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

To expand business by capitalising on industry opportunities, organic, inorganic growth network

In 2019, the Indian market for custom synthesis and manufacturing was valued at US$11.5 billion in 2019 for specialty chemicals accounting for ~6% of the global custom synthesis and manufacturing market. Custom synthesis manufacturing is on the rise in India while the contract research and manufacturing services market is expected to grow at 12% in the next five years, owing to strong growth from end-use demand. In addition, the ‘China plus one’ strategy and the shift in manufacturing operations and sourcing of raw materials from China on account of tightening of environmental protection norms in China since 2015, increase in operating and labour costs and trade dispute between China and the US, provides an opportunity for India to capture a larger market share.

To diversify product portfolio, expand chemistry expertise

Anupam Rasayan intends to offer a wide range of chemistry competency with emphasis on chemistries like Grignard and new group chemistries such as ethylene oxide, ammoxidation and isobutylene. Currently, only a few companies in India undertake such new group chemistries (Source: F&S Report). Further, these chemistries will enable it to manufacture more products in the life science related specialty chemicals vertical. The company also proposes to cater to customers across new industry segments and in new geographies to grow market share.

Key risk & concerns

* Client concertation remains a key risk

* Higher working capital cycle keeps FCF subdued

* Inability to pass on higher RMAT cost to impact bottomline

Priced at FY20 P/E of 104.7x on upper band

At | 555, the stock is available at 104.7x FY20. We believe valuations are on the higher side given that it has been facing constraints towards generating FCF owing to higher working capital cycle, leading to a bloated balance sheet and thereby subdued return ratios. We expect lower probability of inventory cycle to get normalised and thereby WC cycle, going ahead.

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