Nova Agritech
- Nova Agritech is coming out with a 100% book building; initial public offering (IPO) of 3,64,76,568 shares of Rs 2 each in a price band Rs 39-41 per equity share.
- Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
- The issue will open for subscription on January 22, 2024 and will close on January 24, 2024.
- The shares will be listed on BSE as well as NSE.
- The face value of the share is Rs 2 and is priced 19.50 times of its face value on the lower side and 20.50 times on the higher side.
- Book running lead managers to the issue are Keynote Financial Services and Bajaj Capital.
- Compliance Officer for the issue is Neha Soni.
Profile of the company
Nova Agritech is an agri-input manufacturer offering soil health management, crop nutrition and crop protection products focused on tech-based farmer driven solution approach, wherein it mainly offers ecologically sustainable and nutritionally balanced products based on its Research and Development. The company manufactures, distributes and markets a wide range of product categories consisting of (a) soil health management products; (b) crop nutrition products; (c) bio stimulant products; (d) bio pesticide products (e) Integrated Pest Management products; (f) new technologies; and (g) crop protection products. Currently, the crop protection products are manufactured by its subsidiary Nova Agri Sciences Private Limited.
As on November 30, 2023, the company has received a total of 720 product registrations comprising of 7 registrations in the soil health management category, 176 registrations in the crop nutrition category, 4 registrations in bio pesticide category, 7 registrations under Technical Indigenous Manufacture and 526 registrations in the crop protection category. All of the 526 registrations in the crop protection category are in the name of Nova Agri Sciences Private Limited. Further, the company has applied for 14 registrations for new products across various categories in the name of Nova Agri Sciences Private Limited (NASPL) and 22 new registrations in the name of Nova Agritech Limited (NATL).
The company has a total dealer network comprising of approximately 11,722 dealers out of which approximately 6,769 dealers are active to whom it has distributed and sold its products during the current financial year. The company’s dealer network is currently spread across 16 states of 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 and 02 in Nepal. The company has also entered into marketing, distribution and supply agreements with certain third parties in Bangladesh, Sri Lanka and Vietnam and are currently awaiting the necessary permission to start business in these jurisdictions.
Proceed is being used for:
- Investment in its subsidiary, Nova Agri Sciences Private Limited for setting-up a new formulation plant.
- Funding capital expenditure by the company, towards expansion of its existing formulation plant.
- Funding of working capital requirement of the company.
- Investment in its subsidiary, Nova Agri Sciences Private Limited for funding working capital requirements.
- General corporate purposes.
Industry overview
Agriculture is the primary source of livelihood for about 58% of India’s population. As a result, the share of agriculture and allied sectors to the total economy’s Gross Value Added (GVA) has been significant and has increased over the years. The agriculture sector has experienced steady growth in the past two years. As of 2022-23, the sector is the largest employer of the workforce and accounted for a sizeable 15.1% of the in Gross Value Added (GVA) of the country. Growth in allied sectors including livestock, dairying and fisheries has also been a major growth driver in the sector. The expansion in the share of agriculture and allied sector’s GVA is backed by an upward trend in the GVA of agriculture activities. During the five-year period 2018-19 to 2022-23, the GVA for agriculture increased at a CAGR of 4.3% from Rs 18,871 billion in 2018-19 to Rs 22,343 billion in 2022-23. Further, the growth in agriculture GVA has been supported by various measures on credit, market reforms and food processing. In addition to several measures aimed at increasing productivity and improving the marketing of agricultural produce, the government also carries out a large food management programme with a significant financial implication in terms of food subsidies.
Meanwhile, fertilizers output in India increased at a Compound Annual Growth Rate (CAGR) of 3.9% from 41.7 million tonnes in FY19 to 48.6 million tonnes in FY23. The fertilizers production is primarily divided into broad categories, urea and non-urea fertilizers where urea dominates the total output with an average share of 59% and non-urea contributing the remaining 41% on an average. Moreover, the total production in 2021-22 of carrier-based solid biofertilizers in India was about 169 thousand tonnes. This marked a growth of about 40% from 2018-19. It increased at a CAGR of 8.7% during 2017-18 to 2021-22. In the case of liquid fertilizers, India produced about 2,32,934 kiloliters of liquid biofertilizers in 2021-22. This marked a growth of about 2,479% from 9,033 kiloliters in 2017-18. This segment grew by a higher 125% CAGR during 2017-18 to 2021-22.
