Aries Agro

Aries Agro was among the top gainers on Monday as the stock surged 10 per cent higher. This spike was accompanied by volume that was the highest in the past three months. Monday's rally has also aided the stock to record its highest close in the past 17 months (called a ‘break-out' in technical parlance). Oscillators in the daily chart continue to show strength though the 14-day relative strength index has moved above 70, denoting that the stock is slightly overbought from a short-term perspective. Other oscillators such as the rate-of-change oscillator and the moving average convergence-divergence oscillator continue to signal a buy.

The intermediate-term uptrend that began from a March 2009 low halted at Rs 103 in January and the stock was in a gentle decline since then. However, the fact that the stock corrected less than 20 per cent from this peak implies that buyers are eager to buy the stock at every decline. The near-term trend will stay positive as long as the stock holds above Rs 100. Short-term investors can therefore buy the stock with a stop at Rs 100, with the target of Rs 118.

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Aries Agro

We recommend buying the stock of Aries Agro from a short-term perspective. It is apparent from the charts that the stock has been on a steady longer-term uptrend since its March 2009 low of Rs 24.5, forming higher peaks and higher lows. It broke through various key resistances such as Rs 40, Rs 60 and Rs 80 level recently with good volumes. The stock is in an uptrend in all time frames, intermediate, medium and short-term. On January 11, it surged 5 per cent accompanied with good volume recoding a 52-week high of Rs 89.8. These gains have reinforced the stock's bullish momentum and it is trading way above the 21- and 50-day moving averages. Both the daily and weekly relative strength indices are featuring in the bullish zone. Besides, the daily as well as weekly moving average convergence and divergence indicators are hovering in positive territory. Our short-term outlook on the stock is bullish. We expect its current up move to prolong until it hits our short-term price target of Rs 99. Traders with short-term perspective can consider buying the stock with Rs 85 as stop-loss.

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Aries Agro

Investors with medium-term perspective can consider buying Aries Agro. The long-term downtrend in the stock halted in March 2009 and a nascent uptrend is on since then. Prolonged positive divergence in the weekly oscillators implies that the stock could have formed a sustainable trough at Rs 24.5 in March. That the stock has penetrated its long-term down trend-line recently is also a positive from a long-term perspective.

Medium-term investor can accumulate the stock in the range between Rs 35 and Rs 48 with a stop at Rs 24. Once it breaksout beyond Rs 56, the stock has the capacity to rally to Rs 80 and Rs 110. Short-term investor can buy with the target of Rs 55 and stop at Rs 36

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Aries Agro

We recommend a buy in Aries Agro from a short-term perspective. It is apparent from the charts of Aries Agro that it was on a medium-term down trend from September high of Rs 162 to its 52-week low of Rs 35 recorded in late October.

The stock found support at its 52-week low and began to consolidate sideways in the price range between Rs 35 and Rs 44 for almost four weeks. On November 21, the stock conclusively penetrated its 21-day moving average by gaining Rs 5.50 or 13.8 per cent accompanied with above 2-week average volume.

With this, the daily relative strength index has entered in to the neutral region from the bearish zone and weekly RSI is recovering from the ‘oversold’ territory. The moving average convergence and divergence is steadily rising towards the positive territory.

We are bulling on the stock from a short-term perspective. We anticipate the stock’s up move to prolong further until it hits our price target of Rs 51 in the approaching trading sessions. Traders with short-term perspective can buy the stock, while maintaining a stop-loss at Rs 42.

Aries Agro

Aries Agro

Aries Agro

We recommend a buy in Aries Agro from a short-term perspective. It is clearly evident from the charts of Aries Agro that it has been on a medium-term uptrend from its 52-week low of Rs 84, recorded in early July. The stock has been forming higher peaks and higher troughs since then. In late July, the stock penetrated its intermediate-term down trendline which was in place since January high of Rs 264. On August 29, the stock Jumped up 8 per cent, accompanied with heavy vol ume taking support from its 50 day moving average. The stock is trading well above its 21- and 50-day moving averages.

The daily relative strength index (RSI) is on the brink of entering in to the bullish zone from the neutral region and weekly RSI is likely to enter into neutral region from the bearish zone. Daily moving average convergence and divergence (MACD) is featuring in the positive territory. The medium-term up trendline is intact. We are positive on the stock from a short-term perspective. We expect the stock to move up until it hits our price target of Rs 130 in the upcoming trading sessions. Traders with short-term perspective can buy the stock while maintaining a stop-loss at Rs 112.

