Specialty chemicals company, Anupam Rasayan India opened its Rs 760-crore initial public offering (IPO) for bidding on March 12. The issue will close on March 15. It is completely a fresh issue by the company and the net funds will get utilised for debt repayment.
Even though brokerages feel the issue is aggressively priced compared to its peers, all the broking firms that Moneycontrol spoke to assigned a subscribe rating to the issue citing consistent strong financial performance, good long-term relationship with customers, diversified and customised product portfolio of the company.
"The issue price was fixed at Rs 553-555 per share. "Considering TTM EPS of Rs 5.83 on a post-issue basis, the company is going to list at a P/E of 95.16X with a market-cap of Rs 5,544.5 crore. In comparison, Navin Fluorine is trading at a P/E of 29.6X and PI Industries at 51.4X," said Marwadi Shares and Finance.
A huge debt repayment obligation is a key risk, added the brokerage.
Anand Rathi, which also feels the issue is aggressively priced as compared to its peers, also recommended a subscribe rating to the IPO.
"Considering the rising fancy for life care & specialty chemicals segment, the company is expected to do well post listing. Moreover, the company has a strong financial position and has been generating positive cash flow. We are positive on the long-term prospects of the company," the brokerage reasoned.
Incorporated in 1984, Anupam Rasayan operates in two distinct business verticals — life sciences-related specialty chemicals used in agrochemicals, personal care and pharmaceuticals; and specialty pigment & dyes and polymer additives.
In FY20 and in the nine months ended December 2020, life science-related specialty chemicals vertical contributed 95.37 percent and 93.75 percent, respectively, to revenue from operations, while other specialty chemicals contributed 4.63 percent and 6.25 percent to revenue, respectively, during the same period.
Anupam Rasayan posted strong revenue growth of 24.3 percent CAGR between FY18 and FY20. Despite the impact of the COVID-19 pandemic, it posted revenue growth of 45 percent for the nine month period ending December 2020 YoY.
Its EBITDA margin expanded by 397bps during FY18-20 to at 25.5 percent in FY20.
Choice Broking assigned a 'subscribe for long term' rating for the issue considering the sectoral tailwinds and Anupam Rasayan's diversified product applications.
Choice Broking forecasts a 22.6 percent CAGR rise in consolidated topline over FY20-23 to Rs 975.06 crore in FY23. EBITDA margin is expected to contract by 62bps to 24.9 percent in FY23. "While with lower finance expenses, PAT margin may expand by 339bps to a level of 13.4 percent in FY23. RoIC and RoE are likely to expand from 4.1 percent and 3.4 percent in FY20 to 6.5 percent and 7.2 percent, respectively, in FY23."
ICICI Direct believes valuations are on the higher side given that it has been facing constraints towards generating free cash flow owing to higher working capital cycle, leading to a bloated balance sheet and subdued return ratios.
Angel Broking recommended subscribing to the issue, but highlighted similar risks.
"(a) The company has incurred significant indebtedness, and an inability to comply with repayment could adversely affect business. (b) Experiencing insufficient cash flows to meet required payments on debt and working capital requirements, could adversely impact on operation," the brokerage detailed.