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Review By Dilip Davda on December 6, 2023

•    AML is in the business of high-quality cellulose based excipients.
•    It marked steady growth in its top lines for the reported periods. 
•    The net profit got accelerated from FY23 onwards that raise eyebrows.
•    Based on super annualized FY24 earnings, the issue appears fully priced. 
•    Well-informed investors may park funds for the medium to long term rewards.

ABOUT COMPANY:
Accent Microcell Ltd. (AML) was incorporated with the primary focus on manufacturing of the high-quality cellulose-based excipients which predominantly find application in the Pharmaceutical, Nutraceutical, Food, Cosmetic and other industries. Now, it is one of the Global leading manufacturers of Microcrystalline Cellulose (MCC) (*Source: Research Report on Global Microcrystalline Cellulose (MCC) Industry. The Company has carved a niche in the production of high-quality cellulose-based excipients, that meet international quality standards. 

With its two state of the art manufacturing facilities located at Pirana Road, Ahmedabad and Dahej, SEZ (Bharuch), it has developed a strong global sales model, as it is serving customers across India and in more than 45 countries including USA, Canada, Germany, UK, Japan, China, Australia, Korea, Netherlands, Turkey, Vietnam, Italy, Indonesia, