Most brokerages say that Godrej Agrovet's IPO is fairly priced and recommend subscribing to the issue given the company's competitive strengths such as pan-India presence with extensive supply, diversified businesses with synergies in operations, and strong R&D capabilities.
Godrej Agrovet Ltds Rs 1,157 crore IPO opened today for subscription. The company has set a price range of Rs 450-460 per equity share for its public offer. This is the first public offer of Godrej group in 8 years. The IPO will remain open for three days starting from today to 6 October. At 11.45 a.m, the issue received bids for 20,57,760 units as against the total issue size of 1,80,27,464 shares, implying that the issue was subscribed by 0.11 times. We bring to you the ratings of top brokerages on the issue.
The research and brokerage firm has a subscribe rating on the issue, as the firm sees a lot of competitive advantage in Godrej Agrovet. “Godrej Agrovet’s (GAV) IPO provides a good investment option given that it has high quality secular business franchisee with competitive advantages in a growing industry with high return ratios. GAV’s operates in business segments which are either underpenetrated (animal feed) or in high growth areas such as dairy, poultry, agri-inputs.” According to the firm, Godrej Agrovet Ltds IPO is available at a P/E of f 32.2x on FY17 EPS (adjusted for dilution).
Angel Broking has a subscribe rating on the stock. “At 33.5 times, 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,” Angel Broking said in its IPO note.
The firm has identified Pan-India presence with extensive supply, diversified businesses with synergies in operations, strong R&D capabilities, strong parentage and established brands and experienced promoters & management team as the key competitive strengths. Pointing to the concerns, HDFC Securities says that unfavourable local and global weather patterns may have an adverse effect on the business. Further, the research firm notes that since the company operates in five different business verticals, inability to manage diversified operations may have an adverse effect on the business. Thirdly, HDFC Securities says that Godrej Agrovet derives a significant portion of revenue from animal feed business, so any reduction in demand or a temporary or permanent discontinuation of manufacturing of such products could have an adverse effect on its business.
“The company has evolved from cattle feed to an animal protein player. The issue is at a premium valuation but the scope of the company to further build its animal protein business over the years and create a brand Pan India does augur well for the company. We advise investors with a long-term investment horizon to SUBSCRIBE to the issue,” said the research firm in a note to investors.