August 22, 2017 APEX FROZEN FOODS LIMITED. SMC Ranking (2/5) About the Company. Issue Highlights. Strength. Shareholding Pattern (%)

Transcription

1 APEX FROZEN FOODS LIMITED August 22, 2017 SMC Ranking (2/5) About the Company Issue Highlights Industry Book Running Lead Manager Karvy Investor Services Limited Name of the registrar Bigshare Services Pvt. Ltd Sea Food Total Issue (Shares) - Offer for sale 1,450,000 Total Issue (Shares) - Fresh Issue 7,250,000 Employee Reservation Portion 400,000 Offer to the Public 8,700,000 Issue Size (Rs. Cr.) Price Band (Rs.) Offer Date Close Date 22-Aug Aug-17 Face Value Rs. 10 Lot Size Issue Composition 80 Per Equity Share In shares Total Issue for Sale 8,300,000 QIB 4,150,000 NIB 1,245,000 Retail 2,905,000 Shareholding Pattern (%) Particulars Pre-issue Post -issue Promoters & promoters group 99.90% 72.08% QIB 0.00% 13.28% NIB 0.00% 3.98% Retail 0.10% 9.37% Employee Reservation 0.00% 1.28% Total % % *calculated on the upper price band Objects of the Issue Setting up a new shrimp processing unit with a proposed capacity of 20,000 MT PA at East Godavari District, Andhra Pradesh General Corporate purposes Incorporated in 1995, Apex Frozen Foods Limited is in the business of produces and exports aquaculture products. It supplies products to food companies, retail chains, restaurants, club stores and distributors. Apex produces two kinds of shrimps namely the Whiteleg shrimp (Litopenaeus vannamei) and the Black Tiger Shrimp (Penaeus monodon). It has operations in the United States, United Kingdom and various European countries. The company's output majorly comprises of variants of processed Vannamei shrimp (White shrimp) and are sold under the brands namely Bay fresh, Bay Harvest and BayPremium. Strength Its competitive strengths Economies of scale on account of integrated operations: The Company is able to achieve economies of scale due to its synergised business operations. The company sources approximately 15%-20% of its raw material requirements through its own farming efforts. Its in-house farming and its association with its associate farmers enable reliable and uninterrupted supply of raw shrimp. Strategically located processing plant: Its operational facilities are strategically located along the costal belt of Andhra Pradesh. All its operational facilities are located in proximity to one another, thereby enabling smooth transition of products to each stage of the product life cycle. Its processing facility in Kakinada is located within a proximity of 10 to 200 kilometers from its various farms situated on its owned as well as leased land which in turn catalyses its just-in-time sourcing model of raw materials from its farms. Its facility is approximately 20Kms from Kakinada port and approximately 150Kms from Vishakapatnam port, thereby providing a substantial logistical advantage for the transport of its finished product. Established Customer Relationships: The Company has long-standing relationships with numerous global customers. Its entire produce is being exported to countries such as USA, UK and various European countries. Some of its major customers are Chicken of the Sea Frozen Foods (USA), Ocean World Ventures LLC (USA) and Pacific Sea Food Group (USA). Focus on quality control measures and research &development initiatives: The Company has export 100% of its products to countries across the world, such as USA, UK and European countries. Abiding by international standards and maintaining customer satisfaction is of utmost importance to the company, hence it has deployed quality assurance checks at each stage of the product life cycle. Procurement of raw materials from its farms: The Company has numerous ponds situated in a total extent of 1, acres with acres of owned land and 1, acres of leased land. The farming at its ponds allows the company to procure raw materials and ensures that its business of shrimp processing is cost effective. Robust Financial Performance: Following the export trends, its business growth since incorporation, contributed significantly to its financial strength. As per the Restated Standalone Financial Statements, the Company s total revenues have grown from Rs. 2,55.4 Cr in Fiscal 2013 to Rs.7,09.68 Cr. in Fiscal 2017, at a CAGR of %, and the Company s profit after tax, as restated, has increased from Rs Cr. in Fiscal 2013 to Rs Cr. in Fiscal 2017, at a CAGR of 26.89%. 1

