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Aether Industries Ltd IPO: All You Need to Know

The IPO ‘may-hem’ continues in the Indian stock markets! Gujarat-based speciality chemical manufacturer Aether Industries Ltd has launched its three-day initial public offering (IPO) today— May 24. In this article, we analyse the company and its IPO. 

Company Profile – Aether Industries Ltd

Established in 2013, Aether Industries Ltd (AIL) is one of the fastest-growing speciality chemical manufacturing companies in India. It produces advanced intermediates and chemicals involving complex, differentiated chemistry and technology core competencies. They started building an in-house research & development (R&D) team in 2013 and commenced commercial operations in FY17. 

The company operates through three business models:

  1. Large-scale manufacturing of its own intermediates and speciality chemicals.
  2. Contract research and manufacturing services.
  3. Exclusive manufacturing

AIL’s portfolio consisted of over 25 chemical products as of March 31, 2022. Their key customers are based in North America, Europe, and India. Prominent clients include Adama Ltd (Israel), BYK Group (Germany), UPL Limited, Divi’s Labs, and Dr. Reddy’s Labs. The company derives 62.6% of its revenue from the pharma segment and 22.9% from the agrochemical segment. Exports make up ~49% of its total revenue, which also acts as a natural hedge against volatility in raw materials sourced from overseas. It owns and operates two manufacturing facilities in Surat, Gujarat.

Aether Industries grew at an annualized rate (CAGR) of 49.5% between 2019 and 2021. The company’s vision is to create a niche in the global chemical industry with a creative approach to chemistry and technology systems. 

About the IPO

Aether Industries Ltd’s public issue opens on May 24 and closes on May 26. The company has fixed Rs 610-642 per share as the price band for the IPO.

The fresh issue of shares (of the face value of Rs 10 each) aggregates to Rs 627 crore. The IPO also includes an offer for sale (OFS) by promoters and early investors, aggregating to Rs 181.04 crore. Individual investors can bid for a minimum of 23 equity shares (1 lot) and in multiples of 23 shares thereafter. You will need a minimum of Rs 14,766 (at the cut-off price) to apply for this IPO. The maximum number of shares that a retail investor can apply is 299 equity shares (13 lots).

The company will utilise the net proceeds from the IPO for the following purposes:

  • Repayment/prepayment of borrowings – Rs 138 crore
  • Funding capital expenditure requirements (greenfield project in Surat) – Rs 163 crore
  • Funding working capital requirements – Rs 165 crore
  • General corporate purposes.

The total promoter holding in Aether Industries will decline from 96.96% to 87.09% post the IPO.

Financial Performance

AIL has posted a consistent increase in total revenue and profits over three financial years (FY19-21). The three part-business model works in perfect synergy. Its revenue from exports increased at a CAGR of 58.5% from Rs 100.09 crore in FY19 to Rs 251.6 crore in FY21.

The company reported a 32.5% YoY increase in revenue from operations to Rs 442.5 crore during the 9 months ended December 2021 (9M FY22). Net profit rose 72.7% YoY to Rs 82.9 crore during the same period. EBITDA stood at Rs 126 crore, up 64% YoY.

Risk Factors

  • Aether Industries faces various risks associated with operations involving the manufacture, usage, and storage of hazardous substances.
  • The company derives ~73% of its total revenue from top 20 customers (as of Dec 31, 2021). Its operations will be adversely affected if these customers choose not to source their requirements from AIL or if they terminate long-term contracts.
  • Non-compliance with safety, health, and environmental laws will severely harm AIL’s business.
  • The company does not have long-term agreements with suppliers of raw materials. A surge in the cost of raw materials or any shortfall in supply could adversely impact its overall operations.
  • All of AIL’s manufacturing facilities are located in Gujarat, exposing them to regulatory or geography-specific risks.

