Chemcon Specialty Chemicals IPO subscribed 149 times; grey market premium rises to 88%

NEW DELHI: The initial public offering (IPO) of Chemcon Speciality Chemicals was subscribed 149.14 times on Day 3 of the bidding process. The issue had received applications for 97,64,26,440 shares against 65,59,173 shares on offer.

“Such oversubscription was in line with our expectation, as we believe a lot is left on the table for the investors by comparing its valuation with other speciality chemical companies. We are positive on the future outlook for the industry as well as the company. So, in our IPO note we have recommended a “Subscribe” rating to the issue for long term as well as for listing gains,” said Keshav Lahoti, Associate Equity Analyst, Angel Broking.

“Due to its position as a leading manufacturer of its products globally, it is getting strong traction among investors. But, product concentration and client concentration risk cannot be ruled out. Although Company clients are sticky in nature, they have long-standing relationships. Aurobindo Pharma has been its client for more than 20 years,” he added.

The Vadodara-based company plans to raise Rs 318 crore, out of which it already raised Rs 95.40 crore through allotment of 28.06 lakh shares to anchor investors at Rs 340 per share last week.

The company is offering a fresh issue of equity shares, aggregating up to Rs 165 crore and offer for sale of up to 45,00,000 equity shares, to be sold in the price range of Rs 338-Rs 340.

In the grey market, the shares of the company were trading with a premium of Rs 300 per share, that is, 88 per cent more than the price band set for the initial public offering.

Analysts said that the issue is demanding an inexpensive valuation of 25.5 times FY20 earnings per share and that the company could gain from a shift in demand from China. But high client concentration, criminal proceeding against a promoter and limited portfolio are risks to the company.

Most brokers had ‘subscribe’ ratings on the stock. Angel Broking said the company's return ratios and margins are better than most of its peers, adding that the company is undervalued compared to its peers and "a lot of value is left in the table".

"As we are positive on the future outlook for the industry as well as the company, we would recommend to “Subscribe” issue for long term as well as for listing gains," it said.