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Aries Agro surprises everyone

and ends the day at 251.60

Aries Agro settled at Rs 251.60 on BSE, a premium of 93.54% over the IPO price of Rs 130.

On BSE, 2.13 crore shares were traded in the scrip. The stock touched a high of Rs 261 and a low of Rs 150.

At the current price of Rs 251.60, the PE multiple works out to 37.55, based on the year ended EPS of Rs 6.7.

The stock had debuted at Rs 150, a premium of 15.38% over the IPO price.

The company had fixed the IPO price at the top end of the Rs 120 - Rs 130 price band. The Aries Agro IPO had closed on 19 December 2007 with 7.62 times subscription. The qualified institutional investors (QIB) portion was subscribed 0.88 times, the non-institutional investors segment 2.37 times and the retail portion 0.46 times.

Aries Agro is engaged in the manufacture of agricultural products. It operates in five categories that are multi-micro nutrient fertilizers, chelated micro nutrient fertilizers, specialty soluble fertilizers and anti-bacterial products for agricultural use and nutritional products for animals. Its manufacturing facilities are located at Bangalore, Mumbai, Hyderabad and Kolkata, with total production capacity of 21,600 tonnes per annum.

The comapny intends to set up new manufacturing units at Ahmedabad, Lucknow, Andhra Pradesh and an additional unit in Maharashtra. Aries Agro also proposes to enhance its equity holding to 75% in Golden Harvest Middle East (FZC), a company incorporated in UAE. The company also proposes to create mobile shops through mobile vans for which it is buying 100 trucks. This fleet would further increase market penetration in addition to the 65,000 dealers that the company already serves across 20 states in India.

Aries Agro reported profit after tax of Rs 8.69 crore on sales of Rs 72.66 crore in the year ended March 2007.

Aries Agro IPO

Aries Agro IPO

Aries Agro IPO Avoid

Investors can stay away from the initial public offer of Aries Agro, a manufacturer and marketer of plant micronutrients.

Though micronutrients have good demand prospects in the Indian context and are not subject to the regulatory constraints that fertilisers face, the business is characterised by high competition.

The offer price also appears high in relation to the multiples enjoyed by companies in the fertiliser and agricultural inputs business.

At the price band of Rs 120-130, the offer price values the company at between 18 and 20 times its FY-07 earnings per share, on a fully diluted equity base.

Much larger players in the agri-inputs space such as Rallis India (11 times), which have a presence in this segment, trade at cheaper multiples.

The offer proceeds are to fund working capital, towards the acquisition of an overseas material supplier, purchase of mobile vans for marketing products as well as capacity expansion.

The substantial scaling up of capacities over the next year could provide justification for the offer price over the medium term.

However, the intense competition in this business poses significant execution risks to the scaling up of operations.
Micronutrients business

Aries Agro derives the bulk of its turnover from the marketing of micronutrients under the names — Agromin and Chelamin, which are its leading brands.

Aries also has a small presence in the crop protection and veterinary products business. Micronutrients, which are required in relatively smaller dosages to supplement macro-nutrients (nitrogen, phosphate and potassium — usually delivered through mainstream fertilisers), help improve the yield and output of agricultural and horticultural crops.

The company focusses on chelated micronutrients (combinations of metallic nutrients such as zinc, iron and copper with certain chemicals) that have higher efficacy and allow better absorption by the plant.

The micronutrients business has considerable potential in the Indian context. Factors such as low yields of major foodgrains and horticultural crops, high soil alkalinity and intensive cultivation are the key demand drivers for micronutrients.
Wide network

Aries has built an extensive distribution network which reaches 375 districts across 20 states, through a network of 4700 distributors. This is backed by a portfolio of 37 products consisting of micronutrients, chelated nutrients and insecticides.

From being a small player, Aries has substantially ramped up its manufacturing capacities in FY-07, with capacities rising from 12,000 tonnes to 21,600 tonnes in FY-07.

Net sales have climbed from Rs 26 crore to Rs 73 crore between FY-04 and FY-07 while net profits have risen from a minuscule Rs 0.09 crore to Rs 8.69 crore over the same period.

Both numbers have been helped by a substantial trading component to sales.

The company has now lined up an ambitious expansion, with 79,200 tonnes of additional micronutrients capacity proposed to be added to the existing facilities across locations.
Limited pricing power

The market for micronutrients such as zinc, iron and copper in India, is expected to double over the next two decades. This suggests sustained single-digit growth in demand over the next few years.

