Nova Agritech

Agri-input manufacturer

One-stop solution provider for soil health management, crop nutrition, bio stimulant, bio pesticides, IPM, and crop protection

Incorporated in 2007, Nova Agritech is an agri-input manufacturer offering soil health management, crop nutrition and crop protection products focused on tech-based farmer-driven solutions. The company offers ecologically sustainable and nutritionally balanced products based on its research and development.

The promoters of the company are Suraksha Agri Retails (India) Private Limited, Yeluri Family Trust, Malathi S, and Kiran Kumar Atukuri. The board of directors of Suraksha Agri Retails (India) Private Limited are Malathi S and Sreekanth Yenigalla. Individual promoter Malathi S is the author, settlor, and beneficiary of the Yeluri Family Trust (First Trustee). Yeluri Divyesh and Yeluri Mainank Tarak are the beneficiaries of the Trust.

The company manufactures, distributes and markets a wide range of product categories consisting of soil health management products like organic fertilizers, bio fertilizers and soil conditioners, crop nutrition products like 100% water soluble NPK (nitrogen, phosphorous and potassium) fertilizers, micronutrient fertilizers, beneficial element fertilizes, straight nitrogen fertilizers, straight potash fertilizers and bio stimulant products, bio pesticide products, integrated pest management (IPM) products, new technologies and crop protection products. Currently, crop protection products are manufactured by subsidiary Nova Agri Sciences Private Limited.

Crop nutrition products typically include 100% water soluble NPK fertilizers, micronutrient fertilizers, beneficial element fertilizers, straight nitrogen fertilizers and straight potassium fertilizers. Soil health management typically includes product that contains organic fertilizers, bio fertilizers and soil conditioners. IPM is a strategy used to manage insect pests in the landscape by using economically and environmentally sustainable practices, comprisingchromatic traps, pheromone lures, and sticky sheets. Bio stimulants are substances, micro-organisms or a combination of both, whose primary function is to stimulate physiological process in plants and to enhance their nutrient uptake, growth, yield, nutrition efficiency, crop quality, and tolerance to stress, regardless of the nutrient content, but does not include pesticides or PGRs (plant growth regulators) regulated under the Insecticide Act, 1968. A bio pesticide is a biological substance or organism damaging, killing, or repealing organisms seen as pests. Bio pesticides pose minimal danger to individuals and the environment, making them a relatively safer alternative to chemical or chemical- derived pesticides. The new technologies segment includes agribotdrones and bhuparikshak. Manufactured products are sold under own brand, Nova.

The company ventured into the pesticide business by acquiring stakes in Nova Agri Sciences Private Limited and forayed into research & development for seed enhancement by acquiring stakes in Nova Agri Seeds India Private Limited and making these companies its subsidiaries.

As on November 30, 2023, the company had received a total of 720 product registrations comprising seven registrations in the soil health management category, 176 registrations in the crop nutrition category, four registrations in bio pesticide category, seven registrations fortechnical indigenous manufacture, and 526 registrations in the crop protection category. All the 526 registrations in the crop protection category are in the name of Nova Agri Sciences Private Limited. Further, it has applied for 14 registrations for new products across various categories in the name of Nova Agri Sciences Private Limited (NASPL) and 22 new registrations in the name of Nova Agritech Limited (NATL).

The company has a total active dealer network comprising 6,769 dealers spread across 16 states of India: Andhra Pradesh, Telangana, Maharashtra, Karnataka, Madhya Pradesh, Rajasthan, Chhattisgarh, Tamil Nadu, Uttar Pradesh, Odisha, West Bengal, Bihar, Gujarat, Jharkhand, Uttarakhand, and Jammu & Kashmir, and 02 in Nepal. It entered marketing, distribution, and supply agreements with certain third parties in Bangladesh, Sri Lanka and Vietnam and is currently awaiting the necessary permission to start business in these jurisdictions.

The company intends to import and distribute technical. These will drive growth of the agriculture sector in India in future. NASPL enteredregistration and distribution agreements for import and distribution of technicals with a Taiwanese entity on 15 April 2022 to act as the distributor for sales and formulation of butachlor 85% tech in India for five years and with a Chinese entity on 15 April 2022 to act as the distributor for sales and formulation of mamectinbenzoate technical 95% in India for five years.

