Chemcon Speciality: A value play
In October, Chemcon Speciality Chemicals witnessed a bumper listing on the stock exchanges at Rs 731, a premium of 115% over its issue price of Rs 340 apiece. Since then it’s been downward journey for the stock. It is currently languishing at Rs 436.60, down 40% over the listing price.
With a price band at Rs 338-Rs 340 per share, its initial public offering (IPO) was fairly priced at 25.5 times FY20 price to earnings (fully diluted).
The IPO helped raise Rs 318 crore for utilising towards expansion of manufacturing facility, to meet working capital requirements and towards general corporate purposes.
The recent decline in stock price doesn’t reflect the underlying fundamental strength. Chemcon is a manufacturer of specialty chemicals such as hexamethyldisilazane (HMDS) and chloromethyl isopropyl carbonate (CMIC) which are predominantly used in the pharmaceuticals industry. It also manufactures inorganic bromides used as completion fluids in the oilfield industry.
Chemcon Speciality has been performing on persistent basis showcasing 28.9% topline CAGR, 24.5% EBITDA CAGR and 36.1% PAT CAGR over FY18-FY20.
The company’s growth is expected to spur post FY21E on account of specialized product offerings, increasing demand for its products in domestic and global markets, innovative product development etc.
Further, superior return ratios, healthy balance sheet, higher operating margins and company’s leadership status provides us confidence.
At CMP of Rs 440 Chemcon Speciality Chemicals is commanding 28.5x P/E on FY20 EPS which is in-line to its peers such as Fine Organics, Galaxy Surfactants, Aarti Industries etc. which trade at FY20 P/E multiplies of 25x
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