Unlike fertilisers, micronutrients are not subject to any price controls by the government and, thus, allow greater operational freedom to producers.

However, players such as Aries Agro would still be constrained by limited pricing power, due to competition from imports as well as the host of local/regional brands, as the product offers limited differentiation possibilities.

The business has low entry barriers, involves small capital investments to put up capacities, limiting the company’s ability to withstand pricing pressures and scale up sales.

The relatively high pricing of the offer also may not leave room for disappointments on this score.

Aries Agro IPO Analysis

Aries Agro (AAL), promoted by Dr T B Mirchandani and his two sons, is a major manufacturer of micronutrient and other nutritional products for plants and animals. Its range of products comprise five categories: multi-micro nutrient fertilisers, chelated micro nutrient fertilisers, specialty soluble fertilisers, anti-bacterial products for agricultural use, and nutritional products for animals.

A pioneer in introducing chelated micronutrients and chelated zinc in the country, under the brands Agromin and Chelamin, respectively, AAL has developed in house bactericides for agriculture.

Besides primary macronutrients, secondary micronutrients are required for high yield of the agriculture crop. Though essential for growth, micronutrients are required in small quantities. AAL is a leader in the production of micronutrients, with hardly any competitors in the organised sector in the country.

With four manufacturing facilities in Bangalore, Mumbai, Hyderabad and Kolkata, AAL’s total production capacity is 21,600 tonnes per annum. It has 41 products under its umbrella. Strong trademarks protect these brands. These products are sold across 375 fertilizer-consuming districts in the country. The company has 25 branches with a distribution network comprising about 4,700 distributors and 65,000 dealers across the country.

New manufacturing units at Ahmedabad, Lucknow, Medak (Andhra Pradesh), and an additional one in Maharashtra will bring on stream 79,200 tonnes per annum of new capacity by October 2008.

With an aim to expand its global footprint, specially the Middle East, AAL is investing Rs 7.37 crore in one of its group companies Golden Harvest Middle East (FZC), incorporated in the UAE, to convert it into a subsidiary. Golden Harvest is setting up a facility in Sharjah to manufacture chelated micronutrients with a capacity of 10,800 tonnes per annum. It is also investing Rs 2.46 crore in another company, MAPCO Fertilizer Industries Free Trade Zone Company (MAPCO). MAPCO’s distribution reach in the Middle East will be used to sell the company’s micronutrients in those markets.

To distribute its products to the far-flung corners of the country, where it does not have a distribution network, AAL is planning to buy around 100 mobile vans at a cost of Rs 5.79 crore.

Strengths

• Has been in the business of manufacturing and marketing plant nutrients since over three decades. During this period, acquired strong domain expertise, which is difficult for a new entrant to replicate.
• Is a dominant player in the plant-nutrient space with minimal competition from the organised players.
• Has an in-house R&D facility, equipped with infrastructure required to develop new products targeted at specific crop requirement.
• Has an established distribution network spanning 375 fertilizer-consuming districts of the country. Has 4,700 distributors and more than 65,000 dealers.
• Products are not subject to price control as other fertilisers.
• Indian farmlands have one of the lowest yield rates in the world. Hence, there is good scope for improvement in yields by using micronutrients. Spread of organised retail and development of farm-to-consumer supply chain will encourage better yields through use of micronutrients.

Weaknesses

• Being a feedstock industry for the agricultural sector, the business depends on the monsoons. Abnormal rainfall could have an adverse effect on the performance.
• Increase in imported raw material cost could squeeze margin, as it would not be able to pass on the increase in prices to the final consumer.
• Due to high working capital requirement, there was negative cash flow from operations in four of the last five years. Of the total debtors of Rs 26.71 crore, 46% were due for more than six months end March 207.
• Defaulted in payment of dues to IFCI in the past and entered into a one-time settlement.

Valuation

AAL has set a price band of Rs. 120 to Rs 130 per equity share of Rs 10 each, translating into a PE of 17.9x at the lower price band and 19.4x at the higher price band on the year ending March 2007 (FY 2007) EPS of Rs 6.7 on post-IPO equity. There is no comparable listed company. Overall, the fertiliser-nitro sector enjoys P/E of 16 times, fertiliser-SSP (single super phosphate) sector trades at P/E of 13, and pesticides-medium/small industry trades at P/E of 7. Being the only listed focused player on the high growth segment of micronutrients, with massive capacity expansion plans, the scrip will get above

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