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Published on 21/09/2020 12:54:06 PM | Source: Religare Broking Ltd

IPO Note - Chemcon Speciality Chemicals Ltd By Religare Broking

Posted in IPO Reports| #IPO #Religare Broking Ltd

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About the Company

Objects of the Issue Chemcon Speciality Chemicals Ltd. is one of the leading manufacturer of specialised chemicals, such as HMDS (hexamethyldisilazane) and CMIC (chloromethyl isopropyl carbonate) which are predominantly used in the pharmaceuticals industry ,and inorganic bromides, namely Calcium Bromide, Zinc Bromide and Sodium Bromide, which are predominantly used as completion fluids in the oilfields industry. It is the only manufacturer of HMDS in India and third largest in the world in terms of production. Further, it is the largest manufacturer of CMIC in India and the second largest manufacturer of CMIC worldwide in terms of production. The company garners ~39.8% of its revenue from exports. Some of its key customers in the pharmaceuticals chemicals include, Hetero Labs, Laurus Labs, Aurobindo Pharma, Sanjay Chemicals (India), Lantech Pharmaceuticals. It has its manufacturing facility located at Manjusar (Gujarat) with 7 operational plants. It also has an in-house laboratory at its manufacturing facility to test its raw material and its products at various stages. Further, the company has five leased warehouses located outside its manufacturing facility.

 

Objects of the Issue

* Capital expenditure towards expansion of our Manufacturing Facility

* To meet working capital requirements

* General corporate purposes

 

Valuation

India is currently a net importer of HMDS (40% demand is imported) and CMIC (62% of domestic demand from imports). According to Frost & Sullivan, the demand for HMDS and CMIC is expected to grow at 10.6% and 11% CAGR over 2019-23. Therefore, substituting imports and changing environmental regulations, Chemcon can become a key beneficiary to cater to domestic demand and China’s exports market. Despite growth being impacted in FY20, Chemcon financial performance has been encouraging with Revenue and PAT CAGR of 28.9% and 36.1% over FY18-20. This has been led by positive industry growth trends and company’s leadership position in its products, strong and long standing relationship with its clients. Additionally, the company has low debt levels (0.31x) and strong ratios. We believe the growth momentum can continue going forward led by capacity expansion, penetrating and widening geographical reach, and continued focus on cost efficiency. Further, high entry barriers in this industry limits the competitive intensity for the company. On the valuation front, the company is valued at PE of 22x FY20 EPS. We have a positive view on the company and one can look to invest for long term.

 

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