IPO Details in a Nutshell

The book-running lead managers to the public issue are HDFC Bank and Kotak Mahindra Capital. AIL filed the Red Herring Prospectus (RHP) for its IPO on May 16. You can read it here. Out of the total offer, 50% is reserved for Qualified Institutional Buyers (QIBs), 15% for Non-Institutional Investors (NIIs), and 35% for retail investors.

Ahead of the IPO, AIL raised Rs 240 crore from anchor investors.

Conclusion

The chemical industry is one of the most vital and fastest-growing industries in our country. Numerous companies thrive in this sector, which makes it highly competitive. They have flourished mainly due to the surge in demand from the agricultural, pharmaceutical, material science, and paint industries. As per a report from India Brand Equity Foundation (IBEF), the specialty chemicals sector is expected to grow at an annual growth rate of 12.4% to $64 billion within the next three years. The strong R&D capabilities and differentiated portfolio of products will help Aether Industries effectively compete in this sector.

AIL will be competing with leading players like Clean Science & Technology Ltd, Navin Fluorine International, Vinati Organics, PI Industries, and Fine Organics Ltd once it gets listed. You can read our in-depth analysis of India’s chemical industry here.

AIL’s IPO shares are trading at a premium of Rs 4 in the grey market. Before applying to this IPO, we will wait to see if the portion reserved for institutional investors gets oversubscribed. Do consider the risks associated with the company and come to your own conclusion.

What are your views on Aether Industries Ltd’s IPO? Will you be applying for it? Let us know in the comments section of the marketfeed app!

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Chemplast Sanmar Ltd IPO: All You Need to Know

The IPO mania continues on Dalal Street, as four public issues open for subscription this week. Chemplast Sanmar has launched its three-day initial public offering (IPO) today— August 10. It will be the fifth specialty chemical manufacturer to go public this year! In this article, we explore what the company does and learn more about its IPO.

Company Profile – Chemplast Sanmar Ltd

Chemplast Sanmar Ltd (CSL) is a leading manufacturer of specialty chemicals based in Chennai. Established in 1985, the company produces specialty paste PVC resin, starting materials, and intermediates. Their products are extensively used in the agrochemical, pharmaceutical, and fine chemicals sectors. CSL also produces chemicals such as caustic soda, hydrogen peroxide, refrigerant gas, and industrial salts.

CSL is the largest manufacturer of specialty paste polyvinyl chloride (PVC) resins in India on the basis of installed production capacity (as of December 2020). The product has multiple end-use applications such as making hand gloves, conveyor belts, artificial leather, flooring tiles, etc. The company is also the largest manufacturer of hydrogen peroxide and the third-largest manufacturer of caustic soda in South India. Recently, CSL acquired a 100% equity stake in Chemplast Cuddalore Vinyls Ltd (CCVL)— the second largest manufacturer of suspension PVC resin in India.

They operate three manufacturing facilities situated at Mettur, Berigai, and Cuddalore in Tamil Nadu and one unit at Karaikal in Puducherry. Chemplast Sanmar is part of Sanmar Holdings Ltd (SHL), one of the oldest and most prominent corporate groups in South India. Fairfax India Holdings Corp, led by Indian-Canadian billionaire businessman Prem Watsa, holds a 43% stake in SHL Chemicals Group. CSL has a strong management team with extensive experience in the chemicals industry.

About the IPO

Chemplast Sanmar aims to raise Rs 3,850 crore through its initial public offering (IPO). The public issue opens on August 10 and closes on August 12. The price band for the IPO has been fixed at Rs 530-541 per share. 

The fresh issue of shares (of the face value of Rs 5 each) aggregates to Rs 1,300 crore. The IPO also consists of an offer for sale (OFS) by existing promoters that aggregates to Rs 2,550 crore. Individual investors can bid for a minimum of 27 equity shares (1 lot) and in multiples of 27 shares thereafter. You will need a minimum of Rs 14,607 (at the cut-off price) to apply for this IPO. The maximum number of shares that can be applied by a retail investor is 351 equity shares (13 lots). 

