Technichem Org BSE SME IPO review (May apply)

•    The company is engaged in manufacturing and marketing of speciality chemicals, pigment, dyes intermediates, air oxidant chemistry etc.
•    The company posted declining trends in its top lines for the reported periods.
•    Surprisingly, it marked boosted bottom lines from FY24 onwards.
•    Based on FY25 annualized super earnings, the issue appears fully priced. 
•    Well-informed investors may park funds for medium to long term.

ABOUT COMPANY:
Technichem Organics Ltd. (TOL) is mainly engaged in the business of manufacturing of a wide range of chemicals, Pyrazoles, Pyrazolones, Speciality Chemicals, Pigment & Dye Intermediates and Air Oxidation Chemistry that serves multiple industries, including pharmaceuticals, agriculture, coatings, pigments, dyes and others. This wide array of end uses highlights the extensive and versatile nature of its product offerings. TOL’s extensive and varied portfolio ensures that it is not confined to one sector.

This strategic diversification safeguards it from potential downturns in any single market, providing stability and resilience. The Company boasts a global presence, operating in around 11 countries. This extensive international footprint provides it with a broad perspective on market dynamics, enabling it to make informed decisions and better judge market trends. A significant portion of its exports is directed to China, highlighting the exceptional capabilities of R&D team in synthesizing molecules cost-effectively. This not only underscores its price competitiveness in the global market but also demonstrates ability to deliver high-quality products at competitive prices. 

Moreover, its ability to navigate across different chemical processes and applications allows it to meet a wide array of customer needs. This versatility broadens its market presence and enhances adaptability to changing market conditions and emerging trends. The Company is customer centric, values based, R&D driven chemical manufacturer.

According to the management, though new products launched since FY24 do not yet contribute substantially to volume, their higher value justifies the apparent dip in turnover while increasing profitability. This strategic shift to high-value products has enabled it to improve profitability despite a reduction in overall sales volume. As of June 30, 2024, it had 72 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 4590000 equity shares of Rs. 10 each to mobilize Rs. 25.25 cr. at the upper cap. The issue opens for subscription on December 31, 2024, and will close on January 02, 2025. The company has announced a price band of Rs. 52 – Rs. 55 per share. The minimum number of shares to be applied is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.50% of the post-IPO paid-up capital of the company. The company is spending Rs. 2.71 cr. for this IPO process, and from the net proceeds of the IPO, the company will utilize Rs. 7.04 cr. for capex on new plant, Rs. 10.24 cr. for pre-payment/repayment of certain borrowings, and the rest for general corporate purposes

The IPO is solely lead managed by Shreni Shares Ltd., and Bigshare Services Pvt. Ltd., is the registrar to the issue. Shreni Shares Ltd. is also the Market Maker for the company. Shreni Shares Ltd. is also the syndicate member.

Having issued initial equity shares at par value, the company issued further equity shares at a fixed price of Rs. 100 per share in March 2002. It has also issued bonus shares in the ratio of 4 for 1 in April 2024. The average cost of acquisition of shares by the promoters is Rs. 0.51, and Rs. 0.63 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 12.73 cr. will stand enhanced to Rs. 17.32 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 95.27 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 67.79 cr. / Rs. 3.42 cr. (FY22), Rs. 51.02 cr. / Rs. 1.73 cr. (FY23), and Rs. 46.97 cr. / Rs. 4.73 cr. (FY24). For Q1 of FY25 ended on June 30, 2024, it earned a net profit of Rs. 1.40 cr. on a total income of Rs. 14.88 cr. The sudden boost in its bottom lines amidst declining top line raise eyebrows, and concern over its sustainability going forward. 

For the last three fiscals, the company has reported an average EPS of Rs. 2.81 and an average RoNW of 20.25%. The issue is priced at a P/BV of 3.33 based on its NAV of Rs. 16.51 as of June 30, 2024, and at a P/BV of 2.19 based on its post-IPO NAV of Rs. 25.15 per share (at the upper cap).

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 16.98, and based on FY24 earnings, it stands at 20.15. The issue relatively appears fully priced.

For the reported periods, the company has posted PAT margins of 5.10% (FY22), 3.43% (FY23), 10.19% (FY24), 9.56% (Q1-FY25), and RoE margins of 32.44%, 12.33%, 27.39%, 27.65%, for the referred periods respectively. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy, based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Ami Organics, Anupam Rasayan, Chemcrux Enterprises, as their listed peers. They are trading at a P/E of 101.0, 112.0, and 34.7 (as of December 30, 2024). However, they are not truly comparable on an apple-to-apple basis. The listed peer compare appears to be an eyewash.

MERCHANT BANKER’S TRACK RECORD:
This is the 35th mandate from Shreni shares in the last three fiscals, out of the last 10 listings 1 listed at par, the rest listed with premiums ranging from 4.88% to 141.94% on the date of listing.