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Godrej Agrovet IPO fairly priced: analysts

LiveMint logoLiveMint 03-10-2017 Nasrin Sultana

Mumbai: The initial public offering (IPO) of Godrej Agrovet Ltd that opens on Wednesday seems to be fairly priced, analysts said.

Within a price band of Rs450-460 per share, the agri-business unit of Godrej Industries Ltd is aiming to raise around Rs1,157 crore through the share sale, which will close on 6 October.

According to ICICI Securities Ltd, based on its 2016-17 consolidated figures, Godrej Agrovet is available at market cap to sales of 1.8 times, price to earnings (PE) of 35.4 times and price to book of 8.8 times.

Given its conglomerate structure and complexity of operations, there is no apple-to-apple peer comparison for Godrej Agrovet, it said.

“We arrive at a fair value of Godrej Agrovet breaking the business into individual segments and identifying suitable listed peers. We arrive at a fair market cap of Rs11,000 crore for Godrej Agrovet as compared to targeted IPO market capitalization of Rs8,850 crore at upper price band of Rs460,” the brokerage firm said in a note on 29 September.

SBICAP Securities Ltd said for FY17, the pre-issue return on equity and return on capital employed stands at 28.4% and 28.9%, respectively.

“With strong industry growth prospects, established brand products, diversified business, we believe the company will continue on its growth journey moving forward,” it said in a note on 28 September.

Analysts also said that a consistent margin profile through innovative product launches amid improved operational efficiencies and optimal asset turnovers have led the company to become an extremely capital-efficient firm in the animal feed, oil palm and crop protection verticals.

Godrej Agrovet has a diversified business model, with animal feed making up 50% of sales, oil palm 10%, crop protection 15% and dairy 20%. It is the largest palm oil producer in India and focuses on improving productivity of farmers by innovating products and services that sustainably increase crop and livestock yields.

Godrej Agrovet owns well established brands Milk More, Calf Starter and Excel across animal life cycles and sells the Jersey, Real Good Chicken and Yummiez brands from its dairy and processed poultry and foods divisions, respectively.

“Strong brand recall and pan-India presence bodes well for the firm which is expected to drive growth in sales and profitability going forward,” ICICI Securities said.

In the past five years (FY13-17), the company’s revenue and profitability have expanded at a compound annual growth rate (CAGR) of 15.6% and 29.8% respectively.

Proceeds from the fresh issue (Rs291.5 crore) will be used for the repayment of working capital facilities and commercial paper and the balance for general corporate purposes.

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