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Thursday, 11 March 2021
CM RATING 42/100

Anupam Rasayan

A specialty chemicals company focused on Life Sciences

Total debt of the company stands at Rs. 842 crore. The company intends to repay the debt to the tune of Rs. 564 crore out of IPO proceeds.

Anupam Rasayan is one of the leading companies engaged in the custom synthesis and manufacturing of specialty chemicals in India. It commenced its business as a partnership firm in 1984 as a manufacturer of conventional products and have, over the years, evolved into custom synthesis and manufacturing of life science related specialty chemicals and other specialty chemicals, which involve multi-step synthesis and complex technologies, for a diverse base of Indian and global customers.

The company has two distinct business verticals (i) life science related specialty chemicals comprising products related to agrochemicals, personal care and pharmaceuticals, and (ii) other specialty chemicals, comprising specialty pigment and dyes, and polymer additives. In Fiscal 2020 and in the nine months ended December 31, 2020, revenues from life science related specialty chemicals vertical accounted for 95.37% and 93.75%, respectively of total revenue from operations, while revenue from other specialty chemicals accounted for 4.63% and 6.25%,

respectively in such periods.

Mr. Anand S Desai, Dr. Kiran C Patel, Ms. Mona A Desai, KPI LLC (Kiran Pallavi Investments LLC )and RIRCPL (Rehash Industrial and Resins Chemicals Private Limited) are the promoters of the company. KPI LLC is an investment holding company and does not carry on any active business. KPI LLC is jointly promoted by Dr. Kiran C Patel which holds 99.99% percentage interest and and Dr. Pallavi Patel holds 0.1% percentage interest. RIRCPL was incorporated as a private company limited by shares and is involved in the business of trading of chemicals. Mr. Anand S Desai, is the promoter of RIRCPL and holds 98.89% of the equity share capital of RIRCPL.

The company has currently have six manufacturing facilities situated in Gujarat, with four facilities located in Sachin, Surat, Gujarat and two facilities located in Jhagadia, Bharuch, Gujarat. Its facilities have an aggregate installed capacity of 23,438 tonne as of December 31, 2020. The manufacturing facilities are highly automated and are equipped with glass-lined, titanium cladded and stainless steel reactors enabling it to manufacture a diverse range of products, minimize the number of employees required, and as a result, reduce cost and human error. Each of its manufacturing facilities has the ability to manufacture a wide range of products and products can be inter-changed to address the requirements of customers. In addition, the power requirements for their facilities are met through local state power grid through interstate open access, while water is procured from GIDC (Gujarat Industrial Development Corporation). Capacity utilisation for Fiscals 2018, 2019 and 2020 and in the nine months ended December 31, 2020 was 86.45%, 75.38%, 80.53% and 74.65%, respectively.

The key raw materials used in manufacturing operations include phenol and benzene derivatives, such as para chloro phenol and meta dichloro benzene, bromine, various chloro and fluoro intermediates, solvents and chloro-alkalies. In Fiscals 2018, 2019 and 2020 and in the nine months ended December 31, 2019 and 2020, the cost of materials consumed represented 57.18%, 50.87%, 55.90%, 55.42% and 58.22%, respectively, of its revenue from operations in the same periods. The company usually does not enter into long-term supply contracts with any of its raw material suppliers. The purchase price of raw materials generally follows market prices.

The company's backward integrated Jhagadia Unit – 4 facility enables it to manufacture key raw materials for certain products, which has enabled it to reduce its reliance on imports, specifically from China, third party supplies and logistics costs. As a result of this integration, dependence on imported raw materials as a percentage of total raw materials purchases has decreased from 26.01% in Fiscal 2018 to 25.95% in Fiscal 2019 and further to 22.44% in Fiscal 2020. In particular, imported raw materials from China as a percentage of total raw materials purchases decreased from 17.10% in Fiscal 2019 to 12.17% in Fiscal 2020.

The company has developed strong and long-term relationships with various multinational corporations, including, Syngenta Asia Pacific, Sumitomo Chemical Company and UPL that has helped it to expand its product offerings and geographic reach across Europe, Japan, United States and India. In particular, it has been manufacturing products for certain customers for over 10 years. In the nine months ended December 31, 2020, it manufactured products for over 53 domestic and international customer, including 17 multinational companies. The Government of India has also recognized the company as a three star export house.

