Chemplast Sanmar Rs 3,850 cr IPO opens for subscription; grey market premium weak, should you buy?

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Updated: August 10, 2021 11:44 AM

Chemplast Sanmar’s Rs 3,850 crore IPO opened for subscription today in the fixed price band of Rs 530-541 per share.

Chemplast Sanmar IPOThe initial public offer aggregating up to Rs 3,850 crore had a fresh issue of up to Rs 1,300 crore and an offer for sale of up to Rs 2,550 crore

Chemplast Sanmar’s Rs 3,850 crore IPO opened for subscription today in the fixed price band of Rs 530-541 per share. Investors can subscribe to the IPO in a bid lot of 27 shares and multiples thereafter till Thursday evening. Ahead of the IPO, the company has managed to raise Rs 1,732 crore from 78 anchor investors, including marquee names such as Goldman Sachs, Abu Dabhi Investment Authority, BNP Paribas, HDFC, SBI, among others. Chemplast Sanmar is a specialty chemicals manufacturer with a focus on specialty paste PVC resin and custom manufacturing of starting materials and intermediates for pharmaceutical, agro-chemical and fine chemicals sectors. 

About the issue

Chemplant Sanmar’s public issue is a mix of an offer for sale (OFS) by existing investors worth Rs 2,550 crore and a fresh issue of equity shares worth Rs 1,300 crore. Of the entire issue, 75% or 53,37 million shares are reserved for Qualified Institutional Buyers (QIB), while Non-Institutional Investors (NII) can bid for 15% of the IPO or 10.67 million shares. This leaves just 10% for retail investors or 7.12 million shares. Post issue, promoter group shareholding will come down from 100% pre-IPO to 54.99%. The public shareholding will increase to 45.01%. Chemplant Sanmar said it plans to use the funds raised via the fresh issue for early redemption of NCDs issued by the company, in full apart from other corporate purposes. 

In the unlisted space, the shares of Chemplast Sanmar are trading with a premium of Rs 30 per share or just 5% above the upper end of the IPO price band, people dealing in the unlisted space said. Shares of the company have continued to trade in the same range over the last few days. 

Should you buy?

“Considering the FY-21 adjusted EPS of Rs 25.95 on a post-issue basis, the company is going to list at a P/E of 20.85 with a market cap of Rs 85,537 mn, while its peers namely PI Industries and SRF are trading at a P/E of 61.16 and 37.26 respectively,” said analysts at Marwadi Financial Services. “We assign “Subscribe (With Caution)” rating to this IPO as the company is well-positioned to capture favourable industry dynamics. However, the negative net asset value along with higher trade payable days keeps us cautious from a longer-term perspective,” they added.

Analysts at Angel Broking highlighted that Chemplast Sanmar has incurred significant indebtedness and lenders have imposed certain restrictive conditions on the company, a concern for investors. “At the higher end of the price band, the stock will be trading at P/E multiple of 17.7xFY21 EPS which is at a discount to other chemical players,” said Angel Broking. The brokerage firm said that they have a ‘Neutral’ recommendation on the IPO given concerns due to high debt on books and negative net worth.

(The stock recommendations in this story are by the respective research and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)

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