Sanstar, which manufactures specialty plant-based products and ingredient solutions for food and pet food, is expected to make its market debut with around 25-30 percent premium over the issue price of Rs 95 per share on July 26, following robust IPO subscription numbers, according to experts.
Despite valuations being slightly on the expensive side, the Rs 510-crore initial public offering saw 82.99 times subscription during July 19-23 with investors buying 311.9 crore equity shares against the offer size of 3.75 crore shares. Qualified institutional buyers were at the forefront to boost the subscription numbers, picking 145.68 times, followed by non-institutional investors and retail investors who bought 136.5 times and 24.23 times respectively.
"We believe the investor demand was strong considering an opportunity to invest in one of the leading Indian manufacturers of plant-based specialty products and ingredients derived from maize," Prashanth Tapse, Research Analyst, Senior VP Research at Mehta Equities said. He also believes there are high entry barriers in the maize-based specialty products industry and the B2B nature of their business create significant exit barriers for customers, ensuring a stable and loyal customer base.
Considering healthy subscription demand and unique business matrix, he expects a decent room for listing gain in the range of ~22-25 percent over the issue price.
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The Sanstar IPO had a combination of fresh issuance of shares worth Rs 397.1 crore, and an offer-for-sale of 1.19 crore shares worth Rs 113.05 crore. The Ahmedabad-based company will spend fresh issue proceeds for the expansion of its Dhule facility, and repaying debts, besides general corporate purposes.
In the grey market, an unofficial platform for trading in IPO shares till the listing, Sanstar IPO shares were available at around 30 percent premium, the market observers said.
"After receiving an overwhelming response to the issue, Sanstar is likely to list at a premium of around 32 percent over the issue price," Prathamesh Masdekar, Research Analyst at StoxBox said.
Amit Goel, Co-Founder & Chief Global Strategist at Pace 360 also expects a listing at around Rs 125-130 per share, resulting in a listing gain of around 33 percent.
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Sanstar makes several specialty plant-based products and ingredient solutions such as liquid glucose, dried glucose solids, maltodextrin powder, dextrose monohydrate, native maize starches, modified maize starches, and by-products such as germ, gluten, fiber and fortified proteins.
In fact, it is India's fifth-largest producer of maize-based specialty products and ingredient solutions. It began commercial production at Kutch, Gujarat, and Dhule, Maharashtra facilities in 2006 and 2017, respectively, and have grown to an annual capacity of 3,63,000 tons. "We believe that the company could list at a premium," Narendra Solanki, Head Fundamental Research - Investment Services at Anand Rathi Shares and Stock Brokers said.
Sanstar reported healthy growth on the bottomline front, although it marked inconsistency in its topline. Net profit grew by 59.7 percent on-year to Rs 66.8 crore for the fiscal 2024 with EBITDA rising 35.5 percent to Rs 98.1 crore and margin expansion of 320 bps at 9.2 percent, however, the revenue fell 11.4 percent to Rs 1,067.3 crore compared to previous fiscal 2023.
The company's P/E ratio is 25.7 times based on its FY24 earnings, with a market capitalization of Rs 1,731.3 crore after the issuance of equity shares and a market cap-to-sales ratio of 1.62 times its FY24 earnings. Sanstar is poised for strong growth due to increasing global demand for plant-based products and strategic capacity expansion at its Dhule facility, Narendra Solanki believes.
Sanstar has established long-term relationships with customers, serving over 525 customers, with addition of 162 new customers during FY24. The company plans to expand its customer base by leveraging relationships with existing customers in India and globally while simultaneously pursuing opportunities to develop new relationships.
The company that compares itself with listed players like Sukhjit Starch and Chemicals, Gulshan Polyols, and Gujarat Ambuja Exports, caters to several industries such as pharmaceuticals, animal nutrition, snacks, confectionery, convenience foods, sauces and spices, spreads, paper, and apparels.
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