Chemplast Sanmar will utilise the net proceeds from the IPO for two main purposes:

  1. Early redemption of non-convertible debentures (NCDs) of up to Rs 1,238.3 crore. The company had issued NCDs aggregating to Rs 1,270 crore of seven-year tenure and an interest rate of 17.5% per annum.
  2. To meet the required funds for general corporate purposes.

The total promoter holding in the company will decline sharply from 100% to 54.99% post the IPO.

Financial Performance

CSL’s revenue increased substantially by 201% YoY to Rs 3,815 crore in FY21. The significant jump in revenue and net profit in FY21 is mainly on account of the acquisition of Chemplast Cuddalore Vinyls Ltd (CCVL) to improve its product offering. That is, CCVL’s financial results have been included in the consolidated figures. At the same time, the acquisition resulted in a sharp increase in its overall debt.

CSL posted a negative net worth of Rs -(1,865.6) crore in the previous financial year (FY21). [A company’s net worth or book value is the value of its assets after paying off its liabilities] The company recognized certain losses due to the acquisition of CCVL’s business worth Rs 3,313 crore in FY21. Chemplast Sanmar’s gross debt rose 62% YoY to Rs 2,110 crore in FY21. This is a major red flag.

Looking at the positives, EBITDA margin has been strong in the range of 25-26% and cash flow generation has been healthy over the past three years.

Risk Factors

  • Chemplast Sanmar has incurred significant indebtedness. Its total outstanding borrowings stood at Rs 2,016.9 crore as of March 31, 2021. The company’s lenders have imposed certain restrictive conditions under its financial agreements. This could limit CSL’s ability to pursue its business and restrict the firm from planning or reacting to changes/trends in the industry.
  • The company’s intellectual property (IP) rights may not be adequately protected against third-party infringement.
  • The uncertainty surrounding the Covid-19 pandemic poses a threat to Chemplast Sanmar’s business operations and financial conditions. 
  • CSL faces foreign exchange fluctuation risks, which could adversely affect its financial results and cash flows.
  • The non-availability of credit ratings or a poor credit rating could restrict the company’s access to capital.
  • There are outstanding legal and regulatory proceedings involving CSL, CCVL, and its directors.
  • The sale of specialty paste PVC resin contributes nearly 58% to the company’s total revenue. A decline in the demand for this product could severely impact CSL’s overall performance.

IPO Details in a Nutshell

The book-running lead managers to the public issue are ICICI Securities, Axis Capital, Credit Suisse Securities, IIFL Securities, Ambit Pvt Ltd, BOB Capital Markets, HDFC Bank, and IndusInd Bank. Chemplast Sanmar Ltd had filed the Red Herring Prospectus (RHP) for its IPO on August 2, 2021. You can read it here.

Interestingly, CSL is returning to the stock exchanges after a gap of nine years. It was voluntarily delisted in May 2012 when it bought back shares of the face value of Rs 1 each from investors at Rs 15 per share. Its market cap was Rs 1,190 crore at the time of delisting in 2012. Now, the company is re-listing at a market cap of ~Rs 8,554 crore! It also seems like CSL’s promoters are selling a significant stake, which is not an encouraging sign for new investors.  

Conclusion

India is the fastest-growing market for specialty chemicals in the world. According to a report from India Brand Equity Foundation (IBEF), the Indian specialty chemicals industry is expected to grow at a CAGR of 11-12% over the next five years. It is expected to become a ~Rs 3 lakh crore market by 2025. Due to its diversified portfolio, Chemplast Sanmar is well-positioned to capture favourable industry trends. They have announced plans to expand manufacturing capabilities to cater to increasing demand for their products.

However, investors must be cautious about CSL’s high debt burden and negative net worth. The company has pledged its entire stake in CCVL (a vital subsidiary) in favour of Housing Development Finance Corp (HDFC). The company aims to pay off its debenture holders and reduce overall debt through the IPO proceeds.

