#NovaAgritech IPO opens for subscription on January 22. Should you subscribe?
Watch Sajeet Manghat in conversation with MD Kiran Atukuri and CFO K Srinivas Gunupudi.
Watch Sajeet Manghat in conversation with MD Kiran Atukuri and CFO K Srinivas Gunupudi.
Category
📺
TVTranscript
00:00 Hello and welcome to NDTV Profit, you are watching IPO at the end.
00:13 The company we are going to talk today is Nova Agritech.
00:16 It is an agri-chemical company based out of Hyderabad.
00:22 The company is coming out with an IPO which is priced between 39 to 41 rupees.
00:28 The issue is opening on Jan 22nd and closes on 24th.
00:31 It is a fresh issue of 112 crores and offer for sale of nearly 32 odd crores.
00:37 And joining me is Mr. Kiran Kumar Atukuri who is the managing director of the company
00:41 and Mr. K. Srinivas Gunapudi who is the chief financial officer of the company.
00:46 Gentlemen, thank you very much for joining us on NDTV Profit.
00:52 To start off with Mr. Kiran Kumar, you are raising around 112 odd crores.
00:58 Give me a sense of what the company does, which areas are you in and what are you going
01:03 to use this 112 crores of fresh issue?
01:08 Hi sir, Nova Agritech is an agri-input company.
01:16 It is into manufacturing, distribution and marketing of a broad range of categories called
01:21 soil health management, crop nutrition, crop protection products.
01:25 It also offers tech-based solutions to the farmers with a farmer-driven approach.
01:32 It also works on strong R&D-based basis.
01:36 If I have to give a crisp about the company, we have 720 products of registrations spread
01:41 across 16 states and we have a strong distribution network of almost close to 11,727 dealers
01:50 and we have a strong farmer outreach program called NKSK, Nova Kisan Seva Kendra with comprising
01:57 of 262 team members.
02:02 The company is also into strong R&D facility like it has a lab facility as well as land
02:08 facility to test efficacy trials.
02:10 We have 67 acres of land and though it is a growing company, it is working more on new
02:17 technologies like we have NKSK application to register the farmers, we have Nova Agri-Boat
02:25 which works on the drones as well as Nova Buparek which takes care of soil testing device.
02:31 So more or less if you see the company as having a broad category of products and which
02:36 wants to be a one-stop solution for the farmers as well as the dealers and if you want to
02:42 see the crisp of the financials, the company is growing over the years in 1920 to 1920,
02:49 2019-20 it is at 127 crores and 2021 it went up to 160 crores and 2021-22 it went to 185
02:58 crores and 2022-23 it reached 210 crores.
03:03 So for the first half we are at 103 crores of this 23.
03:07 Mr. Srinivas, can you give me a sense of what is the proceeds going to be used for?
03:14 Basically we are raising 112 crores from the issue and that is going to be infused into
03:24 the company.
03:25 25 crores of the proceeds will be going for setting up two plants, one in the subsidiary
03:31 and one and expansion of the existing plant in the holding company and around 70 crores
03:37 is going to fund the working capital requirements of the company over the current year and the
03:43 next two years which will go to ease the working capital cycle and the balance there will be
03:51 something towards issue expenses and general corporate purpose.
03:56 This is the basic requirement of the applications of the proceeds of the issue.
04:04 What is the kind of margin structure that you have for these products Mr. Srinivas?
04:08 You have been in the range of 18.5 or so for FY23 and first half of FY24.
04:15 Is that the normal range of margin and my understanding was that for Agri Chem products
04:22 the margins are little higher.
04:23 So is there enough room for you to go up?
04:31 I will take this question sir.
04:34 See in year 2019-20 we are doing from 127 crores, then from there we went to 2021 we
04:43 reached 160 crores.
04:45 Then after reaching that heights we thought that though we have reached 26 to 27 percent
04:51 growth over the last financial year of 1920, we thought that along with the top line we
04:57 also grow as to on the bottom line.
