Gem Aromatics
IPO Size: Rs. 451 cr
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Fresh Issue of Rs. 175 cr, to repay Rs. 140 cr of Rs. 220 cr debt
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Offer For Sale (OFS) of Rs. 276 cr: 75% of OFS by promoter (75% to shrink to 55% post IPO) and 25% OFS by US-based strategic investor doTerra Enterprises (25% to drop to 18%, making 40% IRR on 6 year old investment)
Price band: Rs. 309-325 per share
M cap: Rs. 1,698 cr, implying 27% dilution
IPO Date: Tue 19th Aug to Thu 21st Aug 2025, Listing Tue 26th Aug 2025
Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.
Essential Oils and Value-added Aroma Derivatives Maker
Gem Aromatics is a 28 year old manufacturer of mint and clove derivatives, across 3 plants in India. Its products peppermint, menthol, spearmint, clove oil, eugenol, anethola, piperita are used as flavouring and fragrance ingredients in oral care, cosmetics, pharma, nutraceuticals. Geographically, revenue is split equally between India and exports, with US accounting for 31% of Rs. 504 cr topline. However, US tariffs are expected to have minimal impact, as many products are re-exported by the company’s customers.
Capacity to soon Triple
Having undertaken a capex of Rs. 105 cr in FY25, capital work in progress (CWIP) stood at Rs. 125 cr, as of 31.3.25. This is sizeable, as gross fixed asset was at Rs. 63 cr and net fixed assets at Rs. 43 cr, as of 31.3.25. This new capacity is likely to be commissioned in H2FY26, which will triple existing capacity of 5,346 MTPA. With this, company will also makes its entry into a new category and high-margin performance chemical segment of citral.
Double Digit Margin
FY25 revenue grew 12% YoY to Rs. 504 cr, but PAT growth was limited to 7% YoY to Rs.53 cr, translating into a 11% net margin. On small equity of Rs. 9.4 cr (face value Rs. 2 each), EPS stood at Rs. 11.4.
Since half the revenue is generated from exports, inventory holding period as high as 4 months. Outstanding debtors also rose to Rs. 141 cr, from Rs. 80 cr two years ago, accounting for 3.4 months of revenue.
While profit growth was low, company will repay debt, taken for expansion, which will reduce debt equity ratio of 0.8x to 0.2x, post IPO. The lower leverage will free up resources for future working capital, although interest cost savings will be negligible, as pre-expansion finance cost are capitalised.
Attractive Pricing
M cap of Rs. 1,700 cr discounts FY26sE expected PAT of Rs. 70 cr by a PE multiple of 24x, which is not expensive for the capacity expansion underway and double-digit margin. While growth has been tepid, FY25’s 19% RoE is attractive. Moreover, peers are ruling at higher multiple:
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Larger peer Privi Speciality Chemicals is 4x the topline of Gem, but is ruling at a PE multiple of 40x
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Fragrance and flavouring peer S H Kelkar, with Rs. 2,000 cr topline, clocks mid-single digit margin, yet ruling at an adjusted PE of 28x
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Galaxy Surfactants, though operates in different product category, is a B2B FMCG ingredient maker, ruling at a PE of 26x with 7% net margin although on a larger topline of Rs. 4,500 cr.
19th Aug 2025 at 08:05 pm
19th Aug 2025 at 10:05 am