IPO Frenzy: Chemcon Speciality Chemicals Opens today!

IPO Frenzy: Chemcon Speciality Chemicals Opens today!

Last updated: 21 Sep, 2020 | 01:22 pm

IPO Frenzy: Chemcon Speciality Chemicals Opens today!

About Chemcon 

  • Chemcon is a manufacturer of specialized chemicals such as HMDS and CMIC which are predominantly used in the pharmaceuticals industry and inorganic bromides, which are predominantly used as completion fluids in the oilfields industry. 
  • As per a report by Frost & Sullivan CSCL was the only manufacturer of HMDS in India, the third-largest manufacturer of HMDS worldwide in terms of production in 2019. The company was the largest manufacturer of CMIC in India and the second-largest manufacturer of CMIC worldwide, in 2019. Further, in 2019 Chemcon was the only manufacturer of Zinc Bromide and the largest manufacturer of Calcium Bromide in India.

Revenue Mix

  • Pharmaceuticals chemicals account for around 63% of revenues while Oilwell chemicals contribute 35%, 32% of revenue comes from overseas markets. 
  • Key clients of CSCL’s Pharmaceutical Chemicals include Hetero Labs, Laurus Labs, Aurobindo Pharma Sanjay Chemicals, Lantech Pharmaceuticals, IndSwift Laboratories, Vivin Drugs & Pharmaceuticals, Macleods Pharmaceuticals and the key customers of  Oilwell Completion Chemicals include Shree Radha Overseas, Water Systems Specialty Chemical DMCC, Universal Drilling Fluids and CC Gran LLC.

Financial Summary

  • “Over FY17-20, Chemcon’s revenue grew at a CAGR of 30% with Profit after tax jumping almost 16x from ₹3 crores in FY17 to ₹49 crores in FY20”.
  • Being the industry leader EBITDA margins are strong at 26.8% in FY20  
  • Overt the last few years continuous Capex has brought down the return ratios, however, ROE and ROCE at 40% and 33%  respectively for FY20  are still impressive.
  • Because of strong business performance, Chemcon has been able to maintain a low debt position, for FY20 debt to equity ratio was 0.2.

Key risks: 

  • Client concentration as 60% of revenues in FY20  came from the top 5 clients 
  • Concentrated product portfolio, derived demand from pharmaceuticals and oilfield industries.
  • Promoters have filed an application for settlement with SEBI with respect to certain past non-compliances about their holding in a listed company, which was a member of their Promoter Group
  • Criminal proceedings against a member of the promoter group 

Issue  details 

  • Issue open:  21 Sep - 23 Sep 2020 
  • Price band ₹338-₹340
  • Issue Size : 9,352,940 equity shares (Fresh issue 4,852,940 + Offer for sale of 4,500,000 equity shares)
  • Issue Size : ₹316 - ₹318 Cr.
  • Face value: ₹10
  • Reservation for QIB - 50% , Non institutional Investors -15% , Retail -35%
  • Bid Size - Multiples of 44 shares

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  • Sector leader with  niche product segments where entry barriers are high makes it an attractive bet in a growing industry  
  • Continuous capacity expansion and expansion of product portfolio will kick in future growth
  •  India is the largest consumer of CMIC chemical in the world and also a net importer of CMIC, with about 62% of the domestic demand being catered to by imports from China, Chemcon being the largest manufacture of CMIC in India and second-largest globally has an opportunity to take advantage of the shift in the supply chain of Chemical companies away from China.
  • “Low debt, high return ratios, positive operating cashflows alongside high growth potential makes Chemcon an attractive bet at an FY20 PE multiple of 25.5. Listed Speciality Chemicals firms in India are trading at much higher PE multiples.” 
  • As per latest grey market reports Chemcon was trading with ₹150-200 premium at around ₹ 500