Narmada Agrobase NSE SME IPO review (Avoid)

Narmada Agrobase Ltd. (NAL) is an ISO 9001:2015 certified company and engaged in manufacturing & processing of cotton seed meal cake, cattle feeds and soya bean meal. The products manufactured by it are used for feeding of cattle which provides high amount of proteins and other nutrients required by them. Also the by-products of Products is used in textiles Industry, Consumer Goods Industry and Paper Industry. Company’s factory is situated at 613/P-1 IJ Pura (Jethaji) Dhanpura Road, Tal. Jotana, Mahesana - 384421, Gujarat, India.

NAL is the manufacturer and exporter of cotton seed meal, guar meal, delinted cotton seed, organic fertilizers and cattle feed under own brand name of “Churma” and “Gaay Chhaap Narmada Pashu Aahar”. Company has a flagship brand which commands a high reputation worldwide for quality products, efficient services and level of reliability as a stable supplier of quality products in cattle feed Industries. The products offered by it are processed using quality ingredients sourced from the selected vendors of the market. Before packaging and distributing, the raw material is inspected by Quality Assurance team after properly graded and processed.

To part finance its working capital and general corporate fund needs, NAL is coming out with a maiden IPO of 2340000 equity shares of Rs. 10 each at a fixed price of Rs.32 per share to mobilize Rs.7.49 crore. Issue opens for subscription on 28.03.18 and will close on 11.04.18. A long duration for this IPO raises eyebrows. Minimum application is to be made for 4000 shares and in multiples thereon, thereafter. Issue constitutes 31.09% of the post issue paid up capital of the company. Issue is solely lead managed by Corporate Capitalventures Pvt. Ltd. and Karvy Computershare Pvt. Ltd. is the registrar to the issue. Post allotment, shares will be listed on NSE SME Emerge. Having issued initial equity at par, it raised further equity at a price of Rs. 32 per share. It has also issued bonus shares in the ratio of 95 for 100 in November 2017. Thus it has fully encased reserves and has empty coffins. Average cost of acquisition of shares by the promoters is Rs. 6.21 and Rs. 8.81 per share. Post issue, company’s current paid up capital of Rs. 5.19 cr. will stand enhanced to Rs. 7.53 cr.

On performance front, NAL has posted turnover/net profits of Rs. 2.10 cr. / Rs. – (0.02) cr. (FY14), Rs. 22.04 cr. / Rs. 0.14 cr. (FY15), Rs. 30.71 cr. / Rs. 0.19 cr. (FY16) and Rs. 34.45 cr. / Rs. 0.30 cr. (FY17). For the first half of current fiscal, it has earned net profit of Rs. 0.21 cr. on a turnover of Rs. 17.40 cr. Thus it has posted gradual increase in top and bottom lines. For last three fiscals, it has posted an average EPS of Rs. 0.78 and an average RoNW of 10.93%. Issue is priced at a P/BV of 4.70 on the basis of its NAV of Rs. 6.81 as on 31.03.17 and at a P/BV of 1.91 on the basis of its post issue NAV of Rs. 16.78. If we annualize latest earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 57 making it a exorbitantly priced offer. As per offer documents, it has no listed peers to compare with.

On merchant banker’s front, this is the 5th mandate from its stable. Last 4 listings opened at a premium ranging from 0.7% to 8.8% on the day of listing.