IPO Size: Rs. 125 cr

• Entirely fresh issue for expanding manufacturing capacity

Price band: Rs. 161-163 per share

Mcap: Rs. 501 cr, implying 25% dilution

IPO Date: Mon 1^st Nov to Wed 3^rd Nov 2021, Listing: 15^th Nov 2021

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

Company Overview:

India’s leading manufacturer of micro-crystalline cellulose (MCC) used by pharma, food and nutraceutical industries, having installed capacity of 12,880 MTPA, with 87% utilization in FY21. Rs. 193 cr FY21 revenue split 70:10:10 among the three industries respectively, with 22% revenue CAGR between FY19-21. ~70% revenue is generated from exports.

Strengths:

1. High margin business, with 21.8% EBITDA margin for FY21, which rose to 22.5% in Q1FY22. Net margin is strong at 15.7%, leading to PAT of Rs. 30 cr in FY21, and EPS of Rs.13.

Q1FY22 PAT grew 48% YoY to Rs. 9 cr, resulting in 16.3% net margin and Rs.3.9 EPS. 

2. 57% capacity hike planned in 2 years, to be funded from IPO proceeds. Heartening to see an IPO without OFS after a very long time. 
3. FY22E PE of 11x for 32% RoE is very attractive, on net worth of Rs. 103 cr and net debt of only Rs. 12 cr, mainly towards working capital. 

Concerns:

1. Listing in T group (i.e. sale only against delivery of share) restricting intra-day trades and volumes.
2. Micro cap stock, hence portfolio allocation should not be higher than 2-3%.