In Fiscal 2020 and the nine months ended December 31, 2020, revenue from operations from exports accounted for 68.05% and 61.38%, respectively, of total revenue from operations in such periods. Revenue from Europe, Japan and United States accounted for 35.97%, 5.83%, 3.69%, respectively, in Fiscal 2020, and 31.43%, 15.32% and 0.99%, respectively, in the nine months ended December 31, 2020.

The company has a dedicated in-house R&D facility and a pilot plant located at Sachin Unit – 6, which is equipped with laboratories engaged in process development, process innovation, new chemical screening and engineering, which assists it in pursuing efficiencies from the initial conceptualization up to commercialization of a product. The R&D team has successfully carried out multi-step synthesis and scale-up several new molecules in the area of life sciences related specialty chemicals and other specialty chemicals, and as a result, expanded its commercialized product portfolio from 25 products in Fiscal 2018 to 34 products in Fiscal 2020 and 41 products in the nine months ended December 31, 2020. As of December 31, 2020, it has a dedicated team of over 42 employees in R&D department. The Department of Scientific and Industrial Research has also recognized the in-house R&D facility.

Revenue generated from sales of top 10 customers represented 86.65% and 84.01% of its revenue from operations in Fiscal 2020 and in the nine months ended December 31, 2020, respectively.

The Offer and the Objects

The offer comprises of a fresh issue of 13693694 equity shares at upper price band of Rs 555 and 13743219 equity shares at lower price band of Rs 523 aggregating up to Rs 760 crore by the company. The share sale includes a reservation of up to 220,000 shares for subscription by eligible employees who would also be offered a discount of Rs 55 per share.

The company intends to utilize Rs 563.698 crore of the net proceeds towards repayment/prepayment of certain indebtedness availed by the company (including accrued interest) and balance for general corporate purposes. Total debt as on 31st December 2020 stands at Rs 841.975 crore.

Strengths

India’s specialty chemicals industry is expected to grow at a CAGR of approximately 10% to 11% over the next five years, due to rising demand from end-user industries, along with tight global supply on account of stringent environmental norms in China. Further, the India accounts for approximately 1% to 2% of the global exportable specialty chemicals, indicating a large scope of improvement and widespread opportunity

Custom synthesis manufacturing is on the rise in India and contract research and manufacturing services market is expected to grow at a rate of 12% in the next five years, owing to strong growth from end-use demand.

The company’s ability to meet stringent quality and technical specifications & customizations, undertake large number of complex chemical reactions and automated manufacturing capabilities, develop in-house innovative processes along with strong technical competencies and R&D capabilities, and transparent cost model, have enabled them to act as a complete one-stop solution for process innovation and development of specialty chemicals for multinational companies in a cost efficient manner.

There exist significant entry barriers in the custom synthesis and manufacturing industry including customer validation and approvals, high quality standards, stringent specifications, and expectation from customers for process innovation and cost reduction. Further, the acquisition of a customer is a long process since the end-customer is required to register the manufacturer with the regulatory bodies as a supplier of intermediate products or active ingredients

The company is one of the leading companies in manufacturing products using continuous and flow chemistry technology on a commercial scale in India. The continuous process technology has distinct advantages over the traditional batch process, which is typically used by specialty chemical companies, in reducing the batch cycle time of a chemical production process and making the process safer and environment friendly as well as energy and cost efficient.

The company has a history of high customer retention and has been manufacturing products for certain customers for over 10 years. Its custom synthesis and manufacturing agreements are typically long-term in nature where the validity of the contract ranges between two to five years, with certain agreements being automatically renewed for a period of one year at a time.

As a fallout of the pandemic, many global pharma and FMCG players are looking to India as a replacement vendor in place of China, which is a significant opportunity for Indian chemical companies

Weaknesses

The company faces competition from both domestic and multinational corporations. The Indian specialty chemicals industry is fragmented in nature. The key players in contract manufacturing include, PI Industries and Aarti Industries. In addition, there are several international players, specifically from China, United States and European Union, engaged in contract manufacturing of specialty chemicals.

Revenues generated from sales to top 10 customers represented 86.65% and 84.01% of revenue from operations in Fiscal 2020 and in the nine months ended December 31, 2020, respectively. The loss of one or more of these significant customers or a significant decrease in business from any such key customer may materially and adversely affect business, results of operations and financial condition

The company derived 68.05% of its revenues from exports during fiscal 2020 while imported raw materials as a percentage of total raw materials purchases was 22.44% over the same period. Operations of the company remain susceptible to sharp changes in forex rates.

