Yasons Chemex NSE SME IPO review (Apply)
• YCCL is engaged in the business of dyes/pigments/FMCG products etc.
• After average performances for FY20 to FY22, it posted a quantum jump in its top and bottom lines for FY23.
• Based on FY23 earnings, the issue appears fully priced.
• YCCL is a subsidiary of listed entity YCL that has rewarded investors reasonably.
• Investors may consider investment for the medium to long-term rewards.
PREFACE:
YCCL is promoted by Yash Chemex Ltd. (YCL) which is a BSE listed company. YCL is a chemicals and dyes trading and distribution company with a diverse product portfolio. It came with its maiden IPO of Rs. 2.51 cr. with a price of Rs. 23 per share in June 2016. YCL gave a dividend of 3.5% in November 2017 and 3% in February 19. It has also given bonus shares in the ratio of 3 for 2 post listing. The scrip last closed on Friday (July 21, 2023) at Rs. 85.52 and has posted 52 weeks, high/low of Rs. 100.80 / Rs. 40.80. Thus this company has rewarded its investors well. Eventually, both companies are engaged in a similar business. Considering the YCL reward pattern, market men expect reasonable rewards from YCCL post listing.
ABOUT COMPANY:
Yasons Chemex Care Ltd. (YCCL) is a subsidiary of Yash Chemex Ltd. (YCL), a company already listed on BSE. YCCL is in the business of manufacturing – a) dyes and pigment paste; and b) FMCG products. Within dyes, it manufactures a wide range of dyes such as reactive dyes, direct dyes, basic dyes, vat dyes and food colourants. The dyes manufactured by the company can be broadly classified under the following types (a) natural dyes, (b) synthetic dyes, and (c) synthetic organic dyes. The company manufactures multiple shades of dyes. It also manufactures a wide range of pigment paste from various chemicals. Within FMCG it manufactures or packages products such as hair oil, perfumes & deodorant, handmade soap, sanitiser, etc., under its own brand name “PLXO”.
YCCL also trades in both dyes, pigment and pigment paste, which is primarily for meeting customer requirements. Some of its customers require a range of dyes or pigment paste besides the products of YCCL and in such cases, it purchases the products, which are not manufactured by it but help in meeting the needs of the customers. With its wide range of products, the company offers colour solutions directly or indirectly (trader) for various industries like textile, paper, paints, inks, soap, plastic, wood, detergents and FMCG. YCCL has two manufacturing facilities situated in the state of Gujarat.
The company is also a partner in Rishit Polysurf LLP with 99% of the share in profits. Rishit Polysurf LLP was takeover on October 26, 2022 by it and is engaged in the business of speciality chemicals in the form of ethoxylates and its derivatives and propoxylates and their derivatives at Dholka, Ahmedabad, Gujarat-382225 and is spread over 4200 sq. meters in area. As of June 30, 2023, it had 9 employees on its payroll and it keeps employing casual/temporary labourers as and when needed.
ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 5142000 equity shares of Rs. 10 each with a fixed price of Rs. 40 per share to mobilize Rs. 20.57 cr. The issue opens for subscription on July 24, 2023, and will close on July 26, 2023. The minimum application to be made is for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.64% of the post-IPO paid-up capital of the company. YCCL is spending Rs. 3.39 cr. for this IPO process, and from the net proceeds, it will utilize Rs. 12.30 cr. for working capital, and Rs. 4.87 cr. for general corporate purposes.
Fedex Securities Pvt. Ltd. is the sole lead manager and KFin Technologies Ltd. is the registrar of the issue. (In the final prospectus, the registrar’s name appears as Karvy Fintech Ltd.). Nikunj Stock Brokers Ltd. is the market maker for the company.
Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 20 – Rs. 35 per share between December 2017 – June 2018. It has also issued bonus shares in the ratio of 14 for 10 in December 2022. The average cost of acquisition of shares by the promoters is Rs. 8.99 per share.
Post-IPO, YCCL’s current paid-up equity capital of Rs. 14.16 cr. will stand enhanced to Rs. 19.30 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 77.22 cr.
FINANCIAL PERFORMANCE:
On the financial performance front, for the last four fiscals, YCCL has posted a turnover/net profit of Rs. 19.62 cr. / Rs. 1.16 cr. (FY20), Rs. 18.05 cr. / Rs. 1.25 cr. (FY21), Rs. 26.17 cr. / Rs. 1.96 cr. (FY22), and Rs. 41.01 cr. / Rs. 3.44 cr. (FY23). Thus after average performance for FY20 to FY22, it marked a quantum jump in its top and bottom lines for FY23.
For the last three fiscals, the company reported an average EPS of Rs. 1.82 and an average RoNW of 13.41%. The issue is priced at a P/BV of 2.73 based on its NAV of Rs. 14.63 as of March 31, 2023, and at a P/BV of 1.87 based on its post-IPO NAV of Rs. 21.39 per share.
If we attribute FY23 earnings to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 22.47. Thus the issue appears fully priced.
DIVIDEND POLICY:
The company has not declared any dividends since incorporation. It will adopt a prudent dividend policy post-listing, based on its financial performance and future prospects.
COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Mahickra Chem, Meghmani Org., Kiri Ind., and Ushanti Colour as their listed peers. They are currently trading at a P/E of 20.26, 8.4, 00, and 36.21 (as of July 21, 2023). However, they are not truly comparable on an apple-to-apple basis. If we consider parent company YCCL, then it is currently trading at a P/E of around 225.05 (as of July 21, 2023).
MERCHANT BANKER’S TRACK RECORD:
This is the 16th mandate from Fedex Securities in the last four fiscals (including the ongoing one). Out of the last 10 listings, 1 opened at a discount, 3 at par, and the rest listed at premiums ranging from 0.21% to 108.93% on the listing date.
Conclusion / Investment Strategy
The company is a subsidiary of YCL – a listed company that has rewarded investors reasonably since listing. YCCL is in the lucrative business of dyes/pigments/FMCG products that hold bright prospects going forward. Though the issue appears fully priced, investors may park funds for the medium to long-term rewards.
Review Author
DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. With entry barriers, SEBI wants only well-informed investors to participate in such offers. With crazy listings in the past, SME IPOs drew the attention of investors across the board. However, as SME issues have entry barriers and continued low preference from the broking community, any reader taking decisions based on any information published here does so entirely at own risk. The above information is based on information available as on date coupled with market perceptions. The Author has no plans to invest in this offer.
(SEBI registered Research Analyst-Mumbai).
About Dilip Davda
Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.
Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.
Email: dilip_davda@rediffmail.com
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