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Anupam Rasayan India

• Anupam Rasayan India is coming out with a 100% book building; initial public offering (IPO) of 1,35,45,099 shares of Rs 10 each in a price band Rs 553-555 per equity share. 

• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.

• The issue will open for subscription from March 12, 2021 and will close on March 16, 2021.

• The shares will be listed on BSE as well as NSE. 

• The face value of the share is Rs 10 and is priced 55.30 times of its face value on the lower side and 55.50 times on the higher side.

• Book running lead manager to the issue are Axis Capital, Ambit, IIFL Securities and JM Financial.

• Compliance Officer for the issue is Suchi Agarwal.

Profile of the company

The company is one of the leading companies engaged in the custom synthesis and manufacturing of specialty chemicals in India. It commenced business as a partnership firm in 1984 as a manufacturer of conventional products and has, over the years, evolved into custom synthesis and manufacturing of life science related specialty chemicals and other specialty chemicals, which involve multi-step synthesis and complex technologies, for a diverse base of Indian and global customers. Its key focus in its custom synthesis and manufacturing operations is developing in-house innovative processes for manufacturing products requiring complex chemistries and achieving cost optimization.

The company has two distinct business verticals (i) life science related specialty chemicals comprising products related to agrochemicals, personal care and pharmaceuticals, and (ii) other specialty chemicals, comprising specialty pigment and dyes, and polymer additives. In Fiscal 2020 and in the nine months ended December 31, 2020, revenues from its life science related specialty chemicals vertical accounted for 95.37% and 93.75%, respectively, of its revenue from operations, while revenue from other specialty chemicals accounted for 4.63% and 6.25%, respectively, of its revenue from operations, in such periods.

Proceed is being used for:

• Repayment/prepayment of certain indebtedness availed by the company (including accrued interest).

• General corporate purposes.

Industry overview

The Indian chemicals market is valued at approximately $200 billion in 2019 with basic chemicals, also known as commodity chemicals or bulk chemicals, accounting for majority share of 56%. The specialty chemicals industry is driven by both domestic consumption and exports. India’s specialty chemical companies are gaining favour with international multinational companies on account of the geo-political shift after the outbreak of COVID-19 as the world looks to reduce its dependence on China. Currently, China accounts for approximately 17% to 18% of the world’s exportable specialty chemicals, whereas India accounts for only 1% to 2%, indicating that India has a large scope of improvement and widespread opportunity. It is anticipated that specialty chemicals will be the next great export pillar for India. Overall, the specialty chemicals industry is likely to continue to perform well in the near to medium term and is expected to capitalize on the ‘Make in India’ benefits to assume leadership position in the market.

Specialty chemicals are a $22 billion industry already in India and in the next six to seven years, it is expected to become a $44 billion industry. Specialty chemicals, such as, agrochemicals and APIs are seeing an upward shift in the manufacturing. For agrochemicals, domestic consumption and export market were approximately equal in 2019. Although domestic demand is growing with single digit growth rate for agrochemicals, a double-digit growth rate is being experienced in the exports of agrochemicals from India. The exports led demand from these specialty chemical segments which comprise, amongst others, pesticides, active pharmaceutical ingredients and personal care ingredients, are expected to increase manufacturing in India. Contract manufacturing is gaining huge momentum in India primarily on account of cost-effective labour force, research and development capabilities, and Government policies. This is going to increase the exports of specialty chemicals from India. In addition, multinational companies are finding an alternative to China with their ‘China plus one’ strategy. India, being a preferred destination after China, is expected to benefit due to this move.

Pros and strengths

Strong and long-term relationships with diversified customers across geographies: The company has developed strong and long-term relationships with various multinational corporations that has helped it expand its product offerings, processes and geographic reach. Its customers are typically engaged in various industries, including agrochemicals, personal care, pharmaceuticals, specialty pigments and dyes, and polymer additives, and spread across various geographies, which helps it mitigate risks resulting from customer, industry and geographic concentration. It has established relationships with various multinational corporations, such as, Syngenta Asia Pacific, Sumitomo Chemical Company and UPL, across Europe, Japan, United States and India. In the nine months ended December 31, 2020, it manufactured products for over 53 domestic and international customers, including 17 multinational companies. In Fiscal 2020 and the nine months ended December 31, 2020, revenue from operations from exports accounted for 68.05% and 61.38%, respectively, of its total revenue from operations in such periods.

