Nova Agritech IPO

Nova Agritech Limited has filed its DRHP with market regulator SEBI on March 6, 2023 to raise capital through IPO. The IPO of the Company consists of Fresh Issue and Offer for Sale. The size of Fresh Issue is up to [●] Equity Shares aggregating up to ₹ 140 crore and the size of Offer for Sale is up to 77,58,620 Equity Shares aggregating up to ₹ [●] crore.

Business Model of the Company

Nova Agritech Limited is an agri-input manufacturer offering soil health management, crop nutrition and crop protection products focused on tech-based farmer driven solution approach, wherein the Company mainly offer ecologically sustainable and nutritionally balanced products based on its R&D.

The Company manufactures, distribute and market a wide range of product categories consisting of soil health management products, crop nutrition products, bio stimulant products, bio pesticide products, Integrated Pest Management (IPM) products, new technologies and crop protection products. Currently, the crop protection products are manufactured by its subsidiary Nova Agri Sciences Private Limited.

As on January 31, 2023, the Company has received a total of 629 product registrations comprising 7 registrations in the soil health management category, 168 registrations in the crop nutrition category, 4 registrations in bio pesticide category and 450 registrations in the crop protection category. All of the 450 registrations in the crop protection category are in the name of Nova Agri Sciences Private Limited. Further, the Company has applied for 53 registrations for new products across various categories in the name of Nova Agri Sciences Private Limited (NASPL) and 26 new registrations in the name of Nova Agritech Limited (NATL).

Management of the Company

(i) Adabala Seshagiri Rao is a Chairperson and Independent Director of the Company. He holds a Degree of Bachelor of Science and Degree of Bachelor of Laws from Andhra University. He holds a diploma in Industrial Relations & Personnel Management and Diploma in Marketing & Sales Management from the Bharatiya Vidya Bhavan. He is a Certified Associate of Indian Institute of Bankers (CAIIB Retail Banking examination from the Institute of Banking & Finance. He has over 34 years of experience in the banking industry. His last employment before retirement was with the Union Bank of India.

(ii) Malathi S is one of the Promoter and Executive Director of the Company. She has completed her Bachelor of Commerce from Kakatiya University. She has been associated with the Company since 2011 and oversees the operations of the Company.

Object of the Issue

Offer for Sale

The Company will not receive any proceeds from the Offer for Sale by the Promoter Selling Shareholder and the proceeds received from the Offer for Sale will not form part of the Net Proceeds. The Promoter Selling Shareholder will be entitled to the proceeds of the Offer for Sale after deducting his proportion of Issue expenses and relevant taxes thereon.

Fresh Offer

The net proceeds of the Fresh Offer, i.e. gross proceeds of the Fresh Offer less the offer expenses apportioned to the Company (“Net Proceeds”) are proposed to be utilized in the following manner:

a. Investment in the subsidiary, Nova Agri Sciences Private Limited for setting-up a new formulation plant

b. Funding Capital Expenditure in the Company, towards expansion of the existing formulation plant

c. Funding of working capital requirements of the Company

d. Investment in the subsidiary, Nova Agri Sciences Private Limited, for funding working capital requirement

e. General corporate purposes.

Further, the Company expects to receive the benefits of listing of the Equity Shares, including enhancement of the visibility and the brand image among the existing and potential customers as well as vendors and creation of a public market for the Equity Shares in India.

Risks in the IPO

Risk of uncertainties

The Company proposes to utilize portion of the Net Proceeds of the Offer for investment in the subsidiary, Nova Agri Sciences Private Limited for setting-up formulation plant and funding Capital Expenditure by the Company towards setting up its formulation plant, which may be subject to delays, cost overruns, and other risks and uncertainties.

Inability to effectively manage or expand dealer network

If the Company is unable to effectively manage or expand its dealer network and operations or pursue the growth strategy and maintain healthy relations with existing dealers, the sales may be affected and the Company may not achieve the expected levels of profitability which may adversely affect the business prospects, financial condition and results of operations.

The Company is required obtain and maintain various permits and license

The Company business is subject to applicable government regulations and legislations and the Company requires certain statutory and regulatory approvals, licenses, registrations and permissions for operating the business in different states. These permits, licenses and approvals may also be tied to numerous terms and conditions. Failure to obtain permits or renew license may adversely affect the business prospects, financial condition and results of operations.

Certain Promoters and Directors are involved in similar lines of business

As on the date of this Draft Red Herring Prospectus, the Promoter and Managing Director, Kiran Kumar Atukuri, Promoter and Whole-Time Director, Malathi S., and the Executive Directors, Sreekanth Yenigalla and Nadella Basanth Kumar and the Independent Director, Ramesh Babu Nemani have interests in entities, which are engaged in lines of business similar to that of the Company. The Promoter Suraksha Agri Retails (India) Private Limited is engaged in the similar line of business. Such factors may have an adverse effect on the results of the operations and financial condition.

Subject to strict quality technical specifications, quality requirements, regular inspection

The Company is subject to strict technical specifications, quality requirements, regular inspections and audits by various authorities and/or regulators and the failure to comply with the quality standards and technical specifications prescribed may lead to loss of business and could negatively impact the reputation, which would have an adverse impact on the business prospects and results of operations.

Financial Performance

As per the financial statements of the Company, here are Financial Highlights for FY22 compared to FY21

Financial Performance:

The Company witnessed robust growth in its financial performance during FY22. Total revenue surged by a significant 15.6%, reaching a commendable figure of Rs. 185 crore. This compares favorably to the previous fiscal year (FY21), where the Company reported total revenue of Rs. 160 crore.

In line with the upward trajectory, total expenses also saw an upward trend. FY22 witnessed a 9% increase in total expenses, amounting to Rs. 167 crore, as compared to Rs. 152 crore in FY21.

The Company’s profitability before tax showcased remarkable growth, registering an impressive 112% surge. In FY22, the profit before tax stood at Rs. 18 crore, whereas it was Rs. 8 crore in FY21.

The profitability trend continued with the Company’s profit after tax, which witnessed a significant upswing of 117% in FY22. The profit after tax reached Rs. 13 crore, displaying substantial improvement from Rs. 6 crore in FY21.

Financial Position

– The Company’s financial position demonstrated strength and expansion during FY22. Total assets grew by a commendable 9%, amounting to Rs. 137 crore, compared to Rs. 125 crore in FY21.
– Similarly, total equity and liabilities also saw a noteworthy increase of 9% during FY22. The figure stood at Rs. 137 crore, compared to Rs. 125 crore in FY21.

Cash Flow

The cash flow dynamics exhibited mixed results for the Company in FY22. Net cash generated from operating activities decreased to Rs. 2 crore, declining from Rs. 5 crore in FY21.

The Company maintained consistency in net cash used in investing activities, remaining at Rs. (3) crore in FY22, the same as FY21.

Encouragingly, net cash generated from financial activities witnessed improvement, generating Rs. 3 crore in FY22, compared to Rs. 3crore utilized in FY21.

However, the Company experienced a significant decrease in total cash and cash equivalents at the end of FY22. The figure stood at Rs. 1 crore, representing a notable decline from Rs. 31 lakhs in FY21.

These significant financial figures highlight the Company’s strong performance, expanding financial position, and notable cash flow dynamics observed during the transition from FY21 to FY22.