Godrej Agrovet IPO Recommendations: Here is what analysts have to say

Godrej Agrovet IPO Recommendations: Here is what analysts have to say

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Godrej Agrovet IPO opens for subscription tomorrow and has garnered positive recommendations from brokerage houses and analysts. Priced in the range of INR450 – 460 per share, the IPO will monetize INR1,157.3 crore through a mix of new and old shares. The animal feed company from the famed Godrej Group has registered strong growth in operations in recent years with stable margins as we have also pointed out in our analysis. Here is a snapshot of Godrej Agrovet IPO recommendations from major brokerage houses.

Choice Broking has a Subscribe rating on the IPO as the brokerage house finds immense growth potential in Godrej Agrovet. “On valuation front, GAVL is trading at a FY17 P/E multiple of 38.5x. Considering its diversified product portfolio, brand and growth potential, we feel the demanded valuation is justified that too for a business consistently generating RoE and RoIC of over 20%. Morever, based on FY18E EPS of Rs. 13.6, it is available at a P/E multiple of 33.7x. Thus considering the above observations, we assign a “SUBSCRIBE” rating for the issue,” said its IPO report.

Subscribe is the recommendation from Angel Broking too. “At the upper end of the price band (`450-`460), company is asking for a market cap of `8,835cr, at the PE multiple of 33.5x of its FY17 adj. PAT. While there is no exact peer to compare with GAVL’s diversified business, we note that businesses which are present in at least one of the segments of GAVL, trade in a PE multiple range of 22x-57x and ROE profile range of 15%-30%. At 33.5x, GAVL does not appear expensive as PE multiple is in the mid of this range and ROE is at the higher end of the range. We assign a subscribe rating to this IPO considering its diversified business profile, decent margins, strong return ratios, healthy balance sheet and strong history of its parent,” said analyst Shrikant Akolkar in his research note.

Ashika Research is also among the brokerage houses having positive Godrej Agrovet IPO recommendations. “The company has strong cash flow from operations and has generated ROE of 20% plus for the last three financial years. GAVL intends to use the IPO proceeds to reduce debt and although debt-equity (D/E) ratio for Q1FY18 stands at comfortable 0.67x, it could come further down to 0.34x post issue. At the higher price band of Rs 460, the issue is priced at P/E of 32x FY17 diluted EPS and 29.5x Q1FY18 EPS (annualized). Although, there is no listed peer, however since more than 50% of the revenues are accounted from animal feed business, we compare with Avanti Feeds, which trades at 31x EPS (TTM) and thus the issue appears to be fairly priced. However, considering the strong group, brand image, strong R&D, market penetration, diversified nature of business and expansion into high margin business, we recommend our investors to “SUBSCRIBE” the issue from a long term perspective,” confirmed the report.

Read Also: MAS Financial Services IPO Review: Leverage employed successfully

Analyst view regarding the upcoming IPO is also positive at Asit C Mehta. “Godrej Agrovet is well diversified company, which has enabled them to grow their business double digit in last five years. In last five years i.e. FY13-FY17, company’s revenue & profitability has grown at a CAGR of 15.6% and 29.8% respectively. With established Godrej brand coupled with Pan India presence, superior return ratios, and positive long-term outlook for each business verticals, we believe the company will maintain profitable growth in coming years. At Upper Price Band of IPO Price of Rs 460/-, company trades at 42x its FY17 EPS of Rs 10.95/-, which is fairly priced. Hence, we recommend to SUBSCRIBE to the issue on long-term basis,” said the brokerage house’s research note on Godrej Agrovet IPO.

Subscribe is also the call by Indsec Securities which said the valuations factor in short term positives. “At the upper price band of Rs 460 the stock trades at 32x FY17 earnings of Rs 49.1bn. We believe that the current valuations capture the short term positives and hence one could look to invest in the stock from a medium to long term perspective. Hence, we recommend a subscribe rating on the stock,” noted the research note.

SBICAP Securities is positive on the public offer and has cited strong past profitability for the favourable IPO rating. “At the price band of Rs. 450-460, the issue is priced at 34.0x and 34.7x respectively of its FY17 earnings whereas it is available at 18.0x and 18.4x EV/EBITDA respectively. For FY17, the pre-issue return on equity and return on capital employed stands at 28.4% and 28.9% respectively. In the last four years, the company’s topline and bottomline has grown at a CAGR of 12.2% and 27.3% respectively to Rs 4,926.4 cr. and Rs 254.4 cr. in FY17. With strong industry growth prospects, established brand products, diversified business, we believe the company will continue on its growth journey moving forward. Hence, we recommend investors to subscribe the issue at Cut-Off price,” said the brokerage house.

GEPL Capital believes the company is a good bet on operating leverage. “Godrej Agrovet Limited (“GAVL”) stands to gain from operating leverage. At a P/E of 40.17xs of FY17 earnings. We believe that GAVL has a unique business model and strong growth metrics which will make them lucrative. We assign a Subscribe rating to the IPO,” said its research note on Godrej Agrovet IPO.

ICICIdirect.com added further to positive Godrej Agrovet IPO recommendations with a subscribe rating. “At the upper price band of | 460, GAVL is available at MCap/sales of 1.8x and P/E of 35x on FY17 numbers. GAVL possess healthy balance sheet with Net Debt: Equity at 0.6x, average NWC days ~30 days and robust return ratios profile (FY17 RoE at 28%). We advise SUBSCRIBE on GAVL,” opined the brokerage house.

Uniformly positive Godrej Agrovet IPO recommendations may make it an easy choice but it is always a good idea to stay informed. Feel free to check out our discussion page for Godrej Agrovet IPO and the grey market page to stay updated with the trends in the informal market.

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