Aries Agro
Aries Agro is entering the capital market on 14th December 07 with a public issue of 45 lakh equity shares of Rs.10 each in the band of Rs.120 to Rs.130 per share. The issue at the upper band is for Rs.58.50 crores and for about 35% of the post IPO, paid-up equity.
The company is into manufacturing of micronutrients and other nutritional products for plants at Mumbai, Hyderabad, Bangalore and Kolkata with installed capacity of 10,800 TPA, 5,400 TPA, 3,750 TPA and 1,650 TPA respectively, with total installed capacity being at 21,600 TPA.
Though the company has been in commercial existence for the past over 35 years, with over 41 brands, 4,700 distributors, 67,000 retailers and 60 lakh farmers, the financial performance has been quite low and unconvincing. For FY 07, total income of the company was at Rs.77.41 crores with PAT of Rs.8.70 crores resulting in an EPS of Rs.10.25 on paid-up equity of Rs.8.50 crores.
During four months ending July 07, topline was at Rs.29.80 crores giving an EBITDA of Rs.5.88 crores (19.73%) and PBT of Rs.4.68 crores (15.70%). This has shown a declining trend whereas EBITDA margin was 21.89% in FY 07 while it was at 18.06% at PBT levels. Even working capital pressure is quite high as evident from sundry debtors of Rs.32.34 crores as at 31-07-07, which implies debtor cycle of over 130 days. Inventory of Rs.22.60 crores as at 31-07-07 also looks high, but one could accept that, due to ensuing season of the company's products for second and third quarter. Due to this, total borrowing is at Rs.25.38 crores, against its net worth of Rs.27.73 crores, as at 31-07-07.
The company is now setting up new units at Ahmedabad, Lucknow, Medak and a new unit in Maharashtra, which are estimated to cost Rs.8.10 crores. Rs.14.35 crores has been allocated for purchase of 100 Trucks, for office building and for existing factory at Mumbai for Rs.1.70 crores. When the company is a profit making for quite some time, this Rs.1.70 crores should have come from internal accruals. But it seems that the requirement of funds have been enlarged on various heads to enable the company to mobilize Rs.58 crores. Considering the pressure and requirements of working capital post expansion, where capacity is likely to be raised by about 350%, the pressure of working capital would continue.
The sector enjoys very low discounting on the bourses and micro-nutrients and crop protection companies, broadly falling in the same category are ruling at a PE multiple of sub 10. Prominent amongst them are Excel Crop, Nagarjuna Agri, Bhagiradha Chem etc. Rallis India and Ciba speciality are ruling at a PE of 12 - 14 mainly because of strong parentage, huge real estate and better margins.
The share is being issued at a PE multiple of close to 12 based on expected FY 08 working which is definitely very expensive and leaves chances of share price ruling below its offer price in future. When much better established players are available in the secondary market, why to consider this company?