Notwithstandingprofitable track record since inception, steep pricing, uncertain tax liability, corporate governance issues mar near-term prospects.
|
OFFER AT A GLANCE |
|
|
Name |
Mangalam Seeds Ltd |
|
Offer Amount |
Rs 5.7 cr |
|
Offer Quantity |
11.4 lakh shares of Rs 10 each |
|
Offer on Total Equity |
26.5% |
|
Post-issue Promo stake |
73.5% |
|
Post-IPO Capital |
Rs 4.3 cr |
|
Offer Price |
Rs 50 |
|
Application Quantity |
3000 & Multiples of 3000 |
|
Offer Opens |
July 29, 2015 |
|
Offer Closes |
July 31, 2015 |
|
Listing |
SME Platform of BSE |
|
Rating |
Nil |
|
Lead Manager |
Pantomath Capital |
|
Market Maker |
BCB Brokerage |
|
Underwriter |
Pantomath Capital (100%) |
|
Registrar |
Karvy Computershare |
The Offer
Fresh Issue of 11,40,000 equity shares of face value of Rs 10 at a price of Rs 50 each aggregating to Rs 5.7 cr. The IPO will constitute 26.5% of the post-issue paid up equity capital of the company. Of the public offer 60,000 shares are reserved for the `Market Maker’ – BCB Brokerage. The lead manager to the issue, Pantomath Capital Advisors, has underwritten the entire issue. Investors have to apply for a minimum of 3000 shares or Rs 1,50,000. The shares are to be listed on the SME platform of BSE.
Issue Object
Of the issue proceeds of Rs 5.7 cr, the company intends to utilize Rs 5.2 cr (91%) for working capital. The balance Rs 50 lakh (9%) is earmarked for IPO expenses.
Lineage
With his agricultural experience, Mafatlal Patel (65), who is a science graduate in the field of agriculture from Gujarat, accompanied by an agricultural scientist Dr I D Patel, established a partnership firm in 2007 in the name of Mangalam Seeds Corporation for producing high quality seeds of cumin, castor, fennel, lucerene, sesame, fodder bajra, etc.
Having developed handful of hybrids, the promoters converted the partnership firm and incorporated Mangalam Seeds Ltd (MSL) in 2011. While the eight partners of the partnership firm were the initial subscribers to the Memorandum of MSL, Mafatlal Patel and his son Pravinkumar Patel (37) along with Dhanajibhai Patel became the promoters of MSL. The entire pre-IPO capital of Rs 3.16 cr is held by the promoters and their associates numbering 28 individuals/HUFs.
Business
MSL claims to offer a wide range of seeds categorized as “research seeds” and “hybrid seeds”. Research seeds are high quality seeds, being produced by backward integration process and offers natural nutrient qualities. These seed require intensive research and are also called pure seeds. Hybrid seeds are the ones which are produced through open pollination and cross pollination process.
MSL claims to have developed 16 varieties of seeds till date. Further, it reportedly has a collection of 976 varieties of germplasm in various crops. The company’s products are marketed under the brand names Eklavya, Volina, Leetos, Juddo, etc. MSL claims to have obtained 15 trademarks and has applied for 55 others to secure the brand names and logos.
As growth in seed business is defined by research & development (R&D), MSL has established R&D farms measuring 29.12 acres to carry on its research activities. The company has set up two green houses and two open poly houses and adequate tube wells for uninterrupted water supply. MSL claims to have strong marketing channels in Gujarat and Rajasthan comprising of 154 distributors and more than 1840 dealers and retailers.
Financial Performance
For a company which is yet to complete five years, MSL’s performance is indeed commendable. The company’s top line, which was at Rs 6.71 cr in the first year, has gradually increased to Rs 17 cr in the fourth year (FY15). Right from inception MSL’s bottom line has been in black, and as compared to its tiny equity base, profits look attractive. In the first three years up to FY14, the company’s top line was dominated by trading and contract farming which yielded an operating margin of 5 to 6%. This leapt to 10.5% in FY15 as the company shifted from contract activity to own farming for multiplication of seeds.
However, on the flip side, the company’s net cash flow from operations has been negative in two out of last three years including FY15. The company’s net block of asset amounts to only Rs 2.46 cr of which as much as Rs 1.82 cr is godown building!
|
MANGALAM SEEDS’ FINANCIAL TRACK |
||||
|
(Rs.lakh) |
Mar-15 |
Mar-14 |
Mar-13 |
Mar-12 |
|
Operating Revenue |
1702.13 |
1482.13 |
1183.79 |
671.19 |
|
Other Income |
1.28 |
0.81 |
0.97 |
0.61 |
|
Gross Income |
1703.41 |
1482.94 |
1184.76 |
671.80 |
|
Operating Profit |
179.71 |
85.98 |
78.56 |
30.52 |
|
Oper. Margin % |
10.5 |
5.7 |
6.6 |
4.5 |
|
Net Profit |
120.25 |
11.87 |
10.34 |
5.48 |
|
Equity (year-end) |
93.15 |
14.00 |
9.50 |
9.50 |
|
Reserves |
370.05 |
108.69 |
56.32 |
45.98 |
|
Net Cash Flow |
-26.70 |
108.33 |
-102.09 |
121.26 |
|
Net Block |
245.63 |
76.38 |
90.23 |
51.19 |
Valuation & Perception
Whereas the average cost of holding of the promoters and their associates is less than Rs 14, MSL has priced its IPO at Rs 50 for the public. This puts the market cap of the company around Rs 22 cr which discounts the FY15 earnings about 18 times. MSL’s pricing may compare well with another listed seed-SME, RJ Bio-Tech. This 2005-registered company, which operates in the neighbouring state of Maharashtra, offered its IPO in September 2013 at Rs 20 which is currently quoting at Rs 31.50 discounting its FY15 earnings about 20 times. Nevertheless, as compared to the discounting of more sound main frame seed players like Kaveri, JK Agri Genetics and Nath Bio-Genes, MSL’s pricing appears to be on the higher side though the management is confident of putting up an exemplary show in the current fiscal to justify the IPO price.
