The ₹760-crore Anupam Rasayan IPO has received a mixed response from brokerages — here's what works for it and what doesn't

• The Surat-based company, Anupam Rasayan, kicked off its public offering today, and the issue will remain open for subscription till March 16.
• The company has fixed a price band of ₹553-555 a share for its IPO.
• The aggressively priced IPO has received mixed recommendations from investment experts.
• Some believe the current valuations exceed growth prospects, while others bet on long-term gains, robust growth, and market share gains.

A ₹760-crore initial share-sale of speciality chemical company Anupam Rasayan is now open for public subscription.

The Surat-based company kicked off its public offering today, and the issue will remain open for subscription till March 16. It plans to use the funds to repay its debt partly. As of September, the company had a total debt of ₹814.48 crore, and it plans to repay at least ₹556.20 crore in debt.

The company has fixed a price band of ₹553-555 a share for its initial public offering (IPO). Half of the issue is reserved for qualified institutional buyers, 35% for retail investors and 15% for non-institutional bidders.

Anupam Rasayan commenced operations in 1984 with conventional products, and now it makes speciality chemicals that involve multi-step synthesis and complex chemistries. Anupam Rasayan's business has two verticals — life science related to speciality chemicals and other speciality chemicals. The life science-related speciality chemicals are used in agrochemicals, personal care, and pharmaceutical sectors, whereas the other is used for pigment, dyes, polymer additives, etc.

The aggressively priced IPO has received mixed recommendations from investment experts. Some believe the current valuations exceed growth prospects, while others bet on long-term gains, robust growth, and market share gains.


Here's what works for it and what doesn’t

The aggressively priced IPO

According to a Reliance Securities IPO note, the Anupam Rasayan IPO is demanding a price-to-earnings (PE) of 80 times FY20 earnings and 69 times FY21 annualised earnings, which look aggressively priced.

It further added that considering capacity utilisation of 75% in the first nine months of FY21 and likely interest cost savings from debt repayment from IPO proceeds, we believe its earnings can potentially grow 35-40% compound annual growth rate over FY20-23. Despite factoring this, the stock would trade at over 40 times of FY23 earnings, which is expensive compared with its quality peers like SRF and PI Industries.

Strong and long-term relationships with diversified customers

According to HDFC Securities, the company has developed strong and long-term relationships with various multinational corporations that have helped to expand its product offerings, processes and geographic reach.

“Its customers are typically engaged in various industries, including agrochemicals, personal care, pharmaceuticals, specialty pigments and dyes, and polymer additives, and spread across various geographies, which helps it mitigate risks resulting from customer, industry and geographic concentration,” it added.

The company has established relationships with various multinational corporations, such as Syngenta Asia Pacific, Sumitomo Chemical Company Limited and UPL Limited, across Europe, Japan, the United States and India.

Consistent track record of financial performance

The company has demonstrated consistent growth in terms of revenues and profitability. The revenue from operations has increased at a CAGR of 24.29% from ₹349.18 crore in FY2018 to ₹539.38 crore in FY2020.

The company’s profit has also grown nearly 45% from ₹73.5 crore in FY18 to ₹134.9 crore in FY20.


Client concentration remains a key risk

According to ICICI Direct, the top five clients constitute 50% of its overall revenue, while the top 10 clients contribute to the tune of 84%.

“Since the company has different major customers in its business profile, any loss in customers can impact order backlog and thereby revenue performance,” the analyst report said.

On the other hand, Angel Broking believes the company has significant indebtedness, and an inability to comply with repayment could adversely affect the business. It further added that the company is experiencing insufficient cash flows to meet required payments on debt and working capital requirements, which could have an impact on operations.

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