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KPR Agrochem
25-Jun-19   16:04 Hrs IST
CM RATING25/100
Incorporated in 2007, and promoted by Papa Reddy Kovvuri, Venkata Mukunda Reddy Karri, Rajasekhar Reddy Kovvuri, Satyanarayana Reddy Kovvuri (son of Veeraraghava Reddy Kovvuri), Satyanarayana Reddy Kovvuri (son of Ramachandra Reddy Kovvuri) and Cresco Technology Llp, Andhra Pradesh-based KPR Agrochem manufactures, retails and distributes agriculture output-enhancing and crop-yield-protection products.

The KPR group company is in the chemicals, agri-inputs, poultry and rice mills-related businesses. The product range includes crop nutrients, crop protection, veterinary feed supplements, sulphuric acid and variety of seeds as well sulphuric acid and sulphuric acid-based chemicals such as oleum and linear alkyl benzene used in the synthetic detergents, agrochemicals, pharmaceuticals, and veterinary-feed supplement industries. Some of the branded products are Fast, Motox- 10G, Samrat Atrazne 50% WP, Mega Imida, Abhaya Cal Mix, Apurva Seeds, Ajay (14-35-14) and Ajay (20-20-0).

The three manufacturing units are at Balabhadrapuram and Biccavolu in the Godavari district of Andhra Pradesh, and the Koppal district of Karnataka. A waste-heat-recovery plant at Biccavolu generates power from the steam residue collected during sulphuric acid production.

The installed capacity is 5.55 lakh tonnes per annum (tpa) of crop nutrient products, 21,560 tpa of crop-protection products, 34,560 tpa of veterinary-feed supplements and 1,75,800 tpa of chemicals. The installed capacity of the seed processing unit is 15,000 tpa. A 2.5-MW waste-heat-recovery power plants meets the captive power requirement.

Around 59% of the total revenues came from the fertilizers segment including veterinary feed supplements and trading, around 10% from chemicals, 26% from pesticides and rest 5% from seeds in the fiscal year ended March 2018 (FY 2018). Prominent fertilizers manufactured and traded are single super phosphate, 11 grades of NPK mixture, micro nutrients and bio products.

The Offer and the Objects

The offer comprises fresh offer of 3.44 crore shares. At the lower price band of Rs 59 per share, the issue size works out to Rs 203.11 crore. At the higher price band of Rs 61, the issue size is Rs 210 crore.

The offer also comprises offer for sale of 1.2 crore shares. At the lower price band of Rs 59 per share, the issue size works out to Rs 70.8 crore. At the higher price band of Rs 61, the issue size works is Rs 73.2 crore. The selling shareholders comprise the promoters and the promoter group including Vanaja Tetala, Naveen Reddy Tetala, Venkata Dhana Reddy Karri, Venkata Dhanasekhar Reddy Karri, Mahalakshmi Kovvuri, Sridevi Kovvuri, Basivi Reddy Gudimetla, Vijaya Bhaskara Reddy Gudimetla, Sudhakar Reddy Karri, Adi Reddy Karri, Bhaskara Raghu Rama Reddy Kovvuri, Venkata Lakshmi Sathi, Rama Reddy Sathi and Vijaya Reddy Kovvuri

The minimum bid lot is 200 equity shares and in multiples. The issue is being made through the book-building process. It will open on 28 June and close on 2 July.

The objects of the issue is to repay around Rs 30 crore certain borrowings, to use Rs 120 crore for working capital requirements and remaining for general corporate purpose apart from getting the benefits of listing the equity shares on the BSE and the NSE, enhance visibility and brand image and provide liquidity to the existing shareholders.

Strengths

The range of product is across the agri-value chain, that is, from seeds to crop-nutrient products to crop-protection products and also veterinary-feed supplements.

Favourable policies of the southern states and emphasis on irrigation will lead to higher sales.

Weaknesses

Found non-compliant on quality, selling of misbranded products and improper storing by regulatory authorities. A government inspection found deficiencies in the products. Appropriate penalties were paid from FY 2015 to FY 2019. Some of these deficiencies include non-declaration of name and address of manufacturer and retail price and error in net quantity of product. Income tax surveys have been conducted and additional taxes paid.

The company, its directors and promoters are facing litigations for criminal, civil and tax proceedings. There were violations of Companies Act in the past.

There are group entities in the same business.

Group entities had defaulted on payment of loans that eventually got classified as non-performing.

Has a high working capital cycle. Receivable days were at around 162 in FY 2018. Total outstanding borrowing of Rs 473.7 crore included non-fund borrowing of Rs 148 crore end December 2018.

Revenues are dependent on agriculture. Thus, the business is seasonal, subject to varying climatic conditions, rainfall and other weather factors.

