Chemcon Speciality Chemicals IPO | 10 Things You Must Know

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Chemcon Speciality Chemicals IPO | 10 Things You Must Know

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The initial public offer (IPO) of Chemcon Speciality Chemicals, the manufacturer of speciality chemicals opens for public subscription today i.e. September 21 (till Sept 23). (If you wish to know 'How to apply for an IPO, Read here)

Here are 10 key things that you should know before you subscribe.

1) About:

Incorporated in 1988, Chemcon Speciality Chemicals Ltd is a manufacturer of specialized chemical products i.e. HMDS and CMIC. Its product portfolio includes oilfield chemicals (Calcium Bromide, Sodium Bromide, and Zinc Bromide), Pharma intermediates, Silanes, and chemicals contract manufacturing work.

2) Business segmentation:

The company is the largest, and in some cases, the sole producer of the chemicals that it manufactures. The company, according to a Frost & Sullivan, is the sole producer of HMDS and zinc bromide in India and is the largest producer of CMIC and calcium bromide in 2019.

3) Financials:

From FY18-20, the company saw its revenues, EBITDA and net profit grow at a compounded annual growth rate of 29%, 25% and 36% respectively. On the other hand, its operating margins have remained stable in a range of 27 to 28% in the same period.

4) Issue details

IPO Date: Sep 21, 2020 - Sep 23, 2020
Issue Size: 9,352,940 Eq Shares of ₹10 (aggregating up to ₹318.00 Cr)
Face Value: ₹10 per equity share
IPO Price: ₹338 to ₹340 per equity share
Market Lot: 44 Shares
Listing At: BSE, NSE
Finalization of Basis of Allotment: Sep 28, 2020
IPO Shares Listing Date: Oct 1, 2020

5) Offering details:

6) Peers comparison:

Aarti Industries Ltd., Atul Ltd., Fine Organic Industries Ltd. and Vinati Organics Ltd. are its closest peers. In the three years through March 2020, Chemcon Specialty Chemicals has registered higher growth compared to its peers.

7) Objects of the Issue:

Firm purposes to utilize the net proceeds from the IPO towards below objectives;

• To meet capital expenditures for expansion of manufacturing facility.
• To meet business working capital requirements.
• To meet general corporate purposes.

8) "Speciality chemical companies to strongly drive growth in India’s chemical industry"

Interestingly the Indian chemical industry is one of the fastest growing industries in the world. Currently, it ranks 3rd in Asia and is the 6th largest market in the world with respect to the output, after the US, China, Germany, Japan and South Korea. The industry's growth is mainly driven by consumption growth and export opportunity. The specialty chemicals industry can be subdivided based on the end-user industry into agrochemicals, dyes and pigments, personal care ingredients, polymer additives, water chemicals, textile chemicals and application-driven segments. These are the largest constituents of the speciality chemicals industry and cumulatively constitute over 80% of the speciality chemicals universe.

9) Pros:

• Largest manufacturer of pharmaceutical chemicals across the globe.
• Leading oilfield chemicals manufacturer in India.
• Diversified clientele base in the domestic and global markets.
• Strong and consistent financial performance.
• Dedicated manufacturing plants for each product.

10) Cons:

  • ~30-35% of revenue comes from oil well chemicals, at a time when the oil sector is weak.
  • Product portfolio is focused to Pharmaceutical and Oilwell completion chemicals, but we are very positive on pharma sector.
  • ~59% of revenue from operations (FY20) is derived from top 5 customers.
  • Procurement of raw materials from china. But the percentage of total expenditure is limited to ~20.5% in FY20.

Suggestion: In grey marker the stock is enjoying a premium of 75% so Apply for only 'one lot' and Subscribe this issue for expected BIG listing gains as well as for long term investment.

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Akshay Seth
Research Analyst (SEBI Regd.)
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