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Salient features of the IPO:

* Anupam Rasayan India Ltd. (Anupam Rasayan), one of the leading companies involved in the custom synthesis & manufacturing of specialty chemicals in India is planning to raise up to Rs. 7,600mn through an IPO, which opens on 12th Mar. and closes on 16th Mar. 2021. The price band is Rs. 553 - 555 per share.

* The issue comprises of fresh issue only. Of the net proceeds, around Rs. 5,637mn will be utilized to repayment/prepayment of certain indebtedness availed by the company. Residual funds will be used for general corporate purposes.

Key competitive strengths:

* Strong and long-term relationships with diversified customers across geographies with significant entry barriers

* Core focus on process innovation through consistent R&D, value engineering and complex chemistries

* Diversified & customized product portfolio with a strong supply chain

* Automated manufacturing facilities with strong focus on environment, sustainability, health and safety measures

* Consistent track record of financial performance

* Experienced promoters and strong management team

Risk and concerns:

* Subdued macro economic environment

* Highly working capital intensive business

* Unsustainable profitability margins

* Unfavorable forex movements

* Intense competition

Peer comparison and valuation:

At higher price band of Rs. 555, Anupam Rasayan is demanding a TTM P/E multiple of 95.2x (to its restated TTM EPS of Rs. 5.8), which is significantly higher than the peer average of 33x. Thus the issue seems to be aggressively priced.

Below are a few key observations of the issue: 

* India’s specialty chemicals market is valued at around USD 22bn in 2019 and is expected to grow at a 10-11% CAGR over the next five years to reach a size of USD 37bn in 2024E. Growth would be aided by the rising demand from end-user industries along with strict global supply on account of stringent environmental norms in China. Also the world is looking to reduce its dependence on China post the outbreak of Covid-19 pandemic. Custom synthesis & manufacturing operations is also rising in India and is expected to grow at 12% in the next five years, owing to strong growth from end-use demand.

* China accounts for around 17-18% of the world’s exportable specialty chemicals, whereas India accounts for only 1-2%, indicating a large scope of improvement and widespread opportunity. It is anticipated that the specialty chemicals could be the next export pillar for India.

* Anupam Rasayan is one of the leading companies engaged in the custom synthesis & manufacturing of specialty chemicals in India. Initially started as a manufacturer of conventional products, the company has over the years evolved into custom synthesis & manufacturing of life science related specialty chemicals and other specialty chemicals.

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