The IPO rush continues on Dalal Street as Chemplast Snamar being the fourth issue to hit the street this week. The Rs 3,850 crore issue close on August 12 while the price band for the issue has been fixed at Rs 530-541 per share having a face value of Rs 5 per share.
An investor can bid for a minimum of 27 equity shares and in multiples, thereafter, translating to a minimum bidding amount of Rs 14,607 at the higher end of the price band. A retail investor can at max apply for 13 lots or 351 shares for Rs 1,89,891.
The Rs 3,850-crore public offer comprises fresh issuance of equity shares of Rs 1,300 crore and an OFS (offer for sale) of Rs 2,550 crore by its promoter entity Sanmar Holdings and Sanmar Engineering Services that will offload Rs 2,463.44 crore and Rs 86.56 crore worth of shares respectively. The Chennai-based company will utilise the net proceeds from the fresh issue towards early redemption of the non-convertible debentures (NCDs) and for general corporate purposes.
It is not the first time that Chemplast Sanmar is raising money from the primary market. It was delisted from the BSE, the NSE and MSE with effect from June 25, 2012, June 18, 2012 and June 25, 2012, respectively.
Commenting on delisting grey market tracker Abhay Doshi, founder of Unlisted Arena said that, “at the time of delisting the conditions were not favourable now the conditions are different. However, valuations do look expensive at this point of time.”
Specialty chemicals manufacturer Chemplast Sanmar on August 9 has garnered Rs 1,732.5 crore from anchor investors ahead of its IPO opening.
The company in consultation with book running lead managers and selling shareholders has finalised allocation of 3,20,24,029 equity shares to anchor investors, at Rs 541 per share, it said in its BSE filing.
Marquee investors which participated in the anchor book were Abu Dhabi Investment Authority, Amundi Funds, Government Pension Fund Global, Best Investment, Corporation, Jupiter India Fund, Neptune Investment, Volrado Venture, Kuber India Fund, CLSA, Public Sector Pension Investment Board, Segantii India Mauritius, Copthall Mauritius, Moon Capital, Goldman Sachs, Tara Emerging Asia, Nomura, and Societe Generale.
Domestic investors including SBI Mutual Fund, Axis Mutual Fund, Mirae Asset, ICICI Prudential, HDFC Life Insurance, HDFC Trustee, Nippon Life, Franklin India, Aditya Birla Sun Life, Sundaram Mutual Fund, IDFC, JM Financial, IIFL Special Opportunities Fund, and Edelweiss also invested in the company.
In the grey market shares of the company are quoting at Rs 571 per share marking a premium of Rs 30 or 5.54% over the IPO price of Rs 541.
“Chemplast Sanmar mainly produces speciality paste PVC resin whose demand in India is mostly aid by imports. It has 82% market share in production and sale done in India. Recently, they acquired 100% equity in CCVL which is one of the leading manufacturer of suspension PVC resin which too is imported by India. FY21 statistics shows exorbitant performance due to recent acquistion of CCVL. Hence, it would be wise to track whether such performance continous or is a one-time wonder,” Doshi added.
Angel Broking believes that the India specialty chemical industry is going to be one of the biggest beneficiaries of shifting of supply chains post the Covid-19 pandemic we have concerns over the company’s high debt and negative net worth. At the higher end of the price band, the stock will be trading at P/E (price to earnings) multiple of 17.7xFY21 EPS (earnings per share) which is at a discount to other chemical players.
As of FY21, the networth of the company was negative, however, post-IPO it will turn positive. The company is looking to raise Rs. 1,300 from the fresh issue. Of these, around Rs. 1,240cr will be used for the early redemption of non-convertible debentures issued by the company. Consequently, post redemption the debt to equity ratio is likely to be around 1.1-1.2x.
Despite anticipating a robust growth in the future, the promoter group is diluting a massive 45% of the stake, which may be a concern for the investors. Moreover, 100% of the share capital of CCVL is pledged with the financial institution for the purpose of securing financing facilities for a promoter group company, which was loss making over FY18-21.
Based on our quick estimate, over FY21-24, we are forecasting an 8.7% CAGR (compounded annual growth rate) growth in the consolidated top-line to Rs. 4,873.5 crore in FY24E. EBITDA (earnings before interest tax depreciation and amortization) margin is estimated to expand by 182 basis points, while PAT (profit after tax) margin is estimated at 12% in FY24E as compared to an adjusted margin of -1.4% in FY21. Average ROIC (return on invested on capital) and RoE (return on equity) over the forecasted period is estimated at 20% and 28.8%, respectively.
Considering the FY-21 adjusted EPS of Rs.25.95 on the post-issue basis, the company is going to list at a P/E of 20.85 with a market cap of Rs.8.553.7 crore, while its peers namely PI Industries and SRF are trading at a P/E of 61.16 and 37.26 respectively.
The brokerage firm has assigned a ‘Subscribe (With Caution)’ rating to this IPO as the company is well-positioned to capture favourable industry dynamics. However, the negative net asset value along with higher trade payable days keeps us cautious from a longer-term perspective.
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