IPO Note - HP Adhesives Ltd By Choice Broking
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Salient features of the IPO:
* HP Adhesives Ltd. (HPAL), a consumer adhesives & sealants company, is coming up with an IPO to raise Rs. 126cr, which opens on 15th Dec. and closes on 17th Dec. 2021. The price band is Rs. 262 - 274 per share.
* In the month of May and Jun. 2021, the company has executed couple of right issues, pursuant to which it has issued 0.123cr shares at Rs. 174.5 per share. It garnered Rs. 21.5cr from the right issue.
* The issue is a combination of fresh and OFS. The company will not receive any proceeds from the OFS part of the issue. From the fresh issue net proceeds, Rs. 26.6cr will be used to fund the proposed expansion of the manufacturing facility; Rs. 54cr will be utilized to meet the working capital requirements of the company.
Key competitive strengths:
* Consistently growing company with established brand presence
* Wide product portfolio and multiple SKUs
* Focusing on multiple end-user industries
* Extensive distribution network across India catering to customers
* Established presence in international markets
* Institutional sales to select large players
* Synergy of young and experienced management team with a committed employee base
* Efficient manufacturing set-up with scope for expansion
* Effective quality checks thereby reducing batch failure
* R&D set up for constant product improvement and new product development
Risk and concerns:
* Delay in the production capacity expansion
* Difficulty in expanding the distribution network and expansion into new regions
* Working capital intensive operations
* Unfavorable product-mix
* Difficulty in maintaining the profitability
* Competition
Below are the key highlights of the company:
* The adhesives & sealants market has clocked an 8-9% CAGR growth between FY15-20, driven by growth in major end-user sectors such as packaging, construction, electronics and woodworking. However, the market stagnated in FY21 because of the Covid-19 pandemic, degrowing at 1-2% CAGR to Rs. 134-136bn in FY21.
* Industrial adhesives formed 58-60% of the total market, while the rest was from the consumer/bazaar (retail) segment. The Rs. 53-55bn retail adhesives segment clocked 8-10% CAGR growth between FY15- 20. Further it is anticipated to grow by 9-10% CAGR over FY21-26, driven by economic recovery and growth in end-user sector. In particular, demand is expected to recover in FY22, growing at 14- 15%, on a low base of FY21. Overall, growth of the retail adhesives segment is expected to moderate and log a CAGR of around 8% between FY22-26.
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