Hem Securities has come out with a research report on Chemcel Biotech's IPO. It has recommended investors to ignore the issue.
Chemcel Biotech has opened for subscription with its initial public offering (IPO) of 1,54,00,000 million equity shares of Rs 10 each. The issue will close on September 12, 2008. The issue price is Rs 16.
Hem Securities' report on Chemcel Biotech's IPO:
Company’s distribution network consists of distributors and dealers through out the coastal region of Andhra Pradesh. Company has more than 18 distributors who help it in selling its products to end users through the chain of more than 350 dealers and 550 retailers. Company hold regular farmers meets at different places to educate and disseminate new methods of the plant protection with the help of its techno commercial marketing sales staff, dealers and distributors. With the help company’s distribution network & marketing team, company keep itself updated about the occurrence of a particular pest. Based on this information and experience, company reschedules its production and distribution. Company has established 24 depots wherein it maintain adequate stocks to make its products available at short notices. This strategy helps company in selling its products effectively.
Company has 34 products in its product portfolio which consists of different kind of insecticides and pesticides. Company manufactures various formulations comprising of liquids, granules and powder formulations. Company’s products are available in various sizes of packaging catering to the needs of small, marginal and large farmers. Company’s product range covers most of the crops and majority of plant infections that are grown in this region. Company provides end to end plant protection solutions to farmers through its distributors. Company’s product range helps it in attracting large distributors of agrochemicals to become its distributors.
Company faces substantial competition due to technological advances by competitors, such as other pesticide companies, agro-chemical and biotechnology companies. Also, if a competitor introduces a successful product, it could take years for company to develop a product, which could have a material adverse effect on company’s business, results of operations and financial condition as some of company’s competitors are large Indian companies or subsidiaries of multi-national companies that have, significantly greater resources than those available with company.
Agro chemical industry requires high working capital due to its seasonal nature and long credit period given to dealers and farmers. Thus, high inventories during off-season period and high receivables during poor monsoon put further pressure on working capital requirement.
Valuation:-
The company at a price of Rs 16 per share will have the p/e multiple of 33.85 on post issue eps of 0.47(Basis PAT FY’08). The company being the small player in agrochemical industry is exposed to the risk of heavy competition from other players in the same industry. The company on the one hand, is posting lower profit margins in comparison to its peers while on the other hand the high receivables of the company are detrimental to the financial performance of the company. The company’s higher equity base also lead to lower earning per share post issue and thus makes the issue expensive at present level. Hence, we recommend investor to ignore the issue.
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Source: Moneycontrol.com
Tuesday, September 9, 2008
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