) Limited have received notices, between April 1, 2017, to September 22, 2017, from lenders namely (collectively the “Banks”) for defaulting in repayment of loans granted by the Banks. The banks have already classified a loan of 380 Cr given to them as NPA. 3. The best play in the sector as of now looks Coromandel Int.

Lead Manager of K.P.R. Agrochem Limited IPO:

  1. PL Capital Markets Private Limited

Registrar of K.P.R. Agrochem Limited IPO:

  1. Karvy Computershare Private Limited

Company Address:

K.P.R. Agrochem Limited Door No. 8-256, Tata Nagar, Balabhadrapuram – 533 343, Andhra Pradesh, India Phone No. +91 8857 237 367/236 767 Fax No. +91 8857 237 333 E-mail: ipo@kprgroup.net Website: www.kpragrochem.com

Discussion on K.P.R. Agrochem Limited IPO:

    The Rs 283.20 Cr proposed public issue of KPR Agro has been withdrawn for unknown reasons. The IPO was planned to open on June 28, 2019

    4. As per the business network model, they supply the products to the dealers/distributors without taking full payment or security deposit against the orders placed by them. So if distributors don’t make a payment on time or not pay at all the performance of the company may affect seriously.

    They have close to 281 crores of receivables against the revenue of 447 Cr in the first 9MFY19 which is a cause of concern.

    Risk in the business.

    1. The company’s growth depends upon Agriculture Sector. Agriculture in turns depends on Monsoon. So a good monsoon is a prerequisite for the company’s performance.

    2. The company’s business requires very high working capital. The receivable collection cycle is relatively long which makes business susceptible to market downturns and client credit risk.

    Due to high credit cycle and high requirement of working capital, the company needs to borrow funds to run the business of the company.

    The average collection period for Fiscal 2017, Fiscal 2016 and Fiscal 2015 are 154 days, 161 days and 158 days respectively on a consolidated restated basis.

    3. Some of the Promoters have provided personal guarantees as collateral for a significant portion of borrowings made by some of their Group Entities.

    One of the Group Entities, K.P.R. Industries (India) Limited have received notices, between April 1, 2017, to September 22, 2017, from lenders namely (collectively the “Banks”) for defaulting in repayment of loans granted by the Banks. The banks have already classified a loan of 380 Cr given to them as NPA.

    If any of these Group Entities default on its repayment obligations, the guarantees extended by such promoters may be invoked and such lenders may require such promoters to discharge the balance liability of such Group Entity, if any, and the lenders may recover the dues from personal assets of such promoters, including shares held by such promoters in the KPR Agrochem Limited which will affect the company badly.

    Let us understand the business of the company:

    1. Crop Protection Products

    They manufacture a wide variety of pesticides intended for preventing, repelling and mitigating any pest infesting various type of agricultural produce including paddy, cotton, sugar cane, pulses, vegetables, etc.

    The crop protection products include insecticides, antibiotics, bactericides, herbicides, fungicides, micronutrients, organic manure and bioproducts for protecting the crop from pests, weeds, diseases, etc.

    2. CROP NUTRIENTS

    Crop nutrient products (fertilizers) enhance the natural fertility of the soil by replenishing the chemical elements taken from the soil by harvesting, grazing, leaching or erosion.

    Under this category, the Company primarily manufactures NPK mixtures (N – Nitrogen; P – phosphorus, and K – potassium), Single Super Phosphate (SSP), micronutrients and bioproducts.

    3. Sulphuric Acid

    Sulphuric acid is a major raw material in the phosphate fertilizer industry and one of the largest-volume industrial chemicals produced in the world with large-scale industrial uses.

    They manufacture Sulphuric Acid from their own plants at Biccavolu in Andhra Pradesh and Koppal in Karnataka. Sulphuric Acid produced is used for captive consumption and for industrial supply.

    4. Veterinary Supply

    The company is also manufacturing veterinary feed supplements Dicalcium phosphate, which is one of the most popular types of the veterinary feed supplement used in feed grade of animals.

    They manufacture DCP in their manufacturing facilities at Biccavolu in East Godavari district of Andhra Pradesh and in Koppal district, Karnataka and sells under the brand name “ABHAYA.

    5. Seeds

    Under a wholly owned subsidiary of the Company, they develop, produce, process and sell seeds across a variety of field crop and vegetable crops.

    The major crop seeds are paddy, maize, BT cotton, sunflower, wheat, mustard, sorghum-sudangrass, grams in field crops and okra, chilies, tomato, brinjal, watermelon, gourds, cole crops, and leafy vegetables in the vegetable crops.

    Business Contribution from different products.

    1. NPK Mixtures = 28.15% [ Crop Nutrients ]
    2. DCP Animal Feed = 26.03% [ Veterinary Feed ]
    3. Pesticides= 16.30% [ Crop Protection ]
    4. Others = 30%

    Looks like a decent offer, particularly if one looks at the govt leaning to push farmer income

    Around 210 cr

    KPR Agrochem gets SEBI’s go ahead for the ipo around Rs.210 crore. The company is a manufacturer, distributor and retailer of wide range of crop yield enhancing and protection products. The product range includes crop protection, crop nutrients, seeds, feed supplements, veterinary and more.