Nova AgriTech Ltd IPO : SUBSCRIBE

  • Date

    22nd Jan 2023 - 24th Jan 2023

  • Price Range

    Rs. 39 to Rs. 41

  • Minimum Order Quantity

    365

Company Overview

Incorporated in 2007, Nova AgriTech Ltd. is a distinguished agri-input manufacturer, specializing in the development and provision of cutting-edge solutions for soil health management, crop nutrition, and crop protection. The company adopts a technology-driven, farmer-centric approach, offering ecologically sustainable and nutritionally balanced products derived from extensive research and development endeavours. With a diverse product portfolio, Nova AgriTech Ltd. encompasses soil health management, crop nutrition, bio-stimulant, bio-pesticide, Integrated Pest Management, new technologies, and crop protection categories. Currently, the production of crop protection products is facilitated by its subsidiary, Nova Agri Sciences Private Limited. As of November 30, 2023, the company boasts a commendable total of 720 product registrations. These registrations are distributed across various categories, including 7 in soil health management, 176 in crop nutrition, 4 in bio-pesticide, 7 under technical indigenous manufacturing, and 526 in the crop protection segment. Moreover, Nova has established a robust network of dealers, totalling approximately 11,722, with 6,769 active dealers facilitating the distribution and sale of products. The company’s dealer network spans 16 states in India, namely Andhra Pradesh, Telangana, Maharashtra, Karnataka, Madhya Pradesh, Rajasthan, Chhattisgarh, Tamil Nadu, Uttar Pradesh, Odisha, West Bengal, Bihar, Gujarat, Jharkhand, Uttarakhand, and Jammu & Kashmir. Additionally, Nova AgriTech has expanded its presence internationally through strategic agreements in Bangladesh, Sri Lanka, and Vietnam, awaiting the necessary permissions to commence operations in these jurisdictions. Significantly, a substantial portion (~84.4%) of Nova AgriTech Ltd’s revenue is derived from the distribution of products in the three southern states of Andhra Pradesh, Karnataka, and Telangana. The company’s commitment to innovation, sustainable practices, and widespread market presence positions it as a key player in the agri-input sector.

Objects of the issue:

The net proceeds from the fresh issue will be used towards the following purposes:

  • To carry Investment in the subsidiary, Nova Agri Sciences Pvt. Ltd., for setting up a new formulation plant;
  • Funding capital expenditure in the company towards expansion of the existing formulation plant;
  • Funding of working capital requirements of the company;
    Investment in subsidiary, Nova Agri Sciences Pvt. Ltd., for funding working capital requirements; and
  • General corporate purposes.

Investment Rationale:

Expanding farmer outreach for sustainable growth

Nova AgriTech Ltd. demonstrates a proactive approach to engage with farmers through its Nova Kisan Seva Kendra program (NKSK). With 24 agri-graduate NKSK coordinators and collaborations with 96 Kisan Mitras and 142 Kisan Sevaks at the grassroot level, the company ensures a robust three-tier program for personalized farmer interactions. This farmer-centric approach not only strengthens Nova’s connection with the agricultural ecosystem but also establishes a broad and loyal customer base. By deepening its farmer outreach, Nova AgriTech is well-positioned for sustainable growth. The personalized connections forged through NKSK facilitate a better understanding of farmer needs, leading to informed product development and tailored solutions. This strategy contributes to Nova’s resilience in the market, fostering customer loyalty and providing a solid foundation for future revenue growth.

Technological innovation driving competitive edge

Nova AgriTech distinguishes itself through technology-driven product development, leveraging innovation to address dynamic market demands. The introduction of ground-breaking devices like BHUPARIKSHAK, capable of detecting soil health in 90 seconds, and the DGCA-approved agricultural drone, Nova AGRIBOT, showcases the company’s commitment to staying at the forefront of agri-technology. The Nova Kisan Seva Kendra Application and collaborations with educational institutions further underscore Nova’s dedication to technology transfer and continuous improvement. Nova’s technological prowess provides it with a competitive edge in the agricultural sector. The ability to swiftly adapt to market changes and offer innovative solutions enhances Nova’s market share. Additionally, its subsidiary NASPL has entered into an agreement for import and distribution of specialized herbicides with a Taiwanese entity to act as the distributor for sales and formulation of Butachlor 85% Tech in India for a period of five years. NASPL has also entered into an agreement with a Chinese entity to act as the distributor for sales and formulation of Emamectin Benzoate Technical 95% in India for a period of five years. With a focus on expanding manufacturing capacities, introducing new formulation types, and importing Technicals (specialized herbicides and insecticides) through strategic partnerships, Nova AgriTech is poised for market expansion and increased competitiveness. Nova is positioning itself as a forward-looking player in the agriculture industry, driven by technology-driven differentiation and continuous research and development efforts.

Valuation and Outlook:

Nova AgriTech is strategically positioned to capitalize on the substantial growth potential within the Indian agricultural sector, projected to grow at a CAGR of 5.1% over the next five years. The government’s focus on enhancing farm productivity, coupled with initiatives like Minimum Support Price (MSP) and natural farming, creates a conducive environment for sustained growth. The company’s expansion plans, funded by IPO proceeds, align with the industry’s upward trajectory, emphasizing the potential for future success. In addition to the favorable market conditions, Nova AgriTech boasts two key qualitative advantages. Its well-established distribution network across cities and a robust farmer outreach program ensure a high degree of acceptance for its products. Furthermore, the company’s commitment to environmentally friendly solutions, supported by a well-equipped R&D facility and experienced employees, positions Nova AgriTech as a one-stop solution provider. Financially, Nova AgriTech has demonstrated robust and steady revenue growth over the last three years. Notably, the net profit margins have experienced a significant and commendable expansion during this period. With an impressive ROE of 32.1%, ROA at 11.3%, and PAT margins of 9.7%, the company exhibits attractive financial metrics in a highly competitive segment. The comfortable asset turnover ratio and efficient asset utilization indicate the potential for sustained profitability. Turning to valuations, the PE ratio stands at 12.3x based on the annualized diluted H1FY24 EPS which appears relatively low compared to peers in the industry. The valuation outlook hinges on Nova AgriTech’s ability to maintain its current sales growth rate, preserve net margins, and gradually improve them. Based on the positives discussed, we give the issue a “SUBSCRIBE” rating.