HP Adhesives Limited will float its Rs 126-crore public offer on December 15. The issue will close for subscription on December 17.
HP Adhesives a multi-product, multi-category consumer adhesives and sealants company. It is one of the leading manufacturers in the consumer/ bazaar segment of the adhesive industry for its largest product category – PVC solvent cement – in India.
It also makes products for select large PVC pipe manufacturing companies. It also sells ancillary products like ball valves, thread seals and other tapes and products for drainage and architectural solutions through its distribution network.
These adhesives and sealants are used in industries such as plumbing and sanitary, drainage and water distribution, general purpose building/ construction and interior operations as well as for glazing operations, woodwork, footwear, automotive, foam-furnishing and other industries.
HP Adhesives has a market share of about 17 percent for solvents. It will be the second-largest company in the segment among listed entities after Pidilite Industries which is the market leader in consumer adhesives and sealants in India with an overall market share of 65 percent.
Features of the IPO
The company intends to mop up Rs 126 crore through this issue by offering 4.6 million shares. The IPO consists of a fresh offer of 4.14 million shares for Rs 113.4 crore and an offer-for-sale of about 457,000 shares by shareholder Anjana Haresh Motwani aggregating up to Rs 12.5 crore.
The shares will be offered at Rs 262-274 apiece, at a face value Rs 10 each. Investors can bid for a minimum of 50 equity shares and in multiples of 50 shares thereafter. Retail investors can invest a minimum of Rs 13,700 for a single lot and their maximum investment is Rs 1,91,800 for 14 lots.
The allotment of shares will be decided by December 22, unsuccessful investors will get refunds by December 23, and successful bidders will get shares credited to their demat accounts by December 24.
The shares of HP Adhesives will list on the BSE and the National Stock Exchange on December 27. The company will use the proceeds from the fresh issue for working capital requirements and capacity expansion at its manufacturing facility at Narangi village of Raigad district in Maharashtra and an additional unit on an adjacent plot. It will also expand the installed capacities at existing product lines and add products to its portfolio.
Brokerage Recommendations
There is a divided house among the brokerages as they have not given a clear verdict whether to subscribe or avoid this public issue.
“HP Adhesives is a consistently growing company with established brand presence catering to multiple end-user industries through a wide product portfolio and has an established international presence,” said brokerage firm Choice Broking in a report.
It added that the company’s operations and business might be impacted by high working capital requirement and difficulty in expanding the distribution network and expansion into new regions.
On the valuations part, the brokerage said that Pidilite had a trailing twelve months (TTM) revenue of over Rs 9,000 crore as compared to HP Adhesives’ topline of Rs 144 crore in FY21.
Also, the profitability of HP Adhesives is lower as compared to Pidilite, thereby generating a caution on the company’s future profitability margin trend.
“At a higher price band of Rs 274, the company is demanding a TTM P/E multiple of 49.2x, which seems to be at a premium considering the small business size. Thus, we assign a ‘subscribe with caution’ rating for the issue,” said the brokerage.
“The company had negative cash flows in the past and it is possible that it may experience negative cash flows in the future too,” said Marwadi Financial Services in its report while highlighting the risks faced by the company.
The brokerage added that considering the TTM (September 2021) adjusted EPS of Rs 5.57 on a post-issue basis, the company is going to list at a P/E of 49.23 with a market cap of Rs 504 crore, while its peer Pidilite Industries Limited is trading at P/E of 89.75.
It assigns a ‘subscribe’ rating to this IPO as it believes that the company is a fast-growing adhesives and sealants player with an established brand presence and available at reasonable valuation compared to its peer.
In the last three fiscals, the company has posted an average EPS of Rs 3.19 and an average Return on Net Worth (RoNW) of -18.38 percent. “The issue is priced at a P/BV of 10.38 based on its NAV of Rs 26.39 as of September 30, 2021, and at a P/BV of 3.33 based on its post-issue NAV of Rs 82.18 (at the upper cap)”, said Dr Ravi Singh, Vice President and Head of Research, ShareIndia.
On the basis of these valuations, he suggests investors to ‘avoid’ the subscription right now and watch the future growth of the company for fresh investment.
Anchor Investors
The company on December 14 mopped up Rs 56.68 crore from three anchor investors by allocating 20,68,700 equity shares at the upper price band of Rs 274 per equity share.
Coeus Global Opportunities Fund bought 5,47,500 equity shares, 3 Sigma Global Fund 9.66 lakh equity shares, and AG Dynamic Funds acquired 5,55,200 equity shares in the company, through the anchor book.
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