CSL will be directly competing with leading chemical manufacturers such as PI Industries, SRF Limited, Finolex Industries, Navin Fluorine, and many more. They will be the fifth specialty chemical manufacturer to go public in 2021. As we can see, the industry is extremely competitive. Do consider the risks associated with CSL and come to your own conclusion.

What are your opinions on this IPO? Will you be applying for it? Let us know in the comments section of the marketfeed app.

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Tatva Chintan Pharma Chem IPO: All You Need to Know

Another day, another IPO! Tatva Chintan Pharma Chem has launched its three-day initial public offering (IPO) today— July 16. It will be the fourth public issue to hit the markets this month. Let us learn more about the company and its IPO.

Company Profile – Tatva Chintan Pharma Chem

Tatva Chintan Pharma Chem Limited (TCPC) is a chemical manufacturing company based in Gujarat. Established in 1996, it manufactures structure directing agents (SDAs), phase transfer catalysts (PTCs), pharmaceutical and agrochemical intermediates, and other specialty chemicals. They also produce electrolyte salts, which are used to make super-capacitor batteries. The company supplies essential chemicals to the automobile, petroleum, agrochemicals, pharmaceutical, dyes and pigments, and paint industries. 

They have a diverse portfolio of ~154 products as of March 31, 2021 (FY21). TCPC is the sole commercial manufacturer of SDAs for zeolites in India. [Zeolites are used in air/water purifiers and as drying agents in detergents. It is also used extensively in the petrochemical, automotive, and pharmaceutical industries]. The company’s strong Research & Development (R&D) capabilities have helped them maintain and increase market share over the years. TCPC makes regular investments in R&D to expand product offerings and streamline manufacturing processes.

The company exports its products to more than 25 countries, including the United States, Germany, South Africa, China, and the United Kingdom. Exports contributed ~70.5% to the company’s total revenue from operations in FY21. Prominent customers of the firm include Merck, Bayer AG, Asian Paints, Laurus Labs, Navin Fluorine International, Atul Limited, SRF Limited, and Divi’s Laboratories.

Currently, TCPC has two manufacturing facilities at Ankleshwar and Dahej in Gujarat. These facilities are strategically located near Hazira Port. The company has a dedicated R&D center in Vadodara as well.

About the IPO

Tatva Chintan Pharma Chem’s public issue opens on July 16 and closes on July 20. The price band for the IPO has been fixed at Rs 1,073-1,083 per share. 

The fresh issue of shares (of the face value of Rs 10 each) aggregates to Rs 225 crore. The IPO also includes an offer for sale (OFS) of ~25.39 lakh shares, aggregating up to Rs 275 crore. Individual investors can bid for a minimum of 13 equity shares (1 lot) and in multiples of 13 shares thereafter. You will need a minimum of Rs 13,949 to apply for this IPO. A retail investor can bid for a maximum of 182 equity shares (or 14 lots). 

The company will utilise the net proceeds from the IPO for three main purposes:

  1. To meet capital expenditure (capex) requirements for expansion of its manufacturing facility in Dahej. An amount of Rs 147.1 crore will be set aside for this objective.
  2. The company aims to invest Rs 23.97 crore for the upgradation of its R&D facility in Vadodara.
  3. The remaining amount will be used for general corporate purposes.

The total promoter holding in the company will decline from 100% to 79.17% post the IPO. 

Financial Performance

The company has posted robust financial performance over the last three years. From FY19-21, total revenue has grown at a CAGR of 21.70%, whereas profits have grown at 59.5%. Their total exports stood at Rs 211.99 crore in FY21, an increase of 5% over the previous year. Thus, the Covid-19 pandemic seems to have no impact on TCPC’s financial results as such. There continues to be high demand for their diverse portfolio of products across multiple sectors.

Its Return on Net Worth (RoNW) stands at 31.49%, which is high compared to its peers (except Alkyle Amines). RoNW shows how well the company uses shareholders’ capital to generate profits. TCPC’s Earnings Per Share (EPS) has more than doubled from Rs 10.23 in FY19 to Rs Rs 26.02 in FY21.

