Agrochemical company Dharmaj Crop Guard is expected to start trading on December 8 with double-digit gains, given the overall positive sentiment in the equity markets.
The expected listing gains are attributed largely to strong subscription numbers of its initial public offering, better financial performance, and a bullish industry outlook, experts said.
The Rs 251 crore public issue of Ahmedabad-based Dharmaj was subscribed 35.5 times during November 28-30, with qualified institutional buyers and high net worth individuals bidding for 48 times and 52 times their respective allotted quota. Retail investors put in bids for 21.5 times the shares in the portion reserved for them. The price band for the offer was Rs 216-237 per share.
Dharmaj’s grey market premium indicated a listing gain of about 20 percent, analysts said.
“Backed by an optimistic market mood along with robust demand in subscription by all kinds of investors, Dharmaj Crop could debut with a premium on its issue price of Rs 237 per share,” said Prashanth Tapse, senior VP for research at Mehta Equities.
Considering better utilisation of the IPO proceeds and reasonable valuations, he expects the listing would be at Rs 280-290 levels, which translates to a premium of 18-22 percent over the upper end of the IPO’s price band. The bulk of the IPO proceeds will be used to fund the setting up of a manufacturing facility in Gujarat and working capital requirements.
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Narendra Solanki, head of equity research at Anand Rathi Shares & Stock Brokers, also expects a positive listing for Dharmaj Crop.
Dharmaj Crop manufactures agrochemical formulations such as insecticides, fungicides, herbicides, plant growth regulators, micro fertilisers and antibiotics. It has strong R&D capabilities with a focus on innovation and sustainability.
At the upper end of the price band, the IPO was at 27.9x its FY22 earnings and 9.4x to P/BV with a market capitalisation of Rs 801 crore.
“The valuation of the IPO appears to be reasonable when we compare with listed peers. The company has the agrochemical segment and has created a niche place with its B2C and B2B model,” Solanki said.
Santosh Meena, head of research at Swastika Investmart, said the industry outlook is bullish.
“The upward momentum in pesticide industry output is expected to continue, backed by a growth in food consumption in the domestic market amid an expected increase in population, government support for agriculture, demand from export markets, and the horticulture and floriculture markets, among others,” he explained.
The availability of pesticides and agrochemicals in India is low, and Meena said this poses an opportunity for growth for agrochemical producers. In addition to this, the government’s aim to reduce dependency on China and improve self-sufficiency is expected to support industry’s backward integration and thus its growth, he said.
Dharmaj has consistently been reporting healthy growth in earnings with profit in FY22 rising 37 percent to Rs 28.69 crore and revenue from operations increasing 70 percent to Rs 219.54 crore.
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