About the company:
Anupam Rasayan is a Rs 760 crore IPO that will take place through the fresh issue. The objectives of the offer are for repayment/prepayment of certain debts with accrued interest and general corpus fund needs. The issue opens to the public on Friday 12th March and closes on Tuesday 16th March. It has a price band set at Rs 553 to 555 per share with a lot size of 27 shares.
COMPANY OVERVIEW
Started in 1984, Anupam Rasayan India Limited (Anupam Rasayan) is one of the leading companies engaged in custom synthesis & manufacturing of specialty chemicals in India. The company offers a multistep synthesis and undertakes complex chemical reaction technologies, for a diverse base of Indian and global customers. Their key focus is developing in-house innovative processes for manufacturing products requiring complex chemistries and achieving cost optimization.
The business has 2 verticals; 1. Life Science-related specialty chemicals that are used in agrochemicals, personal care, and pharmaceutical sector and other specialty chemicals i.e. pigment & dyes, polymer additives, etc. As of Dec 2020, the life science vertical accounted for 93.75% for revenue from operations while the other specialty chemicals accounted for 6.25%.
The company operates 6 manufacturing facilities in Gujarat, India, with 4 facilities located at Sachin, Surat, and 2 located at Jhagadia, Bharuch with an aggregate installed capacity of 23,438 MT, as of December 31, 2020. Their dependence on imported raw materials as a percentage of the total raw materials purchases has decreased from 26.01% in Fiscal 2018 to 22.44% in Fiscal 2020.
Anupam Rasayan has developed strong and long-term relationships with various multinational corporations, including, Syngenta Asia Pacific Pte. Ltd., Sumitomo Chemical Co. Ltd., and UPL Ltd. that has helped them expand their product offerings and geographic reach across Europe, Japan, United States, and India. In the 9 months ended December 31, 2020, they manufactured products for over 53 domestic and international customers, including 17 multinational companies. 68% of total revenue stems from export to various countries.
They have a dedicated in-house R&D facility recognized by The Department of Scientific and Industrial Research and a pilot plant located at Sachin Unit-6, which enabled them to manufacture products in an energy and cost-efficient manner by utilizing continuous processes.
FINANCIAL PERFORMANCE
The company is lagging on the growth front when compared to its peers and the high valuations demanded as its Revenue and profit has grown at a CAGR of 24% and 14% respectively over FY18 to FY20. It has reported an average EPS of Rs 6.03 per share and RONW of 6.78% only.
KEY RISKS
High Debt- The company has a debt of Rs 841 crore as of Dec 2020 with a debt to equity ratio of 1.2. Although a portion of the proceeds will go to repay this debt, still the company will be left with Rs 300 crore of debt.
High Competition- Also Players in the specialty chemical industry faces stiff competition from domestic players such as PI Industries, Navin Fluorine, Astec Lifescience and SRF. In addition, there are several international players, specifically from China, United States and European Union, engaged in contract manufacturing of specialty chemicals.
Import dependence for raw materials- Of the total raw material expenses, the company imported 23.62% as on Dec 2020. Any regulations which restrict or discourages imports will affect the company’s expenses
Preferential allotment in 2020 much lower than the issue price- In Oct 2020, the investor turned Promoter Group (KPI LLC) did a preferential allotment at Rs 250 and In Nov 2020 preferential allotment was done at Rs 197. In just a matter of 4 months, now the IPO is priced at Rs 555 which is more than double. This raises a big red flag as nothing has changed in the past 4 months
LOFTY VALUATIONS
At Rs 555, the issue is very heavily priced, with a P/E ratio of 68x based of FY21. Peers fare better than Anupam on all counts with lower P/E ratios. Though Anupam’s financial parameters will improve over the next year, the valuations are very high.
At the upper IPO price band of Rs 555, the offer is valued at a price/earnings of around 68 times which is overvalued compared to the industry average P/E of 42x. Given the current growth dynamics, the valuations seem to be pricey. Having said that the issue is commanding a high grey market premium given the bullish nature of the market, excess liquidity, and IPO frenzy. Investors who don't mind the risks and who are looking only for listing gains can subscribe.
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