Chemcon Speciality Chemicals Limited - IPO Review & Analysis

 

Chemcon Speciality Chemicals Ltd


Disclaimer: The information and opinions provided in this article are for educational purpose only. It should not be construed as any form of investment recommendation. Kindly consult your financial advisor before making any investment decision. 


About IPO:

Chemcon Speciality chemicals plans to raise Rs. 318 Crore from its three-day IPO starting from 21st Sept 2020 – 23rd Sept 2020. The price band of the issue is been fixed at Rs.338 – Rs. 340 per share. 

Objects of the issue: Capital Expenditure (to expand manufacturing facilities), Working Capital Requirements, & General Corporate purposes.


Company:

Incorporated in 1988, Vadodara-based Chemcon Speciality Chemicals Ltd. (“CSCL” or “the Company”) is a leading manufacturer of specialised chemicals. The Company has mainly two business segments “Pharmaceuticals Chemicals” and “Oilwell Completion Chemicals”.

·       The Pharmaceuticals Chemicals comprise of specialised chemicals such as “HMDS” and “CMIC”, that are used in the process of producing anti-viral and anti-bacterial drugs and a drug for the treatment of tuberculosis. Apart from this, the Company is the only manufacturer of HMDS and largest producer of CMIC in India and is the third-largest manufacturer of HMDS and the second-largest manufacturer of CMIC worldwide. The Pharmaceuticals Chemicals contribute 64% of the total revenue.

 

·       The Oilwell Completion Chemicals are used in the process of oil and gas exploration. Basically, it is used in making the well ready for extraction purpose post the drilling process. Under this segment, the Company produces chemicals such as Calcium Bromide, Zinc Bromide and Sodium Bromide that are predominantly used as completion fluids in the oilfields industry. CSCL is the only manufacturer of Zinc Bromide and the largest manufacturer of Calcium Bromide in India. The Oilwell Completion Chemicals contribute 36% of the total revenue.


Management:

The Company has a strong and experienced management team who have specialisation in the fields of finance, manufacturing, quality control, strategy, raw material sourcing, process re-engineering and business development.

 

·       Kamal Kumar Rajendra Aggarwal is the Chairman and Managing Director of the Company. He holds a diploma in petrochemical technology and has more than 23 years of experience in the specialised chemicals industry. He is on board since 2004.

 

·       Rajesh Chimanlal Gandhi is a Whole-time director and the Chief Financial officer of the Company. He holds a bachelors degree in commerce and has more than 20 years of experience in finance and accounts. He is on board since 2012.

 

·       Navdeep Naresh Goyal is the Deputy Managing Director of the Company. He is a 12th pass out and holds more than 10 years of experience in operations. He is on board since 2015.


The Promoters hold 100% shareholding of the company which will further drop down to 74.5% post-initial public offer.

 

Financials Analysis:

1.     The revenue is increasing at a CAGR of 29%, whereas the revenue has been declined by 13.9% during FY20. 

2.     Despite lower revenue in FY20, the EBITDA margins have grown by 6.3%, (whereas CAGR stands at 25%) and the Net profit margins have grown by 13.4% (whereas CAGR stands at 36%)

 

3.     The ROE stands at 43.2% and ROCE at 36.7%

 

4.     The Company is trading at a P/E of 22.1x based on the upper price band.

(Opinion: The closest peers Neogen Chemicals, Paushak, Atul and Aarti Industries are trading at 57.0x, 37.6x, 29.6x and 35.6x respectively (based on FY20 EPS). So, we can say the valuation of CSCL is cheaper as compared to its peers and we can expect a higher stock premium post IPO and better growth prospects in the long-run)

 

5.     In FY20, around 40% of the total revenue is derived from exports and have been constantly growing at a CAGR of 17.57%.


Pros:


1.     The Company is a leading manufacturer with respect to both the business segment i.e. Pharmaceuticals Chemicals and Oilwell Completion Chemicals in domestic as well as international market.

 

2.     The Company has a diversified customer base worldwide and due to their long-standing relationship with clients, they are able to retain market presence and increase their products reach to new customers. (For instance: Aurobindo pharma limited. are their clients from the past 20 years and around 68.61% of total revenue is derived from repeat customers)

 

3.     Strong and Experienced Management team.

 

4.     The company is willing to expand its production capacity by more than twice the current level, which will boost its revenue and help them in dominating the untapped market. (one of the major objectives of public issue)

 

Cons:


1.     The Company’s “Oilwell completion chemicals” might face a drop-in revenue due to global lockdown, which has indirectly affected the consumption of crude oil. Due to low crude oil demand, the oil extraction activity has been temporarily reduced thus affecting the demand for completion chemicals.

 

2.     The major chunk of net profit is solely dependent on the Company’s single product line i.e. “HMDS” (43.79%).

 

3.     High Customer Concentration: Almost 59% of the revenue is been generated from the top 5 clients. If any customer pulls out, it might severely affect the top line of CSCL.

 

4.     The company heavily relies on China for procuring some of its raw material. As per the current scenario, India is not in good terms with China and thus any adverse policy change might impact the company’s input cost to a larger extent.


Source: Chemcon Speciality Chemicals - RHP


Thanks for reading

If you have any queries, you can drop me a mail at thefinancemagic@gmail.com or you can drop a comment in the below comment section and we will get back to you as soon as possible. Till then check out our other popular articles 

Let’s spread financial literacy together.

Do subscribe to get notifications of the latest articles.


Thanks for reading.

The Finance Magic

Previous
Next Post »

2 comments

Click here for comments
Unknown
admin
September 22, 2020 at 6:22 AM ×

excellent analysis. I will surely apply and purchase on listing.

Reply
avatar
Mr. Demo
admin
September 27, 2020 at 5:55 AM ×

Thanks for the information

Reply
avatar

Please do not spam ConversionConversion EmoticonEmoticon