Chemcon Speciality Chemicals IPO: Check grey market premium, issue details; should you subscribe?

The Rs 318-crore Chemcon Speciality Chemicals IPO, which opened for subscription today, comprises fresh issue of equity shares aggregating up to Rs 165 crore, and an offer for sale of up to 45 lakh equity scrips. The issue will close for subscription on September 23. The price band has been fixed at Rs 338-340 per share. At the upper end of the price band, the IPO will fetch Rs 318 crore. The Vadodara-based company raised Rs 95.40 crore through allotment of 28.06 lakh shares to 13 anchor investors at Rs 340 per share. So far in the day, Chemcon Speciality Chemicals IPO has been subscribed 1.18 times. The retail category has subscribed its portion 2.65 times; and NIIs 0.26 times. Most research and brokerage firms have recommended to ‘subscribe’ to this issue.

Chemcon Speciality trading at Rs 150-200 premium in grey market

Dipin Kwatra, Director at New Vertical Vera Advisory Pvt Ltd, a wealth management firm, said as the issue size of Chemcon Speciality Chemicals is around Rs 320 crore, with a price band of Rs 338-340, it was trading with Rs 150-200 premium at around Rs 500. “Due to increased demand, small IPOs generally quote at a high premium in the grey market,” Kwatra told Financial Express Online. The company has proposed to utilise the net proceeds from the fresh issue for capital expenditure towards the expansion of its manufacturing facility, to meet working capital requirements and general corporate purposes.

Brokerages recommend to ‘subscribe’ to Chemcon IPO

Strong customer base and long-standing relationship with customers has supported in retaining Chemcon Speciality Chemicals Ltd market share, increasing product base and reaching out to new customers, said analysts at Geojit Financials. “At the upper price band of Rs 340, CSCL is available at P/E of 25.5x on FY20, which is attractive when compared to peers,” it said. The brokerage firm has given a subscribe rating to this issue considering its healthy business performance, regular capacity expansions, strong customer base, expanding margin profile and improving outlook for the sector.

The speciality chemicals manufacturer of pharma chemicals and oil well completion chemicals, enjoys high entry barriers which lead to client stickiness and long-standing relationships. Motilal Oswal Financial Services like Chemcon Speciality Chemicals due to the leadership position in niche products, high entry barriers and healthy financials. The brokerage has advised investors to subscribe to the issue. “Further considering the bright prospects for Chemical companies due to shift of supply chain away from China, we believe Chemcon would be well placed to capture this with its planned capex,” it added.

Angel Broking has also given a subscribe rating to the Chemcon Speciality Chemicals IPO. It said that none of the listed chemical companies has the same business as Chemcon. Its speciality chemical peers such as Neogen Chemicals, Paushak, Atul and Aarti Industries are currently trading at P/E multiples of 57.0x, 37.6x, 29.6x and 35.6x respectively on FY20 EPS. “We believe the company is clearly undervalued compared to its peers; a lot of value is left in the table. We are positive on the future outlook for the industry as well as the company,” it said.