August 9, 2023
An initial public offering (IPO) creates a lot of excitement on the stock market. Especially if it’s a fast-growing sector.
Take the case of ideaForge IPO or Dronacharya Aerial Solutions. Both companies made their debut not long ago and managed to generate a lot of interest from both retail and institutional investors. Just because they came from the rapidly growing drone sector.
IPOs are scheduled back-to-back in the current month of August 2023, giving investors ample opportunities to find the right company.
Next week, a company from the specialty chemicals segment – Balaji Specialty Chemicals – will open its public offering.
Here are some key details about the upcoming IPO.
Issue period: August 18, 2023 to August 22, 2023
face value: 2 rupees per share
Output size: 4,250 million rupees (million)
Type: New issuance of c. Rs. 2,500 crore and offering for sale of c. Rs. 1,750 crore
Price range: The price range has not yet been determined. The company’s senior executives have yet to agree on the price range.
The Company has reserved at least 50% interest in the offering for qualified institutional buyers (QIB). At least 15% is reserved for non-institutional buyers (HNI). Thus, no more than 35% of the shares are available for private private investors.
Provisional IPO grant date: August 25, 2023
Provisional listing date: August 30, 2023
Here are five important details about the IPO.
#1 About the company
Balaji Specialty Chemicals (BSCL) is a subsidiary of Balaji Amines (BAL), one of the leading producers of aliphatic amines in India. BAL specializes in the manufacture of methylamines, ethylamines, specialty chemical derivatives and pharmaceutical excipients.
In India, BSCL is the sole producer of niche chemicals such as Ethylenediamine (EDA), Diethylenetriamine (DETA), Aminoethylethanolamine (AEEA) and Aminoethylpiperazine (AEP) using the Monoethanolamine Process (MEA).
The chemicals they produce are import substitutes and are used in various end-use industries such as specialty chemicals, agrochemicals, and pharmaceuticals.
The company began commercial production at its Solapur, Maharashtra manufacturing facility in June 2019 and has since expanded operations, expanding its brand and customer base and becoming one of the fastest growing specialty chemical companies in India. At least that’s what the company’s DRHP says.
The total installed production capacity is 30,000 MTPA. The ethylenediamine (EDA) and diethylenetriamine (DETA) products are REACH certified, which allows the products to be exported to the European Union and certain other regions.
#2 Financial condition
In FY2023, the company’s revenue increased to Rs 7,912.3 crore. Revenue increased by 53.9% compared to the corresponding period last year.
Net profit in FY2023 was Rs 1,781.4 crore.
Financial Snapshot (2021–23)
| details | 03/31/23 | 03/31/22 | 03/31/21 |
|---|---|---|---|
| Revenue (Million Rupees) | 7,912.3 | 5,142.8 | 1,744 |
| sales growth | 53.9% | 195% | |
| Pre-Tax Expenditure (Rs million) | 5,373 | 3,620 | 1,606.3 |
| % of total income | 67.3% | 70.2% | 91.3% |
| net profit | 1,871.4 | 1,089.5 | 104 |
| Net Profit Margin (%) | 22.3 | 21.1% | 5.9% |
| net worth | 3,655.5 | 1,874.8 | 785.3 |
| Return on Net Assets | 48.7% | 81.9% | 14.2% |
| Basic Earnings Per Share (EPS) (Rs) | 8.91 | 5.45 | 0.52 |
Data source: DRHP
#3 Peer Comparison
According to the company’s draft Red Herring prospectus, Clean Science and Technology, Alkyl Amines Chemicals, Tatva Chintan Pharma and Neogen Chemicals are its publicly traded competitors.
peer comparison
Data source: company websites
Data for the fiscal year ended March 2023
#4 Arguments in favor of the company
The global market for ethylenediamine, piperazine, diethylenetriamine, aminoethylethanolamines and aminoethylpiperazine portfolio is expected to grow from 1,078 kilotons (KT) in FY22 to 1,570 kilotons in FY28, at a CAGR of 6.5%.
The global market for these products is currently estimated at US$2.2 billion and is expected to grow at a CAGR of 6.9% to US$3.3-3.4 billion by 2028.
The company’s product portfolio comprises five niche chemicals for a wide range of end-use industries, including specialty chemicals, agrochemicals and pharmaceuticals for a wide range of applications.
The company has focused on products based on specific criteria:
(i) Manufactured in India for the first time
(ii) Import Substitutes
(iii) continuous process technology
(iv) high export potential
(v) several high-growth application areas such as specialty chemicals, pharmaceuticals and agrochemicals
(vi) Commodities
Therefore, there is no effective substitute for their product.
#5 Risk Factors
Balaji Specialty Chemicals does not have long-term contracts with its customers and suppliers.
At the time of submitting the draft of the Red Herring prospectus, the company only has one manufacturing facility. Any disruption in the production facility would bring the entire operation to a standstill.
The company does not have a long business history. Commercial production began in June 2019. The company has suffered losses in the past.
While it’s interesting that the specialty chemicals company has seen tremendous sales growth, it could struggle to maintain profitability going forward.
Diploma
It appears that Balaji Specialty Chemicals manufactures certain chemicals that are import substitutes. The company also has a dominant market share.
However, since the company manufactures a product for industrial use, the demand for its customer’s product is a major factor in the demand for its own product.
Additionally, reports suggest that the coming quarters will be a real test for specialty chemicals companies as the sector is expected to face some headwinds.
Experts say margins may remain under pressure due to destocking, weakening demand in certain key end-use industries and falling prices due to intense competition from Chinese suppliers.
It remains to be seen what interest this IPO will garner once it opens next week.
Stay tuned for more updates on this IPO and any upcoming IPOs in the market.
Have fun investing!
Investing in the securities market is subject to market risk. Read all related documents carefully before investing
Would you like to increase your wealth with safe stocks?
If you want a simple, safe, and hassle-free approach to long-term wealth building…
Without having to worry about bad news or every little downturn in the market…
And without having to worry about whether your investments are actually “delivering”…
You must now read our note on blue chip stocks.
Click here to read
Details of our SEBI Research Analyst registration are available on our website – www.equitymaster.com
Disclaimer: This article is for informational purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our referral services here…
Comments are closed.