Archean Chemical, Five Star Business Finance to debut today: What could be listing price?

Even the mood of equity markets is positive, which could also support the listing. The benchmark indices rallied more than 6.5 percent in previous four consecutive weeks before having a consolidation in the passing week.

The initial public offering of the specialty marine chemical manufacturer was subscribed 32.23 times with major support by qualified institutional buyers that had bid for 48.91 times. High networth individuals bought 14.90 times the allotted quota and retail portion booked 9.96 times. In fact, the response to issue has been better from day one of subscription.

"Considering excellent response from investors to the IPO, supportive secondary market, and fancy sector demand, Archean Chemical is likely to list around Rs 480-490 levels, which translates to more than 18-20 percent premium over the upper end (Rs 407) of the IPO price band," said Prashanth Tapse, Senior VP Research at Mehta Equities.

Healthy premium listing is justified on the back of reasonable valuations in the specialty chemical sector, which is well supported by China plus one strategy ushering resilient growth with unlimited export opportunity in the long run, said Tapse who is optimistic on the Indian specialty space and believes Archean Chemical will do well in the long term as the industry is getting bigger and bigger.

Archean Chemical Industries is one the leading specialty marine chemical manufacturers in India and the largest exporter of bromine and industrial salt by volume in India, with having 18 global customers in 13 countries and 24 domestic customer. The company is available at the upper end of the IPO price band at 19.7x its TTM (trailing twelve months) earnings attributable to post issue equity demanding a market capitalisation of Rs 5,008.3 crore.

Based on FY22 earnings, the company is valued at 26.5x P/E, 12.4x EV/EBITDA and 5.1x EV/Sales, which seems to be attractive in comparison to its peers, and the industry in which the company operates has high entry barriers, Narendra Solanki, Head- Equity Research at Anand Rathi Shares & Stock Brokers said.

Archean Chemical has consistent top-line & bottom-line growth with cost efficiencies, industry leading position, expansion plans in product lines and capacities. Its revenue from operations in FY22 grew at a CAGR of 36 percent and exports business increased at a CAGR of 29 percent during FY20-FY22.

Its profit for FY22 stood at Rs 189 crore, increasing significantly from Rs 67 crore in previous year, though it had a loss of Rs 36 crore in FY20.

Currently, Archean shares traded with more than 20 premium over issue price in grey market, an official trading platform for IPO shares, Analysts said.

Five Star Business Finance

On the contrary, the non-banking finance company is expected to disappoint investors on its debut day, as analysts see a muted listing on Monday given the substantially low response from investors, rising interest rates and high competition in the space. In fact, the issue failed to get full subscription during November 9-11, and was able to garner 70 percent subscription only.

The QIB portion, which was subscribed 1.77 times, helped the public offer sail through, while the allotted quota of HNIs and retail investors remained undersubscribed (61 percent and 11 percent, respectively).

Headquartered in Chennai, Five Star Business Finance provides secured business loans to microentrepreneurs and self-employed individuals, with a strong presence in south India.

Among the compared peers, as per the RHP, it has the fastest gross term loan growth and a consistent track record of financial growth with increasing revenue and profit. However, "high competition and rising interest rates are big threats to this. Finally, some of its peers are available at a better price in the secondary market," said Parth Nyati, Founder at Tradingo who expects to have a muted to negative listing for Five Star Business because of undersubscription numbers and the nature of the issue being offer for sale.

Given the lukewarm response from investors, the company reduced final issue size to around Rs 1,590 crore, from Rs 1,960 crore earlier. This was entirely an offer for sale by promoters and investors as the company is strongly capitalised.

There is not much activity in the grey market. Its shares were traded at a discount of 1-2 percent in the grey market, analysts said.

Prashanth Tapse of Mehta Equities also expects flat-to-negative listing in best case scenario, considering lower-than-expected response from investors followed by fully priced in IPO and high crowded business segment in the most competitive sector.

Narendra Solanki of Anand Rathi Shares & Stock Brokers also sees listing at par as the issue is fairly priced.

Five Star Business Finance has a strong on-ground collection infrastructure leading to their ability to maintain a robust asset quality and access to diversified and cost effective long term financing with an experienced, cycle tested leadership supported by marquee investors.

Solanki believes the company has a huge opportunity to expand further. The company’s approach to sanction only fully secured loans with SORP (self occupied residential property) as collateral coupled with a focus on strong pre-login assessment minimizes the risk of frequent defaults, but disruptions in the sources of capital and default by borrowers remain key risks, he said.

Five Star Business Finance recorded profit at Rs 453.5 crore for year ended March 2022, rising from Rs 359 crore in previous year and Rs 262 crore in FY20. Revenue from operations increased to Rs 1,254 crore in FY22, up from Rs 1,050 crore in FY21 and Rs 786.7 crore in FY20.

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