IPO Analysis: Shree Pushkar Chemicals & Fertilisers

Shree Pushkar Chemicals & Fertilizers (SPCF) is a Maharashtra  based integrated manufacturer of wide range of dye intermediates in India with zero waste is tapping capital market with an initial public offer to raise Rs 70 crore at a price band of Rs 61-65 per share.

Issue
Shree Pushkar Chemicals & Fertilizers (SPCF) is a Maharashtra (Lote Parshuram) based integrated manufacturer of wide range of dye intermediates in India with zero waste. SPCF is tapping capital market with an initial public offer to raise Rs 70 crore at a price band of Rs 61-65 per share. Out of the total issue, 20,26,589 shares are offer for sale and fresh issue of shares will be anywhere between 94.49 to 87.43 lakh shares depending upon issue price. This issue will constitute around 30 per cent of fully diluted post issue paid up capital of the company.

The proceeds from fresh issue of equity will be used for acquisition of an existing factory within MIDC industrial area Lote-Parshuram and setting up of facilities to manufacture Reactive Dyes, H-Acid, Vinyl Sulphone and Ester. The fund will also be used for setting up of additional effluent treatment plant and construction of additional godown.

*  Issue Opens on : Tuesday, August 25th, 2015
*  Issue Closes on : Thursday, August 27th, 2015
*  Price Band : Rs. 61 to Rs. 65 per Equity Share
*  Lot Size: 200 equity Shares and in multiples of equity shares thereof

Company
SPCF is an ISO 9001: 2008 certified company, promoted by, Punit Makharia and Gautam Makharia. The company commenced its business operations in the year 1993 with a trading business and has emerged to become one of the few manufacturers with widest range of dye intermediates in India with zero waste. It has an integrated manufacturing facilities located at Lote Parshuram, Maharashtra. The company is amongst the India`s largest manufacturers of K-Acid, a dye intermediate used to manufacture Reactive Dyes for dying of textiles, with an installed capacity of 960 MTPA as on March 31, 2015 . The company manufactures products in four major verticals viz., Dye Intermediates, Acid Complex (comprising sulphuric and its derivative acids), Cattle Feed Supplement and Fertilizers (Single Super Phosphate & Soil Conditioner). Dye Intermediates contributes most of the revenue of company, which at the end of FY15 stood at 76 %. This is followed by Fertilizers (18 %), Acids (4 %) and cattle feeds (2 %). The major market of company’s product is Maharashtra, Gujarat and Karnataka.

Financials
The company has posted a revenue growth of 19.41 per cent on annual basis between FY11 and FY15 and it stood at Rs 266.8 crore for FY15. The EBITDA and net profit of the company in the same period grew at CAGR of 35.29 per cent 61.3 per cent and stood at Rs 31.5 crore and Rs 18.6 crore respectively. In last couple of years company has been able to reduce its long term borrowing as well as short term borrowings significantly. At the end of FY15 long term borrowing stood at Rs 0.267 crore (FY13: 11.3 crore) while short term borrowing stood at Rs 24.5 crores (Rs 60.9 crore). This has helped company to reduce its financial expense in the same proportion from Rs 10 crore in FY13 to Rs 5.4 crore in FY15. SPCF is supported by IFCI Venture Capital Fund which infused growth capital to the extent of Rs. 15. crores between 2009 and 2011.

Valuation
If we talk of valuation SPCF’s stock is discounting FY15 EPS of Rs 5.94 at 10.94 times on the expanded equity at higher price band. When compare to other commodity companies in the same business, they are available at lower price earnings multiples. For example company like Bodal Chemicals with larger revenue and higher return on net worth is available at much cheaper valuation. Even in terms of market cap (higher price band) to sales, shares of SPCF are being offered at 0.77 times, which is again higher than Bodal Chemicals.
Moreover, 3,575,896 Equity Shares held by the Company Promoter, Punit Makharia constituting 28.91 per cent of his total shareholding in the Company has been pledged with IEDF a fund of IFCI (VCF), which again does not give much comfort to us. Therefore, despite good financials, integrated player with ‘zero waste’ we advice our readers to avoid the issue due to higher valuation at which offer is being made.