Chemcon IPO

Everything To Know before Investing In Chemcons' IPO

About the Company

Chemcon Chemicals is a specialty chemical specialised company that was established in early 1988 to cater to the needs of oilfield chemicals, pharmaceutical chemicals and silanes. 

The highest stake in the company is essentially owned by its founders, Mr Kamal Aggarwal and Mr Nareshkumar Goyal with 37.53% and 16.63% respectively.

About the IPO

Through the IPO, Chemcon Chemicals have plans to raise INR 318 crores of funding through listing of 45,00,000 equity shares as a part of a fresh issue. These shares will be available for subscription in the lot sizes of 44 shares to the general public  (and multiples thereon) from 21st September 2020 to 23rd September 2020. The price band issued for such shares is fixed at Rs. 338-340. So, at the upper end of the price band, an investor has to pay INR 14,960 to be able to purchase one lot size. 

The firm, prior to its IPO, has already raised INR 84 crores in capital from anchor investors like ICICI Prudential child care plan, gift plan IIFL Special Opportunities Fund Series 7, HSBC Global Investment Funds, Mirae Asset funds and others. Anchor investors are institutional investors that can infuse capital in a firm before it hits public markets and they also raise the confidence of retail investors or the general public.

Chemcon IPO Details

IPO Date	21st Sep, 2020 to 23rd Sept, 2020
Issue Type	Book Built Issue IPO
Issue Size	93,52,940 Eq shares of ₹10 (aggregating up to ₹318.00 Cr)
Fresh Issue	4,852,940 Eq Shares of ₹10 (aggregating up to ₹165.00 Cr)
Offer For Sale	4,500,000 Eq Shares of ₹10 (aggregating up to ₹153.00 Cr)
Face Value	₹10 per equity share
IPO Price	₹338 to ₹340 per equity share
Market Lot	44 Shares
Min Order Quantity	44 Shares
Listing at	BSE,NSE

Chemcon IPO Tentative Timetable

Bid/Offer Opens On	21st Sep, 2020
Bid/Offer Closes On	23rd Sept, 2020
Finalisation of Basis of Allotment	28th Sept, 2020
Initiation of Refunds	29th Sept, 2020
Credit of Shares to Demat Acct	30th Sept, 2020
IPO Shares Listing Date	1st Oct, 2020

Lot Size And Price

Application	Lots	Shares	Amount
Minimum	1	44	₹14,960
Maximum	13	572	₹1,94,480

Promoter Holding

Pre Issue Share Holding	100%
Post Issue Share Holding	74.47%

Sector Analysis

Before getting into the company details, it is important to understand how the market scope of the sector in which the company operates is. Specialty chemicals are high-performance and low-volume chemicals that predominantly find their usage in function specific industries like adhesives, pharmaceuticals, paints and coatings, etc. China is the largest producer of specialty chemicals, closely followed by India. Due to tightening of environmental regulations in China (2015) and rising costs of human resource, manufacturing backed by FIs is moving out to other competitive places like India. Following the Covid-19 crisis, the major supply chains have been disrupted with specialty chemicals deficient markets not being able to import their daily stock. Looking at the state of affairs, Chemcon Chemicals is ready to capitalize on this opportunity by being a leading exporter in high innovation product categories.

Company not only serves the domestic market but also exports it's products in overseas market such as USA, China, Japan, UAE, Serbia, Russia, Malaysia and Azerbaijan. It has a manufacturing plat at Manjusar near Vadodara in Gujarat, 5 operational plants, 3 warehouses and 2 leased warehouses.

The product portfolio of Chemcon chemicals is relatively small but the profit margins on these products gives it a high surplus.

Product/Service	No. of Products	Special Note
Oilfield Chemicals	4	1.One of the reliable partners for Completion Brines and the largest manufacturer of calcium bromide in India in 2019. 2.Manufactures Calcium bromide, Sodium bromide and Zinc Bromide, offering major oil and gas companies worldwide.
Pharmaceutical Chemicals	4	1.India’s largest manufacturer of specialised chemicals, such as Hexamethyldisilazane / Hexamethyldisilane (HMDS) and Chloromethyl Isopropyl Carbonate (CMIC), which are predominantly used in the pharmaceuticals industry. 2.One of the key suppliers to formulations and API manufacturers like Heteron Labs, Aurobindo, Laurus Labs and IndSwift Laboratories. 3.Largest revenue from pharmaceutical chemicals.
Silanes	3	1.The firm provides customized products of Silanes as per the final application. 2.Includes Hexamethyl Disilazane, Trimethyl Chlorosilane and Hexamethyl Disiloxane.
Contract Manufacturing Services (CRAMS)	1.The firm provides manufacturing services for production of customized chemicals. 2.They take up projects right from developmental scale to commerical production.

Important Finances

Summary Of Financial Information

Particulars	For the year (₹ in million)
	31-Mar-20	31-Mar-19	31-Mar-18
Total Assets	2257.92	1,730.33	970.66
Net Sales	2620.52	3041.68	1701.58
Total Revenue	2,660.17	3,053.26	1,583.91
EBITDA	649.22	612.03	418.64
Profit After Tax	488.53	430.41	263.81

Capital Structure:

The Debt to Equity (D/E) ratio of the company has grown from 0.51 to 1.36 from FY2018 TO FY2020 with long term loans increasing from INR 5.20 to 14.59 Crores. The debt burden should be considered before investing by the investors. 

The D/E ratio tells us about the capital mix and financial leverage of a company.

*Note: D/E ratio < 1: The company has sufficient equity capital to cover the cost of debt. In simpler terms, the debt burden on the company is less.

D/E ratio > 1:  The company is financing its operation with a substantial amount of debt. It is risky in the long term if the equity in the company is not able to cover debt expenses.

The Price to Earnings ratio (P/E) multiple for the company is 22.12 (based on upper price band) as compared to industry P/E of 35.74. The P/E ratio tells us about the future earnings potential of the company and investor confidence in the same. 

Cash Flow Structure:

As for the cash generated by operating activities, the value has increased overtime which indicates that the company is making sufficient profits through its business and operations. We also understand that the company is investing in acquiring new assets including plants and machineries. So, it is a positive indication that Chemcon Chemicals is interested in expanding their business plans. As for the financing activities, through the issuance of equity shares in IPO, it is bound to increase in this year.

Our Outlook:

 Positive future. The outlook for Chemcon Specialty Chemicals seems positive. Investing in this IPO may give you strong returns in share market.