What you must know Ambey Laboratories IPO?

About Ambey Laboratories Ltd

Ambey Laboratories Ltd was founded in the year 1977 and is one of the leading manufacturers in home hygiene products. These products are manufactured under the popular brand name TRISHUL with the sole aim of enabling creation of germ-free surroundings. Its products cater to the requirement of eradicating microbes from the floor, preventing residual build-up on tiles, and ensuring utmost personal safety standards. The TRISHUL brand is backed by a strong research team. The range of products manufactured by Ambey Laboratories includes sanitizers, germ killers, disinfectants, and cleaners. The company has an extensive distributor network and sales support structure, making these products available across India. Ambey Laboratories Ltd operates with more than 2000 distributors and a 300-member sales team to reach out to all corners of India.

Highlights of the Ambey Laboratories IPO

Here are some of the highlights of the Ambey Laboratories IPO on the SME segment of the National Stock Exchange (NSE):

• The issue opens for subscription on 03rd July 2024 and closes for subscription on 05th July 2024, both days inclusive.
• The stock of the company has a face value of ₹10 per share and it is a book-built issue. The book-building price band for the IPO has been set in the range of ₹65 to ₹68 per share. Being a book-built IPO, the final price discovery will happen in the above price band only.
• The IPO of Ambey Laboratories Ltd has a fresh issue component and a small offer for sale (OFS) portion too. While the fresh issue portion is EPS dilutive and equity dilutive, the OFS is just a transfer of ownership and hence is not EPS or equity dilutive.
• As part of the fresh issue portion of the IPO, Ambey Laboratories Ltd will issue a total of 65,52,000 shares (65.52 lakh shares), which at the upper band IPO price of ₹68 per share aggregates to fresh fund raising of ₹44.55 crore.
• The offer for sale (OFS) will comprise the offer/sale of 3,12,000 shares (3.12 lakh shares), which at the upper band IPO price of ₹68 per share aggregates to an overall OFS size of ₹2.12 crore. The entire OFS sale of 3.12 lakh shares is being offered by Sarina Gupta, one of the promoters of the company.
• Hence, the overall size of the issue will be the sum of the fresh issue and the OFS. Therefore, the overall IPO size will comprise the issue and sale of 68,64,000 shares (68.64 lakh shares) which at the upper band IPO price of ₹68 per share aggregates to an overall IPO size of ₹46.68 crore.
• Like every SME IPO, this issue also has a market making portion. The company has set aside a total of 3,12,000 shares as a quota for market inventory. Nikunj Stock Brokers Ltd has already been appointed as the market makers to the issue. The market maker provides two-way quotes to ensure liquidity on the counter and low basis costs.
• The company has been promoted by Archit Gupta, Arpit Gupta, Sarina Gupta, and Rishita Gupta. The promoter holding in the company currently stands at 94.97%. However, post the fresh issue of shares, the promoter equity holding share will get diluted to 69.08%.
• The fresh issue funds will be used by the company for meeting the working capital requirements of the ongoing business. A small part of the IPO proceeds has also been set aside for general corporate purposes.
• Fast Track Finsec Private Ltd will be the lead manager to the issue, and Link Intime India Private Ltd will be the registrar to the issue. The market maker for the issue is Nikunj Stock Brokers Ltd.

The IPO of Ambey Laboratories Ltd will be listed on the SME IPO segment of the NSE.

Ambey Laboratories IPO – Key Dates

The SME IPO of Ambey Laboratories Ltd IPO opens on Wednesday, 03rd July 2024, and closes on Friday, 05th July 2024. The Ambey Laboratories Ltd IPO bid date is from 03rd July 2024 at 10.00 AM to 05th July 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 7.00 PM on the issue closing day; which is 05th July 2024.

It must be noted that in ASBA applications, there is no refund concept. The total application amount is blocked under the ASBA (applications supported by blocked amounts) system. Once the allotment is finalized, only the amount is debited to the extent of the allotment made and the lien on the balance amount is automatically released in the bank account. The credit of shares to the demat account on July 09th 2024, will be visible to investors under the ISIN Code – (INE0M3I01029). This allocation to the demat account is only applicable to the extent of the allocation of shares and if no allocations are made in the IPO, then no credit would be visible in the demat account.

Ambey Laboratories IPO: IPO Allocation and Minimum Investment Lot Size

Ambey Laboratories Ltd has announced a market maker allocation of 2,88,000 shares, which will be used as inventory for market making. Nikunj Stock Brokers Ltd will be the market maker for the IPO. The net offer (net of market maker allocation) will be divided between the retail investors and the HNI / NII investors. The breakdown of the overall IPO of Ambey Laboratories Ltd in terms of allocation to various categories are captured below.

The minimum lot size for the IPO investment will be 2,000 shares. Thus, retail investors can invest a minimum of ₹1,36,000 (2,000 x ₹68 per share) in the IPO. That is also the maximum that the retail investors can invest in the IPO. HNI / NII investors can invest a minimum of 2 lots comprising of 4,000 shares and having a minimum lot value of ₹2,72,000. There is no upper limit on what the QIBs as well as what the HNI / NII investors can apply for. The table below captures the break-up of lot sizes for different categories.

There are no upper limits for investments by HNIs / NIIs in the IPO of Ambey Laboratories Ltd.

Ambey Laboratories Ltd: Financial Highlights

The table below captures the key financials of Ambey Laboratories Ltd for the last 3 completed financial years. 

Data Source: Company RHP filed with SEBI

Here are some of the key takeaways from the financials of the company for the last 3 years; i.e., from FY21 to FY23, being the latest year. 

•    The revenues over the last 3 years have growth at a modest clip, with FY23 revenues just about 28% above the revenues of FY21. As net profit traction has picked up over the last year, although the net margins are still tepid. The sharp fall from FY21 is not comparable as that was largely due to deferred tax credits.

•    While net margins of the company have been relatively tepid at 4.36%, the margins have also shown growth traction in latest year. However, in absolute terms, the PAT margins remain weak. However, return on equity (ROE) stands robust at 19.33% in FY23, while the return on assets (ROA) is also strong at 7.93% in FY23. Both are up sharply from the previous year.

•    The asset turnover ratio or the sweating ratio has been very healthy in the latest year at 1.82X and that only gets further accentuated when you look at the modest to healthy ROA. It remains to be seen how the additional capital base is handled by sales growth.

The company has latest year EPS of ₹2.57, after adjusting for capital actions. The FY24 earnings are being discounted by the IPO price of ₹68 per share at 26-27 times P/E ratio. That looks on the higher side, although the growing net profit margins and the ROE should be positive. If the 10-months EPS of FY24 is extrapolated, we get full year likely EPS of ₹4.00, which offers a P/E ratio of around 17 times, which is relatively reasonable.

To be fair, Ambey Laboratories Ltd some bring some intangible advantages to the table. It has established relationships and strategic partnerships to provide high quality solutions to its customers. The track record is consistent and the business model is also scalable at a low cost. The investors can look at the IPO from a longer term perspective and a holding period of at least 1-2 years. Of course, investors must be prepared for the higher risk implicit in such IPO stocks; but the business model does look promising, despite its vulnerability to commodity cycles.