Further, the evolution of pesticides in India was led by the Green Revolution. In 1943, India saw one of the worst food disasters during the Bengal famine. Food shortages have resulted in the death of around 40 lakh people in the eastern part of India. The problem of food shortage in India continued even after independence during different time periods and the frequent food scarcity issue led to the beginning of the Green Revolution in India. The overall Indian pesticides market grew at a CAGR of 6.6% from Rs 368 billion in 2013-14 to Rs 655 billion in 2022-23. In terms of USD, the Indian market increased at a CAGR of 3.0% from $6.1 billion in 2013- 14 to $7.9 billion in 2022-23. The overall Indian pesticides is estimated to increase at a CAGR of around 6.0%-6.5% by 2027-28 on account of an upward growth expected in the international market and a likely increase in domestic usage of pesticides in India. While the demand for India’s pesticides is likely to remain high, India aims to strengthen the process of backward integration for industry. This is because India is dependent on China for some of the technical insecticides and thus any disruptions at this source destination (like a chemical plant shutdown in China to reduce pollution) have the potential to affect India’s supply chain. In addition, India has a competitive edge in terms of low labour cost and has support towards chemical clusters, which will also aid the growth of agrochemical industry in the coming years.
Pros and strengths
One stop solution through diversified branded product portfolio: The company has a diversified branded product portfolio and offer varied range of products as a complete solution for agricultural requirements such as comprehensive range of soil health management, crop nutrition and crop protection. It manufactures a wide range of product categories consisting of soil health management products such as organic fertilizers, bio fertilizers and soil conditioners; crop nutrition products such as micronutrient fertilizers, beneficial element fertilizers, straight nitrogen fertilizers, straight potash fertilizers and 100% water soluble NPK fertilizer; and crop protection products such as insecticides, fungicides, herbicides and plant growth regulators.
Established distribution network across various geographies: The company markets, sells and distributes its wide range of products to its farmers across India by the help of its distribution channel of dealers spread across various states. It has a total dealer network comprising of approximately 11,722 dealers out of which around 6,769 dealers are active to whom it has distributed and sold its products during the current financial year. The company’s dealer network is currently spread across 16 states of 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 as of November 30, 2023, along with 02 dealers in Nepal. The company has also entered into marketing, distribution and supply agreements with certain third parties in Bangladesh, Sri Lanka and Vietnam and are currently awaiting the necessary permission to start business in these jurisdictions.
Strengthening farmer outreach through Nova Kisan Seva Kendra: The company runs a farmer outreach program called Nova Kisan Seva Kendra program (NKSK), through which it educates farmers on various crop management practices. As on November 30, 2023, its NKSK team compromises of 24 NKSK Coordinators who are all agri-graduates and are on the payrolls of the company. Apart from the NKSK Coordinators, the company also has arrangements with individuals across various states who provide their services to the company as Kisan Mitras, and Kisan Sevaks catering to the need of the farmers. As on November 30, 2023, the company is associated with 96 Kisan Mitras and 142 Kisan Sevaks at a grass root level. The key objective of NKSK is to provide farmers with need-based solutions, products, technologies, methodologies, knowhow and usage skills thereby enhancing farm yield.
Well-equipped research & development facility: The company has a dedicated in-house R&D facility and a Quality Control / Quality Assurance (QC/QA) facility at its manufacturing facilities to support technology transfer for new products and on-site process improvement incubation centre. The company also has tie-ups with various universities to get access of process know-how, innovation, R&D, knowledge transfer, technology transfer, product transfer, credit support, man power, development, etc. It has taken on lease 67.13 acres of land at Valaparla Village, Andhra Pradesh as a part of R&D wherein it tests the efficacy of its products on various crops. The company has dedicated teams actively involved in R&D and QC/QA Lab activities. Its R&D capabilities enable it to support its growth strategy by developing new products and processes which enhance its product range. The focus of its R&D has been to strive for continuous process improvements and achieving manufacturing cost efficiencies for existing as well as new products. This helps in improving its procurement process thus reducing wastages, returns and other related costs.
Risks and concerns
Maximum revenue comes from Telangana: The business of the company is spread across 16 states in India, most of the revenue generated by the company are from Telangana. The company’s business, growth and results of operations is highly dependent on the revenue generated from Telangana. The revenue distribution of products manufactured by NATL from Telangana is Rs 5,458.84 lakh (76.09%), Rs 6,374.81 lakh (54.60%), Rs 7,087.56 lakh (61.09%) and Rs 6,286.98 lakh (50.31%) in the period ended September 30, 2023, FY23, FY22 and FY21, respectively. Moreover, the revenue distribution of products manufactured by NASPL from Telangana is Rs 2,948.79 lakh (60.30%), Rs 4,862.63 lakh (44.74%), Rs 4,397.83 lakh (41.64%) and Rs 2,403.14 lakh (46.67%) in the period ended September 30, 2023, FY23, FY22 and FY21, respectively. Any change in Government policies towards the agriculture sector, regulations, economic conditions or climatic conditions in the state of Telangana may have an adverse effect on its business, results of operations and financial condition.
Geographical constrain: The company currently has only one manufacturing plant situated at Sy.No.251/A/1, Singannaguda Village, Mulugu Mandal, Siddipet Medak, Telangana. All products sold by the company are manufactured at its manufacturing unit located in Telangana and the company is completely dependent on this manufacturing unit for all production. It caters to more than 11,722 dealers spread across 16 states in India for the products manufactured at its manufacturing unit located in Telangana. The company’s manufacturing plant may not be well equipped to cater to any rise in demand of its product from various places across the entire country and may lead to loss of business and effect its result of operation. Further, any change in regulation in the state of Telangana, or any lockdown, strike, lock out of its manufacturing facility in Telangana will have a negative effect on its production and will have an adverse effect on its business as it does not have any other manufacturing unit located outside the one in Telangana.
