Apex Frozen Foods  IPO 2

Apex Frozen Foods is one of the integrated producer and exporter of shelf stable quality aquaculture products. The Company supplies its 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.Apex Frozen Foods IPO is slated to hit the market on 22 August 2017 and seeks to raise up to Rs 152 crore.

Related Post: Apex Frozen Foods IPO: Peer Analysis
Apex Frozen Foods IPO Details:
Issue OpensTuesday, August 22, 2017
Issue Closes Thursday, August 24, 2017
Price BandRs.171 – 175
Bid Lot80 Equity Shares and multiple thereof
Issue Size Fresh Issue of 7,250,000 Equity shares and
 Offer for sale of 1,450,000 Equity Shares.
Issue Size ( Rs.) Rs. 152.25 Cr (at upper Band)
Issue Structure : 
QIB50% of the Net Offer -4,150,000 Shares – Rs.72.62 Cr
NIB15% of the Net Offer -1,245,000 Shares- Rs.21.79 Cr
Retail35% of the Net Offer-2,905,000 Shares-Rs.50.84 Cr
Lead  ManagersKarvy Investor Services
RegistrarBigshare Services Pvt. Ltd.
About Apex Frozen Foods :
  • Apex Frozen Foodsinitially leased a shrimp processing facility and commenced operations in the year 1995 after which it set-up its  own modern shrimp processing facility in the year 2004. Presently Apex Frozen Foods is one of the integrated producer and exporter of shelf stable quality aquaculture products.
  • The promoters have been associated with aquaculture business in Andhra Pradesh for last two decades.
  • Company’s integrated operations comprise of Hatchery, Farming, Pre-Processing, Processing and Exporting of Aquaculture Products. The company produces two kinds of shrimps namely the Whiteleg shrimp (Litopenaeus Vannamei) and the Black Tiger Shrimp (Penaeus monodon). The output majorly comprises of variants of processed Vannamei shrimp (White shrimp) and is sold under the brands owned by their customers and also through their brands namely Bay fresh, Bay Harvest and BayPremium. 
  • Apex Frozen Foods processing facility is located at Kakinada, Andhra Pradesh with a capacity to process approximately over 9,240 MTPA 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
  • 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 15000 MTPA that will get enhanced to 30000 MTPA post expansion.
Financials:
( Figs in Rs. Crores)
20172016201520142013
Revenue 699.12603.53599.36514.26255.27
Revenue Growth (%)15.84%0.70%16.55%101.46% 
EBIDTA 55.8745.5338.1832.8522.42
EBIDTA  Margin(%)7.99%7.54%6.37%6.39%8.78%
Profit Before Tax38.3830.1928.1620.3914.28
Net Profit 24.4119.2818.3613.429.42
Net Profit  Margin3.49%3.19%3.06%2.61%3.69%
Face Value1010101010
Share Capital2424242015
Reserves72.7851.2631.9817.849.42
Net worth96.7875.2655.9837.8424.42
RoNW (%)25.22%3.19%3.06%2.61%3.69%
NAV 40.3231.3623.3315.7710.17
EPS (Rs.) 10.178.037.65  
IPO Price Rs.175
PE ratio17.21
P/BV ratio4.34
Post Issue Equity31.25
Earning – Diluted equity7.81
PE ratio (Post Issue)22.40
CAGR Sales 3 yrs10.78%
CAGR NP  3 Yrs22.07%
CAGR Sales 4 Yrs28.64%
CAGR NP 4  Yrs26.88%
Market Cap 546.88
Market Cap/Sales 0.78
Rationale For Investment: Apex Frozen Foods IPO
  • Seafood industry worldwide has been growing at about 3% annum during last decade and share  of aquaculture in the sea food industry was been increasing.
  • Between 2010-11 and 2015-16,  The domestic Sea food segment in the country registered 12% growth while exports grew at a relatively faster pace of 19%.
  • It is estimated that going forward, shrimps will continue to dominate India’s export basket growing at a healthy pace of 17-19% CAGR to reach ~$7 billion.
  • From fiscal year 2013 to fiscal year 2017, Apex Frozen Foods total revenue have grown at a CAGR of 29.10%, and the Company’s profit after tax has increased at a CAGR of 26.89% respectively.
  • The company enjoys Economies of scale on account of integrated operations as it sources 15%-20% of its raw material requirements through our own farming efforts. Further association with  associate farmers enable reliable and uninterrupted supply of raw shrimp.
  • Strategically located processing plan in coastal Andhra and near to port.
  • Established Customer Relationships
  • Due to 100% exports to developed nations, company has ffcus on quality control measures and research & development initiatives
  • Apex Frozen Foods  has proven and experienced management with experience in the industry.
Concerns: 
  • Apex Frozen Foods derives 82% of its  revenues from exports to United States of America and European Union along with UK constitutes 17.77 %. Any change in regulatory environment in these countries could adversely impact the company.
  • Aquaculture is an environment sensitive industry and there is  risk of development of new infections/ diseases which could severely impact the operations.
  • Both the raw materials as well as products of company need to be kept at controlled temperature and adequate water  supply is also needed for aquaculture. Any shortage of the same could have considerable impact on the operations of the company.
  • Company is involved in a legal proceeding. to levy of anti-dumping duties on various Indian companies exporting shrimp to the USA
  • Appreciation of Indian Rupee against the USD may adversely affect as major portion consists of exports and same is received as unhedged foreign currency
  • Company takes benefits under certain export promotion schemes of government and any change in them may affect its profitability. 
  • The company’s processing facility and procurement operations are concentrated in Andhra Pradesh and thus are subject to any regional disturbance. 
  • Soya Deoiled cake serves a major raw material to aquaculture industry and any price increase of may will have impact on company’s profits.
Assessment: Apex Frozen Foods IPO
  • Indian fisheries industry valued at about $15 billion, has emerged as a significant player and contributes 6.3% of the total global aquaculture production and ranks second after China. The industry has good growth prospects.
  • Apex Frozen Foods  has shown strong growth in revenue and profitability on consistent basis.
  • At the upper price band of Rs 175/- with EPS works out to be Rs 10.17 for FY17, company’s P/E ratio works out at 17.2x. The listed peers like  Avanti Feeds Ltd.,Waterbase Ltd. and Zeal Aqua Ltd are commanding higher PE . Thus Apex Frozen Foods IPO appears to be have been  priced reasonably. See Detailed Peer analysis (Click Here )
  • While Indian Aquaculture have in past 2-3 years benefited from disease affecting Vietnam & Thailand and the nature of industry is inherently not free from risks, the industry was come up well in last few years and growing share of aquaculture in overall seafood market coupled with steady performance by company provides some comfort and at this stage I am inclined to apply for Apex Frozen Foods IPO.
  • Apex Frozen Foods  IPO subscribed 40% on day 1 . Have put in my applications in the IPO.
  • Watch this space for any development that may change my opinion on Apex Frozen Foods  IPO prior to its closing.

Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. I may have vested interest in every stock I discuss and my views may be biased. Please do your own due diligence as stock market investments have high degree of inherent risk.