Ambani Organics NSE SME IPO review (May apply)

Ambani Organics Ltd. (AOL) is a manufacturer, processor, importer, supplier and exporter of water based speciality chemicals used in Paper Industry, Paint Industry, Textile Industry, Carpet Industry, Adhesive Industry, etc. It is an “ISO 9001:2015 – Quality Management System” certified company and has also obtained GOTS (Global Organic Textiles Standards) certification for some of its textile industries chemicals. Company offers a range of over 100 speciality chemicals under the “AOPL” brand, which are used in various industries like Paper industry, Textile Industry, Adhesive Industry, Paint and Construction Industry and Carpet Industry. Its products include binders, PVP Emulsions, Acrylic Emulsions, Textile Auxiliaries, Detergent formulation, Acrylic Polymers, Adhesives, Styrene Acrylic, Defoamer, Dispensers, Butyl Acrylate based Terypolymer, Thickeners, Paint Driers etc.

To part finance its working capital and general corpus fund needs,  AOL is coming out with a maiden IPO of 1368000 equity shares of Rs. 10 each at a fixed price of Rs. 66 per share to mobilize Rs. 9.03 crore. Issue comprises of offer for sale of 100000 shares and fresh equity issue of 1268000 shares. Issue opens for subscription on 06.07.18 and will close on 10.07.18. Minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. Issue constitutes 26.94% of the post issue paid up capital of the company. Issue is solely lead managed by Aryaman Financial Services Ltd. and Universal Capital Securities Pvt. Ltd. is the registrar to the issue. Except for 310559 shares issued at Rs. 19.32 per share in March 2015, it raised all other equity at par between March 2004 and March 2016. Average cost of acquisition of shares by the promoters is Rs. 10.51 and Rs. 10.72 per share. Post issue, AOL’s current paid up equity capital of Rs. 3.81 crore will stand enhanced to Rs. 5.08 crore.

On performance front, AOL has (on a consolidated basis) posted turnover/net profits of Rs. 52.90 cr. / Rs. 0.80 cr. (FY17) and Rs. 65.58 cr. / Rs. 1.91 cr. (FY18). On standalone basis it incurred loss of Rs. -2.44 cr. on a turnover of Rs. 37.66 cr. (FY15) and loss of Rs. - 0.39 cr. on a turnover of Rs. 32.91 cr. (FY16). For last two fiscals it has posted an average EPS of Rs.4.05 and 28.12% (on a consolidated basis) and for last three fiscals (on a standalone basis) it has posted an average EPS of Rs. 2.95 and an average RoNW of 20.03%. Issue is priced at a P/BV of 4.27 bases on its NAV of Rs. 15.45 as on 31.03.18 and at a P/BV of 2.35 on the basis of post issue NAV of Rs. 28.07 (on a consolidated basis). If we consider FY18 net and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 18. As per offer document it is showing Nikhil Adhesive as its listed peer that is currently trading at a P/E of around 21 (as on 03.07.18). Thus issue appears fully priced. Its current debt ratio of 2.73.

On merchant banker’s front, this is 35th mandate from its stable in last four fiscals. Out of last 10 listings 3 opened at a discount to offer price, 3 at par and 4 with a premium ranging from 1% to 6% on the day of listing. Thus it has poor track record.