KPR Agrochem Limited (KPRAC), incorporated in 2007, is an agri-input company focused on manufacturing, distribution and retailing of a wide range of crop yield enhancing and protection products ranging across the agri-value chain. • The company has diversified portfolio from seeds to crop nutrients products to crop protection products and also veterinary feed supplements. The company is also ventured into the manufacturing of sulphuric acid.
Valuation and Outlook
At the higher price band of Rs61, KPRAC’s share is valued at P/E multiple of 19.9(x) (to its post issue FY19 annualized adjusted EPS). Historical track record shows weak financial performance as operating revenue witnessed -0.5% CAGR and PAT by 1.1% CAGR during FY14- FY18. While FY19 annualized figure showed 7.3% YoY revenue growth, there is concern about sustainability of this traction. Pre-issue D/E stood at 1.2x and interest cost was ~42% of FY19’s annulized EBIDTA. Post issue, D/E will reduce to 0.6x owing to partly repayment of debt (Rs300 mn) and boost to net worth, however RoE will reduce to 7.8% (10.9% pre-issue). At the higher price band of Rs61, demanded valuation of Rs7,313 mn at P/E of 19.9x (on annulized FY19 EPS of Rs3.1) seems stretched considering the weak fundamental strength. Peers such as Chambal Fertilizers at P/E of 12.3x , Dhanuka Agritech at P/E of 16.1x and Insecticides India at P/E of 10.6x have strong fundamentals and are trading at cheap valuation compared to KPRAC. Considering all these parameters, we assign ‘Avoid’ rating to the issue
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