2 Strategy Setting up a new processing facility: Keeping the overall industry growth trend in view, the company plans to invest in increasing its processing capabilities. The company intends to set-up a frozen shrimp processing facility with an intended fully utilized approximate capacity of 20,000 MTPA including an intended fully utilized approximate capacity of 5000 MTPA for valued added product (cooked shrimp, dusted and breaded shrimp). Increase in processing capabilities will further supplement its current operational capacity, which in turn will catalyse its services to customers. Increase its value-added products portfolio: The Company constantly focuses on research & development by introducing new products, based on consumer preferences as well as market demand. The company constantly endeavors to direct its efforts and resources to cater to the needs of its customers and also to foster in newer dimension of innovating the existing product. Further expand its global footprints: Its current clientele consist of 100% international customers from numerous places around the world such as USA, UK and various European countries. Currently sales to the USA for the financial year ending 2017 account for % of its total revenue, whereas sales to UK and various European countries account for 17.77% of its revenues respectively. The company plans to grow its business in other regulated markets through license and supply arrangements with companies that have an established presence in the relevant markets. The company also plans to increase its presence in emerging markets such as Middle East, Africa and Russian markets. Improve its technology and research & development platform: The Company is in a continuous pursuit to improve its current technology and R&D facilities in order to better its quality assurance procedures along with improving its processing capabilities. The company does periodical inspection from its end and obtain reports to ensure that a proper quality and health check is maintained at a regular level. Its labs are equipped with modern quality control equipments to provide strict quality assurance at each stage of product life cycle i.e., right from hatching of shrimp seed to exporting the finished product to the customers. The company has implemented CGMP (common good manufacturing practices), SSOP (sanitation standard operating procedures), SOP (standard operating procedure), HACCP (hazard analysis and critical control point) standards as a part of quality control, hygiene and sanitation across the product life cycle, right from washing the raw material to storage and its subsequent transportation. Risk Concentration in Single region: The company s processing facility and procurement operations are concentrated in Andhra Pradesh region. It s processing facility is located at Kakinada and its hatchery is located in Vijayanagaram and a leased hatchery with Satyadev Marine Foods is in Annayyapeta. While its pre processing plant is located in Tallarevu, Andhra Pradesh. Any adverse developments affecting these regions could have an adverse effect on its business, results of operations and financial condition. Revenues are dependent on exports: The complete portion of its revenues is dependent on its exports to international customers. Any failure to fulfill the requirements of its international customers may adversely affect its revenues, result of operations and cash flows. Highly dependent on smooth supply and transportation: The Company is highly dependent on smooth supply and transportation and timely delivery of its products from its farms to its customers and regular supply of raw materials. Various uncertainties and delays or non-delivery of its products will affect its production and sales. Business depends on processing the shrimp: The business of the company depends on processing the shrimp and any loss of or shutdown of operations of the processing activities on any grounds could adversely affect its business or results of operations. 2

3 Subject to strict quality requirements and customer inspections: The company is subject to strict quality requirements and customer inspections and any failure to comply with quality standards may lead to cancellation of existing and future orders and could negatively impact its reputation and its business and results of operations and prospects. Industry Overview Seafood is an important source of nutrition for human population and it also provides livelihood for millions of people around the globe. Developed countries such as the USA, Japan, and EU are highly dependent on imports of fishery products, as they are not self-sufficient in meeting their domestic requirement. USA, China, Japan, Spain and Thailand are the key importing countries of aquaculture products, together accounting for close to half of total imports. The domestic seafood market in India is highly unorganised and is predominantly a wet market (fresh fish is sold directly in the market). The export market, on the other hand, is largely organised due to stringent quality and hygiene requirements. Processing is carried out by exporters according to buyer requirements. The size of the overall seafood industry in India stood at about Rs.1,095 billion in , with domestic market accounting for 72% share, while exports contributed the rest. Steady demand from the domestic market and rising exports resulted in the overall industry growing by 14% CAGR (in value terms) between and The domestic segment registered 12% while exports grew at a relatively faster pace of 19%. While increase in realisations and per capita consumption (in the domestic market) propelled growth, exports were especially aided by an outbreak of early mortality syndrome in South East Asian countries such as Thailand and Vietnam, which impacted global supply and provided Indian players an opportunity to increase exports and benefit from high realisations. Peer comparison Co_Name Net Sales PAT EPS P/E P/BV BV FV CMP MCAP Avanti Feeds Limited The Waterbase Limited Zeal Aqua Limited Apex Frozen Foods Limited *Apex Frozen Foods Limited ratios (expected) post issue Valuation Considering the P/E valuation on the upper end of the price band of Rs. 175,the stock is priced at pre issue P/E of 17.21x on its FY17 EPS of Rs Post issue, the stock is priced at a P/E of x on its EPS of Rs Looking at the P/B ratio at Rs. 175, the stock is priced at P/B ratio of 4.34 x on the pre issue book value of Rs and on the post issue book value of Rs the P/B comes out to 2.45x. On the lower end of the price band of Rs.171, the stock is priced at pre issue P/E of 17.21x on its FY17 EPS of Rs Post issue, the stock is priced at a P/E of 22.41x on its EPS of Rs Looking at the P/B ratio at Rs. 171, the stock is priced at P/B ratio of 4.24x on the pre issue book value of Rs a nd on the post issue book value of Rs , the P/B comes out to 2.39x. Outlook Apex Frozen Foods Ltd is one of the integrated producer and exporter of shelf stable quality aquaculture products. The company exports processed shrimps to the United States, United Kingdom and the European Union. The company has shown strong growth in revenue and profitability on consistent basis. However, the aquaculture is an environment sensitive industry. The Company s processing facility and procurement operations are concentrated in Andhra Pradesh. 3

4 Annexure Consolidated Financials Profit & Loss Rs. in Cr. Particulars Period ended 31-Mar-17 Period ended 31-Mar-16 Total Operating Income Total expenditure Operating Profit OPM% Other Income PBDIT Depreciation PBIT Interest PBT Tax Profit after tax CSR Expenses Reported Profit after tax Balance sheet is on next page 4

