Broking firm Motilal Oswal Retail Research has a "subscribe" rating on the IPO of Anupam Rasayan (ARL). The company is engaged in manufacturing of custom synthesis (CSM) and specialty chemicals in India.
ARL is coming out with an IPO in the price band of Rs 553 to Rs 555 and the IPO is open for subscription on March 12 and closes on March 16.
Diversified product portfolio with strong client relationship:
According to the Motilal Oswal report ARL enjoys long standing relationship with its customers, given its fully integrated operations with presence across the value chain.
"It derives 87% of its revenue from top 10 customers with whom it has long term agreements between 2-5 years. ARL has significantly expanded its product portfolio to 41 of which Life science products catering to agrochemicals, personal care and pharma contribute 90% of revenue while exports form 60%. Development of new complex chemistries like hydrogenation, photo chlorination along with focus on higher value products would help in increasing the wallet share further," the brokerage firm has stated.
Over FY18-20, ARL's Revenue/EBITDA/PAT grew at a CAGR of 24%/35%/140% while EBITDA margins expanded 397bps to 25.5%. Backward integration in FY15 helped ARL reduce its import dependence to 22% by FY20 and improve its margins. Focus on higher value products too supported margins. In 9MFY21, Revenue/EBITDA/PAT grew 45%/28%/12% YoY. The net D/E stood at 0.9x as of 9mFY21, which post repayment, would reduce to zero. Return ratios are suppressed at ~10% due to huge capex undertaken which could improve with its commissioning.
Valuation & View:
"We like ARL given its presence in high growth CSM market, wide product portfolio, strong client relationship and high entry barriers. The company is expected to witness strong growth for next 2-3 years given its recent completion of major capex and strong sectoral tailwinds. The issue is valued at 3.5x FY21 P/BV and 7.7x FY21 EV/Sales on an annualized and post issue basis. Though the valuation appears little on a higher side both on absolute and relative basis, in the current scenario market prefers emerging growth stories. Hence we recommend Subscribe," Motilal Oswal has said in its report.