Patel Chem BSE SME IPO review (May apply)

•    The company is engaged in manufacturing and marketing of specialty chemicals with a prime focus on cellulose-based excipients.
•    The company has created a niche place in this segment with domestic and international markets.
•    The company posted steady growth in its top and bottom lines.
•    Higher net margins from FY24 onwards have surprised all. 
•    Based on its recent financial data, the issue appears fully priced. 
•    Well-informed investors may park funds for medium to long term.

ABOUT COMPANY:
Patel Chem Specialities Ltd. (PCSL) is operating in the field of specialty chemicals, particularly focusing on the production of cellulose-based excipients. It manufactures a diverse range of products that are critical to various industries, including pharmaceuticals, food & beverages, cosmetics, and numerous industrial applications. These chemicals are fundamental in the formulation of essential products such as tablets, food additives, personal care items, and industrial formulations. Its products play vital roles as binders, disintegrants, thickeners, stabilizers, and gelling agents, each serving a specialized function across multiple sectors. PCSL’s primary focus on manufacturing of the cellulose-based excipients which predominantly find application in Pharmaceutical, Food & Beverages, Cosmetics and other industries.

Since inception, the Company manufactures Carboxymethyl Cellulose Sodium (Sodium CMC), Microcrystalline Cellulose (MCC), Carboxymethyl Cellulose Calcium (CMC Calcium), Croscarmellose Sodium (CCS), Sodium Starch Glycollate (SSG), and Sodium Monochloro Acetate (SMCA). With a commitment to quality and innovation, it has successfully established a strong global presence, exporting its products to over 15 countries, including the USA, Germany, UK, Japan, China, Australia, and many more. Its expertise in producing high-quality excipients has enabled it to carve out a niche in the cellulose-based chemicals market, driven by its adherence to international quality standards such as US-DMF, GMP, ISO 9001:2015 etc.

The Company offers a diverse range of cellulose-based chemicals, each serving specialized functions across various industries. Sodium CMC, a versatile product, is used as a thickener, binder, and gelling agent in pharmaceuticals, food & beverages, cosmetics, and industrial applications such as oil drilling, under the brand "Rheollose®." Microcrystalline Cellulose (MCC) is valued in pharmaceuticals and food & beverages as a bulking agent, texturizer, and binder, with products branded as "Hindcel®." Sodium Starch Glycollate (SSG) serves as a disintegrant in tablets, available in corn ("BlowTab® C") and potato-based ("BlowTab® P") variants. Croscarmellose Sodium and Calcium CMC, powerful super disintegrants, are marketed as "Disolwell" and "Swellcal," respectively. Additionally, Sodium Monochloro Acetate (SMCA) is a key raw material for its products and has applications in drug production and nutritional products. As of March 31, 2025, it had 136 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 7000000 equity shares to mobilize Rs. 58.80 cr. The company has announced a price band of Rs. 82 – 84 per share of Rs. 10 each. The IPO opens for subscription on July 25, 2025, and will close on July 29, 2025. The minimum application to be made is for 3200 shares and in multiple of 1600 shares thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 28.15% of post-IPO paid-up equity capital of the company. From the net proceeds of the issue, the company will utilize Rs. 43.15 cr. for capex on plant and machinery for new unit at Mahesana, and the rest for general corporate purposes.

The IPO is jointly lead managed by Cumulative Capital Pvt. Ltd., and Unistone Capital Pvt. Ltd., while MUFG Intime India Pvt. Ltd. is the registrar to the issue. Globalworth Securities Ltd. is the market maker, and also a syndicate member. The issue is underwritten 50% each by Cumulative Capital and Unistone Capital.

Having issued initial equity shares at par, the company issued further equity shares at a fixed price of Rs. 61 per share per share in November 2024. It has also issued bonus shares in the ratio of 2 for 1 in October 2014, 1 for 1 in December 2017, and 16 for 1 in July 2024. The average cost of acquisition of shares by the promoters’ is Rs. 0.12, Rs. 0.19, and Rs. 5.29 per share.

Post-IPO, company’s current paid-up equity capital of Rs. 17.87 cr. will stand enhanced to Rs. 24.87 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 208.91 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 69.75 cr. / Rs. 2.89 cr. (FY23), Rs. 82.72 cr. / Rs. 7.66 cr. (FY24), Rs. 105.55 cr. / Rs. 10.57 cr. (FY25). 

For the last three fiscals, the company has reported an average EPS of Rs. 4.83, and an average RoNW of 32.05%. The issue is priced at a P/BV of 4.11 based on its NAV of Rs. 20.44 as of March 31, 2025, but post-IPO NAV data is missing from offer documents.

If we attribute its FY25 super earnings on post-IPO expanded equity base, then the asking price is at a P/E of 19.76, and based on its FY24 earnings, the P/E stands at 27.27. Thus, based on its recent financial data, the issue appears fully priced.

The company has reported PAT margins of 4.14% (FY23), 9.26% (FY24), 10.01% (FY25), and RoCE margins of 32.83%, 45.06%, 36.26%, respectively for the referred periods.

DIVIDEND POLICY:
The company has not declared any dividends since incorporation. It will adopt a prudent dividend policy, based on its financial performances and future prospects.

COMPARISON WITH LISTED PEERS:
As per offer document, the company has shown Accent Microcell and Sigachi as its listed peer. They are trading at a P/E of around 19.7 and 22.1 (as of July 23, 2025). However, they are not truly comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORDS:
This is the 3rd mandate from Cumulative Capital in the last two fiscals (including the ongoing one). From the last 2 listings, both opened with premium ranging from 25%% to 37.5% on listing date.

This is the 22nd mandate from Unistone Capital in the last three fiscals (including the ongoing one. Out of the last 10 listings, 3 opened at discount, and the rest opened with premium ranging from 3.84% to 36.72% on the date of listing.