Chemcon Speciality Chemicals ₹318 crore IPO fully subscribed within two hours — Here’s what works and what doesn't

• The share sale will remain open for subscribers till September 23, and the company has fixed the issue price band at ₹338 to ₹340 per equity share.
• These are the risks and concerns that analysts have highlighted for investors.
• Here’s everything you should know before subscribing.

The manufacturer of specialised chemical products, Chemcon Speciality Chemicals ₹318 crore initial public offering (IPO) was subscribed 100% within two hours of opening.

In its IPO, the public offer consists of a fresh issue of ₹165 crore and an offer for sale of 45 lakh equity shares (₹153 crore) by the promoters of the company— Kamalkumar Rajendra Aggarwal and Naresh Vijaykumar Goyal.

The share sale will remain open for subscribers till September 23, and the company has fixed the issue price band at ₹338 to ₹340 per equity share. The Vadodara-based Chemcon Speciality Chemicals said it intends to utilise the IPO proceeds to meet the capital expenditure for the expansion of its manufacturing facility, fund working capital requirements, and general corporate purposes.

Source: Analyst reports

What makes it hot!

Its monopoly in the growing sector

Chemcon manufacturers specialised (specialised in?) chemicals, such as HMDS (hexamethyldisilazane amine) and CMIC (chloromethyl isopropyl carbonate), which are predominantly used in the pharmaceuticals industry.

According to the Nirmal Bang report dated September 21, it also partly enjoys monopoly by being the only manufacturer of HMDS in India and the third-largest manufacturer worldwide in terms of production.

HMDS is widely used in the manufacturing of antibiotics such as penicillin, cephalosporins and other types of penicillin derivatives and Nirmal Bang forecasts the HDMS industry to grow at a compound annual growth rate of 11% over FY19-23.


Marquee names in its customer portfolio

In the fiscal year 2020, nearly 64% of the company’s ₹262 crore revenue came from the pharma chemicals business. In that segment, the company has some of the key names in its portfolio such as — Hetero Labs, Laurus Labs, Aurobindo Pharma.

The key customers in Oilwell Completion Chemicals include Shree Radha Overseas, Water Systems Specialty Chemical DMCC and CC Gran Limited Liability Company.

Company’s expansion capacity

The company has nearly tripled its CMIC capacity from 600 MT to 1800 MT in the last 3 years in addition to doubling the oil well completion chemical’s capacity. Chemcon has also more than doubled its HMDS capacity in FY20.

With the IPO proceeds the company is further looking to expand its manufacturing facility, which will drive the growth further.

Risks and Concerns

Tough competition

Although Chemcon enjoys being the leading player in the market, it also faces tough competition from many other listed peers like Paushak, Neogen Chemicals and IOL Chemicals.

The import dominant industry

Being in a dominant import industry, prices of products and raw materials for Chemcon largely depends on the global rates, which the company has no control over. Any significant fall in global prices may have a material adverse effect on the company’s business, results of operations and financial condition.

Top clients make three-fourth of the revenue

According to Motilal Oswal, in the fiscal year 2020, Chemcon derived nearly 72% of its revenue from its top 10 clients and nearly 59% from the top 5. Thus, the loss of any one or more of these clients may adversely impact its financials, said the report dated September 19.

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