Aether Industries Ltd. (Aether), is coming out with an IPO to raise around Rs 800 crore, which opens today (May 24) and closes on May 26 2022.
Surat-based Aether is a speciality chemical manufacturer in India focused on producing advanced intermediates and speciality chemicals involving complex and differentiated chemistry and technology core competencies, has garnered Rs 240.326 crore from anchor investors ahead of its initial share sale that opens for public subscription on Tuesday.
About the issue
Aether is coming up with an IPO with 1.259-1.310 crore shares (fresh issue: 0.977 - 1.028 crore shares; OFS shares: 0.282cr shares) in offering. This offer represents around 10.1 percent of its post issue paid-up equity shares of the company.
The issue is through book building process with a price band of Rs. 610-642 per share.
The company has executed a pre-IPO placement on 5th May 2022, and allotted 0.202 crore share at Rs 642 per share. Total amount collected from the pre-IPO placement was Rs. 130 crore. Consequently, it has reduced the fresh issue size from Rs. 757cr (as mentioned in DRHP).
The IPO is a combination of fresh issue and OFS portion. The company will not receive any proceeds from the OFS portion. Of the fresh issue net proceeds, Rs. 163 crore will be used to fund the proposed greenfield expansion; Rs. 137.9 crore will be utilized for repayment/prepayment of the borrowings and rest Rs. 165cr will be used to fund the working capital requirement of the company.
50 percent of the net issue are reserved for qualified institutional buyers, while 15 percent and 35 percent of the net issue is reserved for non-institutional bidders and retail investors, respectively.
Promoter currently holds 96.97 percent stake in the company and post-IPO this will come down to 87.09 percent. Public holding will increase from current 3.03 percent to 12.91 percent.
Company's performance
Aether reported 18.45 percent growth in net profit for nine months that ended in December 2021 from 14.30 per cent, a year ago. However, revenue fell to 49.04 per cent for twelve months that ended in March 2021 from 50.02 per cent in FY20.
Key competitive strengths
Differentiated portfolio of market-leading products
Focus on R&D to leverage the core competencies of chemistry and technology
Long standing relationshipswith a diversified customer base
Synergistic business models focused on large scale manufacturing, CRAMS and contract manufacturing
Focus on quality, environment, health and safety
Strong and consistent financial performance
Experienced promoters and senior management with extensive domain knowledge
Risk and concerns
Unfavorable government policies and regulations
Revenue concentration risk
Unfavorable sales-mix
Unfavorable forex movements
Unfavorable movements in the prices of key raw materials and of international crude
Delay in expanding the capacity
Competition
Brokerages weigh in
Choice Broking
Peer comparison and valuation: At higher price band of Rs. 642, Aether is demanding an EV/Sales multiple of 13.1x, which is in-line to peer average of 15.2x. Considering its dominant position in the select specialty chemicals and growth prospects from the end use applications, we feel the company has buoyant outlook. However, a stretched valuation is a concern. Thus we assign a “Subscribe with Caution” rating for the issue.
Ventura
At the IPO price of Rs 642, AETHER is valued at 32.2X FY24 P/E. Considering the growth opportunities for speciality chemicals in pharma, agrochemicals & FMCG space, and improving prospects for contractual manufacturing & CRAMS under Make-in-India initiatives, we recommend a SUBSCRIBE rating with a price target of Rs 797, which represents an upside of 24 percent over the IPO price in 18 months.
