Research Recommendation of Subscribe Chemcon Specialty Chemicals Limited IPO

Chemcon Specialty Chemicals manufacture specialized chemicals, such as HMDS and CMIC which are predominantly used in the pharmaceuticals industry and inorganic bromides, namely Calcium Bromide, Zinc Bromide and Sodium Bromide, which are predominantly used as completion fluids in the oilfields. Company is the only manufacturer of HMDS in India and was the third largest manufacturer of HMDS worldwide in terms of production in the calendar year 2019.

Financial Performance:

Shareholding Pattern:

Source: DRHP, EWAL Research

Strengths:

• Leading manufacturer globally of the Pharmaceutical Chemicals and a leading manufacturer in India of the Oilwell Completion Chemicals.

• Diversified customer base coupled with long standing relationship

• Consistent financial performance with a strong financial position

Key Highlights:

• For Fiscals 2020, 2019 and 2018, revenue from operations was ₹ 2,620.52 million, ₹3,033.41 million and ₹1,576.42 million, respectively, growing at a CAGR of 28.93% between Fiscal 2018 and Fiscal 2020.

• In Fiscals 2020, 2019 and 2018, Pharmaceutical Chemicals, contributed 63.75%, 63.14% and 62.18% of total revenue from operations respectively, while Oilwell Completion Chemicals, contributed 33.47%, 35.30% and 35.63% respectively of total revenue from operations.

• The key customers of Pharmaceutical Chemicals include Hetero Labs Limited, Laurus Labs Limited, Aurobindo Pharma Limited, Sanjay Chemicals (India) Private Limited, Lantech Pharmaceuticals.

• Key customers of Oilwell Completion Chemicals include Shree Radha Overseas, Water Systems Specialty Chemical DMCC and CC Gran Limited Liability Company.

Risk Factors:

• 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.

• The company has a limited product portfolio and business may be adversely affected if any of products do not continue to perform as expected

• If Competitors are able to improve the efficiency of their manufacturing processes and thereby offer their products at lower prices, revenues and profitability of the company may decline.

Outlook:

Chemcon Chemical is India’s largest manufacturer of specialised chemicals, such as Hexamethyldisilazane (HMDS) and Chloromethyl Isopropyl Carbonate (CMIC), which are predominantly used in the pharmaceuticals industry. Chemcon supplies its products to domestic customers and also exports to countries including USA, Italy, South Korea, Germany, China, and Japan. As of July 31, 2020, the installed capacity for HMDS was 4,200 MT per annum and HMDS (hi-purity) was 600 MT per annum. India is a net importer of CMIC and HMDS and the company aims to expand manufacturing and sales operations of CMIC and HMDS to substitute such imports. At the higher end of the price band of Rs. 340, the stock will be available at a PE multiple of 22.1x on FY20 EPS. Considering less impacted business model of the company in COVID-19 we would recommend subscribe to this IPO.

 DISCLOSURE IN PURSUANCE OF SECTION 19 OF SEBI (RA) REGULATION 2014

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