Healthy financials and plans on expansion of margins

• Nova Agritech operates in the manufacturing and supply of chemicals and fertilizers, focusing on soil health management, crop nutrition, and crop protection. Over the past two years, the company has demonstrated robust financial growth, with a 15% increase in both topline and bottom-line figures. The net profit margin stands at 10%, showcasing a positive trend in profitability that has been expanding due to a strategic shift in the product mix towards a higher-margin business. Capitalizing on this shift, Nova Agritech anticipates further expansion in its financials.
• A notable strength lies in the consistent positive cash flow from operations reported over the last three fiscal years and H1FY24. This positive trend not only positions the company favorably but also provides a solid foundation for internal expansion. With a net cash position of Rs 18 crore, Nova Agritech is well-placed to pursue growth without the burden of interest costs, contributing to its financial stability.
• However, a key concern arises from the company's heavy dependence on Telangana, accounting for 76% of its revenue. This concentration exposes Nova Agritech to significant geographical risk, emphasizing the need for revenue diversification. A more diversified revenue stream would enhance the company's resilience to regional economic fluctuations and market uncertainties.

Valuations

• As per FY23, the company is asking for a PE of 18x and a market cap-to-sales of 1.8x. These valuations seem attractive as compared to its competitors and there is room for capital appreciation. Hence, we recommend subscribing to this IPO.​