What you must know about Petro Carbon and Chemicals IPO?

About Petro Carbon and Chemicals Ltd

Petro Carbon and Chemicals Ltd was incorporated in the year 2007; to engage in the business of producing calcined petroleum coke (CPC) for the carbon industry. The major product of the company is calcined petroleum coke (CPC) from raw petroleum coke (RPC). The product is better known as green petroleum coke, and is a key input in the manufacture of aluminium, steel, and various other carbon-based products. Petro Carbon and Chemicals Ltd has a production facility located in Purba Medinipur, West Bengal, with a production capacity of 93,744 tons of CPC per annum. Apart from having 74 persons on its rolls, the company also employs around 290 contract workers at its current production facility.

Highlights of the Petro Carbon and Chemicals IPO

Here are some of the highlights of the Petro Carbon and Chemicals IPO on the SME segment of the National Stock Exchange (NSE). 

•    The issue opens for subscription on 25th June 2024 and closes for subscription on 27th June 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 book building price band for the IPO has been set in the range of ₹162 per share to ₹171 per share. Being a book built IPO, the final price discovery will happen in the above price band only.

•    The IPO of Petro Carbon and Chemicals Ltd has only an offer for sale (OFS) component and no fresh issue portion. While the fresh issue portion is EPS dilutive and equity dilutive, the OFS is just a transfer of ownership and  hence is not EPS or equity dilutive.

•    As part of the offer for sale (OFS) portion of the IPO, Petro Carbon and Chemicals Ltd will sell / offer a total of 66,17,600 shares (66.176 lakh shares), which at the upper band IPO price of ₹171 per share aggregates to an OFS size of ₹113.16 crore. The entire OFS size of 66.176 shares is being offered by the promoter shareholders.

•    Since there is no fresh issue at all, the OFS will also double as the overall issue. Therefore, the overall IPO size will also comprise of the sale / offer of 66,17,600 shares (66.176 lakh shares) which at the upper band IPO price of ₹171 per share aggregates to overall IPO size of ₹113.16 crore.

•    Like every SME IPO, this issue also has a market making portion. The company is yet to finalize its market maker and the exact market maker quota will be 4,30,400 shares. The market maker provides two-way quotes to ensure liquidity on the counter and low basis costs.

•    The company has been promoted by Kishor Kumar Atha, Dilip Kumar Atha, Gaurav Atha, Vishal Atha, and Bharat Atha. The promoter holding in the company currently stands at 100.00%. However, post the fresh issue of shares, promoter equity holding share will get diluted to 73.21%, since promoters are offering 

•    The entire issue is an offer for sale and hence there is no fresh funds coming into the company. Hence, the question of utilization of funds does not arise.

•    GYR Capital Advisors Private Ltd will be the lead manager to the issue, and Bigshare Services Private Ltd will be the registrar to the issue. The market maker for the issue is yet to be announced by the company.

The IPO of Petro Carbon and Chemicals Ltd will be listed on the SME IPO segment of the NSE.

Petro Carbon and Chemicals IPO – Key Dates

The SME IPO of Petro Carbon and Chemicals Ltd IPO opens on Tuesday, 25th June 2024 and closes on Thursday, 27th June 2024. The Petro Carbon and Chemicals Ltd IPO bid date is from 25th June 2024 at 10.00 AM to 27th June 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 7.00 PM on the issue closing day; which is 27th June 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 July 01st 2024, will be visible to investors under the ISIN Code – (INE998U01015). 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

Petro Carbon and Chemicals Ltd will have a market maker allocation of shares, which will be used as inventory for market making. The name of the market maker and the actual size of the market making inventory will be announced separately. The net offer (net of market maker allocation) will be divided between the retail investors and the HNI / NII investors. The breakdown of the overall IPO of Petro Carbon and Chemicals Ltd in terms of allocation to various categories are captured below.

Data Source: Company RHP

The minimum lot size for the IPO investment will be 800 shares. Thus, retail investors can invest a minimum of ₹1,36,800 (800 x ₹171 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 1,600 shares and having a minimum lot value of ₹2,73,600. 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.

There are no upper limits for investments by HNIs / NIIs in the IPO of Petro Carbon and Chemicals Ltd.

Financial highlights: Petro Carbon and Chemicals Ltd

The table below captures the key financials of Petro Carbon and Chemicals Ltd for the last 3 completed financial years. 

Data Source: Company RHP filed with SEBI

Here are some of the key takeaways from the financials of the company for the last 3 years; i.e., from FY21 to FY23, being the latest year. 

•    The revenues over the last 3 years have grown at a very robust clip, with FY23 revenues nearly 3.40 times the revenues in FY21. As net profit traction has picked up in the last 2 years, the net profit margins have improved from 0.08% to 1.30% in last 2 years. However, the net margins remain very low on a standalone basis.

•    While net margins of the company have been relatively tepid at 1.30%, the margins have shown growth traction in recent years. In addition, return on equity (ROE) stands at 8.24% in FY23, while the return on assets (ROA) is tepid at 2.55% in FY23. Both are up sharply from two years earlier numbers. This can be largely attributed to the high capital and asset base in the business.

•    The asset turnover ratio or the sweating ratio has been very healthy in the latest year at 1.95X but the tepid margins would remain a concern for investors.

The company has latest year EPS of ₹2.59, after adjusting for capital actions. The FY23 earnings are being discounted by the IPO price of ₹171 per share at 66-67 times P/E ratio. That looks a tad on the higher side. However, if you look at the 6-month EPS of ₹19.34 for FY24 and annualize it to full year extrapolated EPS of ₹38.68. On that the valuations in the range of 4-5 times P/E ratio look a lot more reasonable, especially considering the tepid net margins and the ROE.
To be fair, Petro Carbon and Chemicals Ltd some bring some intangible advantages to the table. It has a growing customer base and gains from the rising demand for carbon products. However, it would depend on future EPS sustaining at higher levels since with low margins, the valuations would be a big challenge. Investors would have to keep that in mind while investing in this IPO.