Chemspec Chemicals IPO : 7 things to know about

Chemspec Chemicals Ltd, a leading manufacturer of specialty chemical additives to the FMCG sector, had filed its draft red herring prospectus (DRHP) in July 2021 and SEBI had already approved the IPO in September 2021.

However, the company is yet to zero in on its IPO dates and that is likely to be announce once there is greater clarity in the markets. The IPO will be a pure offer for sale with no fresh issue component to it.
 

7 important things to know about the Chemspec Chemicals IPO

1) Chemspec Chemicals Ltd had filed for a Rs.700 crore IPO with SEBI which comprises entirely of an offer for sale (OFS) of Rs.700 crore. There will be no fresh issue component in the IPO.

Chemspec Chemicals Ltd is a leading manufacturer of specialized additives for the FMCG industry and has been one of the key beneficiaries of the favourable cycle for specialty chemical companies in India. 

2) Chemspec Chemicals IPO consists of the total issue size of Rs.700 crore, let us look at the OFS portion of Rs.700 crore, since there is no fresh issue component to the issue. The 3 OFS will entirely be accounted for 3 early promoters offering equal amounts as part of the OFS.

Amoluk Consultancy Services will offer shares worth Rs.233 crore, Mitul Vora will offer shares worth Rs.233 crore and Rushabh Vora will also offer shares worth Rs.233 crore. The tendering of shares by these 3 promoters will add up to Rs.700 crore in all.

3) As stated earlier, Chemspec Chemicals Ltd issue will be a pure offer for sale with no new issue component. Hence there will be no fresh funds coming into the company via the IPO. Consequently, there will also be no dilution of the equity base or even dilution of the EPS of the company.

The offer for sale will give an exit to the promoters and help them to monetize their shareholdings. At the same time, the OFS will also help the company to list the shares and bring about greater visibility and brand value for the company from a stock market listing.

The OFS only entails change in ownership. However, since the shares pass from promoters to public shareholders, there will be an increase in the free float of the stock and its free float market cap.

4) Chemspec Chemicals Ltd is one of the leading manufacturers of specialty critical additives for the FMCG sector. Its specialty chemical products specially find application in skin care and hair care products.

In addition, the company also manufacturers active pharma ingredients (APIs) used in the pharmaceutical industry, especially in the manufacture of hypertension (high blood pressure) drugs. 

5) Chemspec Chemicals Ltd is a key manufacturer of UV absorbers. The ultra violet (UV) rays from the sun have the ability to impact the skin and even cause skin cancer on account of extreme exposure.

This can be prevented by applying creams that have UV absorbers built into them as an ingredient. It is in this niche that Chemspec Chemicals Ltd operates in. In fact, the company is among the top 2 manufacturers in the world catering to this niche skin care segment.

In addition, Chemspec Chemicals Ltd is also largest manufacturer of formulation that is used for the treatment of fungal infections. The company also happens to be the largest producer of an anti-bacterial ingredient with a near 70% share in the global market.

6) Chemspec Chemicals Ltd reported revenues of Rs.506 crore, which was lower than the FY20 numbers but smartly higher than the FY19 numbers. Like most Indian manufacturers, Chemspec Chemicals Ltd also felt the heat of the pandemic and the lockdowns which disrupted production and market schedules. This had resulted in a fall in revenues in FY21.

However, despite lower sales revenues, better cost controls and better realizations ensured that the net profits for FY21 were higher by 33% YoY at Rs.81 crore. The ROE at above 44% and ROCE at above 55% are at extremely healthy levels for the company. In fact, its ROE is the best in the peer group.

7) The IPO of Chemspec Chemicals Ltd will be lead managed by Axis Capital, JM Financials. They will act as the book running lead managers or BRLMs to the issue.

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