IPO Note : Gem Aromatics Ltd by Choice Broking Ltd
Salient features of the IPO:
* Gem Aromatics Ltd. (GAL) is an established manufacturer of specialty ingredients, including, essential oils, aroma chemicals and value-added derivatives in India with a track record of over two decades. The company serves domestic as well as international clients, such as Colgate-Palmolive (India) Ltd., Dabur India Ltd., Patanjali Ayurved Ltd., SH Kelkar and Company Ltd., Rossari Biotech Ltd., Symrise Pvt. Ltd., d?TERRA, Ventos So Brasil Eireli and Anhui Hautian Spices Co. Ltd.
* The public issue is a combination of fresh issue (Rs. 175cr) and OFS (Rs. 262.6 - 276.2cr). GAL will not receive any proceeds from the OFS portion. From the fresh issue net proceeds, it will be utilizing Rs. 140cr for prepayment/repayment of certain borrowings; and residual proceeds will be used for general corporate purposes.
Key competitive strengths:
* Established manufacturer of essential oils and value-added derivatives
* Diversified product portfolio with continuous product development
* Long standing relationship with well-established customers
* Strategically located manufacturing facilities
* Experienced promoters and management team
Business strategy:
* Expand manufacturing capacities for existing and new products
* Expand the product portfolio
* Scaling production of complex compositions
* Focus on sustainability and improving operational and business efficiency
* Expand the geographical reach
Risk and concerns:
* General slowdown in the global economic activities
* Revenue dependence on mint and mint derivatives product category
* High working capital requirements
* Subject to exchange rate fluctuations
* Subject to seasonal fluctuations in availability of raw materials
* Competition
Valuation Overview and IPO Rating
GAL offers a diversified portfolio of 70 products, ranging from the specialty ingredients to various value-added derivatives, which finds applications across a broad spectrum of sector, such as, oral care, cosmetics, nutraceuticals, pharmaceuticals, wellness & pain management and personal care.
At the upper end of its price band, the company is seeking a valuation of P/E multiple of 31.8x (based on FY25 EPS of Rs. 10.2), which is at premium to its peers. Its financial performance is consistent, with an EBITDA margin of 17.6% and a PAT margin of 10.6% in FY25. GAL has plans to expand the product portfolio as well as their customer base. Thus, we recommend a “Subscribe for Long Term” rating for this issue.
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SEBI Registration no.: INZ 000160131
