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Last Updated : Oct 28, 2015 01:47 PM IST | Source: Moneycontrol.com

Cobra maker SH Kelkar IPO opens today: Subscribe or avoid?

Ajcon Global recommends subscribe to the issue. It is betting on Kelkar being largest domestic producer of fragrance, market leadership position, significant share in domestic market, major beneficiary of increasing demand from FMCG companies specifically present in personal care, packaged foods & dairy products.


Moneycontrol Bureau


Amidst hustle and bustle in the primary market, SH Kelkar has launched its initial public offering (IPO) today. The fragrance and flavour company's Rs 500-crore issue priced at Rs 173-180 per share will close on October 30. The Blackstone Group holds 33.28 percent of the company, which has established brands like SHK, Cobra and Keva in the fragrance market.


It has already raised Rs 150 crore from anchor investors. The company allotted shares to investors at a price of Rs 180 apiece. Capital research, T Rowe Price, Neuberger Berman, ICICI Prudential Mutual Fund, Birla Sun Life Mutual Fund, Axis Mutual Fund and Larsen & Toubro Mutual Fund are among the anchor investors that have been allotted shares, which is 30 percent of the issue size.

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Should you subscribe?


Ajcon Global recommends subscribe to the issue. It is betting on Kelkar being largest domestic producer of fragrance, market leadership position, significant share in domestic market, major beneficiary of increasing demand from FMCG companies specifically present in personal care, packaged foods & dairy products.


"Given that SH Kelkar supplies these to over 4,000 companies including Godrej Consumer, Wipro Consumer, Marico, Vini Cosmetics, HUL, Britannia, Vicco Laboratories, Vadilal Industries, amongst others, it only shows the company's standing in the business,” it adds.


Ajcon thinks Kelkar has a well diversified revenue model as no single product or client contributes over 5 percent to its revenues. This is a key positive as makes it less vulnerable to client/product specific setbacks.


Hem Securities recommends subscribe stating that the company has a established market leadership and brand name with comprehensive product offering and diverse customer base.  


Angel Broking suggests “avoid” the issue as its valuation looks expensive. "The company’s global peers Givaudan SA and International Flavors & Fragrances Inc trade at 28.1 times and 20.1 times their CY2014 earnings, respectively. Givaudan and International Flavors & Fragrances have strong market shares in the global market of 21 percent and 12 percent, respectively, and deliver higher return on equity (RoEs). On the other hand, SH Kelkar has negligible market share at the global level," it says in a note.


Angel Broking says investors interested in long term growth prospects of the company and wanting to enter the stock could consider waiting for a possible correction in the stock price post the listing of the IPO.


7 things to know


#1The company proposes to use the issue proceeds for repayment of loans as well as investment in its subsidiary K V Arochem Private Ltd and for other general corporate purposes.


#2 It has four manufacturing facilities, three of which are located in India (Mumbai, Vapi and Raigad) and one in The Netherlands, with a total installed manufacturing capacity of over 19,819 tons annually.


#3 Its fragrance products and ingredients are used as a raw material in personal wash, fabric care, skin and hair care, fine fragrances and household products. Its flavour products are used as a raw material by producers of baked goods, dairy products, beverages and pharmaceutical products. It exports fragrance products to 52 countries and are an emerging flavour producer in India with exports to 15 countries.


#4The company gets 93-95 percent of its revenues from fragrances and rest 5-7 percent revenues come from flavours segment. Its domestic: international revenue is split in 60:40.


#5 It has a market share of approximately 12 percent. The company has established brands like SHK, Cobra and Keva.


#6 Last year, the company manufactured and supplied over 6,300 fragrances. The offerings included fragrance ingredients and flavours for the personal and home care products industry and the food and beverage industry, either in the form of compounds or individual ingredients.


#7 The company has a large and diverse mix of over 3,500 customers, including leading national and multi-national FMCG companies, blenders of F&F, and F&F producers.


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First Published on Oct 28, 2015 01:00 pm
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