Omkar Speciality Chemicals - IPO

IPO Analysis
Omkar Speciality Chemicals - Avoid

Omkar Speciality Chemicals (OSCL) which is engaged in the business of production of speciality chemicals and pharma intermediates is tapping the equity market with its initial public offering to garner Rs 76.95 – 79.38 crore on its upper and lower price band of Rs 95 and Rs 98 respectively.

OSCL manufactures a range of organic, iInorganic and organo inorganic intermediates. The inorganic intermediates include molybdenum derivatives, selenium derivatives, iodine derivatives, cobalt derivatives, bismuth and 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 & poultry feeds. The company operates from its plant situated at Badlapur in the outskirts of Mumbai in the Thane district of Maharashtra. The company plans to use the proceeds for the expansion in their capacity from 950 metric tonnes per annum to 3650 metric tonnes per annum till FY13.

The company intends to spend Rs 32.14 crore on setting up a new manufacturing facility at Unit 4 at Badlapur and will be spending Rs 14.61 crore towards expansion of its existing manufacturing facility at Unit 1, 2 and 3 at Badlapur. Rs 10 crore will be utilized towards meeting of working capital requirements.

One factor that needs attention is that neither the brand nor the logo has been registered under the companies name and may be a deterrent for the company going forward. In spite of the company claiming that they are the only one in the country producing the speciality chemicals the company has agreed that there is no entry barriers for the products and one can easily enter the space that the company is currently in. Most of the products that are being manufactured are supplied to major pharmaceutical companies in India. It has leading names like Cipla, Dr Reddy’s, Ranbaxy, etc. in its client list. Dr Reddy’s is the largest client and has contributed 20 per cent of its topline in FY10.

On the financial front, the company has performed well with its topline and bottomline growing at a CAGR of 29 per cent and 39 per cent for the last five years respectively. At the end of H1FY11, the company had posted a topline and bottomline of Rs 51.10 crore and Rs 5.05 crore as against Rs 68.35 crore and Rs 5.14 crore for financial year ended 2009-10. On the valuation front, the company is likely to trade at a P/E of 18.44 – 19x on its annulised FY11 EPS on the post-issue equity capital. The P/E seems to be very much on the higher side as compared to other listed players in the same space. The market capitalisation to sales stands at 2.70 – 2.78x on its FY10 sales which also seems to be a bit on the higher side of the price band. At present, we suggest our readers to refrain from subscribing to the issue.

Issue Information	Rating:
Issue opens on	24-Jan-11
Issue closes on	27-Jan-11
Issue Size (No. of Shares)	81 lakh equity shares
Price Band (Rs.)	` 95 - 95
Issue Route	Book Building
Promoters	Pravin Heralkar & Omkar Heralkar
Post-issue Equity	1.23 crore equity shares
Lead Managers	Almondz Global Securities
Listing	BSE, NSE
Retail Portion	28.35 lakh equity shares
QIB Portion	40.50 lakh equity shares
Non-institutional Portion	12.15 lakh equity shares

 

Financial Performance (`/Cr)
	H1FY11	FY10
Total Income	51.11	68.92
Operating Expenses	37.31	52.79
Operating Profit	13.79	16.13
Interest	1.93	3.74
Depreciation	0.89	1.81
Net Profit	5.05	5.13

 

Share Holding Pattern	Pre Issue	Post Issue
Promoter & Promoter Group	100	58.73
Public		41.27
Total	100	100