What you must know about Indian Emulsifier IPO?

About Indian Emulsifier Ltd

Indian Emulsifier Ltd was incorporated very recently in 2020 to manufacture and supply specialty chemicals. Some of the popular specialty chemicals manufactured by Indian Emulsifier Ltd include esters, amphoteric, phosphate esters, imidazolines, wax emulsions etc. Its product line also includes SMO (Sorbitan Mono-oleate) and PIBSA based Emulsifiers. The products of Indian Emulsifier Ltd cater to a wide array of industries ranging from mining, textiles, rubber, personal care, food products etc. Currently, Indian Emulsifier Ltd offers more than 40 speciality chemicals and intermediates for various industries.

The company has its own manufacturing plant located in Ratnagiri in the Konkan region of Maharashtra. The facility at Ratnagiri has a production capacity of 4,800 metric tons per annum (MTPA), It had recently doubled its capacity via the installation of additional reactors. The plant at Ratnagiri is full equipped with state of the art process control, innovative R&D centre, stringent quality control etc. In addition, Indian Emulsifier Ltd also has 2 warehouses located at Raigad and Ratnagiri. The company currently employs over 34 personnel on its rolls.

Highlights of the Indian Emulsifier SME IPO

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

• The issue opens for subscription on 13th May 2024 and closes for subscription on 16th May 2024; both days inclusive.
   
• The stock of the company has a face value of ₹10 per share and it is a book built issue. The price for the book building issue is set in the price band of ₹125 to ₹132 per share. Being a book built issue, the final price will be discovered within this band.
   
• The IPO of Indian Emulsifier Ltd has only a fresh issue component and no offer for sale (OFS) portion. It must be remembered that 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 issue portion of the IPO, Indian Emulsifier Ltd will issue a total of 32,11,000 shares (32.11 lakh shares), which at the upper band IPO price of ₹132 per share aggregates to fresh fund raising of ₹42.39 crore.
   
• Since there is no offer for sale (OFS) portion, the fresh issue size will also double up as the overall IPO size. Therefore, the overall IPO size will also comprise of the issue of 32,11,000 shares (32.11 lakh shares) which at the upper band IPO price of ₹132 per share will aggregate to overall IPO size of ₹42.39 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation of 1,61,000 shares. The name of the market maker for the IPO is yet to be announced. The market maker provides two-way quotes to ensure liquidity on the counter and low basis costs, post listing.
   
• The company has been promoted by Yash Tikekar. The promoter holding in the company currently stands at 65.25%. However, post the fresh issue of shares in the IPO, the promoter equity holding share will get diluted.
   
• The fresh issue funds will be used by the company towards funding of capital expenditure for its plant in terms of purchase of machinery and civil works. Part of the funds will also be applied towards working capital requirement and for general corporate purposes.
   
• Ekadrisht Capital Private Ltd will be the lead manager to the issue, and Maashitla Securities Private Ltd will be the registrar to the issue. The market maker for the issue is yet to be announced.

The IPO of Indian Emulsifier Ltd will be listed on the SME IPO segment of the NSE.

Indian Emulsifier IPO – Key Dates

The SME IPO of Indian Emulsifier Ltd IPO opens on Monday, 13th May 2024 and closes on Thursday, 16th May 2024. The Indian Emulsifier Ltd IPO bid date is from 13th May 2024 at 10.00 AM to 16th May 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is 16th May 2024.

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. The credit of shares to the demat account on May 21st 2024, will be visible to investors under the ISIN Code – (INE0RRU01016). This allocation to the demat account is only applicable to the extent of the allocation of shares and if no allocations are made in the IPO, then no credit would be visible in the demat account.

IPO allocation and minimum investment lot size

Indian Emulsifier Ltd has already announced the market maker allocation at 1,61,000 shares as inventory for market making. The name of the market maker is yet to be announced. The net offer (net of market maker allocation) will be divided between the QIB investors, retail investors and the HNI / NII investors. The breakdown of the overall IPO of Indian Emulsifier Ltd in terms of 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 ₹1,32,000 (1,000 x ₹132 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 ₹264,000. 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.

Financial highlights: Indian Emulsifier Ltd

The table below captures the key financials of Indian Emulsifier 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 revenues have grown at a robust pace of 133% in the latest year. However, considering it is a new company, any data prior to the current year is not too relevant for the analysis. PAT has also grown in the latest year.
   
• While net margins of the company have picked up to near 9.5%, the ROE and the RO are also robust in the latest year at 32.34% and 11.35% respectively. The asset turnover ratio or sweating ratio has picked up to 1.20X and that is a good sign. However, the latest year ROA magnifies the impact of asset turnover ratio.

The company has latest year EPS of ₹4.80 and we have not included the weighted  average EPS, since the previous year data is not exactly comparable. The latest year earnings are being discounted by the IPO price of ₹132 per share at 27-28 times P/E ratio. However, one must give fair weightage to the extrapolated EPS of FY24 to get a clear picture. The EPS for the 9 month of FY24 is much higher at ₹8.66 on a fully diluted basis. This translates into full year extrapolated EPS of ₹11.55 per share, which now makes the valuation relatively compelling at around 11-12 times P/E ratio. This makes the valuations look a lot more reasonable. The other story here is that Indian Emulsifier Ltd provides services to a wide array of industries which makes its business model de-risked, largely due to the very specialized nature of the products it makes. To be fair, it does look like a relatively high risk decision to invest in the IPO and investors would be advised to take a prudent decision.