Stallion India Fluorochemicals
IPO Size: Rs. 199 cr
- Fresh Issue of Rs. 161cr for (i) working capital Rs. 95 cr (ii) capex Rs. 50 cr
- Offer for Sale (OFS) of Rs. 39 cr by the promoter (95% to shrink to 68%)
Price band: Rs. 85-90 per share
M cap: Rs. 714 cr, implying 28% dilution
IPO Date: Thu 16th Jan to Mon 20th Jan 2025, Listing Thu 23rd Jan 2025
Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.
Fluorochemicals Company
Stallion India is a Mumbai based blender and processor of refrigerant and industrial gases, such as SF6, R32, R152a, R140a at its 4 facilities in Maharashtra, Rajasthan and Hayana. Of Rs. 230 cr revenue in FY24, 12% was contributed by electrical insulation gas (nil in FY23), while 38% come from room AC segment and 15% from automobile industry. SF6 or sulphur hexafluoride is an insulating gas, used in high-voltage electrical equipments, like circuit breaker, switchgear, transformers.
Capex Plans
Company plans Rs. 50 cr capex over the next 11 months - Rs. 21 cr for a greenfield facility in Andhra Pradesh and Rs. 29 cr for brownfield expansion for speciality and semiconductor gases in Maharashtra. These facilities are likely to be commercialised by Dec 2025. However, one wonders company’s ability to scale up, as FY24 capacity utilisation was below 50% for all its four existing facilities.
Volatile Margins
Between FY21 to H1FY25, gross margin fluctuated sharply between 16% to 25%, as product prices moved swiftly. This swung the net margin between 4% to 12% during the same period – from 6% in FY24 doubled to 12% in H1FY25. Larger peers Guj Fluoro and Navin Fluorine, with 15x and 6x the size of Stallion, have also been subject to volatility, making downturns very tough. In this backdrop, company may also not find any hiding when product prices slump. Interestingly, IPO is being launched at a time when margins are at their peak.
Unexciting Business Model
- Technology or skill involved in the business is insignificant, with just Rs. 17 cr fixed assets, as of 30.9.24 and only 40 workers at plants (including 4 unskilled and 12 semi-skilled workers).
- Stretched working capital, with 4.5 months of outstanding inventory and over 3 months of debtors. More than 50% of funds raised will be used for working capital.
- Most raw material imported from China, while entire revenue is generated domestically, exposing the business to high forex and geographic risk.
- A product liability dispute is pending in courts for long with Chinese supplier Sanmei. If outcome is unfavourable, company will be liable for Rs. 9.5 cr damage, which is a material sum, as FY24 net profit was at Rs. 15 cr.
Nano-Cap Stock
Annualising H1FY25 EPS of Rs. 2.69 prices the IPO at a PE multiple of about 17x. While this is lower than peers given small size of operations, it is in-line for 12.5% RoE and high dependence on China-driven end-product prices (beyond its control).
16th Jan 2025 at 02:54 pm