The public offer of Chemcon Speciality Chemicals has been subscribed 149.3 times on September 23, the final day of bidding.
The IPO has received bids for 97.94 crore equity shares against offer size of 65.59 lakh equity shares (excluding the portion of anchor investors), the data available on the exchanges showed.
The demand from retail investors remained strong for Chemcon as the reserved portion for these investors saw 41.2 times subscription, while the portion set aside for qualified institutional buyers was subscribed 113.53 times and that of non-institutional investors 449.14 times.
"Due to over subscription in such a big number, most of the retail investors will be disappointed as they won't get a single lot. We believe a lot is left on the table for the investors by comparing its valuation with other speciality chemical companies. We are positive on the future outlook for the industry as well as the company, so we have recommended subscribing to the issue for long-term as well as for listing gains," Keshav Lahoti, Associate Equity Analyst at Angel Broking said.
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"Due to its position as a leading manufacturer of its products globally, it is getting strong traction among investors," he added.
The IPO consists of a fresh issue of Rs 165 crore and an offer for sale of Rs 153 crore by promoters. Promoters' stake will be reduced from 100 percent pre-IPO to 74.5 percent.
The funds raised from the issue will be utilised to fund capex, meet working capital requirements and for general corporate purpose.
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Chemcon plans to set up two more plants for manufacturing pharma chemicals (capex of Rs 41 crore), which would increase its capacity from 375KL to 626KL (operational by FY22-end). This will help Chemcon expand its reach in India which is currently a net importer of HMDS/ CMIC. Chemcon also aims to expand its product portfolio and usage of its existing products to other industries.
Chemcon is the only manufacturer of HMDS in India and third largest globally. It is also the largest player of CMIC in India and the second largest worldwide. Additionally, Chemcon is the only manufacturer of zinc bromide and the largest of calcium bromide in India. 40 percent of the revenues come from export which has grown at a CAGR of 18 percent over FY18-20. Chemcon enjoys high entry barriers which lead to client stickiness and long standing relationships.
"At the higher end of the price band, the issue is valued at 25.5x FY20 P/E (fully diluted), which is reasonable compared to peers. We like Chemcon given its (1) leadership position in niche products, (2) high entry barriers and (3) healthy financials. Hence, investors can subscribe to the IPO," Motilal Oswal also said.
Further, considering the bright prospects of chemical companies due to shift of supply chain from China, the brokerage believes Chemcon could be a beneficiary with its planned capex.
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Over FY18-20, Chemcon's revenue/EBITDA/PAT grew at a CAGR of 29/25/36 percent, led by volume and price growth. Its EBITDA margins were strong at 26.8 percent in FY20 given its leadership position.
Given continuous capex incurred over the last three years, the return ratios have tapered down, though healthy with ROE/ROCE at 40/33 percent in FY20, said Motilal Oswal.
The grey market premium of Chemcon has been stable at around Rs 250-280 range since the launch of public issue.
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