Godrej Agrovet kicks off IPO process, hires i-bank

Agri-input firm Godrej Agrovet has hired Kotak Mahindra Capital and plans to raise up to $200 million through its IPO


Godrej Group chairman Adi Godrej. The IPO of Godrej Agrovet is likely to be a mix of primary capital raising and an offer for sale by private equity investor Temasek Holdings, to help the latter dilute a part of its shareholding. Photo: Abhijit Bhatlekar/Mint
Godrej Group chairman Adi Godrej. The IPO of Godrej Agrovet is likely to be a mix of primary capital raising and an offer for sale by private equity investor Temasek Holdings, to help the latter dilute a part of its shareholding. Photo: Abhijit Bhatlekar/Mint

Mumbai: Godrej Agrovet Ltd has hired Kotak Mahindra Capital Co. Ltd and is in the process of hiring two more investment banks to manage an initial public offering (IPO) through which it plans to raise as much as $200 million, said three people aware of the development.

“They have been meeting with various banks over the past few weeks. At least 10 banks, both foreign and domestic, have held talks with them. So far, they have appointed Kotak to manage the IPO process,” said one of the three people cited above, requesting anonymity as the talks are private.

The company has also shortlisted Axis Capital and Credit Suisse, and the IPO mandate is expected to be handed to them soon, said the second person cited above.

Godrej Industries Ltd, the Godrej group’s flagship company, owns 60.8% in Agrovet, which is in businesses such as agri-inputs, animal feeds, palm oil manufacturing, dairy and poultry.

The IPO is likely to be a mix of primary capital raising as well as an offer for sale by private equity investor Temasek Holdings Pte, to help the Singapore’s state-owned investor dilute a part of its shareholding in the company, said the third person cited above, also requesting anonymity.

In December 2012, Temasek picked up a 19.99% stake in Godrej Agrovet for around Rs572 crore.

“As a company policy the Godrej Group does not comment on market speculation. As and when the process starts, we shall announce it after all the statutory requirements are fulfilled,” B.S. Yadav, managing director of Godrej Agrovet, said in response to an email query.

A spokesperson for Temasek said the firm does not comment on speculation. Credit Suisse declined to comment. Emails sent to Axis Capital and Kotak Mahindra Capital did not elicit any response.

An October research report on Godrej Industries by Axis Capital valued Agrovet at Rs7,000 crore, based on expected fiscal 2018 numbers. According to the report, the Agrovet business is attractive on many fronts.

The company’s net profit has expanded at a compound annual growth rate (CAGR) of 40% over the past seven years, the report said. In addition the business has minimal working capital requirement (negative in animal feed) and high return on capital employed (30%+ even in a downturn).

“We have rarely seen companies where all factors align, viz: (1) secular business, with deep moats; (2) attractive industry dynamics; (3) strong corporate governance; and (4) excellent management team under a great leader, reflected in strong financials,” the Axis Capital report added.

In its annual report last fiscal year, Godrej Industries observed that Agrovet posted a 14% increase in revenue year-on-year despite two consecutive poor monsoons and depressed prices of commodities.

Axis Capital estimates that Godrej Agrovet will be worth $2 billion by 2020. It predicted that with high growth in dairy and poultry brands, coupled with steady growth in the animal feeds and palm oil business, Agrovet’s revenue would grow to Rs11,000 crore by financial year 2021 at 20% CAGR, with Rs600 crore in net profit.

In the last financial year, Agrovet generated revenue of Rs4,400 crore with Rs200 crore in net profit, contributing 41% of Godrej Industries’ total revenue for the same fiscal year, Mint reported on 22 February.

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