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22 November 2017

New Issue Details

Apex Frozen Foods Click here for Rating Reckoner
Exporter of white shrimps
(22 Aug 2017)
CM RATING 38/100
Incorporated in 1995 and promoted by Karuturi Satyanarayana Murthy and Karuturi Subrahmanya Chowdary, Apex Frozen Foods (Apex) is one of the integrated producers and exporters of shelf stable quality aquaculture products.

Company’s output majorly comprises of variants of processed Vannamei shrimp (white shrimp) which are sold under the brands owned by its customers and also through own brands namely Bay fresh, Bay Harvest and Bay Premium. Apex 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 countries.

It has set-up own shrimp processing facility in the FY 2004 in Kakinada, Andhra Pradesh with a capacity to process approximately over 9,240 tpa of finished products and an additional non-exclusive pre-processing and processing arrangement at a facility owned by Royale Marine Impex Pvt Ltd located at Bapatla, Andhra Pradesh, for a capacity to process around 3,000 tpa of finished products.

Further, it has entered into an addendum to lease agreement dated April 09, 2017 with Royale Marine Impex Private Limited for an additional processing capacity of 3,000 tpa of finished products. The processing facilities are supplemented by cold storage facilities located at Kakinada and Bapatla. Along with this, to further assuage company’s operations, it has own fleet of vehicles with freezing capabilities. Its current capacity is around 15,000 tpa.

Company has numerous ponds situated in a total extent of 1,337.69 acres with 105.78 acres of owned land and 1,231.91 acres of leased land. Farming at these ponds allows it to procure raw materials and ensures that business of shrimp processing is cost effective.

It is a 100% Export Oriented Unit (EOU).

The Offer and the Objects

The offer comprises fresh issue of Rs 72.50 lakh shares, which at lower price band of Rs 171 per share, works out to Rs 123.98 crore and at higher price band of Rs 175, the offer works out to Rs 126.88 crore. The offer also comprises offer for sale of 14.50 lakh shares, which at lower price band of Rs 171 per share, works out to Rs 24.80 crore and at higher price band of Rs 175, the issue size works out to Rs 25.38 crore. The minimum bid lot is 80 equity shares and in multiples of 80 equity shares. The issue is made through the book-building process and will open on 22nd August and will close on 24th August, with anchor investor bidding date of 21st August 2017.

The offer for sale of 14.50 lakh shares is made by selling shareholders, which comprises of promoters Karuturi Murthy and Karuturi Padmavati (7.25 lakh shares each).

The objects of the fresh issue is to spend around Rs 90.15 crore on setting up a new shrimp processing unit with a proposed capacity of 20,000 tpa at East Godavari District, Andhra Pradesh and rest for general corporate purposes, apart from the benefits of listing the equity shares on the BSE and the NSE and to enhance its visibility and brand image and provide liquidity to its existing shareholders.

Strengths

Strong global demand of sea foods due to rising populations, improving income levels, and improving awareness of richness in protein content in fish and diversification in product offerings

Increase in high end restaurants and increasing urbanisation globally is also driving demand of high breed shrimps.

Apex strategically focuses on the market of USA, the largest importer of aqua culture products in the world.

Apex is predominately exporting white shrimps. White shrimps cultivated from India command higher international demand and better realisation due to their quality. The popularity and demand for the white leg shrimp is expected to rise in the coming few years, owing to their unique taste and ease of availability.

Weaknesses

Sales are concentrated. Nearly 98% of total sales come from exports. 82% of total sales come from US alone. Any adverse change in demand, seafood consumption pattern, government regulations and other economic and political factors especially in USA can adversely impact the earnings.

Customers are concentrated. The Top 5 customers account for nearly 69% of total revenues of FY 2017. There are no long term contracts with these customers. Any loss of a major customer can materially affect the company’s financials.

Location is concentrated. The company has its manufacturing locations and dedicated vendors located in Andhra Pradesh. Its proposed expansion is also planned in Andhra Pradesh. Any adverse weather, environmental or state level policy changes in Andhra Pradesh can have a severe impact on the business.

Exposed to foreign currency fluctuations as revenues are in US dollars.

Company’s business is subject to lot of macro factors like availability of adequate port facility in India, favourable export-import policies, international food regulations, foreign trade agreements, export guarantee schemes and political eco friendly environment on which the company has no control.

Sea food species are bound to catch diseases. Any one such case can lead to a massive disruption in normalcy of business.

Certain class of investors has reservations against investments in such kind of business

Valuation

For FY 2017, net sales were up 16% to Rs 699.15 crore. The OPM stood at 6.5% which restricted the OP growth to 11% to Rs 45.30 crore. Other income shot up 123% to Rs 10.57 crore. With a 8% increase in interest cost to Rs 11.22 crore and 27% increase in depreciation to Rs 6.27 crore, PBT was up by 27% to Rs 38.38 crore. After providing total tax of Rs 13.97 crore, PAT for FY 2017 stood at Rs 24.41 crore, up by 27% YoY. EPS for FY 2017 on diluted equity works out to Rs 7.8.

At a higher price band of Rs 175, the scrip is offered at P/E multiple of around 22.4 times FY 2017 earnings. The nearest comparable listed player is Avanti Feeds which is trading at P/E of 42 times FY17 consolidated EPS. However, Avanti is much larger and fully integrated player with track record of fast growth and is a joint venture with Thai Union Frozen Products PCL, the world's largest seafood processor

Apex Frozen Foods : Issue highlights

Offer for sale (in Rs crore)
- On lower price band 24.80
- On upper price band 25.38
Total Issue size for offer for sale ( in no of shares in lakh) 14.50
Fresh Issue ( in Rs crore)
- On lower price band 123.98
- On upper price band 126.88
Total Issue size for fresh issue ( in no of shares in lakh) 72.50
Price band (Rs) 171-175
Post issue share capital (Rs crore) 31.25
Post-issue Promoter & Group shareholding (%) 72.1%
Issue open date 22-08-2017
Issue closed date 24-08-2017
Listing BSE, NSE
Rating  38/100

Apex Frozen foods: Standalone Financials

1303(12) 1403(12) 1503(12) 1603(12) 1703(12)
Net Sales 255.27 514.26 599.39 603.52 699.15
OPM (%) 8.7% 6.3% 5.5% 6.8% 6.5%
OP 22.21 32.64 33.16 40.78 45.30
Other in. 0.21 0.21 5.01 4.74 10.57
PBDIT 22.42 32.85 38.17 45.52 55.87
Interest 5.60 7.95 9.61 10.41 11.22
PBDT 16.82 24.90 28.56 35.11 44.65
Dep. 2.54 4.51 0.40 4.92 6.27
PBT 14.28 20.39 28.16 30.19 38.38
EO 0.00 0.00 0.00 0.00 0.00
PBT after EO 14.28 20.39 28.16 30.19 38.38
Tax (including Deferred Tax) 4.86 6.97 9.80 10.91 13.97
PAT 9.42 13.42 18.36 19.28 24.41
EPS* 3.0 4.3 5.9 6.2 7.8
*EPS is on post issue equity capital of Rs 31.25 crore of face value of Rs 10 each
Figures in crore
Source: Capitaline Database
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