Vital Chemtech NSE SME IPO review (Apply)

•    VCL is in the business of manufacturing phosphorous derivatives products.
•    It expanded its capacity to more than double in the recent past.
•    Hiked capacities resulted in decent growth for top and bottom lines. 
•    Issue appears reasonably priced based on its recent financial data.
•    Investors may consider parking funds for medium to long-term rewards.

ABOUT COMPANY:
Vital Chemtech Ltd. (VCL) is engaged in the business of manufacturing Phosphorus Derivatives products. The Company is a manufacturer and supplier of Phosphorus base chemicals with the highest quality practice and compliant with the Highest Environmental, Health, and Safety (EHS) in the chemical industry. The company has State of the art Programmable Logic Controller (PLC) and Supervisory Control and Data Acquisition (SCADA) operated in an integrated complex in the PCPIR region of Dahej, Gujarat, India for manufacturing phosphorus base chemicals. 

Its manufacturing facility is having an integrated facility that helps in manufacturing phosphorus base chemicals. Presently the company manufactures Phosphorus Trichloride (PCl3), Phosphorus Oxychloride (POCl3), Phosphorus Pentachloride (PCl5), Phosphorus Pentoxide (P2O5), Poly Phosphoric Acid (PPA) and Phosphorus Pentasulfide (P2S5) for customers across segments such as Lifesciences, Crop Care, Specialty Chemicals, Textile Auxiliaries, Dyes, Pigments, and Plastic Additives. VCL also does trading of its raw Material. The company is in the process of obtaining approval for Phosphorus Pentasulfide (P2S5) from customers. 

VCL's installed capacity increased year on year basis from 12000 MT in FY 2019-20 to 13200 MT in FY 2020-21, and further to 28800 MT in FY 2021-22. This has helped the company is reporting robust growth in recent years. As on May 31, 2022, it has a total of 50 Employees.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs of working capital (Rs. 45.00 cr.), general corporate purpose, VCL is coming out with a maiden IPO of 6400000 equity shares of Rs. 10 each via book building route. It has announced a price band of Rs. 95 - Rs. 101 per share and at the upper cap, mulls mobilizing Rs. 64.64 cr. The issue opens for subscription on October 31, 2022, and will close on November 03, 2022. A minimum application is to be made for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.72% of the post-issue paid-up capital of the company. From the net issue, the company has allocated 50% for QIBs, 15% for HNIs, and 35% for Retail investors. 

The sole Book Running Lead Manager (BRLM) for this issue is Beeline Capital Advisors Pvt. Ltd., and Skyline Financial Services Pvt. Ltd. is the registrar to the issue. Sunflower Broking Pvt. Ltd. is the market maker for this company. 

Having issued initial equity shares at par, VCL issued further equity shares at a fixed price of Rs. 100 per share in May 2022, and bonus shares in the ratio of 3 for 2 in June 2022. The average cost of acquisition of shares by the promoters is Rs. 5.54 per share. 

Post-IPO, VCL's current paid-up equity capital of Rs. 17.55 cr. will stand enhanced to Rs. 23.95 cr. Based on the upper cap of the IPO pricing, the company is looking for a market cap of Rs. 241.91 cr. 

FINANCIAL PERFORMANCE:
The company got converted to a public limited company on November 25, 2021, and till then, it was operating as an LLP firm. On the financial performance front, as an LLP it has posted a turnover/net profit of Rs. 41.61 cr. / Rs. 1.05 cr. (FY20), Rs. 47.68 cr. / Rs. 2.94 cr. (FY21), Rs. 86.04 cr. / Rs. 7.85 cr. for the period from 01.04.21 to 24.11.21 (of FY22), and as a public limited company, on a consolidated basis, it posted a turnover/net profit of Rs. 57.87 cr. / Rs. 6.71 cr. for a period from 25.11.21 to 31.02.22 (FY22). For the first month of FY23 i.e. for April 22, it earned a net profit of Rs. 1.35 cr. on a turnover of Rs. 10.80 cr.  

For the last three fiscals, VCL has reported an average EPS of Rs. 3.41 and an average RoNW of 68.39%. The issue is priced at a P/BV of 11.53 based on its NAV of Rs. 8.76 as of April 30, 2022, and at a P/BV of 4.14 based on its post-IPO NAV of Rs. 24.41 (at the upper cap). 

If we annualize FY23 earnings and attribute it to the fully diluted post-IPO equity capital, then the asking price is at a P/E of around 14.94. 

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

COMPARISON WITH LISTED PEERS:
As per the offer document, VCL has shown Neogen Chem as their listed peer, which is a highly surprising one. It is currently trading at a P/E of 76.92 (as of October 25, 2022). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 5th mandate from Beeline Capital. Out of the last 4 listings, 1 issue closed below the issue price on the listing date.