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Company Overview

Sanstar Limited, specializes in plant-based specialty products and innovative ingredient solutions.  They are the fifth largest manufacturer of maize based specialty products and ingredient solutions in India. Their extensive portfolio caters to the food industry, animal nutrition, and various industrial applications with an installed capacity of 3,63,000 tons per annum.

Details of the Issue

* Total issue of Rs. 510 Cr, consists of offer for sale amounting to Rs. 113 cr and fresh issue of Rs.397 Cr

* Repayment of borrowing amounting to Rs. 100 cr

* Funding the CAPEX requirement for expansion of Dhule Facility worth Rs. 181.6 cr

Investment Rationale

* Abundant availability of Raw Material

* Increase the revenue contribution from derivative products

* Manufacturing capacities expansion to capture additional market share

* Increasing demand for ready to eat category

Valuation and Recommendation

Sanstar Ltd., a leading player in the maize based specialty products and ingredient solutions in India. The company has a wide spectrum of potential opportunities to grow its business on account of rapid growth in demand for maize in the world. The company has planned a capacity expansion to meet the growing market demand for maize-based products. Also, it expects gradual improvement in the margins in the future by introducing derivatives. Historically, Sanstar’s revenue has grown at 42% CAGR between FY20-24. In terms profitability, operating margins have improved from 7.1% in FY20 to 9.2% in FY24. When compared with peers, the company has outperformed both in terms of revenue growth and profitability. Thus, company’s FY24 return ratios are better than average peer performance; i.e. ROE and ROCE stood at 30.2% / 29.5% (Peer average: 8.9% / 11.1%), respectively.

The issue is valued at 26x to FY24 EPS, which is lower than the peer average of 34.7x. However, if we exclude the Gulshan polyols, the peer average PE valuation comes down to 16.9x, substantially below Sanstar’s valuation. Given the stock’s high growth and profitability metrics, we recommend SUBSCRIBE to the issue for long term investment.

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SEBI Registration number is INH000001766