5 Balance Sheet Rs. in Cr. Particulars As on 31-Mar-17 As on 31-Mar-16 Non-current assets Fixed assets Tangible assets Intangible Assets Capital Work In Progress non-current investment Deferred tax assets Long-term loans and advances Current assets Current Investment Inventories Trade receivables Cash and Bank balances Short-term loans and advances Other current assets Total current assets Total Assets Non-current liabilities Long-term borrowings Deferred Tax Liabilities Long-term provisions Total non-current liabilities Current liabilities Short-term borrowings Current maturities of long term borrowings Other current liabilities Short-term provisions Trade payables Total current liabilities Total NET Worth Net worth represented by: Share capital Reserves and surplus Net Worth

6 RANKING METHODOLOGY WEAK NEUTRAL FAIR GOOD EXCELLENT Corporate Office: 11/6B, Shanti Chamber, Pusa Road, New Delhi Tel: Mumbai Office: Lotus Corporate Park, A Wing 401 / 402, 4th Floor,Graham Firth Steel Compound, Off Western Express Highway, Jay Coach Signal, Goreagon (East) Mumbai Tel: , Fax: Kolkata Office: 18, Rabindra Sarani, Poddar Court,Gate No.- 4, 5th Floor, Kolkata Tel: , Fax: SMC Global Securities Ltd. (hereinafter referred to as SMC ) is regulated by the Securities and Exchange Board of India ( SEBI ) and is licensed to carry on the business of broking, depository services and related activities. SMC is a registered member of National Stock Exchange of India Limited, Bombay Stock Exchange Limited, MSEI (Metropolitan Stock Exchange of India Ltd) and M/s SMC Comtrade Ltd is a registered member of National Commodity and Derivative Exchange Limited and Multi Commodity Exchanges of India and other commodity exchanges in India. SMC is also registered as a Depository Participant with CDSL and NSDL. SMC s other associates are registered as Merchant Bankers, Portfolio Managers, NBFC with SEBI and Reserve Bank of India. It also has registration with AMFI as a Mutual Fund Distributor. SMC is a SEBI registered Research Analyst having registration number INH SMC or its associates has not been debarred/ suspended by SEBI or any other regulatory authority for accessing /dealing in securities market. SMC or its associates or its Research Analyst or his relatives do not hold any financial interest in the subject company interest at the time of publication of this Report. SMC or its associates or its Research Analyst or his relatives do not hold any actual/beneficial ownership of more than 1% (one percent) in the subject company, at the end of the month immediately preceding the date of publication of this Report. SMC or its associates its Research Analyst or his relatives does not have any material conflict of interest at the time of publication of this Report. SMC or its associates/analyst has not received any compensation from the subject company covered by the Research Analyst during the past twelve months. The subject company has not been a client of SMC during the past twelve months. SMC or its associates has not received any compensation or other benefits from the subject company covered by analyst or third party in connection with the present Research Report. The Research Analyst has not served as an officer, director or employee of the subject company covered by him/her and SMC has not been engaged in the market making activity for the subject company covered by the Research Analyst in this report. The views expressed by the Research Analyst in this Report are based solely on information available publicly available/internal data/ other reliable sources believed to be true. SMC does not represent/ provide any warranty expressly or impliedly to the accuracy, contents or views expressed herein and investors are advised to independently evaluate the market conditions/risks involved before making any investment decision. The research analysts who have prepared this Report hereby certify that the views /opinions expressed in this Report are their personal independent views/opinions in respect of the subject company. Disclaimer: This Research Report is for the personal information of the authorized recipient and doesn't construe to be any investment, legal or taxation advice to the investor. It is only for private circulation and use. The Research Report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. No action is solicited on the basis of the contents of this Research Report. The Research Report should not be reproduced or redistributed to any other person(s)in any form without prior written permission of the SMC. The contents of this material are general and are neither comprehensive nor inclusive. Neither SMC nor any of its affiliates, associates, representatives, directors or employees shall be responsible for any loss or damage that may arise to any person due to any action taken on the basis of this Research Report. It does not constitute personal recommendations or take into account the particular investment objectives, financial situations or needs of an individual client or a corporate/s or any entity/s. All investments involve risk and past performance doesn't guarantee future results. The value of, and income from investments may vary because of the changes in the macro and micro factors given at a certain period of time. The person should use his/her own judgment while taking investment decisions. Please note that SMC its affiliates, Research Analyst, officers, directors, and employees, including persons involved in the preparation or issuance if this Research Report: (a) from time to time, may have long or short positions in, and buy or sell the securities thereof, of the subject company(ies) mentioned here in; or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company(ies) discussed herein or may perform or seek to perform investment banking services for such company(ies) or act as advisor or lender/borrower to such subject company(ies); or (c) may have any other potential conflict of interest with respect to any recommendation and related information and opinions. All disputes shall be subject to the exclusive jurisdiction of Delhi High court. 6