Listing gains likely as well
Omkar Speciality Chemicals Limited is tapping the capital markets with its IPO which opens on Monday the 24th of January and closes on Thursday the 27th of January 2011. The issue is for 81 lakh shares in a price band of Rs 95-98 and would raise Rs 79.38 crs at the upper end of the price band.
| Price Band | Rs 95 – Rs 98 |
| Offer size in shares | 81,00,000 Equity Shares |
| Issue Size | Rs 76.95 crs – 79.38 crs |
| QIB’s | 40,50,000 Equity Shares |
| Non Institutional Investors | 12,15,000 Equity Shares |
| Retail Investors | 28,35,000 Equity Shares |
| Marketcap Post Listing | Rs 186.46 crs at lower band and Rs 192.35 crs at higher band |
| Book Running Lead Manager | Almondz Global Securities Limited |
| Isssue Opening Date | Monday 24th January |
| Isssue closing date | Thursday 27th January |
| IPO Grade | CARE grade 3/5 indicating average fundamentals |
| Paid -up Capital Post IPO | 1,96,28,000 Equity Shares |
| Bid Lot | 60 shares |
| Bidding Amount for Retail | 2040 shares at Rs 98 or Rs 1,99,920 per application |
Business
Omkar Speciality Chemicals is involved in the production of speciality chemicals and pharma intermediates. Omkar manufactures a range of organic, inorganic and organo inorganic intermediates. The inorganic intermediates include Molybdenum derivatives, Selenium derivatives, Iodine derivatives, Cobalt derivatives, Bismuth & Tungsten derivatives and the organic intermediates include Tartaric acid derivatives and other intermediates. These products find applications in various industries like pharmaceutical industry, chemical industry, glass industry, cosmetics, ceramic pigments and cattle and poultry foods. Iodine and Selenium derivatives are our key category of products contributing 88.23% to our gross sales during the year 2009-10.
Omkar exports its products to Europe, North America, Asia, South America and Australia. Exports form between 8and 12% of the total sales. The company has four manufacturing units located at Badlapur in Maharashtra and is roughly 75 kms from Mumbai. The total manufacturing capacity of the company has in the current quarter increased from 750 tons per annum to 950 tons. Post IPO and expansion the total capacity over the next 18-20 months would increase fourfold to 3650 tons.
Taking into account the expansion time of 18-20 months and the stabilisation period of the expanded capacity thereafter, it would be fair to presume that in about 36 months the company would have a substantial capacity expansion in place. It would be fair to presume that once the expansion is in place, the capacity utilisation of 80% in 2014 could yield a turnover of Rs 450 crs or more.
Objects of the issue
The objects of the issue are as follows: –
| 1. Setting up of new manufacturing facility at unit 4 at Badlapur | Rs 3215.74 lacs | |
| 2. Expansion of existing facilities at unit 1,2 and 3 at Badlapur | Rs 1461.58 lacs | |
| 3. Meeting working capital requirements | Rs 1000.00 lacs | |
| 4. General Corporate purposes | XX | |
| 5. Issue expenses | XX | |
Financials
Omkar reported revenues of Rs 5064.64 lacs for the year ended March 2009 and Rs 6891.92 lacs for the year ended March 2010. In the first half of the year ending September 2010 the sales have increased to Rs 5155.83 lacs. The net profit for the year ended March 2009 was Rs 313.04 lacs and Rs 513.45 lacs for the year ended March 2010. In the first half of the year ended September 2010, the net profit has improved to Rs 504.79 lacs.
The margins at the gross and net levels have been improving for the company over the years. The company has earned an EPS of Rs 2.71 for the year ended March 2009; Rs 4.45 for the year ended March 2010 and Rs 8.76 for the half year ended September 2010 annualised.
The performance for the second half of 2010-11 would be better than the annualised numbers because an additional capacity of 200 tons is available to the company for the fourth quarter.
Comparison
The company has chosen to compare itself with Camlin Fine Chemicals Ltd, Transpek Industry Ltd, Alkali Metals Ltd and Suven Lifesciences Ltd. These companies are strictly not comparable and they have been given only as without comparison valuations are not complete. Looking at the scope, capacity expansion and the domination of pharmaceutical in the business mix helps the company in margins and growth strategy.
Valuations
The company is offering shares at a price band of Rs 95-98. Based on the half year ended September 2010 earnings on an annualised basis one is talking of an EPS of Rs 8.76. Based on these earnings, the price earnings multiple is in a band of 10.84 times to 11.18 times. The benefits of the expansion are still some time away and the immediate benefit is the 200 tons capacity which has been added during the third quarter and would be now available for the fourth quarter and the whole of financial year 2010-2011.
Conclusion
The company is in a growth stage and has been clocking a compounded annual growth rate of over 35% in the last four/five years. It is now taking a quantum jump and increasing its capacity four fold. Once the same is in production it would be prudent to expect this company being a 450-500 crs company in 2014-15 with margins of 11-12% at the net level. I believe there is money to be made in the immediate short term in the company and the long term. As has been seen in many cases there is a tendency of share prices to ease after listing, Omkar may also react similarly. The prospects for the company are bright. Apply for listing gains.
SEBI Disclaimer: – I intend to apply for the above issue.
