Aether Industries Ltd IPO.
Published by Sharekhan Education | May 24, 2022
Aether Industries Ltd IPO.
Amit Pathak | Sharekhan Education
Issue size: ₹ 799 -808 Cr
Price Band: ₹610 – ₹642
The issue opens on: Tuesday, 24th May’2022
The issue closes on: Thursday, 26th May’2022
Company Overview:
Aether Industries is a specialty chemical manufacturer, catering to various industries, such as pharmaceuticals, agrochemicals, dyes & pigments, paints & adhesives, home care & personal care, etc. Specialty chemicals are low-volume and high-value products that are sold based on their quality or utility. The company has three business models; Large scale manufacturing of intermediates and specialty chemicals, CRAMS (contract research and manufacturing services), and Contract manufacturing. Its customers include over 160 multinational, global, regional, and local companies. It is one of the fastest-growing specialty chemical companies in India, growing at a CAGR of nearly 49.5% between FY19-21.
Objectives of Issue:
The IPO is a combination of an offer for sale (OFS) and a fresh issue. The company will use proceeds from the fresh issue for funding capital expenditures for the proposed Greenfield Project, funding working capital requirements, and repayment of debt. Investors have to make minimum application for 23 shares and in multiples thereon. Post allotment, the company will list its shares on NSE and BSE. Listing of the equity shares will result in the enhancement of the brand name.
Industry Overview:
India currently has approximately 4% market share in the global chemicals market. India has many inherent growth drivers including a huge local demand base, significant exports with room to expand, and significant imports with scope for domestic substitution. Aatmanirbhar Bharat Abhiyan by government is likely to benefit the sector. Several Indian companies are positioning themselves as an alternative to China as the coronavirus crisis prompts global companies to diversify their supply chains. Stringent environmental regulations and increased cost of labor in China have increased operating costs, closures, and relocations of certain manufacturing facilities. Anaylst expect The Indian specialty chemicals segment to grow at a CAGR of 11.2% between FY20-25.
Competitive Strengths:
Aether focuses on producing advanced intermediates and specialty chemicals involving complex and differentiated chemistry and technology core competencies. It is the sole manufacturer of 4MEP, MMBC, T2E, OTBN, NODG, DVL, and Bifenthrin Alcohol in India.
It enjoys B2B relationships of more than 5 years with 7 out of its top 10 customers. The company’s long-term relationships and ongoing active engagements with customers allow it to plan its Capex and enhance its bargaining power with vendors. It has also helped to expand the product offerings. Long-term relationships with clients provide them with an advantage over new entrants that would need to make significant investments and endure a long gestation period with potential customers to effectively compete.
Key Concerns:
Aether is subject to certain operational risks involving the manufacture, usage, and storage of various hazardous substances. It does not have long-term agreements with suppliers for its raw materials, and an increase in the cost of, or a shortfall in the availability of such raw materials could hurt the business. The company faces foreign exchange risks. It is subject to strict quality requirements, regular inspections, and audits by its customers, and any failure to comply with quality standards may lead to the cancellation of existing and future orders and could negatively impact the business.
Financials:
Over FY21-24E, revenues are likely to grow at a CAGR of 38.7% on account of upcoming capacity expansion and cross-selling opportunities. EBITDA and PAT are expected to grow at a CAGR of 44.9% and 51.7% respectively. EBITDA and PAT margins are also expected to improve by 350bps to 28.4% and 487bps to 20.7% respectively. At the upper end of the price band, 642 Aether is offered at a P/E of 66.6x its FY22 annualized earnings. Considering the growth opportunities and possibility of listing gains, we are maintaining a positive educational view of the company.
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