The initial public offering of HP Adhesives continued to receive strong response from investors, and was subscribed 20.96 times on December 17, the final day of bidding. It garnered bids for 5.29 crore equity shares against the IPO size of 25.28 lakh shares.
HP Adhesives is a fast-growing multi-product, multi-category consumer adhesives and sealants company. For its largest product category - PVC solvent cement, the company is among the leading manufacturers in the retail space of the adhesive market in India. It had 14-16 percent market share in the PVC adhesive market and generated around 70 percent of the revenue from these products in FY21.
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There has been strong demand for the issue from retail investors as their reserved portion was subscribed 81.24 times.
The part set aside for non-institutional investors was subscribed 19.04 times, while qualified institutional buyers have put in bids 1.82 times the allotted quota.
The Rs 126-crore public issue of HP Adhesives comprises a fresh issue of Rs 113.43 crore and an offer for sale of Rs 12.52 crore by shareholder Anjana Haresh Motwani. The price band for the offer was Rs 262-274 per equity share.
"There is only one comparable peer i.e. Pidilite Industries, with a product profile similar to the company. Pidilite is the market leader with over 60-65 percent market share in the retail adhesive market and had TTM (trailing twelve months) revenue of over Rs 9,000 crore as compared to HP Adhesives' topline of Rs 144 crore in FY21," said Choice Broking.
HP Adhesives also has lower profitability than Pidilite, which could make investors cautious on the company's future profitability margin trend, the brokerage said.
Also read - HP Adhesives IPO. Should you subscribe to the issue?
"At the higher price band of Rs 274, the company is demanding a TTM P/E multiple of 49.2x, which seems to be at premium considering the small business size. Thus, we assign a “subscribe with caution” rating for the issue," the brokerage added.
The adhesives and sealants market clocked 8-9 percent CAGR growth between FY15-20, driven by growth in major end-user sectors such as packaging, construction, electronics and woodworking. However, the market stagnated in FY21 because of the Covid-19 pandemic, degrowing at 1-2 precent CAGR to Rs 13,400-13,600 crore in FY21.
Also read - HP Adhesives IPO: 10 key things to know about the offer
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