Business is subject to climatic conditions: The company’s business is sensitive to weather conditions such as rains, drought, floods, cyclones and natural disasters, as well as events such as pest and disease infestations. There is growing concern that carbon dioxide and other greenhouse gases in the atmosphere may have an adverse impact on global temperatures, weather patterns and the frequency and severity of extreme weather and natural disasters. The company’s results of operations are significantly affected by weather conditions in the agricultural regions in which its products are used. Adverse conditions early in the season, especially drought conditions, can result in significantly lower than normal plantings of crops and therefore lower demand for crop protection products. This can result in its sales in a particular region varying substantially from year to year. Adverse weather conditions may also cause volatility in the prices of commodities, which may affect farmers’ decisions about the types and quantum of crops to plant and may consequently affect the sales of its crop protection products. As a result of such seasonal fluctuations, its sales and results of operations may vary by fiscal quarter and may not be relied upon as indicators of the sales or results of operations of other fiscal quarters, or of its future performance.
Subject to fluctuations in prices or unavailability of the raw material: The Company imports certain raw materials such as Mono ammonium phosphate, Mono potassium phosphate, potassium nitrate, Seaweed extract, Potassium humate, fulvic acid, amino acids from China. Further, other raw materials such as: Technical grade urea -46%, Ammonium sulphate -20%, Zinc, ferrous, manganese, copper, magnesium sulphate salts, Boron, molybdenum, Organic manure, bioenriched organic manure, phosphate rich organic manure, orthosilicic acid, molasses, etc. are sourced domestically. The amount of raw materials imported from China and its percentage to the cost of material consumed for the period ended September 30, 2023 and financial years ended March 31, 2023, March 31, 2022 and March 31, 2021 are Rs 1,411.81 lakh, Rs 1,524.14 lakh, Rs 3498.57 lakh and Rs 3673.86 lakh, respectively whereas the percentage to the cost of material consumed are 33.07%, 25.01%, 44.29 %, and 54.14 % respectively. The prices of raw materials used in its manufacturing process are subject to price fluctuations. Any fluctuation of price of such raw materials or adverse effect on the availability of certain raw materials due to various factors may attract higher price for such raw materials and difficulty in procuring such raw materials
Outlook
Nova AgriTech manufactures products that help farmers grow crops better. The main focus is on three things: Soil health, plant nutrition and crop protection. The products are manufactured using technology and are designed to be environmentally friendly and nutritious. The company collaborates with farmers to gain insight into their needs and develop customized solutions that meet their requirements. As on January 31, 2023, the Company has a team of 32 NKSK Coordinators, all of whom have a degree in Agricultural Sciences and are on the Company's payroll.The NKSK program comprises three levels: NKSK Coordinators, Kisan Mitras and Kisan Sevaks. This ensures personal contact with the farmers at the grassroots level. On the concern side, a substantial part of the revenue generated by the company is from the jurisdiction of Andhra Pradesh, Karnataka and Telangana. Any change in Government policies towards the agriculture sector, regulations, economic conditions or climatic conditions in these jurisdictions may adversely affect its business and results of operations. Moreover, the company’s business is subject to climatic conditions. Seasonal variations and unfavourable weather patterns may have an adverse effect on its business, results of operations and financial condition.
The company is coming out with an IPO of 3,64,76,568 equity shares of face value of Rs 2 each. The issue has been offered in a price band of Rs 39-41 per equity share. The aggregate size of the offer is around Rs 142.26 crore to Rs 149.55 crore based on lower and upper price band respectively. On performance front, the company’s total income increased by 13.64% to Rs 21,093.35 lakh for the financial year 2022-23 from Rs 18,561.09 lakh for the financial year 2021-22. Moreover, the company’s profit for the year increased by 49.69% to Rs 2,048.95 lakh for the financial year 2022-23 from Rs 1,368.93 lakh for the financial year 2021-22. Meanwhile, the company intends to increase the capacity of Suspension Concentrate (SC) formulations and also can add new formulation types like Capsule Suspension (CS), Suspo Emulsion (SE), Mixed formulation of CS&SC (ZC), Water Dispersible Granules (WDG) and Granules, thus allowing it to enhance its product range and production capacity. The company’s proposed expansion of manufacturing capacity will help it in increasing its competency level, making it self-sufficient in many ways across the entire manufacturing cycle of the product. The way the farming market is innovating and changing its dimension, it is growing towards restoring soil and crop health ecosystem for sustainable agriculture and to cater to such requirement, it intends to increase its strength in Biological Pesticides, Biological and organic fertilisers. The expansion of manufacturing capacity will leverage it to increase its visibility and secure future marketplace of biological products by enhancing its production capacity.