The company usually does not enter into long-term supply contracts with any of raw material suppliers. Extreme volatility in the key raw material prices could impact the gross margins to some extent.

The company's manufacturing processes involve manufacturing, storage and transportation of various hazardous and flammable substances which exposes it to operating risks associated with handling of such hazardous materials such as possibility for leakages and ruptures from containers, explosions, and the discharge or release of toxic or hazardous substances, which in turn may cause industrial accidents, fire, personal injury, loss of human life, and third-party property damage and environmental contamination.

Valuation

Anupam Rasayan revenues rose 45% to Rs 539.22 crore in 9M of FY 2021 primarily due to an increase in export sales by 27.87% to Rs 3,30.95 crore, addition of new products in the life science related specialty chemicals vertical and growth in the volume of existing products. Domestic sales increased by 81.05% to Rs 204.55 crore as a result of addition of new domestic customers as well as increase in the number of new products in life science related specialty chemicals. Further, its export and domestic sales also increased on account of addition of two new manufacturing facilities, namely, Jhagadia Unit -5 and Sachin Unit – 6, which were commissioned in March 2020. Operating margins fell 320 bps to 24.3% resulting into 28% increase in operating profit to Rs 130.76 crore. Net profit was up 12% to Rs 48.1 crore.

For FY2020, net sales rose 5% to Rs 528.88 crore. The operating margins rose 690 bps to 25.5%, resulting into 45% increase in operating profit to Rs 134.9 crore. Net profit was up 6% to Rs 52.98 crore.

At the higher price band of Rs 555, the offer is made at around 94.4 times its TTM EPS of Rs 5.9 for the period ended December 31, 2020 on a post-issue equity share capital of Rs 99.1 crore of face value of Rs 10 each. Listed industry peers of the company are PI Industries, Navin Fluorine International and Astec Lifesciences.

PI Industries trades at 52 times its TTM EPS of 44.1 for the period ended December 31, 2020 at the current market price of Rs 2291. Navin Fluorine International trades at 29 times its TTM EPS of 92 at the current market price of Rs 2690. Astec Life Sciences trades at 28 times its TTM EPS of 36.9 at the current market price of Rs 1049.

Anupam Rasayan: Issue Highlights

Fresh issue (in Rs crore) 760
   
Price Band (Rs) 553-555
For Fresh Issue Offer size (in no of shares )  
- in Upper price band 13693694
- in Lower price band 13743219
Pre issued capital (Rs crore) 86.21
Post issue capital (Rs crore)  
- in Upper price band 99.90
- in Lower price band 99.95
Pre issue promoter and Promoter Group shareholding (%) 75.80
Post issue Promoter and Promoter Group shareholding  
-On higher price band (%) 65.41
-On lower price band (%) 65.38
Bid Size (in No. of shares) 27
Issue open date 12/3/2021
Issue closed date 16/3/2021
Listing BSE, NSE
Rating 42/100

 

Anupam Rasayan: Financials

Particulars 1803 (12) 1903 (12) 2003 (12) 1912 (09) 2012 (09)
Total Income 341.43 501.50 528.88 371.81 539.22
OPM 21.5 18.6 25.5 27.4 24.3
Operating Profits 73.54 93.14 134.90 102.02 130.76
Other Income 7.76 19.46 10.51 2.69 23.94
PBIDT 81.30 112.60 145.40 104.70 154.70
Interest 13.96 24.35 45.32 32.13 49.63
PBDT 67.34 88.25 100.08 72.58 105.08
Depreciation 17.57 22.53 28.71 17.42 38.32
PBT Before EO 49.77 65.72 71.37 55.16 66.76
EO 0.00 0.00 0.00 0.00 0.00
PBT after EO 49.77 65.72 71.37 55.16 66.76
Provision for Tax 9.42 15.51 18.40 12.36 18.66
Profit after Tax 40.34 50.21 52.98 42.80 48.10
Share of loss of JV 0.00 0.00 0.00 0.00 0.00
Net Profit 40.34 50.21 52.98 42.80 48.10
PPA 0.00 0.00 0.00 0.00 0.01
Net profit after PPA 40.34 50.21 52.98 42.80 48.10
EPS (Rs)* 4.1 5.1 5.3 # #
*EPS is on post issue equity capital of Rs 99.1 crore of face value of Rs 10 each
# EPS not annualized due to seasonality of business
Figures in Rs crore
Source: Capitaline Corporate Database