Risk Factors

  • The continuing impact of the Covid-19 pandemic could have a significant effect on the company’s operations and revenues. Unplanned slowdowns or shutdowns of its manufacturing operations may lead to delays in supplies or new product launches.
  • TCPC’s operations are subject to regular inspections and audits by its customers. The failure to meet quality standards and technical specifications prescribed by institutional customers may lead to loss of business. This could negatively impact its reputation and financial results.
  • They depend on a limited number of suppliers for essential raw materials (such as tertiary amines, general solvents). Moreover, they do not have long-term contracts with suppliers. The loss of one or more suppliers may have a severe impact on the company’s operations.
  • A further hike in the cost of raw materials also poses a threat to its financial performance.
  • Around 59.9% of the company’s overall sales income is derived from its top 10 customers (as of FY21). The loss of any one of these customers or even a reduction in their purchases will negatively affect financial results.
  • TCPC has to comply with strict regulations of various international markets where they sell their products. Thus, its global operations are subject to regulatory risks that could adversely affect its overall performance.

IPO Details in a Nutshell

The book-running lead manager to the public issue are ICICI Securities and JM Financial Tatva Chintan Pharma Chem Ltd had filed a Red Herring Prospectus (RHP) for its IPO on July 10, 2021. You can read it here.

Conclusion

Tatva Chintan Pharma Chem has a global presence and wide customer base. They have consistently maintained the quality of their products. With a strategic upgradation of its R&D facility, the company will further diversify its product portfolio to ensure better growth and profitability. It aims to double manufacturing capacity and capitalise on evolving trends in the industry. Their focus on green chemistry looks rather interesting as well. It is the design of chemical products and processes that reduce or eliminate the use/generation of hazardous substances.

Once its shares get listed, TCPC will be directly competing with leading chemical manufacturers such as Aarti Industries, Navin Fluorine, Alkyl Amines, Vinati Organics, Fine Organic Industries, and many more. They will be the fourth specialty chemical manufacturer to go public in 2021, after Anupam Rasayan India, Laxmi Organic Industries, and Clean Science & Technology. As we can see, the industry is highly competitive.

There is high demand for the company’s shares in the grey market (the unofficial market for unlisted shares). The Grey Market Premium or GMP stood at Rs 690 or 64% above the IPO price band (as of July 16). As always, do consider the risks associated with this company and come to your own conclusion.

What are your opinions on this IPO? Will you be applying for it? Let us know in the comments section of the marketfeed app.

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An Analysis of Laxmi Organic Industries

India is considered the fastest-growing market for speciality chemicals in the world. The agrochemical, pharmaceutical, and textile industries depend on a steady supply of speciality chemicals for their day-to-day production activities. There are a large number of companies in our country that manufacture such chemicals in bulk. In this article, learn more about Laxmi Organic Industries, a leading company in this highly promising industry.

Laxmi Organic Industries – Company Profile

Laxmi Organic Industries Limited is a speciality chemicals manufacturing company based in Mumbai. It primarily operates through two segments: Acetyl Intermediates (AI) and Specialty Intermediates (SI). Its acetyl intermediates include ethyl acetate, acetaldehyde, fuel-grade ethanol, and other proprietary solvents. The company’s specialty intermediates include ketene, acetic anhydride, amides, and arylides. All these are chemical products that have multiple applications across the pharmaceutical and agrochemical industries. These are also essential inputs for manufacturing dyes, pigments, coatings, paints, fragrances, and adhesives.

(Approximate figures)

The company has secured a nearly one-third market share in the Indian ethyl acetate market. It also has a market share of ~55% in the Indian diketene derivatives market. Dr Reddy’s Laboratories, Laurus Labs, Granules India, UPL Limited, Suven Pharma, and Colourtex Industries are some of its prominent clients. Laxmi Organic exports its products to nearly 30 countries, including China, the Netherlands, Russia, the United Arab Emirates, the United Kingdom, and the United States. It currently has two state-of-the-art manufacturing facilities and two distilleries in Maharashtra.

