Specialty chemicals maker Aether Industries shares were locked in the 20 percent upper circuit on its first day of trade on Friday, June 3, tracking positive sentiment in the equity market, superior growth prospects of the company and a good response, especially from qualified institutional buyers, to the initial public offering (IPO).
The stock opened with 10 percent gains on the BSE, which was much higher than analysts’ expectations of 3-5 percent opening premium over the issue price of Rs 642, and immediately climbed to Rs 776.75, the upper band of the trading limit, up Rs 134.75 or 20.99 percent over the issue price.
Experts said investors should hold the stock with a long-term view considering the growth company’s prospects, niche position in the specialty chemicals business and its strong financials.
“Considering stable market sentiments and Aether being a niche player in the speciality chemicals business enjoying high margins in a few selected products, it may surprise markets post listing,” said Prashanth Tapse, vice-president (research) at Mehta Equities.
He advised allotted investors to consider holding the issue with a longer time frame in mind, while non-allotted investors may also look at accumulating the stock. Based on all the parameters we are optimistic about the company for the long term, he said.
Astha Jain, senior research analyst at Hem Securities, also recommended long-term investors to hold the stock as the company with its differentiated portfolio of market-leading products has a focus on research and development (R&D) to leverage its core competencies of chemistry and technology.
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She added that the company has longstanding relationships with a diversified customer base and a synergistic business model focused on large-scale manufacturing, and contract research and manufacturing services (CRAMS).
On the financial front, Aether has shown strong and consistent financial performance. Profit in the financial year ended March 2021 rose an impressive 92 percent to Rs 71.12 crore over the previous year and annual growth in the bottom line in FY20 was 71 percent at Rs 40 crore.
Revenue from operations in FY21 at Rs 450 crore grew by 49 percent compared to the previous year, coming on top of a 50 percent growth to Rs 302 crore in FY20.
The specialty chemicals maker clocked a profit of Rs 82.91 crore in the nine months to December 2021 on revenue of Rs 442.54 crore, well above what it clocked in its previous full financial year
The company with its experienced promoters and senior management with extensive domain knowledge is looking for decent avenues to deploy the funds, said Jain of Hem Securities.
Managing director Ashwin Jayantilal Desai, executive (whole-time) directors Purnima Ashwin Desai, Rohan Ashwin Desai and Aman Ashvin Desai, who are the promoters of the company, have a combined experience of over 125 years in the chemical industry. Each of the promoters is actively involved in critical aspects of its business, including R&D, process and plant engineering, finance and marketing.
“Considering the growth opportunities for specialty chemicals in the pharma, agrochemicals and FMCG space, and improving prospects for contractual manufacturing and CRAMS under Make-in-India initiatives, we had a ‘subscribe-for long term’ recommendation to this IPO,” said Narendra Solanki, head, equity research (fundamental) at Anand Rathi Share and Stock Brokers.
However, Saurabh Joshi, research analyst at Marwadi Financial Services, has taken a different view and is among the few analysts to advise investors who were allotted shares to book profit on listing day.
He said Marwadi had given subscribe (with caution) rating to this IPO as the company is the sole manufacturer of various chemicals in India but the low and declining cash flow to EBITDA (earnings before interest, tax, depreciation and amortisation) ratio warrants caution from a long-term perspective. “Hence, we recommend investors to square off positions on the listing day itself,” the analyst advised.
Aether Industries has mobilised Rs 808 crore through its public issue, comprising a fresh issue of Rs 627 crore, which will be utilised for repaying debt, capital expenditure for a proposed greenfield project and working capital requirements.
The issue was subscribed 6.26 times during May 24-26 with the portion set aside for qualified institutional buyers and non-institutional investors subscribed 17.6 times and 2.5 times, respectively, while retail investors and employees bought shares a little more than the allotted quota.
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