Chemcon IPO Review – Share Price, Recommendations and buy or not

Chemcon Speciality Chemicals IPO ReviewChemcon Speciality Chemicals IPO – Details, Price and Valuations

Chemcon Speciality IPO would open for subscription on September 21, 2020. Chemcon Speciality is the leading manufacturer of specialized chemical products, i.e. HMDS and CMIC. Post Happiest Minds IPO and Route Mobile IPO got oversubscribed multiple times, investors are now gunning for the next set of IPOs to earn good returns. Should you invest in a Chemcon Speciality Chemicals IPO? What are the risk factors you should consider before investing in this Chemcon IPO? Lets review these details in this article.

About the company

They are a manufacturer of specialized chemicals, such as HMDS and CMIC which are predominantly used in the pharmaceutical industry, and inorganic bromides, namely Calcium Bromide, Zinc Bromide and Sodium Bromide, which are predominantly used as completion fluids in the oilfield industry. They are 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 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 calendar year 2019.

They supply products to domestic customers and also export products to countries including USA, Italy, South Korea, Germany, China, Japan, UAE, Serbia, Russia, Spain, Thailand and Malaysia. In Fiscals 2020, 2019 and 2018, its revenue from exports contributed 39.78%, 31.99% and 47.84%, respectively of its revenue from operations. Its revenues from exports have grown at a CAGR of 17.57% between fiscals 2018 and 2020.

Chemcon Speciality Chemicals IPO – Issue details

Here are the issue details.

IPO Date Sep 21, 2020  to Sep 23, 2020
Face Value Rs 10 per equity share
IPO Price band Rs 338 to Rs 340 per equity share
Issue Size Total of Rs 318 Crores
Fresh issue Rs 165 Crores
Offer for sale Rs 153 Crores
IPO Lot Size 44 shares
Lead Managers Intensive Fiscal Services and Ambit Capital
Listing at BSE / NSE

Download Chemcon Speciality Chemicals IPO DRHP

Objects of the IPO

Here are the objects of the IPO issue.

A) Offer for Sale (OFS): The object of the Offer for Sale is to allow the selling shareholders to sell equity shares held by them. The company will not receive any proceeds from OFS.

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B) Fresh Issue: Gross proceeds of the fresh issue less the Offer Expenses apportioned to Company i.e. Net Proceeds are proposed to be utilized in the following manner:

1) Capital expenditure towards expansion of manufacturing facility

2) To meet working capital requirements

3) General corporate purposes

Who are the Company Promoters?

KamalKumar Rajendra Aggarwal, Navdeep Naresh Goyal and Shubharangana Goyal are the promoters of the company.

Company Financial Performance

Here is the financial performance of the company in the last few years.

Fin. Year
ending
Total Revenues (Rs in Crores) Profits after tax
(Rs in Crores)
Profit %
Mar-2018 158.3 26.3 16.6%
Mar-2019 305.3 43.0 14.1%
Mar-2020 266.0 48.8 18.3%

Its average EPS in the last 3 years is Rs 13.59 and FY2020 is Rs 15.37.

Chemcon Speciality Chemicals IPO – Reasons to Invest

Here are a few reasons to invest.

1) Chemcon Speciality Chemicals is a manufacturer of specialized chemical products i.e. HMDS and CMIC and largest manufacturer across the globe.

2) Strong revenue growth in the last few years.

3) Improved margins in the last 3-4 years.

Chemcon Speciality Chemicals IPO – Reasons why NOT to Invest

1) The recent outbreak of the novel coronavirus could have a significant effect on its operations, and could negatively impact its business, revenues, financial condition and results of operations.

2) They have a limited product portfolio and its business may be adversely affected if any of its products do not continue to perform as expected or if competing products gain wider market acceptance. Further, if its competitors are able to improve the efficiency of their manufacturing processes and thereby offer their products at lower prices, its revenues and profitability may decline.

3) They derive a significant portion of revenue from a few customers and the loss of one or more such customers, the deterioration of their financial condition or prospects, or a reduction in their demand for its products may adversely affect their business, results of operations, financial condition and cash flows.

4) Naresh Vijaykumar Goyal, a member of Promoter Group, has filed an appeal in relation to a criminal proceeding filed against him, which if determined adversely may have a negative impact on company operations, reputation and prospects.

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5) For complete internal and external risk factors, you can refer the DRHP of the company.

Chemcon Speciality Chemicals IPO Tentative Table / Schedule

Offer Open 21-Sep-20
Offer close 23-Sep-20
Finalization of Basis of Allotment 28-Sep-20
Unblocking of ABSA and Initiation of Refunds 29-Sep-20
Credit of shares to Demat Accounts 30-Sep-20
IPO Shares Listing Date 01-Oct-20

Chemcon Speciality Chemicals IPO Valuation

On the upper price band of Rs 340 and EPS of Rs 15.37 for FY20, the P/E ratio works out to be 22x. For last 3 years EPS of Rs 13.59, P/E ratio is 25x. Means company is asking the issue price of Rs 340 per share in the P/E range of 22x to 25x. Stocks in the same industry are trading at highest P/E of 43.7x (Neogen Software) and lowest P/E of 19x (Sudarshan Chemicals) and the industry average is 31.3x. Hence, the issue price of Rs 340 per share is reasonably priced.

Chemcon Speciality Chemicals IPO – Subscribe for Medium to long term

Subscribe to the IPOChemcon Speciality is the leader in specialty chemicals across the globe. It has strong revenue growth in the last 4 years. Its margins are also improving. Company IPO price is reasonably priced. Considering NICHE player in the chemicals segment, high risk investors can invest for medium term to long term. However, due to the small size of the IPO, investors may or may not get allotment. Even one may or may not get listing gains.

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Suresh KP

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