05:00 So we started focusing on the product mix where it will give margins and we have created
05:06 a space and where our R&D worked on it and we have managed the product mix where we used
05:12 to get higher margins.
05:14 So we have categorized our products into focus 1, 2 and 3 and based on that we started working
05:20 on the focus 1 products where we have higher margins and we are not into generic sales
05:26 of the products where it will be highly competitive and where there will not be any much profitability.
05:32 We will be working on the company products where we introduce, we create a space where
05:39 then farmers understand the importance of the products and based on that we will develop
05:45 those products, create a brand for that and create a value for that.
05:49 So that is the reason we have strong R&D and as well as we are also having farmer outreach
05:56 program called NKSK.
05:58 Whatever the product farmers requirement is there we will understand and based on that
06:04 R&D works on that and creates a specific category of the products where it will be worked at
06:14 the farmer level, created awareness for that, created a brand for that and then we will
06:20 able to get margins.
06:22 So most of the products what we do know we introduce to the products farmers and you
06:29 know the maturity products will not have much margins, but when you have introductory phase
06:34 of the life cycle we will be having high margins.
06:36 So we will be focusing more at the introductory level rather than at the maturity level.
06:40 Mr. Srinivas, give me a sense of the trade receivables because you have a very high trade
06:45 receivables and the credit cycle that is there in this and is there a way you can crunch
06:50 the credit cycle because your working capital requirement is primarily because you have
06:55 a large trade receivable.
06:58 Yeah, basically the agri-input industry addresses the requirements of farmers.
07:07 See we have a system where we sell to the dealers and dealers sell to the farmers.
07:14 So the realization for the farmers comes after the crop is actually harvested and they realize
07:21 it from the market.
07:22 So what happens is that agri-input industry has a high level of debtors, debtor days.
07:30 So if you look at our financials also as of 23 March we had around 203 days of debtors,
07:36 though inventory levels were at 90 days for the holding company and 75 days for the subsidiary.
07:41 Now the idea is that as we introduce new products into the market which are high margin, we
07:49 have to offer a longer credit period than for normal products because we need to stop
07:55 the dealer with the product, then allow him the time to meet the crop requirement and
08:02 then realize it and then pay back to the company.
08:05 So over the period we did have a longer credit period, but going forward what we suggest,
08:14 what we plan is that we crunch it to manageable levels.
08:19 For 24 March we have around, one we have projected around 185 days of debtor days and going forward
08:27 we will be bringing this down substantially.
08:32 And 185 is a very high number because you are talking about 6 months here.
08:38 Is that a normal for the entire thing and what about the risk because you are connected
08:43 to the farmers and any natural calamity or unseasonal events can disturb the entire issue
08:51 of and lead to bad debts, right?
08:58 Actually if you look at our bad debts, the overall accumulated bad debt as of 31st March
09:05 is around 13 crores and we have never written off any bad debts in our books till date and
09:11 though there is a delay, we ultimately collect all the debt that is due to the company and
09:18 we also have a proper legal backup where there is a delay, we take proper legal action to
09:24 collect it back from the dealers.
09:25 Now if you look at the agri-input industry, the normal is that the credit period is 120
09:33 days.
09:34 This gets extended by a couple of months that is around another 60 days basically because
09:39 of the realization of the right price for the farmer.
09:42 If he is in a product like cotton or any other crop that is being sown, they wait to get
09:49 the best price for their product.
09:52 So, even if when there is a natural calamity like you said for a particular area, then
09:58 they hold the stock till the price goes up and then only they will realize the money
10:04 and then ultimately the dealer gets back his payment and we get back our payment.
10:08 So it is a common factor in the agri-input industry that there is a longer credit period
10:12 than other industries.
10:13 Thank you.
10:14 Thank you.
10:14 Thank you.
10:15 (dramatic music)
10:18 (music)