Anupam Rasayan IPO Details

Are you feeling left out of the IPO frenzy? Is the FOMO making you anxious? Do you feel out of place when your peers start talking of the listing gains they made out of any recent IPO? Well, worry not, the IPO season isn’t ending anytime soon. The next one on the cards is a company which is one of the leading companies in the speciality chemicals sector – Anupam Rasayan India Ltd.

Anupam Rasayan India Ltd.’s IPO opens for subscription on March 12, 2021. Commanding a grey market premium of 58 percent, the offering seems to be an obvious pick. But there are other details that you must take into account before jumping in.

So, read on as we analyse whether Anupam Rasayan’s IPO is a good bargain for you or not. At the outset, let’s begin with a background of the company.

About Anupam Rasayan Ltd.

The company, based in Surat, commenced its operations as a partnership firm in April 1984 and was incorporated in September 2003. It is one of the leading manufacturers of specialty chemicals in India. Its business has two verticals –

1. Life science related speciality chemicals that are used in agrochemicals, personal care and pharmaceutical sector (majority revenue ~ 95% in 2019-20)

2. Other speciality chemicals i.e., pigment & dyes, polymer additives, etc.

The company operates six multi-purpose manufacturing facilities in Gujarat, with four facilities located at Surat and two located at Jhagadia, having a combined aggregate installed capacity of around 23,396 metric tonnes. In addition to manufacturing chemicals, the company is also engaged in its custom synthesis.

It has a long-term business partnership with Syngenta Asia Pacific Pvt Ltd, Sumitomo Chemical Company Ltd and UPL Ltd. Having a global presence, it has diversified its clientele across the United States, Japan and Europe as well.

Promoters: Mr. Anand S Desai, Dr. Kiran C Patel, Ms. Mona A Desai, Kiran Pallavi Investments LLC, and Rehash Industrial and Resins Chemicals Private Limited (Pre-issue total promoters holding is 76.8%).

Financials of Anupam Rasayan India Ltd.

Now that you have a brief idea about the company and its financials, let’s see the details of the IPO.

Key details of Anupam Rasayan’s IPO

The IPO will remain live for subscription from March 12 to March 16, 2021. The shares will list in the stock exchanges, most probably, on March 24, 2021.

Application range details

Objects of the issue

Well, if you aren’t aware, this is actually a fresh issue of equity shares. Meaning, it’s a mechanism to bring in fresh money into the company and isn’t an exit opportunity for existing promoters or investors.

The company plans to utilize the net proceeds of the issue for the following purposes:

• About Rs. 556 crores to make repayment/prepayment of company’s debts including accrued interest

• Balance to meet general corporate expenses like strategic initiatives and funding growth opportunities (no capex plans in near term)

Now, let’s talk about the question you’ve been reading this blog for. Should you subscribe for the Initial Public Offering or not?

Why should you apply for the IPO?

The Specialty chemicals sector has been one of the few sectors that, somehow, ducked the bouncer of Covid-19 and most companies in this space are now poised to deliver growth this year too. Not only that, the size of Indian speciality chemicals sector is expected to double from $30 billion to $60 billion over the next five years, with a CAGR of around 10% (F&S report). 

As a result, global investors’ interest in the sector is increasing at a rapid rate. Undeniably, there are good growth prospects for leaders in the sector.

Factors that favour the IPO:

• Excellent financial performance (refer above)

• With a major part of its revenue coming from exports (about 2/3rd in FY2020), the company can benefit from the adoption of ‘China plus 1’ strategy and ‘Atmanirbhar Bharat’ principle.

• In the global crop protection chemicals industry, two of the company’s customers, Syngenta and UPL, comprise over 14% of the market share. The company is also one among the top 3 key suppliers in its top 10 products.

• Cost-optimization due to:

  • In-house innovation and R&D facilities.

  • Location of its facilities near Adani Hazira port.

• Competitive strengths:

  • Strong and long-term relationship with diversified customers across geographies.

  • Significant entry barriers due to customer validation and approval, stringent specifications and high-quality standard.

  • Manufacturing process innovation through consistent R&D, value engineering and continuous process for better quality control.

  • Diversified and customized product portfolio with a strong supply chain.

However, you have to take it with a pinch of salt.

Risk factors in this IPO

Following are the factors that stand against the IPO:

• Annualizing FY21-9M earnings and attributing it to fully diluted post-issue equity, the P/E comes around 86.45, as against industry composite P/E ratio of 42.81. Thus, the issue appears to be aggressively priced.

• The company's high exposure towards MNCs and exports could bring Foreign currency risks as well as risk due to creation of any trade barriers.

• The company runs very high in terms of inventories and receivables. Inability to churn inventories and default in payments from customers could affect its profitability and cash flows.

• The company has high financial leverage (around 1.10 in FY20) owing to its high debts.

• Over 85% of revenue comes from its top 10 customers. Loss of any of those customers could impact its business to a large extent.

• The company has witnessed negative cash flows in the recent years (Rs. 55.52 million in FY2019) and net decrease in cash and cash equivalents, as well.

• Agrochemical and related sectors may be impacted by seasonal variations, unfavourable local and global weather conditions, and increased use of alternative pest management and crop protection measures like bio-tech.

Conclusion

Looking at a long list of minus-points overpowering the plus-points, you’d be prompted to think that it would be a risk opting for this IPO. However, that’s not entirely the case. The minus points have been emphasized just to remind you to be careful. And it’s not as if the company isn’t doing anything to mitigate those risk factors. 

In a bid to hedge the FX risk, the company has opted for forward contracts. It plans to curtail inventory by asking customers to decide prices half-yearly in advance and not yearly. To hedge raw materials’ price volatility, it does and has plans for backward integration with 65% of the raw materials developed in-house. Both of which might improve its cash flows. Speaking of low PAT margins due to high finance charges: it plans to solve this very problem with this IPO by repayment/prepayment of some debts. You get it, right?

Considering a good growth prospect in the life-care and speciality chemicals sector and the company’s geographically diversified business model, it can prove to be a good long-term bet. However, it’d be prudent enough to wait till the last day to apply, so as to get a better idea about the demand pattern of the IPO from its subscription status. And the rest is for you to decide.

Stay informed & invest wisely.