Retail portion of Chemcon Speciality Chemicals’ IPO oversubscribed 2.23 times

MUMBAI: The retail portion of Chemcon Speciality Chemicals Ltd's initial public offer (IPO) was fully subscribed within an hour of the issue opening on Monday. At 12:30 pm, retail individual investors bid for 73,29,564 shares against 32,83,580 shares reserved for the category, indicating a 2.23 times subscription. Retail investors' money is gushing into stock markets since March after the markets rallied nearly 50% since then.

The non-institutional investors' portion was subscribed 0.27 times. The three-day share sale of manufacturer of speciality chemicals Chemcon Speciality Chemicals Ltd will be open for subscription during 21-23 September with a price band of ₹338- ₹340 per share.

The company aims to raise ₹318 crore at the upper end of the band with a fresh issue of up to ₹165 crore and offer for share (OFS) by promoters of up to 4,500,000 equity shares.

The issue has fixed minimum bid lot at 44 equity shares and in multiples of 44 equity shares thereafter. “The floor price is 33.8 times the face value of the equity shares and the cap price is 34 times the face value of the equity shares,” a company statement said.

The company intends to utilise net proceeds from the fresh issue towards capital expenditure towards expansion of manufacturing facility, to meet working capital requirements and towards general corporate purposes.

“At the higher end of the price band, the issue is valued at 25.5 times FY20 price to earnings (PE), which is reasonable compared to peers. 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” said Motilal Oswal Financial Services.

Analysts at the brokerage firm like Chemcon given its leadership position in niche products, high entry barriers and healthy financials. However, client concentration, limited product portfolio and criminal proceeding against a member of promoter group are few risks flagged off by Motilal Oswal Financial Services.

According to JM Financials, as the company’s profitability largely depends upon the global prices of its products there is no assurance that the prices may sustain or further increase in the future. “Any significant fall in global prices of company’s products may have a material adverse effect on company’s business, results of operations and financial condition,” the brokerage firm said in a note.

Chemcon is a manufacturer of speciality chemicals such as Hexamethyldisilazane (HMDS) and Chloromethyl Isopropyl Carbonate (CMIC) which are chemicals predominately used in the pharmaceutical industry. It manufactures Inorganic Bromides used as completion fluids in the oilfield industry.