Apex Frozen Foods IPO Review: Frozen delight


Apex Frozen Foods IPO opens on 22 August and will close on 24 August 2017 in one of the smallest public offers this year. The upcoming IPO, priced in the range of INR171 – 175 per share, will raise anywhere in the range of INR148.77 to INR152.25 crore. This makes it the second smallest mainboard IPO this year, after Salasar Techno Engineering IPO which raised just INR35.86 crore in a massively successful offer. As we try to find out through Apex Frozen Foods IPO review if the offer is worth subscribing. Here are some essential details about the IPO.

Apex Frozen Foods IPO details

Subscription Dates 22 – 24 August 2017
Price Band INR171 – 175 per share
Fresh issue 7,250,000 shares (INR123.97 – 126.87 crore)
Offer For Sale 1,450,000 shares (INR24.80 -25.38 crore)
Total IPO size 8,700,000 shares (INR148.77 – 152.25 crore)
Minimum bid (lot size) 80 shares
Face Value  INR10 per share
Retail Allocation 35%
Listing On NSE, BSE

Apex Frozen Foods IPO Review: Family business

Like most other public offers this year, Apex Frozen Foods IPO will be a mix of fresh shares and an Offer For Sale (OFS). The company will raise anywhere between INR123.97 and INR126.87 crore by selling 7,250,000 shares. Out of this, the company plans to use INR90.15 crore towards setting up a new shrimp processing unit with a proposed capacity of 20,000 MTPA at East Godavari District, Andhra Pradesh while the rest will be used towards general corporate purposes. The new facility will augment the company’s processing capacity from the current levels of 9,240 MTPA.

In addition, 1,450,000 shares will be offered by promoter Karuturi Satyanarayana Murthy and promoter group member Karuturi Padmavathi. No surprises here, the company is fully-owned by family members. This is not necessarily a bad thing and just shows that the company has so far managed without external capital.

Biggest shareholders in Apex Frozen Foods

Apex Frozen Foods IPO Review: Aquaculture, since 1995

The company supplies ready-to-cook products to a diversified customer base consisting of food companies, retail chains, restaurants, club stores and distributors spread across the USA, UK and various European countries. Apex Frozen Foods has been associated with aquaculture business and first leased a shrimp processing facility in 1995 in the state of Andhra Pradesh. This was followed by a self-owned shrimp processing facility in 2004 in Kakinada. As mentioned above, this facility’s annual capacity is around 9,240 metric tonnes. In addition, it has a 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 3,000 MTPA of finished products.

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Apex Frozen Foods IPO Review: Financial performance

Apex Frozen Foods exports 100% of its products to countries across the world and its experience of over two decades has helped in driving the economies of scale in operations. The company’s top line has grown in each of the last five years and has registered 29.1% average growth in this timeframe. Profitability of the company has also growth steadily, in the narrow range of 2.6-3.7%. Profits have grown from INR9.4 crore to INR24.4 crore in these years. We like the way the company has managed to expand its business without sacrificing profitability.

Apex Frozen Foods’ financial performance (in INR crore)

FY2013 FY2014 FY2015 FY2016 FY2017
Total revenue 255.5 514.6 604.4 608.3 709.7
Total expenses 241.2 494.2 576.2 578.1 671.3
Profit after tax 9.4 13.4 18.4 19.3 24.4
Net margin (%) 3.7 2.6 3.0 3.2 3.4

Apex Frozen Foods IPO Review: Should you invest?

As we have outlined above, Apex Frozen Foods is an example of a home-grown company which has managed to remain nimble despite revenue CAGR of 29.1% in the last four years. The ability to control costs and preserve margins is an important aspect of any business and is usually a good indicator of the management’s zeal to expand operations further. It is also noteworthy that the promoters of Apex Frozen Foods are not indulging into awarding themselves excessive compensation. Promoters Karuturi Satyanarayana Murthy and Karuturi Subrahmanya Chowdary drew gross remuneration of INR1.75 crore each in FY2017.

In terms of valuations, the IPO price band of INR171 – 175 per share and the Earnings Per Share (EPS) of INR10.17 translate into the P/E range of 16.8 – 17.2. This is quite reasonable considering the fact that its peer group trades at much higher multiples. The big daddy of aquaculture Avanti Feeds trades at a P/E ratio of 31.7 while The Waterbase Limited and Zeal Aqua Limited trade at 28.5 and 100.2, respectively. Apex Frozen Foods has a lower Return on Net Worth (RONW) of 25.22% compared to 36.71% of Avanti Feeds’ but is comfortably ahead of its smaller competitors. As on 31 March 2017, Apex Frozen Foods’ total debt/equity ratio was 1.14 times which is slightly above comfortable levels but not back-breaking. Considering these factors, it is clear that the Apex Frozen Foods is priced very attractively.

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While valuations are great, it is not that everything is fine with Apex Frozen Foods. There are some potential downsides in this business and diseases rank pretty high on this criterion. In fact the company mentions in the prospectus that one of the major reasons behind shrimp exports in the last few years was the spread of the EMS disease in southeast Asian aquaculture farms. Major shrimp exporters such as Vietnam and Thailand were impacted by this disease, thereby benefiting India (and Apex Frozen Foods as well). Just the way the EMS disease hit southeast Asian nations, some other disease may impact India. The anti-globalization wave in the US is another threat and if the regulators decide to slap anti-dumping duty on shrimp imports, the company will be adversely impacted. Nevertheless, none of these are related to the company and valuations offer good comfort.

All in all, Apex Frozen Foods IPO review reveals that the company is offering its shares at compelling prices even when the secondary markets are soaring high. Check out our IPO grey market and discussion pages to get the trends about this IPO.



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