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Anupam Rasayan Ltd (ARL) is engaged in manufacturing of custom synthesis (CSM) and specialty chemicals in India.

Diversified product portfolio with strong client relationship: ARL enjoyslong standing relationship with its customers, given its fully integrated operations with presence across the value chain. It derives 87% of its revenue from top 10 customers with whom it has long term agreements between 2-5 years. ARL has significantly expanded its product portfolio to 41 of which Life science products catering to agrochemicals, personal care and pharma contribute ~90% of revenue while exports form 60%. Development of new complex chemistries like hydrogenation, photo chlorination along with focus on higher value products would help in increasing the wallet share further.

Major capex behind; asset sweating to support growth:

The CSM market in India is expected to grow at 12% CAGR over next 5 years owing to strong demand domestically led by Government’s Make in India campaign as well as globally due to China+1 strategy adopted by MNCs. Over last 3 years, ARL undertook capex of INR8bn to expand its manufacturing capacity to 23,438MT, majority of which commissioned in Mar’20. Now with major capex behind, the commissioning of assets would help ARL capitalize on the growth opportunities which has started to reflect in 9MFY21 revenues.

Healthy Financials:

Over FY18-20, ARL’s Revenue/EBITDA/PAT grew at a CAGR of 24%/35%/140% while EBITDA margins expanded 397bps to 25.5%. Backward integration in FY15 helped ARL reduce its import dependence to 22% by FY20 and improve its margins. Focus on higher value products too supported margins. In 9MFY21, Revenue/EBITDA/PAT grew 45%/28%/12% YoY. The net D/E stood at 0.9x as of 9mFY21, which post repayment, would reduce to zero. Return ratios are suppressed at ~10% due to huge capex undertaken which could improve with its commissioning.

Issue Size:

The INR7.6bn IPO consists of entirely fresh issue of INR13.7mn shares which would result in promoter’s stake reducing from 75.8% pre-IPO to 65.4% post-IPO. The fundsraised will be utilized to repay debt of INR5.6bn, while the balance will be used for general corporate purpose.

Valuation & View:

We like ARL given its presence in high growth CSM market, wide product portfolio, strong client relationship and high entry barriers. The company is expected to witness strong growth for next 2-3 years given its recent completion of major capex and strong sectoral tailwinds. The issue is valued at 3.5x FY21 P/BV and 7.7x FY21 EV/Sales on an annualized and post issue basis. Though the valuation appears little on a higher side both on absolute and relative basis, in the current scenario market prefers emerging growth stories. Hence we recommend Subscribe.

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