The initial public offering of Chemcon Speciality Chemicals has received strong response on the very first day of bidding itself, which is September 21.
The Rs 318-crore public issue has been subscribed 5.18 times as it received bids for 3.4 crore equity shares against offer size of 65.59 lakh equity shares (excluding anchor book portion), the bidding data available on the exchanges showed.
Retail investors seem to be in a strong position as they put in 9.8 times higher bids against their reserved portion. The reserved category of non-institutional investors has seen 1.2 times subscription and that of qualified institutional investors' at 0.04 percent.
Chemcon Speciality Chemicals is a manufacturer of specialised chemicals, such as HMDS and CMIC, which are predominantly used in the pharmaceuticals industry, and inorganic bromides, namely Calcium Bromide, Zinc Bromide and Sodium Bromide, which are predominantly used as completion fluids in the oilfields industry.
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The public issue consists of a fresh issue of Rs 165 crore and an offer for sale of 45 lakh equity shares (or Rs 153 crore at higher end of price band of Rs 305-306 per share) by promoters Kamalkumar Rajendra Aggarwal and Naresh Vijaykumar Goyal.
Promoters' shareholding in the company will be reduced to 75 percent after public issue. The company has already raised Rs 95 crore (out of total issue size of Rs 318 crore) via anchor book on September 18.
Chemcon will use its fresh issue proceeds for capital expenditure towards the expansion of manufacturing facility, working capital requirements, and general corporate purposes.
In FY20, around 40 percent of its revenue came from export (including deemed exports). For FY20, revenue contribution from pharmaceutical chemicals and oil well completion chemicals was 63.8 percent and 33.5 percent, respectively.
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"At the upper end of the price band, Company demands PE multiple of 22.1x on FY20 basis. None of the listed chemical companies has the same business as Chemcon. Its specialty chemical peers such as Neogen Chemicals, Paushak, Atul and Aarti Industries are currently trading at P/E multiples of 57.0x, 37.6x, 29.6x and 35.6x respectively on FY20 EPS. Return ratios and margins are better than most of its peers," Angel Broking said in its report which was written by Keshav Lahoti.
The brokerage believes company is clearly undervalued compared to its peers; a lot of value is left in the table. As it is positive on the future outlook for the industry as well as the company, it recommended to subscribe issue for long term as well as for listing gains.
But Angel advised investors to keep these investment risks in mind like adverse impact of COVID-19 on oilwell completion chemical business; product portfolio concentration risk (approximately half of the bottom-line depends on HMDS); client concentration risk (59 percent revenue came from top 5 customers in FY 2020); and raw material supply is dependent on China.