Apex Frozen Foods Ltd IPO - Should you subscribe?

Hello fellow investor..!!

When any new IPO comes,  a small investor is always apprehensive about whether to subscribe the IPO or not?  A lot of debate happens, many forum members give their own opinion based on their understanding and knowledge. I too have attempted to give the opinion on this IPO.

First, I would like to say "YES" for this IPO

In this article, I've listed the overview of company, issue details and six main reasons why should you subscribe this IPO?

Overview of Apex Frozen Foods Ltd

Apex Frozen Foods Ltd is one of the integrated producer and exporter of shelf stable quality aquaculture products. It supplies ready to cook products to a diversified customer base consisting of food companies, retail chains, restaurants, club stores and distributors spread across the developed markets of USA, UK and various European Union countries. The company's output majorly comprises of variants processed Vannamei shrimp (white shrimp) and are sold under the brands owned by the customers and through company's brands namely Bay Fresh, Bay Harvest and Bay Premium. The company strategically focus on the market of USA which is the largest importer of aquaculture products in the world.

Issue Details

Apex Frozen Foods Ltd IPO's opening and closing dates details, price range, market lot and tentative date of listing is given in the below table:

Date of opening issue	22-Aug-17
Date of closing issue	24-Aug-17
Issue price	INR 171- Rs 175
Market Lot	80 Shares
Tentative date of listing	04-Sep-17

There is a mix of fresh issue and offer for sale.

Particulars	No of shares
Fresh Issue	72,50,000
Offer for Sale	14,50,000
Total	87,00,000

   

35%  quota (excluding employee category) is reserved for Retail Individual Investors

 

Particulars	No of Shares	%
QIBs	41,50,000	50%
HNIs	12,45,000	15%
RIIs	29,05,000	35%
	83,00,000	100%
Employee Reservation	4,00,000
Total Shares	87,00,000

  

Six main reasons : why should you subscribe this IPO?

1. This company  is located in Andhra Pradesh

Andhra Pradesh is the most favourable state in India for aquaculture. AP Government policies for aquaculture industry are very liberal and attractive. The Government offers various subsidies, incentive, tax benefits and much more to boost aquaculture industry. There are other states which have aquaculture such as Gujarat, Maharashtra, West Bengal and Tamil Nadu. However, those states are not promoting aquaculture as much as AP Government does except Tamil Nadu. The second best place for aquaculture is Tamil Nadu.

The array of subsidies offered by AP Government to develop the aquaculture industry across the value chain include -

a. Subsidies for mechanisation of aquaculture farms (50% subsidy)

b. For shrimp processing (including cold chain maintenance) : Capital subsidy of 50% (Including land cost - less than 15% of project cost) - upper ceiling of 50 million per project.

c. NFDB (National Fisheries Development Board) subsidy for fish feed, nets and other equipment

d. The Government of AP has abolished the NALA (Non - Agricultural Land Assessment) Tax for the benefit of aquaculture

e. Interest subvention (of 6% per annum) on loans for setting up feed manufacturing units, aerator manufacturing and fish processing equipment

f. Financial assistance to set up soil/water testing labs and quality control labs

2. The objective of IPO is very attractive

The objective of this IPO is to expand current operation and general corporate purposes. Apex is raising money through Fresh Issue of 72,50,000 shares (Proceeds received from offer for sale are not received by the company). If we consider price upper band of Rs. 175, Rs. 126.88 Crore and at lower band of Rs. 171, Rs. 123. 98 Crore will be inflow through fresh issue, issue expenses to be deducted which may range upto 25% of proceeds.

The company's present processing facility is located at Kakinada, Andhra Pradesh with a capacity to process approximately over 9240 MTPA of finished products and an additional non-exclusive pre-processing and processing arrangement at a facility owned by Royale Marine Impex Private Limited located at Bapatla, Andhra Pradesh, for a capacity to process around 3000 MTPA of finished products. Further, the company has entered into an addendum to lease agreement dated April 9,2017 with Royale Marine Impex Private Limited for an additional processing capacity of 3000 MTPA of finished products.

The proceeds received through fresh issue shall be utilised for further expansion. The production facility will increase by additional 20000 MTPA. Once project is up, the company would triple its operations. The company's estimated project expenses are around 90.15 Crore.

