What you must know about Sanstar IPO: Price Band ₹90 to ₹95 per share

About Sanstar Ltd

Sanstar Ltd has been in the business of plant based specialty products since 1982. The company is one of the leading manufacturers of plant based speciality products and ingredient solutions in India catering to the food, animal nutrition and other industrial applications. It has an installed capacity of 1,100 metric tons per day (MTPA). Sanstar Ltd has 2 manufacturing facilities in India. The Kutch facility in Gujarat has an installed capacity of 350 MTPA while the facility at Shirpur in Maharashtra has an installed capacity of 750 MTPA. Its products help improve quality of foods through thickening agents, stabilizers, sweeteners, emulsifiers and additives in bakery products, confectioneries, pastas, soups, sauces, creams, etc. It also makes nutritional ingredients for enhancing the nutritional value of animal foods. In addition, Sanstar Ltd also makes industrial products like disintegrants, excipients, supplements, coating agents, binders, smoothing & flattering agents, finishing agents etc. The company is the third largest manufacturer of maize based speciality products and ingredient solutions in India. 

Many of its products find applications across various industries. Its key products like native maize starch, liquid glucose, maltodextrin, sorbitol, high maltose corn syrup and dextrose monohydrate find applications in the food industry. Its products like native maize starch, maltodextrin, dextrose monohydrate and sorbitol also find applications in the pharma industry. In addition, native maize starch also finds application in the paper industry and other industrial applications while products like adhesives and modified starch also have extensive industrial applications. Some of its corn based products like corn gluten meal 60%, corn gluten feed 18%, corn germs, corn fiber, corn steep liquor and maize gluten meal find a variety of applications in animal nutrition. Finally, sorbitol and native maize starch also find applications in the cosmetics and fashion and wellness industry.

The fresh funds will be used for capital expenditure for expanding its Dhule facility, repaying / prepaying some of its outstanding debts and partially for general corporate purposes. The promoters of the company are Gouthamchand Sohanlal Chowdhary, Sambhav Gautam Chowdhary, and Shreyans Gautam Chowdhary. The promoters currently hold 99.77% stake in the company, which will get diluted post the IPO to 70.37. The IPO will be lead managed by Pantomath Capital Advisors Private Ltd, while Link Intime India Private Ltd will be the IPO registrar.

Highlights of the Sanstar IPO

Here are some of the key highlights to the public issue of Sanstar IPO.

•    Sanstar IPO will be open from July 19th, 2024 to July 23rd, 2024; both days inclusive. The stock of Sanstar Ltd has a face value of ₹2 per share and the price band for the book building IPO has been set in the range of ₹90 to ₹95 per share. 

•    The fresh issue portion of the Sanstar IPO comprises the issue of 4,18,00,000 shares (418.00 lakh shares), which at the upper price band of ₹95 per share will translate into a fresh issue size of ₹397.10 crore.

•    The offer for sale (OFS) portion of the IPO comprises the sale / offer of 1,19,00,000 shares (119.00 lakh shares), which at the upper price band of ₹95 per share will translate into an OFS size of ₹113.05 crore. The 119 lakh shares in the OFS is being entirely offered by the promoter shareholders and the promoter group shareholders. 

•    Therefore, the total IPO will comprise of a fresh issue and an OFS of 5,37,00,000 shares (537.00 lakh shares) which at the upper end of the price band of ₹95 per share aggregates to total issue size of ₹510.15 crore.
The IPO of Sanstar Ltd will be listed on the NSE and the BSE on the IPO mainboard.
 

Key Dates for Sanstar IPO and Application Details

Here are the key dates pertaining to the IPO.

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. 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 25th 2024, will be visible to investors under the ISIN Code – (INE08NE01025). 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.

Investor Quota Allocation 

As per the terms of the offer, not more than 50% of the net offer is reserved for the qualified institutional buyers (QIBs), while not less than 35% of the net offer size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors. The table below captures the allocation to various categories.

The anchor portion, will be carved out of the QIB portion and the QIB portion available to the public will be reduced proportionately.

Sanstar IPO: Lot Sizes for Investment

In the case of Sanstar Ltd, the minimum lot size is 157 shares with upper band indicative value of ₹14,915. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the IPO of Sanstar Ltd.

For the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Financial Highlights of Sanstar Ltd

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

Data Source: Company RHP filed with SEBI (FY refers to Apr-Mar period)

There are few key takeaways from the financials of Sanstar Ltd which can be enumerated as under:

a)    In the last 3 years, revenue growth has been robust overall.  However, due to the cyclical nature of the industry, the sales in FY24 were lower than in FY23. If you compare FY24 ales with FY22 sales, it has more than doubled, so the traction is still good over a 2-year period. IN addition, the net profits are higher despite the revenues being lower in the fiscal year FY24. Even net margins have nearly doubled to 6.26% in FY24. 

b)    While the net margins of the company have nearly doubled to 6.26% in FY24, the trend is positive with the ROE and the ROA also. For instance, the return on equity (ROE) for FY24 stands at 26.31%; higher than the previous two years. Even the return on assets (ROA) at 12.66% is higher than the average of the last two years.

c)    The company has relatively healthy sweating of assets measured by the asset turnover ratio at around 2.02X in the latest year, and this is considered to be quite good for the manufacturing sector. In addition, the strong ROA magnifies the impact of the asset turnover ratio on the profit traction of the company.
Overall, the company has reported modest growth in sales in the latest year, but the numbers are still quite impressive when looked at over a 2-year period. Even in a year when the net sales have fallen, the net margins have almost doubled. That is the key takeaway.

Valuation metrics of the Sanstar IPO

Let us turn to the valuations part. On the latest year diluted EPS of ₹4.75, the upper band stock price of ₹95 per share gets discounted at a P/E ratio of 20 times of current earnings. Since the FY24 results are already announced, we have to wait for two more quarters to get data that can be extrapolated into FY25. However, that is reasonable valuations from a nutrition and plant based ingredient company point of view. This is an industry that is just about picking up and has substantial applications in India. Also, there is an overall shift happening from chemical based and artificial ingredients towards natural ingredients. That trend shift should help the company going ahead. The company certainly has a leadership position in the niche that it operates in. Now, the only question that the company may have to answer is whether they can sustain the profitability growth of the latest year and for that we have to wait for the actual quarterly data for the first two quarters ended June and September, which should give some base to extrapolate the data.

Here are some qualitative advantages that Sanstar Ltd brings to the table. 

•    The company has built a strong franchise in its core area of maize based specialty products and ingredient solutions. The company caters to a diverse range of industries so its business model is automatically de-risked.

•    Sanstar Ltd has a global presence in a market where the entry barriers are already quite high. Its model is also scalable and hence can tap the opportunities that this particular industry is likely to present in the coming years.

•    The large and diversified customer base is an added positive for the company. To add to it, the state-of the art manufacturing and the focus on innovation is likely to be value accretive in the future.

If you add up the qualitative factors and the P/E valuation for FY24, the story looks to be reasonably good; although it is not too clear yet if the company can sustain the surge in the profitability ratios. For investors with a longer waiting period and looking for a low correlation asset class, Sanstar IPO is a good addition to the portfolio. The downside risks may be limited for now.