Anupam Rasayan

IPO Snapshot

Anupam Rasayan is launching a Rs. 760 crore IPO between Fri 12^th Mar to Tue 16^th Mar 2021, in the price band of Rs. 553-555 per share for debt repayment. Issue represents 13.7% of post-issue capital, with listing on 24^th Mar.

Specialty Chemicals Company for Agro-Chemicals

Custom specialty chemicals for agro-chemicals majors like Sygenta, Sumitomo Chemicals, UPL, which accounts for 2/3^rd of Rs. 530 cr revenue in FY20, besides catering to personal care and pharma sectors. Exports account for 2/3^rd revenue, largest geographies being Europe (36% of revenue), Singapore (17%), Japan (6%) and US (4%).

Front-Loaded Rs. 800 cr Capex to Double Capacity

In past 4 years, company’s capacity doubled to ~23,500 MT, via Rs. 800 cr capex, funded by a mix of debt and equity from a US based cardiologist Dr Kiran Patel. Fixed assets have increased from Rs. 367 cr as of 31.3.18 to Rs. 973 cr as of 31.12.20, with another Rs. 115 cr under capital work-in-progress, as of 31.12.20, yet to be commercialised. Capex cycle is largely behind the company and issue proceeds will retire Rs. 564 cr bank loan, of Rs. 842 cr total debt.

76% promoter holding will decline to 65% post IPO. Dr. Kiran Patel’s 42% stake is classified as promoter, but strangely a director Mr. Milan Thakkar’s 23% stake is shown as financial investor, who has actually guaranteed company’s Rs. 500 cr loans and whose residential flat rent is borne by the company. Wonder why?

Margins to Improve, but other Financial Parameters sub-optimal

After 47% YoY growth in FY19 revenue, FY20 revenue growth was only 5% to Rs. 529 cr. With commissioning of new capacity in March 2020, 9MFY21 revenue rose 45% YoY to Rs. 539 cr. EBITDA however grew only 28% YoY in 9MFY21 to Rs. 131 cr due to input price risk borne by the company, as annual prices are contracted with customers over quarterly reset of raw materials from suppliers. To partly mitigate this risk, company carries 6-7 months inventory, against industry average of 1.5-2.5 months, highlighting poor working capital management and lower return ratios to single digit. These two remain key financial risks, despite healthy revenue growth visibility. High depreciation and interest burden lead to 8% YoY fall in 9MFY21 PBT excluding exchange difference to Rs. 57 cr. EPS for 9MFY21 stood at Rs. 6 over Rs. 7 for FY20. Once debt is repaid and capacity ramps up further, bottomline should also rise in proportion to topline growth from FY22 onwards.

Lofty Valuation:

At Rs. 555, company’s market cap will be Rs. 5,550 cr, with Rs. 5,750 cr EV. This leads to PE multiples of 68x (FY21E) and 41x (FY22E), which are very aggressive. FY22 net margins may rise to 14% from current 9%, but company will continue to service Rs. 250 cr debt and RoE will remain closer to 10%, due to high equity. Peers Aarti Industries, SRF, PI Industries fare better than Anupam, on all counts – larger topline at 5x, stronger net margins between 15-18%, 18-20% RoE, lower inventory of 1.5-2.5 month, despite ruling at much lower PE multiples of 25-35x (FY22E). Thus, even though Anupam’s financial parameters in FY22E will be a notch lower than peers, its one year forward PE expectation of 41x today is superior to all of them.

Conclusion:

Positives of visible topline and bottomline growth is overshadowed by aggressive IPO pricing given (i) poor working capital, (ii) input price risk (iii) future net margins seen below peers. Thus one can give the issue a miss, and instead focus on some of the larger listed peers, recommended by us exclusively to our members here. 

Grey Market Premium (GMP) of Anupam Rasayan: Grey Market Premium of Anupam Rasyan is an unofficial figure, against guidelines of SEBI and we are strongly against it. To know how it operates, read our article ‘grey market premium’.

Disclosure: No Interest.