Anupam Rasayan- IPO Detailed Review

Detailed Analysis of Anupam Rasayan IPO

Introduction

Anupam Rasayan, one of the leading companies engaged in the manufacturing of specialty
chemicals and custom synthesis has come up with the IPO of Rs. 760 Cr. which is opening for
subscription from 12 th March 2021. What should the shareholders do, whether they should
apply or not? Here is the detailed IPO review for the Anupam Rasayan.

Detailed Review of Anupam Rasayan IPO

1) Anupam Rasayan- Company Overview:

• Anupam Rasayan was incorporated as a Partnership Firm in Surat, Gujarat in 1984.
• In 2003, Company was converted into Public Limited Company in the year 2003.
• It is one of the leading companies engaged in the custom synthesis & manufacturing of specialty chemicals in India.
• Custom synthesis means the exclusive synthesis of compounds a company carries out on behalf of its customer.
• Company has 2 business verticals :

i) Life Sciences related Specialty Chemicals: used in Agrochemicals, Personal Care & Pharma sectors

ii) Other Specialty Chemicals: Comprising of Pigments, Dyes & Polymer Additives.

• Company is having 6 Manufacturing Facilities with aggregate installed capacity of 23,438 MT. 4 Manufacturing Units & 1 R&D Facility at located Sachin and 2 Manufacturing Units at Jhagadia.
• Also, to expand capacity Company has been doing Massive Capex Spends more than Rs.680 Cr in last 3 years (till FY20)
• Company have built long-term relationships with various multinational corporations, including Syngenta Asia Pacific Pte., Sumitomo Chemical Co., UPL Ltd.
• Company has a significant geographical reach including countries like US, Europe, Singapore, etc.

2) Anupam Rasayan- IPO Details:

• Anupam Rasayan IPO window opens from 12^th March 2021 to 16^th March 2021.
• The company aims to raise Rs. 760 cr. through this IPO. It’s an entirely a fresh issue of equity shares
• The price Band of the IPO is fixed at Rs. 553- Rs. 555. The Face value is Rs. 10 per equity share.
• Lot Size in IPO is 27 shares in 1 Lot (in multiple thereof up to 13 Lots).
• Anupam Rasayan is listing on both BSE as well as NSE.
• Of the Total Issue, 2.20 lakh shares are reserved for employees. 50% is reserved for Qualified Institutional Buyers (QIB), 15% for Non-Institutional Bidders (NIB) and 35% for Retail Investors.
• The Objective of issue of IPO are:

i) Debt Repayment of 563.7 Cr. (including accruing interest). Company is having total debt of Rs. 843.5 Cr. As on January 31, 2021

ii) General Corporate Purposes

• Anupam Rasayan has raised Rs. 225 crores from Anchor Investors through multiple pools of capital such as FPI, Domestic Mutual Funds, Insurance Companies, Alternative Funds, etc. Anchor Investors names includes, ABSL Mutual Fund, Nomura Funds Ireland Public Ltd Company, Fidelity International, Sundaram Mutual Fund, SBI Life Insurance Co, IIFL Special Opportunities Fund, Malabar Select Fund, Max Life Insurance.

3) Anupam Rasayan-Financials:

Revenue from Operations:

If we consider the Annualized numbers for FY21, revenue of the company has grown at CAGR of 28.2% between the FY18 to FY21. Revenue from Operation in the FY18 was 341 cr., which went up to Rs. 539 cr. in 9MFY21.

Revenue from Operations-Segment Wise:

• Revenue from Life Science Related Specialty contributes the highest 95.4% (as of FY20) of the total revenue of the company. Contribution to revenue from this business segment decreased by 2.4% in 9MFY21 and currently contributes 93% of the total revenue.
• More than 90% of the company’s revenue is generated from Life Specialty segments which presents the risk of concentrated business.
• Other Specialty Chemicals yields only 4.6% of the total revenue of the company as of FY20. In the 9MFY21, revenue from this business segments have increased by 1.6% and now contributes 6.2%.  

Revenue from Operations-Geography Wise:

• Anupam Rasayan has a wide presence across the globe. And serves MNC clients from Japan, Singapore, Europe & USA, etc.
• Europe: Company obtains a notable amount of revenue from Europe. In FY18, 43% of the revenue accounts to services offered to European Clients. Revenue from Europe has come down to 31.4% in 9MFY21.
• Japan: Anupam Rasayan commenced its business in Japan in 2017 with Sumitomo Chemical Co. Also, Company has witnessed an exponential growth in revenue from Japan over the years. In FY18, Revenue from Japan contributes only 1% to the total revenue of the business, but as of now, it is 15.3% as per 9MFY21.
• Singapore: Revenue from Singapore contributed 12.1% in FY18, the same is down by 1.7% and currently stands at 10.4%.
• United States of America (USA): Revenue from US has remained flat over the year. Of the total revenue, Revenue from US contributes 1%. Company is trying hard to expand its presence in USA.
• Rest of the World: Revenue from other parts of the world contributes 3.2% of the total revenue, as of 9MFY21.
• India: By offering  to over 30 domestic companies, Anupam Rasayan is able to generate almost 40% of the total revenue domestically. Revenue from India in 9MFY21 was 38.7% of the total revenue. Company has witnessed sharp growth in revenue from domestic business.In FY20, Revenue generated from India only accounts to 32% of the total revenue.  