The company uses different raw materials for the manufacturing of different products. It uses active ingredients thiamethoxim, lambda cyalothrin, emulsifiers like IG Surf 6000E and 7000 E, and solvents like C9 cyclohexanone as raw materials to manufacture liquids. Usage of powders and granules include China clay, precipitated silica, talc powder, quartz sand as filling agents, wetting agents like F.Con CMC, and BN 200 as dispersing agent. The key raw material for crop nutrition mainly includes different nutrients like NPK consortium, macro nutrients and micronutrients. The company imports or sources certain raw materials such as mono ammonium phosphate, mono potassium phosphate, potassium nitrate, seaweed extract, potassium humate, fulvic acid, amino acids from China. Further, other raw materials such as technical grade urea- 46%, ammonium sulphate -20%, zinc, ferrous, manganese copper, magnesium sulphate salts, boron, molybdenum, organic manure, bioenrichedorganic manuare phosphate rich organic manure, orthosilicic acid, and molasses are sourced domestically. Its subsidiary NASPL imports and sources certain raw materials such as paraquat dichloride technical from Taiwan. Other raw materials such as inseciticides, fungicides, plant growth regulators, adjuvants and emulsifiers like Ig surf-2333ps and 2406 are sourced domestically.

The company’s manufacturing facilities are situated at Singannaguda Village, Mulugu Mandal, Siddipet District, Telangana, over an area admeasuring 12 acres and fiveguntas. Besides the manufacturing facilities, the total area includes warehousing facilities for storage of raw material and finished goods.

The Offer and the Objects

The offer comprises fresh issue of up to 27317073 equity shares at the upper price band of Rs 41 and 28717949 equity shares at the lower price band of Rs 39, aggregating Rs 112 crore, and an offer for sale of up to 7758620 equity shares, aggregating Rs 32 crore at the upper price band of Rs 41 and Rs 30 crore at the lower price band of Rs 39.

The company proposes to utilize the net proceeds from the fresh issue to invest in its subsidiary, NASPL, for settingup a new formulation plant, amounting to Rs 14.20 crore; funding capital expenditure for expansion of its existing formulation plant, amounting to Rs 10.49 crore; funding working capital requirement amounting to Rs 26.65 crore; and investment in its subsidiary, NASPL, for funding working capital requirement amounting to Rs 43.36 crore.

The company proposes to invest an amount of Rs 14.20 crore to fund the setting up of a new formulation plant of its subsidiary, Nova Agri Sciences Private Limited, at Singannaguda Village, Mulugu Mandal, Siddipet District, Telangana, where the existing factory is situated. At present, NASPL has facilities to manufacture powders and liquid. The facility for manufacturing granules is presently not available. It is procured in bulk from formulators and sold under the Nova brand. The company proposes to install the facility for manufacturing of granules through the proceeds of the offer, thereby enabling NASPL to achieve a higher turnover and market share. NASPL proposes to add two powder blenders and two pulverisers. Further, the company proposes to add 14 reaction and mixing vessels at NASPL through the proceeds of the offer.

Further, the company wants to set up facilities for a liquid fermentation plant and equipment for manufacturing of microbial formulations, presently sourced in bulk from other manufacturers. For this, the company proposes to add ACM (air classifying mill), 30 formulation grinding plants, and a spray dryer as well as granulators and coating pans. With these new machineries, the company proposes to manufacture products such as Mycorooter and UniStriker. These are established brands. In addition, the company received approval for UniSena, a granular bio-stimulant requiring granulation facility.

Non-promoter selling shareholder’s Nutalapati Venkatasubbarao stake post-issue will decrease to nil from 11.9% pre-issue shareholding.

Strengths

The company has a diversified branded product portfolio and offers varied range of products. These provide complete solutions for agricultural requirement such as comprehensive range of soilhealth management, crop nutrition, and crop protection.

The company’s dealer network is spread across 16 states of India. It has entered marketing, distribution and supply agreements with certain third parties in Bangladesh, Sri Lanka and, Vietnam and is currently awaiting permission to start businesses in these jurisdictions.

The company runs a farmer outreach program, Nova Kisan Seva Kendra program (NKSK), to educates farmers on various crop management practices. As on November 30, 2023, Nova’s NKSK team compromised 24 NKSK coordinators, who are all agri graduates and are on the payrolls of the company. Apart from the NKSK coordinators, Nova has arrangements with individuals across various states to provide services. These Kisan Mitras, and Kisan Sevaks cater to the need of the farmers. As on 30 November 2023, the company was associated with 96 Kisan Mitras and 142 Kisan Sevaks at the grass root level. This three tier NKSK programme ensures that Nova is able to penetrate at the grass root level of the agricultural ecosystem and has a personalised connect with the farmer network.

The company uses technology to understand the evolving dynamics of the market, assess farmer needs to enhance its product portfolio, provide solutions, and cater to the changing demand and requirement of the market.

