Godrej Agrovet Ltd. – IPO Note – Sound Business Coupled With Reasonable Valuations
 
Godrej Agrovet Ltd. (GAL) is a diversified agri-business company, with operations across five business verticals i.e. Animal Feed, Crop Protection, Palm Oil, Dairy and Poultry & Processed Foods. GAL has reported consolidated revenue, EBITDA and net profit CAGR of 15%, 23% and 30%, respectively through FY13-17. Although the growth has been aided by acquisitions in the past two years, organic growth too has been strong. GAL is coming out with an Initial Public Offering (IPO) to raise Rs11.6bn at the higher end of the price band which includes fresh issue of Rs2.9bn and Offer for Sale (OFS) of Rs8.7bn.
 
Diversified Business Model with Strong Synergies
GAL operates in five key segments, which coupled with geographic diversification provides it a hedge against the inherent risks associated with a single category and/or region. Additionally, the operational synergies enable GAL to drive growth, optimise capital efficiency and maintain its competitive advantage. 
 
Strong Parentage & Veteran Management Team
GAL is part of the Godrej group, which is one of the oldest and most prominent business groups in India. The Godrej brand enables the company to attract key talent, develop customers’ and suppliers’ trust and benefit from the group’s global network. Apart from strong parentage, the management team has strong bandwidth with significant industry experience and long association with the group.
 
Robust R&D Capabilities
GAL has a strong focus on Research & Development (R&D) with primary focus on improving yields and procedural efficiencies. Over the years, R&D has been a key competitive strength of GAL across all its business verticals, which enabled the Company to introduce newer and relevant products at regular intervals. The Company set up a dedicated centre in Nashik in May’14 to consolidate its R&D initiatives.
 
Outlook & Valuation
GAL reported consolidated net sales of Rs49.1bn and net profit of Rs2.7bn in FY17. Its consolidated revenues and net profit witnessed a 15% and 30% CAGR, respectively through FY13-17, while its consolidated RoE stood at a healthy 30.6% in FY17. 
 
At higher end of the price band of Rs460/share, the Issue is priced at 32.1x FY17 earnings and 27.5x FY18E earnings respectively.Considering the diversified business model, strong management bandwidth, efficient working capital cycle and impressive return ratios coupled with reasonable valuation, we recommend SUBSCRIBE this IPO.

Issue Detail:

Issue Open: Oct 4, 2017 – Oct 6, 2017 
Issue Type: Book Built Issue IPO 
Issue Size:[.] Equity Shares of Rs 10 aggregating up to Rs 1,157.31 Cr 

Face Value: Rs 10 Per Equity Share 

Issue Price: Rs 450 – Rs 460 Per Equity Share 
Market Lot: 32 Shares 
Minimum Order Quantity: 32 Shares 
Listing At: BSE, NSE