Here is why you need to keep an eye on Milltec Machinery IPO


Milltec MachineryBengaluru-based Milltec Machinery has filed draft prospectus with the Securities and Exchange Board of India (SEBI). The agro-processing equipment maker aims to mobilize nearly INR500 crore (INR5 billion) through an Offer For Sale (OFS) by existing shareholders. The share sale by investors will not generate any proceeds for the company. Here are a few things you should know about Milltec Machinery IPO and the company:

Milltec Machinery IPO: Agro-processing equipment

Milltec Machinery’s product portfolio includes equipment for parboiling and drying, pre-cleaning, de-stoning, de-husking, thickness grading, polishing, length grading, sorting, and packaging. This equipment is used to facilitate the processing of rice, pulses, wheat, seeds, and maize with primary users being millers with throughput capacities ranging from two MTPH to 20 MTPH. According to a CRISIL report, the company has an estimated market share of 10% in India’s rice processing equipment industry.

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Milltec Machinery IPO: Nationwide and expanding

As on 31 March 2018, the company’s distribution and sales network comprised 34 employees and 57 agents across 19 states in India and seven countries overseas. Over the last couple of years, the company has made strides in getting more sales personnel on the ground. As of 31 March 2016, Milltec Machinery’s sales force included 27 employees and 37 agents. Similarly, its after-sales and service network grew from 96 employees in March 2016 to 111 employees as on 31 March 2018.

The company produces its equipment at four manufacturing facilities in Bengaluru, Karnataka, and Chennai, Tamil Nadu. As of 31 March 2018, it employed 821 employees, comprising 396 full-time employees and 425 contractual employees.

In the international markets, it has presence in African countries such as Nigeria as well as countries such as the Germany, Indonesia, Iran, Myanmar, Netherlands, the Philippines and the United Kingdom.

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Milltec Machinery IPO: Multiples, Ashish Kacholia on board

Renuka Ramnath’s private equity firm Multiples has the biggest shareholder in the company. Through Multiples Mauritius and Multiples India, the PE firm owns 41.5% in Milltec with average cost of acquisition being INR299.88 per share. Promoters Rajendran Joghee and Ravindranath Ramaiah hold 20.6% each.

Another prominent name is Ashish Kacholia who is not an unknown name for value investors and followers. Kacholia holds 375,150 shares in the company, amounting to 3.75% equity stake. Same number of shares is owned by Suresh Kumar Agarwal-led Bengal Finance & Investment Private Limited. Both Ashish Kacholia and Bengal Finance & Investment invested in May 2018 at the rate of INR699.72 per share. It will be safe to assume that IPO price will be above this level.

Milltec Machinery IPO: All OFS

As mentioned above, the company will not get any funds from the share sale. In total, 3,751,499 shares or 37.5% equity shareholding will be sold by the shareholders including the twin Multiples arm as well as promoters Rajendran Joghee and Ravindranath Ramaiah. Multiples Private Equity Fund I will sell 1,677,596 shares while 573,304 shares will be sold by Multiples Private Equity Fund. Rajendran Joghee and Ravindranath Ramaiah plan to sell 606,125 shares each. Joghee’s wife Manjula Rajendran plans to sell 144,175 shares while Uma Rachappa, wife of Ravindranath Ramaiah will offload 144,174 shares.

Milltec Machinery IPO: Focus on R&D

The agriculture industry in India is typically behind the curve in using cutting edge technology but it also means that marketplayers at the forefront of the technology enjoy a sustained competitive advantage over their competitors. With an eye on research and development (R&D), Milltec Machinery employs a team of 22 engineers which has developed several innovative new products. This is reflected in the company’s applications for the registration of seven new trademarks, five patents, 12 designs, 28 copyrights, and renewal of the registration of one trademark.

A good example is colour sorting machines which are characterized by a low installed base. This emerging opportunity has been tapped by Milltec through entry level and mid-range colour sorters and the product line accounted for revenue of INR51.55 crore in FY2018, up from INR35.3 crore in FY2017.

Milltec Machinery IPO: Robust financial performance

Milltec Machinery is on a strong footing in terms of financial performance. It stumbled in FY2015 with revenues and profits sliding but hasn’t looked back since then and every years has been characterized by higher top line and profits. Along the way, the company has done a few things right to improve profitability. Reducing debt is one of them. The company’s long term borrowings amounted to just INR1.1 crore as of March 2018, effectively making it a debt-free play. As a result, net profit margin of the company has improved to 10.8% in FY2018, marking its best performance in the last five years.

Milltec Machinery’s consolidated financial performance (in INR crore)
FY2014* FY2015* FY2016 FY2017 FY2018
Total revenues 189.2 174.5 186.2 223.1 269.3
Total expenses 156.6 148.2 161.9 194.2 224.3
Profit after tax 20.1 17.3 17.8 18.5 29.2
Net margin (%) 10.6 9.9 9.6 8.3 10.8

* Figures for FY2014 and FY2015 are based on IGAAP and subsequent years are based on IND AS


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