Core focus on process innovation through consistent R&D, value engineering and complex chemistries: The company’s focus on process innovation through continuous R&D and value engineering has been instrumental in the growth of its business and improved its ability to customize products for its customers as well as reduced its cost of goods while maintaining its margins. Its R&D is focused on enabling it to perform multi-step synthesis as well as developing in-house processes and identifying complex chemistries. It has a dedicated in-house R&D facility and a pilot plant located at Sachin Unit - 6, which is equipped with laboratories engaged in process development, process innovation, new chemical screening and engineering, which assists it in pursuing efficiencies from the initial conceptualization up to commercialization of a product. As of December 31, 2020, it had a dedicated team of over 42 employees in its R&D department. The Department of Scientific and Industrial Research has also recognized its in-house R&D facility.

Diversified and customized product portfolio with strong supply chain: The company has, over the years, diversified, expanded and evolved its operations from a manufacturer of conventional products into custom synthesis and manufacturing of life science related specialty chemicals and other specialty chemicals, which has diverse applications across various industries. For instance, its life science related specialty chemical products cater to the agrochemicals, personal care and pharmaceuticals industries, while its other specialty chemicals cater to specialty pigments and dyes, and polymer additives industries. In Fiscal 2020 and in the nine months ended December 31, 2020, revenues from its life science related specialty chemicals vertical accounted for 95.37% and 93.75%, respectively, of its revenue from operations, while revenue from other specialty chemicals accounted for 4.63% and 6.25%, respectively, of its revenue from operations, in such periods. There are very few companies in India that have such diverse segments and the company faces very limited direct competition from the key Indian companies enabling company to be in a strategic position to cater to the diverse market requirements.

Automated manufacturing facilities with strong focus on environment, sustainability, health and safety measures: The company currently have six manufacturing facilities situated in Gujarat, with four facilities located in Sachin, Surat, Gujarat and two facilities located in Jhagadia, Bharuch, Gujarat. Its facilities have an aggregate installed capacity of 23,438 MT, as of December 31, 2020. In its manufacturing operations, it provides large-scale custom synthesis and manufacturing services, offer multi-step synthesis and undertake complex chemical reactions. Its manufacturing facilities are highly automated and are equipped with glass-lined, titanium cladded and stainless steel reactors enabling it to manufacture a diverse range of products, minimize the number of employees required, and as a result, reduce cost and human error. Further, its facilities are adequately supported with sophisticated analytical infrastructure, including, gas chromatography, reaction calorimeters and differential screening calorimeters, enabling it to provide accurate analysis to its customers.

Risks and concerns

Significant proportion of revenues derived from life science related specialty chemicals segment: The company derives majority of its revenues from the sale of life sciences related specialty chemicals which comprise agrochemicals, personal care and pharmaceuticals. In Fiscals 2018, 2019 and 2020, and in the nine months ended December 31, 2020, life sciences related specialty chemicals segment accounted for 92.60%, 93.26%, 95.37%and 93.75% of its revenue from operations, respectively. Accordingly, its revenues are dependent on the end user industries that use its products as an input. However, its revenue from the sale of life sciences related specialty chemicals may decline as a result of, amongst other, (i) seasonality of demand for its customers’ products, which may cause its manufacturing capacities to be underutilized during specific periods; (ii) its customers’ failure to successfully market their products or to compete effectively; (iii) loss of market share, which may lead its customers to reduce or discontinue the purchase of its products; (iv) economic conditions of the markets in which its customers operate; (v) increased competition; (vi) outbreak of infectious disease, such as COVID-19, (vii) pricing pressures; and (viii) regulatory action, which could have an adverse effect on its business and sales to its customers would decline substantially.