Assets	Rs. (In Cr)
Land Purchase	7.47
Building & Civil Work	18.98
Plant & Machinery	59.9
Contingency	3.80
Total	90.15

Here, noteworthy thing is that, for expansion, company has already acquired 21.3 Acres of land at 7.47 Crore and incurred 1.05 Crore towards capital expenditure

3. Proven and experienced management

Every company's success is highly dependent on the quality of its management team. Of course, Apex is promoters and promoter group run company. However, for over two decades, promoters have been associated with aquaculture business in Andhra Pradesh. Promoters started business with the scratch.  The promoters had created the partnership firm and leased a shrimp processing facility and commenced operations in 1995 after which they set up their own modern shrimp processing facility in the year 2004. The remarkable progress.

4. Demand for seafood will never go down 

Seafood is an important source of nutrition for human population and it also provides livelihood for millions of people around the globe. Seafood being a vital source of protein and micronutrients, it is often referred to as rich food for poor people due to its relatively lower cost as compared to other comparable source of nutrition. Improved fisheries management coupled with sharp growth in aquaculture over the past few decades has significantly improved per capita seafood consumption from 15 kgs in 1995 to over 20 kgs in 2015.

Consequently, global seafood consumption which stood at 151 million tones in 2015 has grown at a relatively faster compounded annual growth rate (CAGR) of 3% over the past decade. Based on the type of sourcing, seafood products can be classified as captured fisheries and aquaculture. In 2015, the share of captured fisheries and aquaculture stood 55% and 45% respectively. Twenty years ago, the share was 80% for capture fisheries while the share of aquaculture was relatively low at 20%. Aquaculture has played a very important role in meeting rising global demand even as captured fisheries production has saturated.

5. Established customer relationship

This company generates majority of its revenue through export of shrimps to United States of America, United Kingdom and European Union countries. And these all are developed countries. The company has very good long term customer relationship. The export percentage for the last three years were as follows:

Year	USA	UK & EU	Total
Mar-17	82.00%	17.77%	99.77%
Mar-16	85.64%	13.86%	99.50%
Mar-15	87.50%	12.50%	100.00%

6. Robust Financial Performance / IPO fairly priced

The company commenced its export business since its inception as a partnership firm in the year 1995. The company has grown at a CAGR of 29.10%  over the last five years aided by raising demand for aquaculture products globally especially from USA and European Union, favourable state policies, and shifting of seafood processing activities by South - East Asian countries to India.

The company's Return on Net Worth as on 31.03.17 was   22.55% and EPS was Rs. 10.17. The company has set an issue prices of Rs. 171 - Rs 175, the PE Multiple comes to around 16.2  - 17.21 indicates that Apex's share is fairly priced.  If we compare  PE Multiple with peers Avanti Feeds Ltd (34.78), The Waterbase Ltd (28.54), and Zeal Aqua Limited (100.24), Apex Frozen Foods Ltd's share is relatively cheap. Once capacity is increased, its RoNW will also jump.

Last three years EPS and RoNW are as under:

Year	EPS	RONW
2015	7.65	0.3279
2016	8.03	0.2562
2017	10.17	0.2522

Last three years Revenue, PAT and Assets are as under:

Particulars	31-Mar-17	31-Mar-16	31-Mar-15
Revenue from operation	709.68	606.27	604.37
PAT	24.41	19.28	18.36
Assets	257.44	178.7	165.14

Conclusion:

Apart from above six reasons, there are other reasons which favours to apply strategy namely;

a. Competitive strength

b. Economies of scale on account of integrated operations

c. Strategically located processing plants

d. Uninterrupted raw materials supply

e. Focus on quality measures and R & D Initiatives

f. Abundance of brackish water availability

g. Promoters compensation were very reasonable

There are bad parts also which may affect the company performance

a. Dependency on limited customers

b. Highly exposed to foreign exchange risk

c. Pending anti - dumping duty case in US

e. Competition within and outside India

Some internal or external risks are always associated with every company, and Apex Frozen Foods Ltd is no exception.

Fundamentally, this company is strong and its pros outreaching its cons. THIS IPO IS GOOD ONE

Disclaimer:

This is my personal opinion about this IPO. Primary or secondary market is always subject to volatility in market. I write on the basis of DRHP and own personal experiences in the share market. You should do your own research before applying.

In  my next article, I will write which factors should you consider before applying any IPO.

Thank you for reading...Jai Hind

Investment Bazaar

CA Prashant Seta

Vadodara, Gujarat. India

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