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HP Adhesives lists at 16% premium, what should investors do?

HP Adhesives IPO | The company saw a strong response to its initial public offering, which was subscribed 21 times

December 27, 2021 / 11:40 AM IST
HP Adhesives IPO

HP Adhesives IPO

Adhesives and sealants company HP Adhesives saw a decent listing on December 27, opening 16 percent higher at Rs 319 on the BSE than its issue price of Rs 274 a share.

Looking to raise Rs 126 crore, the company  saw a strong demand from investors for its initial public offering that was open for subscription from December 15 to 17.

The offer was subscribed 20.96 times, with the portion set aside for retail investors booked 81.24 times and non-institutional investors’ 19.04 times. The part set aside for qualified institutional buyers was subscribed 1.82 times.

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The company offers a wide range of consumer adhesives and sealants such as PVC, cPVC and uPVC solvent cement, synthetic rubber adhesive, PVA adhesives, silicone sealant, acrylic sealant, gasket shellac, other sealants and PVC pipe lubricant.

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HP Adhesives had posted a profit of Rs 10.06 crore in FY21 as against a loss of Rs 4.67 crore in the previous year. Revenue during the same period rose to Rs 118.16 crore from Rs 95.47 crore.

Profit in the six months ended September 2021 stood at Rs 3.1 crore, up from Rs 2.93 crore in the corresponding period last year. Revenue jumped to Rs 70.51 crore in first half of FY22, up from Rs 44.92 crore in the first half of FY21.

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At 11.03 am, the stock was up 22 percent on the BSE at Rs 334.95.

Should investors book profit or hold on to the stock? Here’s what analysts have to say:

Likhita Chepa, Senior Research Analyst, CapitalVia Global Research

Earlier, expectations for listing gains were ranging at 20-25 percent but, it looks like a weak global market sentiment affected the listing.

The issue witnessed a strong investor response and was oversubscribed majorly, since the size of the issue was comparatively small, despite higher valuations.

We advise investors to book profits at current levels as we expect some correction in its price in the coming weeks.

Santosh Meena, Head of Research, Swastika Investmart

There is potential for the company to grow exponentially in the upcoming years and the capex will guide growth. Investors who got the allotment are advised to keep a stop loss of Rs 300, while new investors can consider Pidilite Industries, which has a long operating history and is the market leader in its field.

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Swapnil Shah, Head of Research, BP Wealth

Volatile financials and the absence of long-term contracts with distributors raise concerns for the stock. Moreover, the issue seems to be fully priced on the valuation front.

Aggressive investors may hold the allotted shares for the long term, while risk-averse investors can look to book profits.

Rajnath Yadav, Research Analyst, Choice Broking

HP Adhesives is a small player in a sector dominated by a well-established player like Pidilite Industries. The company has demanded a TTM P/E valuation of 49.2x, which seems to be on the higher side considering the profitability margins.

The sustainability of the profitability margins is a concern in this inflationary environment. Our advice to retail investors would be to take an exit and avoid fresh buys.

Also read: Top 10 of the 65 public listings that hit the market this year

Prashanth Tapse, VP Research, Mehta Equities

Healthy listing gains seem to be justified though the issue was fully priced on valuations.

Conservative investors should look to book profits and risk-seekers may consider holding the investment for the medium to long-term horizon and if non-allotted investors wish to buy, they should wait and watch to accumulate at a better price in the near future.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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first published: Dec 27, 2021 11:40 am
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