Laxmi Organic launched its initial public offering (IPO) in March 2021 for raising Rs 600 crore. The listing price of its shares on the NSE was Rs 155.50, a gain of 19.6% over the issue price of Rs 130. The total promoter holding by the Goenka Group and US-based Yellowstone Trust currently stands at 72.92%. 

Financial Performance

It seems that the negative impacts triggered by the Covid-19 pandemic have not caused any serious damage to the company’s financial growth. This could mainly be due to increased demand for the products they offer. The agrochemical and pharma sectors require a regular supply of these speciality chemicals for their production activities. Laxmi Organic reported a 261.95% year-on-year (YoY) jump in consolidated net profit to Rs 36.44 crore for the quarter ended March 2021 (Q4 FY21). However, net profit has declined by 19.62% when compared to the previous quarter (Q3 FY21). Its total income in Q4 stood at Rs 521.27 crore, up 34.38% YoY and 19.17% on a quarterly basis. 

Laxmi Organic’s net profit for the entire financial year 2020-21 (FY21) increased by 81.21% YoY to Rs 127.03 crore. The company’s total income for FY21 rose 15.2% YoY to Rs 1,773.06 crore. Thus, both revenues and profits have rebounded strongly in FY21. Over the past five years, its revenue has grown at a CAGR of 7.79%, whereas the industry average stood at 3.62%. Laxmi Organic has secured a market share of 3.3% in the highly competitive speciality chemicals industry.

The Return on Capital Employed (ROCE) stands at 20.34%. Compared to major competitors in the speciality chemicals sector, this figure is quite low. It means that for every Rs 100 worth of capital employed, Laxmi Organic earns Rs 20.34 on it. Return on Equity (ROE) is also comparatively low at 17.38%. Laxmi Organic is almost a debt-free firm. The company reported an Earnings Per Share (EPS) of Rs 5.58 in FY21, a 95% jump over FY20.

Future Plans

Over the years, allocating significant funds to its Research & Development (R&D) segment has helped Laxmi Organic expand in terms of production volume and product portfolio. Thus, the company will continue to focus on improving its product line and manufacturing capabilities through extensive R&D activities. Launching innovative products will help them grow further in a highly competitive market. Last month, they announced plans of setting up a wholly-owned subsidiary in Delaware, United States. This firm will trade the chemical products manufactured by the parent company. Laxmi Organic will invest $1 million (~Rs 7.29 crore) to set up the subsidiary.

The company aims to establish a SI manufacturing facility using a portion of the net proceeds from its IPO. Meeting capital expenditure (CAPEX) requirements and reduction of debts are also of top priority.

Conclusion

Last year, Laxmi Organic had to close down its manufacturing units due to strict lockdowns. A major concern was that all its operations are centered around Maharashtra, the state worst hit by the Covid-19 pandemic in India. However, the company was able to recover well and have posted strong financial growth in FY21. They have maintained high product quality standards over the years, which is evident from the long list of prominent clients.

According to a report from India Brand Equity Foundation (IBEF), the speciality chemicals industry in India is expected to grow at a CAGR of 11-12% over the next five years. It is expected to become a $40 billion (~Rs 3 lakh crore) market by 2025. The leading companies in this industry will continue to benefit from higher demand from multiple end-user industries. Also, there are certain government schemes that support the production activities of domestic chemical manufacturers. Laxmi Organic could greatly benefit from all of this, provided that they launch new and improved products. We will have to wait and see how the management implements its strategic plans.

Since its listing on March 21, the stock price of Laxmi Organic has increased steadily by ~44%. It hit a 52-week high of Rs 244.70 at the time of Q4 results being announced. In our opinion, there is a lot more move coming for the stock in the next 5 years.

What are your views on Laxmi Organic Industries? Do you believe it has the scope to become a market leader in the speciality chemicals industry in India? Let us know in the comments section of the marketfeed app.