While the management exudes a lot of optimism about the company’s future, one cannot overlook the following: Seed companies engaged in farm activities are currently facing an uncertain situation as Indian income tax authorities have challenged the agricultural tax exemptions claimed by seed farms. Should the appeal be held in favour of tax authorities seed companies will end up paying more tax. This could significantly affect the bottom line resulting in lower EPS.
Though MSL’s recent financial performance is encouraging, the company scores poorly on the corporate governance front. MSL has not complied with the regulations with regard to private placement, allotment of shares within stipulated time, registration of resolutions, filing forms for change of directors’ designation, etc.
The risk factors also reveal that MSL is yet to receive or apply for certain statutory approvals, licence and clearance relating to smooth functioning of its operations. The company has not yet obtained the professional tax registration certificate and registration for research and development facilities.
|
HOW MANGALAM COMPARES WITHIN SEED INDUSTRY |
||||||||
|
CO_NAME |
M-CAP |
EQ |
NB |
REVEN |
NP |
P/E |
OPM |
PRICE |
|
|
(Rs Cr) |
(x) |
(%) |
(Rs) |
||||
|
Monsanto India |
5,645 |
17.26 |
88 |
622 |
106 |
53.1 |
18.7 |
3,270.45 |
|
Kaveri Seed |
5,162 |
13.78 |
214 |
1,116 |
302 |
17.1 |
27.5 |
749.30 |
|
Advanta |
4,585 |
18.46 |
44 |
93 |
7.8 |
– |
15.7 |
496.65 |
|
JK Agri Genetics |
193 |
3.60 |
30 |
213 |
12 |
15.8 |
14.4 |
534.50 |
|
Nath Bio-Genes |
170 |
16.00 |
21 |
246 |
28 |
6.1 |
16.1 |
106.20 |
|
RJ Bio-Tech |
30 |
9.47 |
2 |
34 |
1.46 |
20.4 |
16.7 |
31.50 |
|
Mangalam Seed |
22 |
4.30 |
2 |
17 |
1.20 |
17.9 |
10.6 |
50.00 |
Manager’s Track
Mangalam would be the twelfth SME IPO handled by Pantomath Capital Advisors. Of the eleven Pantomath-managed issues already listed, just one (Women’s Next) is currently quoting below the offer price. However, in terms of liquidity, Pantomath-associated BSE-SMEs have a poor record (less than 50%) as compared to NSE-SMEs (over 90%). Whereas the NSE-listed Momai Apparels has been traded 190 out of 192 days and Supreme (India) 72 out of 80 days, Pantamath’s first BSE listing, Siddhi Vinayak Shipping, has found quotes for just 59 days out of 340 working days. Another BSE-SME, Filtra Consultants, listed in April 2015, has been traded only 20 days out of 73 working days.
|
PANTOMATH CAPITAL LEAD-MANAGED IPOs |
||||||
|
CO_NAME |
IPO |
DAYS |
LAST |
GAIN |
||
|
|
DATE |
PRICE |
LISTED |
TRADED |
PRICE |
% |
|
SIDDHI VINAYAK SHIP |
18-Feb-14 |
25 |
340 |
59 |
44.00 |
76 |
|
WOMEN’S NEXT |
28-Mar-14 |
65 |
312 |
150 |
60.30 |
-7 |
|
ULTRACAB |
15-Sep-14 |
36 |
196 |
103 |
85.00 |
136 |
|
MOMAI APPAREL |
25-Sep-14 |
78 |
192 |
190 |
90.00 |
15 |
|
JET INFRAVENT |
30-Oct-14 |
125 |
168 |
66 |
131.00 |
5 |
|
SUPREME (INDIA) |
16-Mar-15 |
60 |
80 |
72 |
66.45 |
11 |
|
FILTRA CONSUL |
24-Mar-15 |
42 |
73 |
20 |
42.50 |
1 |
|
AMBITION MICA |
23-Jun-15 |
40 |
10 |
10 |
42.00 |
5 |
|
JIYA ECO-PROD |
29-Jun-15 |
19 |
8 |
8 |
19.70 |
4 |
|
M.D. INDUCTO |
30-Jun-15 |
27 |
8 |
8 |
35.40 |
31 |
|
MAJESTIC RESEARCH |
30-Jun-15 |
13 |
8 |
6 |
18.75 |
44 |