Hello
friends!!!
The markets
are back with another IPO. Recently many IPOs have given the market a very
strong listing, thereby showing the strength of the Indian markets. Another
such IPO that is about to enter is the IPO of Apex Frozen Foods Ltd. This IPO
opens on 22nd Aug 2017 and closes on 24th Aug 2017. The
Offer is at a price band on Rs 171 to Rs 175 per equity share. Face value of
these shares shall be Rs 10. The lot size for application shall be 80 shares
per lot thereby making your minimum investment at Rs 175 to Rs 14000/-. Total
issue size will be for Rs 152.25 Crs
So is it a
good bet to invest in Apex? Let’s unravel the truth.
About the
Company!!!
Apex Frozen Foods Ltd is a company engaged into aquaculture
products. They are integrated producers and exporters of frozen shrimps or
prawns as we generally know it. I guess we have not seen such an industry in
the market yet apart from Venkys which is into Chicken products. So surely it is
an interesting company to look into. But how much interesting is something we shall
find out. The company exports majorly to USA, UK and various other European
Countries. Set up in Andra Pradesh they commenced operations in 1995 and in 22
years the company has grown to have a net worth of Rs 91.63 Crs as on
31.12.2016.
Promoters!!!
Apex Frozen Foods Ltd is a family run venture with Mr. Karuturi
Satyanarayana Murthy and Mr. Karuturi Subrahmanya Chowdary the father and son
duo as the promoters. They are 61 and 37 years old respectively.
Utilization of Funds!!!
The issue is partly a fresh issue and partly a Offer for
Sale by the promoters .
Of the total issue of Rs 152.25 Crs, Rs 23.375 Crs shall be
an Offer for Sale and the remaining Rs 126.875 Crs will be utilised by the
company.
Objectives of the Fresh Issue:
1. Setting up a new shrimp processing unit
with a proposed capacity of 20,000 MTPA at East Godavari District, Andhra
Pradesh (Rs 87.704 Crs)
2. General Corporate purposes (Rs 39.171 Crs)
Looking into the objects it seems that the company is
serious in expanding its business.
No matter what the above signify, if the company is not
having solid financials to back it up, it’s of no use. So let’s look inside the
hood and understand what’s the financials of the company looks like.
Looking at the Balance Sheet we can find that:
1)
The company has seen a steady growth in networth
from Rs 24.415 Crs as on 31.03.2013 to Rs 91.633 Crs as on 31.12.2016. However
for a company with such high sales the growth is not really up to the mark. However looking at the balance sheet of
Venkys till 2015-16, I would say it’s a marvellous growth.
2)
The company’s non current liability stands at Rs
22.963 Crs as on 31.12.2016 but including the short term borrowings of Rs
80.374 Crs it comes to Rs 103.337 Crs which is high when compared to the
networth of Rs 91.633 Crs. However since short term borrowings are part of any
normal business we can say the company is still doing well.
3)
Company has decent amount applied in Fixed
Assets at Rs 75.53 Crs as on 31.12.2016 and with the new facility coming up
this will go much higher.
4)
One thing that really catches my eye is that the
company has a huge amount locked in its working capital. Rs 71.805 Crs of
inventory and Rs 70.677 Crs of Debtors yet to be realised as on 31.12.2016. This
seems to be a normal event in companies of this industry when looking at
Venkys.
5)
Now looking into the Profit and Loss A/c, we see
that the company has had good growth in its revenues from Rs 255.271 Crs in FY
2012-13 to Rs 603.527 Crs in FY 2015-16 and on to Rs 535.105 Crs in 9 monthly
of FY 2016-17 alone.
6)
Total profit for the company in FY 2015-16 was
Rs 19.28 Crs which is hardly 3.2% of turnover. Apex Frozen Foods Ltd seems to
be struggling. Their struggle with working capital is clearly visible here.
However looking at Venkys, Apex Frozen Foods seems to have a dream run. Venkys
has given a Net Profit Ratio of less than 2% in FY 2015-16. Now I know your
question would be then why Venkys is up so much. Well Venkys has shown some
very good numbers in FY 2016-17 and in Q1 of FY 2017-18.
Valuations!!!
The company’s EPS for FY 2015-16 was Rs 8.03 which means
that at Rs 175 the PE of the company shall be around 22 times. Taking numbers
of the 9 months of FY 2016-17 the EPS is 6.82. Annualising this EPS the total
EPS could be around 9.09 and thereby making the PE come down to 19.25 times. Now
looking at what Venkys was in 2015-16 and taking a market rate of Rs 500 per
share then, with a EPS of Rs 21.19 the PE comes to be around 24 times which is
very much inline with the valuations of Apex Frozen Foods Ltd.
So after
looking into the financials and its strong peer we would say that Apex Frozen
Foods Ltd is a “subscribe”.
Thank you for joining us.
-Richer Investor.
Written by Roger Vins Herman (CA, MCom)
Disclosures:
The author or any person at RicherInvestor doesn't have any financial interest in the Company.
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