IPO Note - Anupam Rasayan India Ltd By Geojit Financial
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An export oriented B2B business…
Anupam Rasayan India Ltd (ARIL) incorporated in 1984 at Surat, Gujarat, is one of the leading manufacturers of custom synthesis (exclusive synthesis of compounds on behalf of the customer) and specialty chemicals in India. With strong global customer base, 68% of products are exported. Key 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 FY20 revenue from the life science related specialty chemicals accounted for 95% while revenue from other specialty chemicals accounted for 5%.
* India’s specialty chemicals industry is expected to grow at a CAGR of 11% while contract research and manufacturing services market to grow by 12% over the next five years. Tight global supply chain on account of stringent environmental norms in China and post Covid-19 scenario, opportunity has increased for domestic companies.
* India accounts for approximately 2% of the global exportable specialty chemicals, indicating widespread opportunity.
* ARIL supplies key intermediates & API (active pharma ingredients) to customers as raw materials for production of insecticides, antibacterial and ultra violet protection products, and pharmaceutical products.
* It has total 6 manufacturing facilities with an aggregated installed capacity of 23,438 MT. Of that 2 units were commissioned recently in March 2020 and the capacity utilization is at 75% (3yr avg.), instigating further improvement.
* The total revenue has increased at a CAGR of 24% from FY18 to FY20 while PAT grew at 15% CAGR in FY18-20 with an average EBITDA Margin of 21.9%.
* PAT Margin (avg. 10.6%) is lower due to higher depreciation and finance costs, which is expected to decrease in future.
* Average RoE was 10% in last three years and will improve as capacity utilization increases and debt is repaid post IPO.
* The company completed major capex plans of Rs.800cr in last three years and has started yielding results.
* ‘China plus one’ strategy by MNCs to find an alternative to China and GoI’s ‘Make in India’ campaign are expected to act as a stimulus for chemical industry.
* At the upper price band of Rs.555, ARIL is available at a PE of 86.4x (annualized basis on FY21E EPS of 6.4) which is aggressively priced. Focus on R&D, cost rationalization, strong tie-ups with MNCs and improving margin profile, we expect profitability to improve led by higher capacity utilization and reduction in debt. We assign a Subscribe rating, with a long term perspective.
Purpose of IPO
The Offer comprises of only Fresh Issue. The Company intends to utilize Rs.563.7cr of the Net Proceeds towards repayment of outstanding borrowings (total debt Rs.841.98cr) and general corporate purposes.
Key Risks
* Significant portion of revenue from a limited number of markets & segments.
* Adverse changes in health, safety, labour, and environmental laws.
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