Operations depends on research and development: The life sciences related specialty chemicals, comprising agrochemicals, personal care and pharmaceuticals, and other specialty chemicals, comprising specialty pigments and dyes, and polymers additives, are characterised by technological advancements, introduction of innovative products, price fluctuations and intense competition. The laws and regulations applicable to its products, and its customers’ product and service needs, change from time to time, and regulatory changes may render its products and technologies non-compliant or obsolete. Its ability to anticipate changes in technology and regulatory standards, understand industry trends and requirements, changes in consumer preferences and to successfully develop and introduce new and enhanced products to create new or address unidentified needs among its current and potential customers in a timely manner, is a significant factor in its ability to remain competitive.

Derive significant portion of revenue from certain customers: The company is dependent on a limited number of customers for a significant portion of its revenues. Revenues generated from sales to its top 10 customers represented 86.65% and 84.01% of its revenue from operations in Fiscal 2020 and in the nine months ended December 31, 2020, respectively. While it has developed strong and long-term relationships with certain of its customers, there can be no assurance that its significant customers in the past will continue to place similar orders with it in the future. The loss of one or more of these significant customers or a significant decrease in business from any such key customer, whether due to circumstances specific to such customer or adverse market conditions affecting the chemical industry or the economic environment generally such as the COVID-19 pandemic, may materially and adversely affect its business, results of operations and financial condition.

Manufacturing facilities concentrated in single region: The company’s manufacturing facilities are located at Sachin, Surat, Gujarat and Jhagadia, Bharuch, Gujarat. Any materially adverse social, political or economic development, natural calamities, civil disruptions, or changes in the policies of the state government or state or local governments in this region could adversely affect manufacturing operations, and require a modification of its business strategy, or require it to incur significant capital expenditure or suspend its operations. Any such adverse development affecting continuing operations at its manufacturing facilities could result in significant loss due to an inability to meet customer contracts and production schedules, which could materially affect its business reputation within the industry. The occurrence of, or its inability to effectively respond to, any such events or effectively manage the competition in the region, could have an adverse effect on its business, results of operations, financial condition, cash flows and future business prospects.

Outlook

Incorporated in 1984, Anupam Rasayan is one of the leading companies engaged in the cotton synthesis and manufacturing of specialty chemicals in India. The business has 2 verticals; Life Science related specialty chemicals that are used in agrochemicals, personal care, and pharmaceutical sector and other specialty chemicals i.e. pigment & dyes, polymer additives, etc. It is also one of the leading companies in manufacturing products using continuous and flow chemistry technology on a commercial scale in India. Further, it has a dedicated in-house R&D facility and a pilot plant located at Sachin Unit - 6, which is equipped with laboratories engaged in process development, process innovation, new chemical screening and engineering, which assists it in pursuing efficiencies from the initial conceptualization up to commercialization of a product. It has demonstrated consistent growth in terms of revenues and profitability. On the concern side, the company requires a substantial amount of capital and will continue to incur significant expenditure in maintaining and growing its existing infrastructure, purchase equipment and develop and implement new technologies in its new and existing manufacturing facilities. The specialty chemicals industry provides for significant entry barriers. It faces competition from both domestic as well as multinational corporations and its inability to compete effectively could result in the loss of customers, hence, its market share, which could have an adverse effect on its business, results of operations, financial condition and future prospects.

The issue has been offered in a price band of Rs 553-555 per equity share. The aggregate size of the offer is around Rs 749.04 crore to Rs 751.75 crore based on lower and upper price band respectively. On the performance front, the company’s total revenue increased by 3.54% from Rs 5,209.61 million in Fiscal 2019 to Rs 5,393.87 million in Fiscal 2020. The company has recorded a profit after tax and share of profit of associate (i.e. Atharva Exochem from April 1, 2018 to March 26, 2019) of Rs 529.75 million in Fiscal 2020 compared to Rs 492.48 million in Fiscal 2019. The company aims to strengthen its leading market position in custom synthesis and manufacturing operations in India and achieve better economies of scale by organic and inorganic growth. It intends to continue to focus on its ability to customize its products according to the specific requirements of its customers and broaden its portfolio through innovation, focus on sustainable solutions, undertake new chemistries and perform multi-step synthesis of niche products.