Paradeep Phosphates IPO Review and Analysis – Should you invest?
Paradeep Phosphates IPO (Paradeep Phosphates Limited IPO) Details
Zuari Agro Chemicals backed Paradeep Phosphates is coming up with IPO, which would open for subscription on 17th May, 2022. Paradeep Phosphates is manufacturer non-urea fertilizers in India. Company revenues have grown significantly in the last 3 years and 9 months. Its margins are also improving year on year for a similar period. Should you invest in Paradeep Phosphates IPO? What are the risk factors in this IPO? Is the IPO Valuation justified? Let me do this IPO review and provide complete analysis.
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About Paradeep Phosphates Limited
Company is incorporated in 1981. It is the manufacturer of non-urea fertilizers in India. It is engaged in manufacturing, trading and distribution and sales of different types of complex fertilizers which includes DAP, 3 grades of Nitrogen Phosphorus Potassium, NPK-10 etc.
Company is second largest private sector manufacturer of non-urea fertilizers and Di Ammonium Phosphate in terms of number of sales for 9 months ended Dec-21. These fertilizers are marked with brand “Jai Kisaan-Navratna and Navratna”.
The company has established an extensive sales and distribution network, which has a strong presence in the eastern part of India. It has manufacturing facility in Paradeep, Odisha.
Paradeep Phosphates IPO dates, issue details, Size and Price Band
|IPO Opening Date||17-May-22|
|IPO Closing Date||19-May-22|
|Issue Type||Book Built Issue IPO|
|Face Value||Rs 10 per equity share|
|IPO Price band||Rs 39 to Rs 42 per equity share|
|Lot Size||350 Shares|
|Listing at||BSE and NSE|
|Total Issue Size||Rs. 1501.73 Crores|
|Fresh issue||Rs. 1004 Crores|
|OFS||Rs. 497.73 Crores|
What are the competitive strengths of Paradeep Phosphates Limited?
1) Company is well-positioned to capture favorable Indian fertilizer industry dynamics supported by conducive government regulations
2) It is the second largest manufacturer of Phosphatic fertilizers in India
3) Company drives raw material efficiency through backward integration of facilities and effective sourcing
4) Company has secure and certified manufacturing facility and infrastructure and unutilised land available for expansion
5) Company has strategic locations of its manufacturing facility and sizeable material storage, handling and port facilities
6) Established brand name backed by an extensive sales and distribution network
7) Strong parentage, experienced management team and prominent shareholders
What are the Objects of the IPO Offer?
Paradeep Phosphates IPO Size is Rs 1,501.73 Crores which has both OFS and fresh issue.
1) Offer for Sale (OFS) for Rs 497.73 Crores: Under OFS, selling shareholders would get entire money and the company would not get any funds.
2) Fresh issue of Rs 1,004 Crores: Fresh issue would be used for the following:
- Part-financing the acquisition of the Goa Facility.
- Repayment/prepayment of certain of its borrowings.
- General corporate purposes.
Who are the promoters of Paradeep Phosphates Limited?
Zuari Maroc Phosphates Private Limited, Zuari Agro Chemicals Limited, OCP S.A and President of India, acting through the Ministry of Chemicals and Fertilizers, Government of India are the promoters of the company.
How is the company financial track record?
Here are the total assets, revenues and profits of the company in the last 3 years and 9 months.
|Financial Year ending / Period ending (Amt in Mns)|
|Profit After Tax||1,589.6||1,932.2||2,232.7||3,627.8|
Positive Factors in Paradeep Phosphates IPO
Here are the key reasons to invest in this IPO.
1) Company is the leading non-urea manufacturing company in India. It is the second largest manufacturer of phosphate fertilizers in India.
2) Company is well positioned to capture favorable Indian fertilizer industry with an established brand name.
3) Company has generated strong revenue growth in the last 3 years and 9 months.
4) Company margins have improved significantly from Rs 158.9 Crores – 3.6% of the revenues (FY2019) to Rs 223.2 Crores – 4.3% of revenues (FY21). For 9 months ended Dec-21, its margins were improved to 6% of the revenue.
Risk Factors of investing in Paradeep Phosphates IPO
1) Company business is dependent on agricultural sector performance in which its fertilizers are used. Any developments affecting the performance of this sector can have an adverse effect on company performance.
2) Company business is subject to climatic conditions and is cyclical in nature. Seasonal variations and unfavorable local and global weather patterns can affect business.
3) We all know that fertilizer industry is regulated industry. Any change in government policies towards this sector can impact company business.
4) Company has only 1 manufacturing facility until the completion of Goa transaction. Any unplanned slowdowns or shutdowns in this manufacturing facility can affect business.
5) Company intends to acquire the Goa facility, which has incurred loss after tax in the last 3 financial years and 9 months ended Dec-21. Any delay in such acquisition or realise anticipated benefits from such acquisition, joint venture, may have an adverse effect the business.
6) There are outstanding litigations involving Company, Promoters and Directors. Any adverse outcome can affect the company financial condition.
7) Company derives a significant portion of its revenue from operations from a limited number of states and any adverse developments in such states can affect its business.
8) Investors should read complete risk factors indicated in the RHP before investing in this IPO.
Paradeep Phosphates IPO valuation
Paradeep Phosphates IPO price band is Rs 39 to 42 per share.
1) If we consider last 3 years weighted average EPS of Rs 3.52 and the upper price band of Rs 42, P/E works out to 12x.
3) Similarly, if we consider FY2021 EPS of Rs 3.88 and the upper price band of Rs 42, P/E works out to be 11x.
4) If we take 9 months ended Dec-21 EPS and annualize it, the P/E works out to be 5x.
5) Means company is asking the upper price band of IPO price of Rs 42 in the P/E ratio of 5x to 12x.
As per the RHP, there are listed peers like Coromandel International trading at P/E 18.7x (Highest) and Chambal Fertilizers trading at P/E 11.5x (Lowest) and the industry average P/E is 15.7x. Hence the IPO Price of Paradeep Phosphates at P/E range of 5x to 12x is attractively priced.
Paradeep Phosphates IPO Dates – Subscription, Allotment and Listing Dates
|Finalization of Allotment||24-May-22|
|Initiation of Refunds||25-May-22|
|Credit to Demat Account||26-May-22|
|IPO Shares Listing Date||27-May-22|
How to buy Paradeep Phosphates IPO online through Zerodha?
You can login to your demat account, visit the IPO section and apply for this IPO during the subscription dates.
You can also apply this IPO on Zerodha. If you do not have Zerodha account, sign-up here and proceed to the next step.
Zerodha customers can apply in this IPO by login into Zerodha Console submitting an IPO application form.
Follow below steps to apply this IPO in Zerodha platform:
1) Visit the Zerodha portal and login to Console.
2) Go to Portfolio and click the IPOs link.
3) Visit ‘Paradeep Phosphates Limited IPO’ row and click the ‘Bid’ button.
4) Enter your UPI ID, Qty and the Price which you want to bid.
5) Click on ‘Submit’ IPO application form.
6) Visit the UPI App (net banking or BHIM) to approve the mandate.
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Paradeep Phosphates IPO – Should you Invest or not?
Paradeep Phosphates Limited is a non-urea fertilizer manufacturer and second largest manufacture of phosphate in India.
Company generated good revenue growth in the past.
Its margins are improving year on year.
Its issue price is attractively priced.
Considering all these positive factors and negative factors indicated above, investors may subscribe to this IPO for medium to long term perspective. Since markets are in correction mode, one may or may not get listing gains.
Source: Paradeep Phosphates IPO Prospectus (RHP)
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