Apex Frozen Foods hits IPO mart today; can it rewrite Avanti Feeds’ success story?

NEW DELHI: Apex Frozen Foods, a smaller peer to listed Avanti Feeds, is all set to hit Dalal Street on Tuesday with its initial public offering to raise nearly Rs 152 crore by divesting a 28 per cent stake.

The company offers mainly variants of processed white shrimp under brands namely Bay fresh, Bay Harvest and BayPremium.

The listed peers in the space have seen their stocks surge up to 220 per cent this calendar and up to 6,311 per cent in last five years.

Can Apex Frozen Foods rewrite that success story.

Here’s what you must know about the IPO:

What’s on the block?
The IPO consists of up to 87,00,000 equity shares of face value of Rs 10 each and will be sold in the Rs 171-175 price band. At the upper end of the price band, the issue can fetch up to Rs 152 crore, while at the lower end, the company will raise at least Rs 148.77 crore. The issue comprises fresh issue of 72,50,000 shares and an offer for sale of 14,50,000 shares by promoters.

Where will IPO proceeds go
The company intends to invest the IPO proceeds to increase processing capabilities. It intends to set up new processing facility to boost its operations and gain from operational efficiencies. It is also looking to set up a facility for processing value-added products and a frozen shrimp processing facility with an intended fully utilised approximate capacity of 20,000 MTPA, including an intended fully utilised approximate capacity of 5,000 MTPA for value-added products.

Chudary Karturi, Executive Director, Apex frozen Foods, said: "Out of the IPO proceeds, Rs 90 crore will be invested to set up a 20,000 tonnes per annum shrimp processing unit at East Godavari District in Andhra Pradesh (AP), work at which has already started. The balance funds would be used for general corporate purposes.”

What is the current capacity?
Overall, the company has shrimp processing capacity of 12,240 MTPA, out of which around 9240 MTPA or 75.49 per cent is contributed by own facilities while rest 3,000 by leased facilities. The company has hatchery capacity of 300 million, of which 200 million is contributed by Vijayanagaram District. The company’s total cultivable shrimp farming land is 1,337.69 acres with 105.78 acres of owned land and 1,231.91 acres of leased land.

Who are the major listed peers?
Listed players such as Avanti Feeds, The Waterbase and Zeal Aqua are among key competitors of Apex Frozen. Stocks of these listed peers have risen between 45 per cent and 292 per cent this year, suggesting investor interest in this space. These listed peers trade at price multiples of 28-100.

Return on net worth for Avanti Feeds is 34.78 per cent on standalone and 36.71 per cent on consolidated basis for FY17. Smaller peers The Waterbase and Zeal Aqua have RoNW of 11.20 per cent and 4.83 per cent, respectively. In comparison, Apex Frozen reported RoNW of 25.22 per cent.

How big is the industry?
The size of export market for shrimp stood was $ 3.1 billion in 2015-16. According to some estimates, shrimp exports grew at a CAGR of 33 per cent between FY10-FY15. Volumes were up 22 per cent, while realisations by 11 per cent. Rating agency CRISIL expects the shrimp exports are expected to grow at a CAGR of 17-19 per cent in value terms in the next 5 years, primarily driven by volumes. Volumes for the industry are expected to grow at a CAGR of 11-13 per cent. Realisations may grow at 6 per cent, the rating agency expects.

How has the company performed?
The company has seen its sales compounding at annual rate of 29.10 per cent, to Rs 710 crore in FY17 from Rs 255.5 crore in FY13. Profit after tax (PAT) has recorded a 26.89 per cent CAGR to Rs 24.4crore in FY17 from Rs 9.41 crore in FY13.