Chemcon Speciality Chemicals, a Vadodara-based leading manufacturer of specialty chemicals, is set to bring out it's initial public offering (IPO) of equity shares of face value Rs 10 each on September 21. The IPO will close for subscription on September 23 with a price band of Rs 338-340 per equity share.
The Rs 320-crore public offer consists of a fresh issue of Rs 165 crore and an offer for sale of 45 lakh equity shares (Rs 153 crore at upper price band) by promoters Kamalkumar Rajendra Aggarwal and Naresh Vijaykumar Goyal. This would result in the promoter’s stake reducing from 100 percent pre-IPO to 74.5 percent post-IPO.
The company's revenue from operations is Rs 262.05 crore, up by 29 percent with EBITDA of Rs 70.26 crore, up by 25 percent between FY18 and FY20. In FY20, the company's profit after tax was up by 36 percent at Rs 48.85 crore.
Incorporated on December 15, 1988, the firm is a manufacturer of specialised chemicals, such as Hexamethyldisilazane/Hexamethyldisilane(HMDS)and Chloromethyl Isopropyl Carbonate (CMIC) which are predominantly used in the pharmaceuticals industry
The company is the only manufacturer of HMDS in India and 3rd largest manufacturer of HMDS worldwide (as per Frost & Sullivan report) in terms of CY19 production with an opportunity to grow at CAGR of 15-20 percent over FY19-FY23.
The funds raised from the fresh issue will be utilised to meet the working capital requirement, CAPEX towards the expansion of manufacturing facility and general corporate purposes.
Brokerage houses have advised subscribing to the issue on the back of consistent financial performance, leading position in specialty chemicals and improving outlook for the sector.
Experts believe that a strong customer base and long-standing relationship with customers have supported in retaining the firm's market share, increasing product base and reaching out to new customers.
Let's take a look at what brokerages said:
Geojit Financial Servcies:
At the upper price band of Rs 340, the company is available at P/E of 25.5x on FY20, which is attractive when compared to peers. Its peers Aarti Industries, Vinati Organics, Atul and Paushak are available at P/E of 36.9x, 41.5x, 30.8x and 41.5x respectively, the brokerage said.
Considering healthy business performance, regular capacity expansions, strong customer base, expanding margin profile and improving outlook for the sector, it has a ‘subscribe’ rating on this IPO.
At the higher end of the price band, the issue is valued at 25.5x FY20 P/E (fully diluted), which is reasonable compared to peers. It likes Chemcon given its (1) leadership position in niche products, (2) high entry barriers and (3) healthy financials.
Hence, investors can Subscribe to the IPO. Further considering the bright prospects for Chemical companies due to the shift of supply chain away from China, it believes Chemcon would be well placed to capture this with its planned CAPEX.
Risk: (1) Client concentration, (2) limited product portfolio and (3)
criminal proceeding against a member of the promoter group.
The brokerage also advised investors to subscribe to the issue given the attractive valuations and positive fundamentals, but the promoter & promoter group's corporate governance issue is making the brokerage cautious.
"The management has indicated that the company will not be impacted by any means if the outcome of the appeal is not favourable. Also, the specialty chemical sector got re-rated in the last 5-6 months. Before re-rating, the above peers were available at lower valuations. Thus considering the above observations, we assign a subscribe with caution rating for the issue," it stated.