M.V.K. Agro Food Product Limited is an integrated sugar and other allied products manufacturing company operating from Nanded District in the State of Maharashtra. They operate a single location sugar unit having licensed crushing capacity of 2,500 TCD. In addition to sugar they also commercialise and sell the by-products and waste products, namely, Molasses, Bagasse and Pressmud. They are also engaged in the generation of Power for captive consumption. In the year 2020, they commenced operations of manufacturing of Sugar. The present licensed manufacturing capacity for the various products is given below: 1. Sugar - 2,500 Tones Cane per day (TCD) 2. Molasses - 120 Tones per day 3. Bagasse - 750 Tones per day 4. Pressmud - 90 Tones per day The Company proposes to further diversify its product portfolio by setting up a greenfield unit for manufacturing Ethanol and Bio-CNG and Fertilizer. They intend to create an additional revenue stream using backward integration of the waste material, i.e., Molasses for manufacturing Ethanol and marketing and selling the same for industrial usage. Further, in the said greenfield unit, they propose to set up a separate bio CNG bottling and fertiliser plant for bio-gas generation and bottling. The by-product generated from the manufacturing of bio-gas is mainly used as a fertiliser, therefore the Company proposes to market and sell such by-product as a fertilizer to third parties. They propose to generate bio-gas by processing Bagasse and Pressmud further marketing and selling the same for industrial usage. Accordingly, the Company proposes to utilise an amount of Rs 3,488.17 lakhs and Rs 1,750.00 lakhs from the Net Proceeds of this Issue towards setting up the aforementioned manufacturing unit for Ethanol and Bio-CNG and Fertilizer, respectively, and expanding the product portfolio. The Company follows a diversified marketing approach for marketing and selling its products. They market and sell the products through domestic brokers and export-oriented commodity traders. They have achieved complete integration by marketing and selling by-products and waste products produced while manufacturing sugar. The sugar manufacturing unit is an integrated production facility, which first crushes sugarcane to extract juice and processes the juice to produce Sugar. The Sugar manufactured is then graded and packed based on the size of crystals and quality of the sugarcane. After extracting the juice from sugarcane, the residual fibre leftover called Bagasse is used by the Company as raw material for in-house power generation, for captive consumption. During the manufacture of Sugar, bagasse, molasses and pressmud are accumulated as by-products and waste material. They commercialise the said products to third party bio-coal and ethanol manufacturers, thereby achieving complete integration. As per financial performance, M.V.K. Agro Food Product Limited has posted total income / net profits of Rs 25.83 Cr / Rs 1.40 Cr (FY21), Rs 132.64 Cr / Rs 3.20 Cr (FY22), Rs 93.94 Cr / Rs 3.77 Cr (FY23) and Rs 60.44 Cr / Rs 4.30 Cr (upto Q2 FY24). So as per previous financials data, company has shown zig-zag results and sudden increase in net profit, just in before IPO generates doubts. Company has posted an average EPS of Rs 3.23 and average RoNW of 35.66% for last three fiscals. Issue is priced at a P/BV of 2.22 as per NAV of 53.94 as on post issue. If we attribute latest earnings of FY22, FY23 and annualised FY24 on fully diluted equity post issue, then asking price is at a P/E of around 58.12, 49.24 and 21.61 respectively, which looks aggressively priced. As per RHP, comparison between listed peers is shown in above table. On BRLM's front, Horizon Management Private Limited is associated with this SME IPO and handled 2 SME IPOs in last 1 year. From last 2 SME IPOs, all opened above issue price or at par on the day of listing. As of now from last 2 SME IPOs, all are trading above issue price. ( As on 23.02.24 ) As per financials, M.V.K. Agro Food Product Limited has shown zig-zag results, RoNW is 32.85% and P/E is respectively 58.12, 49.24 and 21.61 as per FY22, FY23 and annualised FY24 earnings. So, issue looks aggressively priced and sudden rise in net-profit is very surprising. Company is in business of manufacturing sugar and other allied products, which is highly competitive and fragmented segment. Here, we may find better options in listed space with cheaper valuations. So, we give AVOID rating for this IPO. Readers must consult a qualified financial advisor prior to making any actual investment decisions.
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