Vishwas Agri NSE SME IPO review (Apply)

•    VASL is in the business of processing and supplying quality seeds.
•    It marked static performance for FY22 and FY23 but posted higher margins for FY23.
•    Post completion of modernization, impact is visible in its H1-FY24 performance.
•    New facility and infra work will add to its top and bottom lines going forward.
•    Investors may park funds for the medium to long term rewards.

ABOUT COMPANY:
Vishwas Agri Seeds Ltd. (VASL) is in the business of processing quality seeds and supplying to farmers via its distribution network. The Company sells its seeds under the brand name "Vishwas". Its seeds processing unit is equipped with optical sorting machine, they detect unwanted colours, subtle discoloration, size and shape defects, and foreign materials. Further its seeds undergo seed treatment process where seeds are processed by application of fungicide, insecticide, or a combination of both, to seeds so as to disinfect them from seed-borne or soil-borne pathogenic organisms and storage insects.

Initially company started seeds processing unit at Plot no. 61 Near Akshar Solar Jamvadi GIDC 2 Gondal, Rajkot- 360311, Gujarat, India. Company ceased its operations in Rajkot Unit in June 2023 to migrate in its own larger facility in Ahmedabad. In July 2023, Company started commercial operations of seed processing unit along with Warehouse & Cold storage facility at Unit no. 3 New R.S No. 460, Village: Bhayla, Taluka: Bavla, District: Ahmedabad, Gujarat. The said processing unit, equipped with modern technology is spread across 5 acres. 

VASL has availed term loan of Rs. 11.51 cr.  from HDFC bank via sanction letter dated June 22, 2022 to construct the factory shed, to build Cold Storage, Warehouse and Machinery of seed processing unit. The said unit also equipped with warehousing for storing 4200 MT capacity of stock and cold storage facility to store 3000 MT of stock. Further, the company is in process of setting up its own corporate office building within the premise of the said seed processing unit. Company is also planning to setup an in-house seed testing Laboratory which will help it to improve the quality of existing products, come with new products and its variants. 

As of March 31, 2023, it produced seeds for more than 40 different field crops, vegetables and have the presence of its products in the state of Gujarat, Maharashtra, Rajasthan via its Sales and Distribution network. Vishwas has more than 75 varieties of Crops. Its product portfolio includes crop seeds for Groundnut, Soyabin, Wheat, Cumin, Green Gram, Black Gram Research Hybrid seeds for Cotton, Castor, Pearl Millet, Maize, hybrid vegetable seeds, Chili, Tomato, Brinjal, Watermelon, Sweet Corn, cabbage, Onion, Coriander Seeds, Fenugreek, Mustard, Lucern, Carrot, etc.

As of the date of filing this offer document, it had 783 distributors in three states i.e. Gujarat, Rajasthan, and Madhya Pradesh. As of September 30, 2023, it had 77 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 3000000 equity shares of Rs. 10 each at a fixed price of Rs. 86 per share to mobilize Rs. 25.80 cr. The issue opens for subscription on March 21, 2024, and will close on March 26, 2024. The minimum application to be made is for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 30% of the post-IPO paid-up capital of the company. The company is spending Rs. 1.90 cr. for this IPO process, and from the net proceeds, it will utilize Rs. 7.60 cr. for capex on office building, net seed testing laboratory, greenhouse set-up and roof top solar panels, Rs. 11.00 cr. for working capital and Rs. 5.30 cr. for general corporate purposes. 

The issue is solely lead managed by ISK Advisors Pvt. Ltd., and Bigshare Services Pvt. Ltd. is the registrar of the issue. Sunflower Broking Pvt. Ltd. is the market maker for the company. 

The company has issued entire equity capital at par so far and has also issued bonus shares in the ratio of 2 for 5 in March 2023. The average cost of acquisition of shares by the promoters is Rs. 7.14 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 7.00 cr. will stand enhanced to Rs. 10.00 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 86.00 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 53.83 cr. / Rs. 1.16 cr.  (FY21), Rs. 64.86 cr. / Rs. 2.48 cr. (FY22), and Rs. 65.32 cr. / Rs. 5.34 cr. (FY23). For H1 of FY24 ended on September 30, 2023, it earned a net profit of Rs. 4.51cr. on a total income of Rs. 42.48 cr. 

For the last three fiscals, it has reported an average EPS of Rs. 12.43, and an average RONW of 45.56%. The issue is priced at a P/BV of 3.20 based on its NAV of Rs. 26.91 as of September 30, 2023, and at a P/BV of 1.93 based on its post-IPO NAV of Rs. 44.64 per share.

If we attribute annualized FY24 earnings to its post-IPO fully diluted paid-p capital, then the asking price is at a P/E of 9.53. Thus the issue appears reasonably priced. 

For the reported periods, the company has posted PAT margins of 2.16% (FY21), 3.82% (FY22), 8.18% (FY23), 10.62% (H1-FY24), and RoCE margins of 15.23%, 19.99%, 23.84%, 14.60% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Bombay Super Hybrid, Kaveri Seed, and Upsurge Seeds as their listed peers. They are trading at a P/E of 95.9, 13.3, and 28.9 (as of March 15, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 7th mandate from ISK Advisors in the last four fiscals, out of the last 6 listings, all listed with premiums ranging from 1.08% to 80% on the day of listing.