Operating Profit & Margin:

• Company’s EBITDA for FY18, FY19, FY20 & FY21 (Annualized) is Rs. 74 cr., Rs. 93 cr., Rs. 135 cr. & Rs. 174 cr. Respectively.
• EBITDA Margin of Anupam Rasayan have grown at CAGR of 33.3% between FY18 to FY21 (annualized).
• EBITDA Margin of the company has grown by 4% from 21.5% cr. In FY18 to 25.5% in FY20.

Net Profit:

• Profit After Tax (PAT) or Net Profit of the company has grown at CAGR of 17% between FY18 to FY21 (Annualized.)
• Talking about the figures, Net Profit of the company has increased from Rs. 40 crores in FY18 to Rs. 53 Crores in FY20. As per 9MFY21, Net Profit of the company stands at Rs. 48Cr.

Despite putting a significant EBITDA margin growth rate of 33.3%, Company’s PAT CAGR stays at just 17%, mainly due to heavy debt on account of higher Capex.

4) Peer Comparison:

• Anupam Rasayan will have a tough competition in the Life Specialty business. Competitors in this business are SRF Ltd., Astec Lifesciences, PI Industries, Navin Fluorine, Aarti Industries & Hikal Limited.
• In terms of Market Capitalization, PI Industries is the biggest company in this business with market cap. of Rs. 34,758 cr. Post-Listing, Market Capitalization of Anupam Rasayan should be around Rs. 5,544 crores.
• Among all the mentioned peers, Anupam Rasayan has the highest Debt-to-Equity Ratio which currently stands at 1.20.
• Navin Florine has delivered Return on Equity of 33% with zero debts, highest among all the mentioned players. Whereas, Anupam Rasayan has generated RoE of only 12%.
• In terms of Operating Margins also, Navin Fluorine outperforms other market players with the highest margin of 26%. With 24.2%, Anupam Rasayan comes next and the lowest operating margin is of Hikal Ltd. i.e., 18%.
• Overall, Navin Fluorine with the strong financials might be a big competitor for Anupam Rasayan.

5) Strengths:

i) Custom Synthesis Player, Enjoys strong Relationship with Customers

Company enters into long-term contracts with the customers for the time period of 2 years to 5-years.

ii) Diversified customer base.

• Anupam Rasayan has a  diversified customer base which includes clients from domestic as well as Multinational Companies.
• Company deals with 30 domestic companies and 15 MNCs including Sumitomo Chemical Company, Japan, etc.
• From its long-term agreements with customers, Anupam was able to derive 88.5% from their Top-10 customers in H1FY21/

iii) Diversified & customized product portfolio with a strong supply chain

With the prime focus of R&D team on innovation, Anupam Rasayan has expanded their product portfolio from 25 in FY18 to 41 in 9MFY21.

iv) Automated manufacturing facilities with strong focus on environment, sustainability, health and safety measures.

v) Consistent growth in revenue and profitability

• strong revenue growth and profitability in last few years.
• Company’s revenue has grown at CAGR of 24.29% between FY18 to FY20. While, Export of the company has increased at CAGR of 32.94% between the same period.

vi) Experienced promoters and a strong management team

6) Key Risks:

• The company has a significant debt amount of Rs. 843.5 Crores (as on Jan. 31,2021) with a D/E ratio of 1.20. Debt might affect profitability levels of the company.
• Due to high debts, if company is unable repay, it might severely affect the company’s business, credit ratings, cash flows, etc.
• Company had Negative cash flow from operating activities in the past.
• Further, the negative cash flow depicts the poor working capital management in the company. Company maintains inventory for 6-7 months, whereas the industry average is just 1.5-2 months.
• 68% of Revenue of the company comes from Exports exposing high Foreign Currency Risk.
• Also, more than 80% of the revenue comes from Top-10 clients including Sumitomo, UPL, etc., loss of any of the customer, will greatly affect the business.
• Company does not possess any patented products, also there is low expenditure on Research & Development.
• Issuance of Equity shares via preferential allotment by Promoters much lower than the issue Price in time span of 4 months.

7) Valuation:

• At upper price band of Rs. 555 , Company is currently trading at PE of 74. Highest among all the peers.
• In the same industry, Hikal Ltd. reports the lowest PE of 19 among the peers.
• In case of EV/EBITDA, Anupam has a similar EV/EBITDA ratio as of Navin Fluorine. Both the companies share the highest EV/EBITDA in the industry i.e., of 36.
• Considering the above valuation, Anupam Rasayan seems to be overvalued and aggressively priced.

Conclusion:

At the valuation front, the issue seems to be aggressively priced. Certain issues on inventory cycles, debts and key ratios adds points to the concern. On a longer time, horizon, specialty chemicals industry may grow at significant rate on account of benefit from Govt. PLI scheme, developing specialty chemicals industry, etc., but current valuations and financials of the company add a question of worry as of now. On the first day, this IPO got an overwhelming response from retail investors and therefore gives strong assurance of Listing Gains. GMP for this IPO is estimated to be around Rs. 210-Rs. 220, as of now. Investors looking for listing gains can subscribe for this IPO. Value Investors should deeply research the business, financials and the managements & then only should proceed for subscription.