Chemcon Speciality Chemicals IPO

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(i) They are an ISO 9001:2015 and ISO 14001:2015 certified company for the “Manufacture and supply of pharmaceutical intermediates, silanes, and oilfield chemicals. Chemcon Speciality is a manufacturer of specialized chemicals, such as HMDS and CMIC which are predominantly used in the pharmaceutical industry, and inorganic bromide, namely Calcium Bromide, Zinc Bromide, and Sodium Bromide, which are predominantly used as completion fluids in the oilfields industry.

(ii) As per Frost & Sullivan Report, they were the only manufacturer of HMDS in India and were the third-largest manufacturer of HMDS worldwide in terms of production in the calendar year 2019. They were the largest manufacturer of CMIC in India and the second-largest manufacturer of CMIC worldwide, in terms of production and capacity in the calendar year 2019. Further, they were the only manufacturer of Zinc Bromide and the largest manufacturer of Calcium Bromide in India, in terms of production in the calendar year 2019.

(iii) They have customers in the Domestic and as well as in the export market. The export market consists of products to countries including the United States of America, Italy, South Korea, Germany, the People’s Republic of China, Japan, the United Arab Emirates, Serbia, Russia, Spain, Thailand, and Malaysia. In Fiscals 2020, 2019, and 2018, the revenue from exports was 39.78%, 31.99%, and 47.84%, respectively of the total revenue from operations and the CAGR growth is 17%.

(iv) The key customers of Chemcon are Pharmaceutical Chemicals include Hetero Labs Limited, Laurus Labs Limited, Aurobindo Pharma Limited, Sanjay Chemicals (India) Private Limited, Lantech Pharmaceuticals Limited, Ind -Swift Laboratories Limited, Vivin Drugs & Pharmaceuticals Limited, and Macleods Pharmaceuticals Limited and the key customers of our Oilwell Completion Chemicals include Shree Radha Overseas, Water Systems Specialty Chemical DMCC, and CC Gran Limited Liability Company.

(v) The manufacturing facility is located at Manjusar near Vadodara in Gujarat.

Covid Impact

The company produces chemicals for the Pharmaceuticals industry, so their manufacturing facility was only temporarily shut during the pandemic from March 24, 2020, till March 31, 2020. They resumed manufacturing the Pharmaceutical Chemicals on April 1, 2020.

However, the raw materials for making these chemicals are procured from the local and global markets. So initially they face issues in getting raw materials but the problem is sorted now as the Govt has opened the economy.

Revenue Contributions

1. Pharma Chemicals contribute around 63% in FY19-20.

Pharma Sector is really doing good, so this segment will perform well.

2. Oilwell Completion Chemicals contribute 37% in FY19-20.

The commercial success of the Oilwell Completion Chemicals is dependent upon the level of oil and gas exploration, development, and production activities. The oil and gas exploration and production industry is historically a cyclical industry characterized by significant changes in the levels of exploration and development activities.

According to Frost & Sullivan, the oil and gas industry is experiencing its third price collapse in a decade and globally there is wide-scale destruction of demand associated with COVID-19. Global level travel bans and grounding of international flights has resulted in a substantial reduction in consumption of aviation turbine fuel across the globe and demand for fuels except for LPG and domestic natural gas has also recorded a tremendous drop.

The reduced demand for oil and gas in Fiscal 2021 has resulted in reduced demand for Oilwell Completion Chemicals.

Objects of the Chemcon Speciality Chemicals IPO:

(i) Offer for Sale The promoters are selling 4,500,000 equity shares in the IPO and getting 153 Crores. This fund will not be available to the company. (ii)  Fresh Issue The company is issuing 4,852,940 equity shares in the IPO and will get 165 Crores and same will be utilized for; 1. Capital expenditure towards the expansion of the manufacturing facility. 2. To meet working capital requirements; and 3. General corporate purposes

Chemcon Speciality Chemicals IPO Details:

Open Date: Sep 21 2020
Close Date: Sep 23 2020
Total Shares: 9,352,940
Face Value: ₹ 10 Per Equity Share
Issue Type: Book Building
Issue Size: 318 Cr.
Lot Size: 44 Shares
Issue Price: ₹ 338-340 Per Equity Share
Listing At: NSE,BSE
Listing Date: Oct 01 2020

Promoters And Management:

(i) Kamalkumar Rajendra Aggarwal is the Chairman and Managing Director of the Company. He holds a diploma in petrochemical technology (plastic technology) from the Maharaja Sayajirao University of Baroda, Gujarat. In the past, he was associated with CEPL in the capacity of a director. He has more than 23 years of experience in the specialized chemicals industry. He has been on our Board since January 19, 2004. (ii) Rajesh Chimanlal Gandhi is a Whole-time Director and the Chief Financial Officer of the Company. He holds a bachelor’s degree in commerce from Gujarat University, Gujarat. In the past, he was associated with CEPL in the capacity of Accounts & Finance Manager. (iii) Navdeep Naresh Goyal is the Deputy Managing Director of our Company. He has obtained a passing certificate for completion of his higher secondary examinations from the Gujarat Secondary & Higher Secondary Education Board, Gandhinagar. He is currently associated with SILPL in the capacity of director (operations). He has more than 10 years of experience in operations.

