IPO Size: Rs. 130 cr, Entirely Offer for Sale (OFS)   

• OFS by the promoter (100% to drop to 74%)

Price band: Rs. 129-136 per share

M cap: Rs. 505 cr, implying 26% dilution

IPO Date: Mon 3^rd Jun to Wed 5^th Jun 2024, Listing Mon 10^th Jun 2024

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

Gujarat-based Speciality Chemicals Maker

Kronox Lab Sciences manufactures high purity speciality fine chemicals, which are used in pharmaceuticals, nutraceuticals, scientific research and testing. It has 185 products in the family of phosphate, sulphate, acetate, chloride, citrate, nitrate, nitrite, carbonate etc., with another 122 under R&D.

Greenfield Capex

Company has 3 manufacturing plants in Vadodara, Gujarat with combined installed capacity of 7,242 MTPA, operating at about 67% capacity utilization. It is establishing a greenfield plant in Dahej, Gujarat, land for which has been acquired for Rs. 11 cr in Oct 2023. While the capex will be funded through debt and equity, it is not quantified in the RHP, neither commissioning date specified.

Growing Financials

Revenue has grown from Rs.62 cr in FY21 to Rs. 96 cr in FY23, with exports (mainly to US) comprising 25% of revenue. During 9MFY24, while revenue fell 9% YoY to Rs. 68 cr, in line with drop in raw material costs (down 10% YoY), EBITDA rose 8% YoY to Rs. 21 cr (31% EBITDA margin) and PBT rose 10% YoY to Rs. 20 cr. 9MFY24 PBT of Rs. 20 cr is very close to FY23 PBT of Rs. 22 cr, leading to PAT of Rs. 15.5 cr and a net margin of 23% and EPS of Rs. 4.2. FY23 EPS stood at Rs. 4.3.

Attractive Valuation

Annualising 9MFY24 EPS of Rs. 4.2 leads to FY24E EPS of Rs.5.4, implying a historic PE multiple of 25x. This is attractive for 32% RoE, 23% net margin and planned expansion. Moreover, debt-free speciality chemical companies are ruling at PE multiple of over 30x.