No long-term contracts for major raw materials such as sulphur, urea, rock phosphate, granules and solvents.

Credit ratings were recently downgraded by Crisil to BB plus and Icra to BBB minus.

Operations and revenues are concentrated in the southern regions, mainly in Andhra Pradesh, Telangana and Karnataka. The southern region is witnessing water scarcity.

Sales and profit have remained stagnant in the last four years for which financials are available. FY 2018 sales and profit are at the same level as of FY 2014.

Valuation

Consolidated net sales were up 3% to Rs 599.81 crore and the operating profit margins (OM) went up 100 basis points (bps) to 17.4%, resulting in operating profit (OP) growing 9% to Rs 104.28 crore in FY 2018. Other income (OI) declined 85% to Rs 1.01 crore. Interest cost decreased 15% to Rs 46.69 crore but depreciation was up 4% to Rs 20.77 crore. Thus, profit before tax (PBT) increased 37% to Rs 37.83 crore. After 68% higher total tax, consolidated profit after tax (Pat) spurted 30% to Rs 29.65 crore.

Consolidated net sales stood at Rs 482.53 crore and the OPM at 18%, resulting in OP of Rs 86.78 crore in the nine months ended December 2018. With 0.7 crore of OI and interest cost of Rs 36.75 crore and depreciation of Rs 15.08 crore, PBT was Rs 35.65 crore. After providing total tax of Rs 8.06 crore, consolidated Pat stood at Rs 27.59 crore.

The EPS for FY 2018 on diluted equity share capital of Rs 119.90 crore of face value of Rs 10 each is Rs 2.5. At a higher price band of Rs 61, the issue is offered at P/E of 24.7 times FY 2018 consolidated earnings. The nine months earnings for FY 2019 cannot be annualised due to seasonality of business and effect of the rabi season on the December 2018 quarter.

Rama Phosphate is one of the major super sulphate phosphate-based agro fertilizer producers. Chambal Fertilizers & Chemicals and Coromandal International make chemicals, too. As FY 2019 results have not been released and nine-month results cannot be annualised, FY 2018 numbers have been used for comparing with listed peers.

Rama Phosphate reported net sales f Rs 607 crore and Pat of Rs 19.4 crore in FY 2018, registering an EPS of Rs 10.9. At the current market price of Rs 73, the stock trades at P/E multiple of 6.7.

Chambal Fertilizers reported consolidated net sales of Rs 7546.07 crore and Pat of Rs 495.41 crore in FY 2018, registering an EPS of Rs 11.9. At the current market price of Rs 73, the stock trades at P/E multiple of 14.5.

Coromandal International reported consolidated net sales of Rs 11082.92 crore and Pat of Rs 691.31 crore in FY 2018, registering an EPS of Rs 23.6. At the current market price of Rs 73, the stock trades at P/E multiple of 17.2.

KPR Agrochem: Issue highlights

Offer for sale ( in Rs crore)
- On lower price band70.80
- On upper price band73.20
Total Issue size for offer for sale ( in no of shares in crore)1.20
Fresh Issue (in Rs crore)
- On lower price band203.11
- On upper price band210.00
Total Issue size for Fresh Issue (in no of shares crore)3.44
Price Band (Rs)*59-61
Bid size ( in no of shares)200.00
Post issue share capital (Rs crore) 119.90
Post-issue Promoter & Group shareholding (%)41.3%
Issue open date28-06-2019
Issue closed date02-07-2019
ListingBSE, NSE
Rating25/100
* Retail discount of Rs 3

KPR Agro: Consolidated Financials

1403(12)1503(12)1603(12)1703(12)1803(12)1812(09)
Net Sales612.93597.44580.09583.74599.81482.53
OPM (%)17.6%16.8%17.8%16.4%17.4%18.0%
OP107.63100.13103.3395.53104.2886.78
Other in. 2.983.131.326.961.010.70
PBDIT110.61103.26104.65102.49105.2987.48
Interest49.9448.7650.8755.0046.6936.75
PBDT60.6754.5053.7847.4958.6050.73
Dep.13.1714.3017.5019.9020.7715.08
PBT 47.5040.2036.2827.6037.8335.65
EO 4.770.660.000.000.000.00
PBT after EO42.7339.5436.2827.6037.8335.65
Tax (including Deferred Tax)14.3211.3111.984.868.188.06
PAT28.4128.2324.3022.7429.6527.59
MI0.000.000.000.000.000.00
PAT after MI28.4128.2324.3022.7429.6527.59
EPS (Rs)*2.42.42.01.92.5#
*EPS is on post issue equity capital of Rs 119.9 crore of face value of Rs 10 each
# EPS not annualised due to seasonality of business
Figures in crore
Source: Capitaline Database

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