Financials of Chemcon Speciality Chemicals IPO:

Particulars(in Million) Mar-18 Mar-19 Mar-20
Revenue 1,576 3,033 2,620
COGS 793 1,947 1533
Change in Inventory -44 -98 -20
Employee Cost 188 241 140
Other Expense 159 282 288
EBITDA 480 661 679
OPM 30.46% 21.79% 25.92%
Other Income 7 19 39
Interest Cost 30 40 46
Depreciation 22 28 46
Exceptional Item 0 0 0
Profit before tax 435 612 626
Tax 141 181 160
Net Profit 294 431 466
NPM 18.65% 14.21% 17.79%
Shares 36.6 36.63 36.63
EPS in Rs 8.03 11.77 12.72
IZ View 1. The revenue growth is erratic in the last 3 years. 2. Employee benefits expenses in some year rising and in some year declining. This shows the company is not consistently growing. 3. CFO/EBITDA - A measure of how well the company is converting EBITDA into cash is quite dismal for the company. For good companies, it is more than 70%. However, for Chemcon Chemicals, it is just 16% in FY20. The reason being the high receivables. 4. The receivables days have increased from 68 days in FY18 to 122 days in FY20. 5. At the IPO price of 340, the asking P/E is 28x on FY20 earnings.

Comparison With Peers:

The peers like Aarti Industries, Vinati Organics, and Atul Limited are trading at P/E of 40x, 40x, and 31x, respectively.

Recommendation on Chemcon Speciality Chemicals IPO:

Review and Recommendation of InvestorZone are 3/10. The company main line of a business depends upon two sectors i.e Pharma and Oil. The Pharma is doing good but Oil is suffering. The revenue hasn't been consistent in the last 3 years. The CFO/EBITDA numbers are dismal. The asking P/E is also not cheap.

Lead Manager of Chemcon Speciality Chemicals IPO:

  1. Ambit Capital Private Limited

Registrar of Chemcon Speciality Chemicals IPO:

  1. Link Intime India Private Limited

Discussion on Chemcon Speciality Chemicals IPO:

      Hi..i have brought 287 shares @683..chemcon is dropping..should i avg more or exit at some price already huge loss..pls suggest

    Chemcon Speciality Chemicals Limited

    Listing:- Thursday, October 1, 2020 in the list of ‘B’ Group of Securities.

    BSE:- 543233

    NSE:- CHEMCON

    ISIN NO:- INE03YM01018

    CHEMCON Chemical IPO
    GMP 325 +/- 2
    Kostak 475+/- 25

    ✳✳✳✳✳✳

    CAMS IPO
    GMP 320 +/- 2
    Kostak 950 +/- 25

    ✳✳✳✳✳

    Chemcon QIB : 62.83x. HNI : 357.72x. RETAIL : 35.63x. TOTAL : 112.43

    CAMS @3.38 PM. QIB : 53.22x. HNI : 92.64x. RETAIL : 4.89x. EMPLOYEES: 0.61x TOTAL : 37.03

    GMP is indicating good listing gain. So apply. Only concern is weak financials and timid revenue growth. But listing pe Nikal jao

    also i was going through a report in mint by geojit financial services which mentioned P/E is 25.5 whereas in our report it is mentioned as 28 ..not sure which one is correct..

      Please check on the basis of which year financials they have calculate EPS and P/E

    thanks guys for input ..i also feel speciality chemical is in demand and might have greater demand for ipo seeing the mood of investors butnot very sure

    is 3 means not to be subsribed ..i have only seen sbi card given as 6 points and even happy mind was givenjust 5 .. where as per listing shown it should have been given at least 8..3 means not to be subscribed?

      I believe the rating is considering long term prospectus…listing gains wise this will list minimum 50% premium…

      Yes, as our analysis, it is risky to enter Chemcon for long term prospects. The listing game is very different, it depends upon demand and supply. The anchor list will give us a clear picture.