What you must know about Accent Microcell IPO?

Accent Microcell Ltd is a 11 year old company, incorporated in the year 2012 to produce high-quality cellulose-based excipients. These excipients find application in the pharmaceutical, nutraceutical, food, cosmetic and other industries. Accent Microcell Ltd has carved a niche in producing international quality cellulose-based excipients. It has two state of the art facilities located at Ahmedabad and Dahej SEZ respectively. The company has put up a complete cellulose ecosystem at these places which includes the development of a robust global sales model, serving customers across India and in more than 45 nations across the world. Some of the global markets that Accent Microcell serves include the US, Canada, Germany, the UK, Japan, China, Australia, Korea, the Netherlands, Turkey, Italy, Indonesia, Poland, France, New Zealand, Brazil, Russia, Mexico, and many more.

At a granular product level, Accent Microcell Ltd specializes in the manufacture of Microcrystalline Cellulose (MCC). This is in the form of  odourless, fine white powder, which is a purified form of cellulose derived from the refinement of highly purified wood pulp. MCC is widely used as a texturizer, anticaking agent, lubricant, binding agent, bulking agent. Most of the product applications of MCC are in sectors like Pharmaceutical, Nutraceutical, Food, and Cosmetics. The company manufactures 22 grades of MCC, with particle sizes ranging from 20 microns to 180 microns.

Key terms of the Accent Microcell IPO

Here are some of the highlights of the Accent Microcell IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 08th December 2023 and closes for subscription on 12th December 2023; both days inclusive.
   
• The company has a face value of ₹10 per share and it is a book building issue. The issue price for the fresh issue IPO has been fixed in the price band of ₹133 to ₹140 per share. Being a book built issue, the final price will be discovered via book building process.
   
• The IPO of Accent Microcell Ltd has only a fresh issue component with no offer for sale (OFS) portion. The fresh issue portion is EPS dilutive and equity dilutive, but OFS is just a transfer of ownership and  hence it is not EPS or equity dilutive.
   
• As part of the fresh portion of the IPO, Accent Microcell Ltd will issue a total of 56,00,000 shares (56 lakh shares), which at the upper IPO band price of ₹140 per share aggregates to a total fund raising of ₹78.40 crore.
   
• Since there is no offer for sale portion, the total size of the fresh issue will also be the total size of the IPO. Hence the total IPO size will also comprise of 56.00 lakh shares, which at the upper price band of ₹140 per share will aggregate to ₹78.40 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker portion allocation of 2,80,000 shares. The market maker for the issue is Prabhat Financial Services Ltd and they will provide two-way quotes to ensure liquidity on the counter post listing and low basis costs.
   
• The company has been promoted by Vasant Vadilal Patel, Ghanshyam Patel, Nitin Patel and Vinod Patel. The promoter holding in the company currently stands at 73.13%. However, post the fresh issue of shares in the IPO, the promoter equity holding share will get diluted to 53.67%.
   
• The fresh issue funds will be used by the company to set up a plant at Navagam Kheda for manufacture of croscarmellose sodium (CCS) and sodium starch glycolate. Part of the funds will also be used for general corporate purposes by the company.
   
• Corporate Capitalventures Private Ltd will be the lead manager to the issue, and KFIN Technologies  Ltd will be the registrar to the issue. The market maker for the issue is Prabhat Financial Services Ltd.

IPO allocation and minimum lot size for investment

Accent Microcell Ltd has allocated 5.00% of the issue size for the market makers to the issue, Prabhat Financial Services Ltd. The net offer (net of market maker allocation) will be divided between the qualified institutional buyers (QIBs), retail investors and the HNI / NII investors. The breakdown of the overall IPO of Accent Microcell Ltd in terms of the allocation to various categories are captured in the table below.

The minimum lot size for the IPO investment will be 1,000 shares. Thus, retail investors can invest a minimum of ₹140,000 (1,000 x ₹140 per share) in the IPO. That is also the maximum that the retail investors can invest in the IPO. HNI / NII investors can invest a minimum of 2 lots comprising of 2,000 shares and having a minimum lot value of ₹280,000. There is no upper limit on what the QIBs as well as what the HNI / NII investors can apply for. The table below captures the break-up of lot sizes for different categories.

Key dates to be aware of in the Accent Microcell IPO (SME)

The SME IPO of Accent Microcell Ltd IPO opens on Friday, December 08th, 2023 and closes on Tuesday, December 12th, 2023. The Accent Microcell Ltd IPO bid date is from December 08th, 2023 10.00 AM to December 12th, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is December 12th, 2023.

It must be noted that in ASBA applications, there is no refund concept. The total application amount is blocked under the ASBA (applications supported by blocked amounts) system. Once the allotment is finalized, only the amount is debited to the extent of the allotment made and the lien on the balance amount is automatically released in the bank account.

Financial highlights of Accent Microcell Ltd

The table below captures the key financials of Accent Microcell Ltd for the last 3 completed financial years.

Data Source: Company DRHP filed with SEBI

Here are some of the key takeaways from the financials of the company for the last 3 years.

• The revenue growth has been stable in last 3 years, and shows a signal of stable to robust revenues. That also makes the numbers comparable over the last 3 years. The latest year has seen moderate growth in sales but more than doubling of profits.
   
• The net margins have doubled in the latest year to 6.3% which is twice the median of the previous two years. This is interesting in the light of the stable growth in top line. Even ROE has been 29% plus with average of 18% in previous years.
   
• Despite being a capital intensive business, the asset turnover ratio or the asset sweating ratio has been above 1.70 on a consistent basis. This is critical in maintaining the ROE ratios in the coming quarters. It also supports valuations overall.

The company has latest year EPS of ₹10.06 and weighted average EPS of ₹7.17 for the last 3 years. However, a lot will depend on what level the EPS sustains in the long run since growth has been quite robust only in the latest year. By latest year valuations, the company looks attractively priced at around 13.5-14.0 times earnings. The focus would be on the next few quarters. This is generally a cyclical and low margin business so investors must keep that risk factor while investing.

However, investors must not lose sight of some of the qualitative advantages built by the company. Its leadership in the MCC space and its vast global presence do create entry barriers in the segment. Deep relationships across the pharma, chemicals and food space are another advantage for the company at this juncture. Its consistent profit track record, combined with the comfort of advanced technology make the stock attractive. Investors with a longer term perspective of about a year plus can look seriously at this IPO, considering its positioning in the industry and its past performance.