The company has a dedicated in-house R&D facility and a quality control and quality assurance (QC/QA) facility at its manufacturing facilities to support technology transfer for new productsand an on-site process improvement incubation centre. Nova has tie-ups with various universities to get access of process knowhow, innovation, R&D, knowledge transfer, technology transfer, product transfer, credit support, and manpower development. The company has taken on lease 67.13 acres of land at Valaparla Village, Andhra Pradesh, as part of R&D, to test the efficacy of its products on various crops. R&D capabilities enable Nova to support its growth strategy by developing new products and processes to enhance its product range.

The Indian agricultural micro-nutrient market size was USD 538.4 million in 2021. Going forward, the market size is likely to grow at a CAGR of around 8%-10% by 2025.

The total production in 2021-22 of carrier-based solid biofertilizers in India was about 1,69,000 tonnes. This marked a growth of about 40% from 2018-19. It increased at a CAGR of 8.7% during 2017-18 to 2021-22. The market for biofertilizers is expected to continue to grow in the coming years. This will be backed by a higher understanding of environmental hazards caused by synthetic agrichemicals, primarily the pollution and contamination of soil, and growing health concerns that come along with it.

The overall Indian pesticides and other agrochemicals industry is estimated to increase at a CAGR of around 6% by 2026-27 on account of growth expected in the international market and likely increase in domestic usage of pesticides in India.

Weaknesses

The company is required to obtain and maintain various licenses and permits for its business.

The company is subject to strict technical specifications, quality requirements, regular inspections, and audits by various authorities and/or regulators. Its failure to comply with the quality standards and technical specifications prescribed may lead to loss of business and could negatively impact reputation, which would have an adverse impact on business prospects and results of operations.

The business is subject to climatic conditions. Seasonal variations and unfavorable weather patterns may have an adverse effect on the business, results of operations, and financial condition.

Competition from domestic and international players can impact the business and market share if it fails to provide high-quality, high performing products, maintain supply reliability, and launch innovative solutions.

Prices of raw materials are subject to price fluctuations. Any fluctuation in prices of such raw materials or adverse effect on the availability of certain raw materials due to various factors may attract a higher price for such raw materials and difficulty in procuring them, thereby materially adversely impacting the business, results of operations, and financial condition.

A substantial part of the revenue generated by the company is from the jurisdiction of Andhra Pradesh, Karnataka, and Telangana. Any change in government policies towards the agriculture sector, regulations, economic conditions, or climatic conditions in these jurisdictions may adversely affect business and results of operations.

All its packaged products are required to comply with the standards of weight, measurement, and numbers prescribed under the Legal Metrology Act, 2009, and the Legal Metrology (Packaged Commodities) Rules, 2011. Any violation under the Legal Metrology Act, 2009, and the Legal Metrology (Packaged Commodities) Rules, 2011, may lead to fines and penalties, or seizure and forfeiture of products which could adversely affect business.

The company supplies agribotdrones to the farmers for better harvesting. Any change in drone regulation or the technology becoming obsolete will have a negative impact on business and financial condition.

Valuation

For FY2023, consolidated sales were up by 13% to Rs 210.56 crore.The OPM rose 340 bps to 18.4%, leading to 39% increase in OP to Rs 38.72 crore.Other income rose to Rs 38lakh as compared to Rs 2 lakh, while interest cost increased 20% to Rs 8.57 crore. Depreciation rose 6% to Rs 2.36 crore. PBT increased 53% to Rs 28.16crore. Tax expenses were 61% higher at Rs 7.67 crore. Net profit increased 50% to Rs 20.49 crore.

The FY2023 EPS on post-issue equity works out to Rs 2.2. At the upper price band of Rs 41, P/E works out to 18.5

As of 17 November 2023, listed peers such as Aries Agrotraded at TTM P/E of 20.7, Basant Agro Tech (India)at TTM P/E of 30.4, Best Agrolifeat TTM P/E of 9.5,Bhagiradha Chemicals & Industriesat TTM P/E of 53.7,Heranba Industriesat TTM P/E of 34.2, India Pesticides at TTM P/E of 43.8, Madras Fertilizersat TTM P/E of 26.7, and Dharmaj Crop Guardat TTM P/E of 20.2

For FY2023, Nova Agritech’sEbitda margin and ROE stood at 18.4% and 38.3%, respectively, as compared to 10.1% and 6.8% for Aries Agro, 6.5% and 11.3% for Basant Agro Tech (India),5.7% and 14.0% for Best Agrolife, 15.4% and 18.0% for Bhagiradha Chemicals & Industries, 12.2% and 14.4% for Heranba Industries,22.3% and 20.4% for India Pesticides, 9.3% and 46.8% for Madras Fertilizers and 8.9%, and 16.3% for Dharmaj Crop Guard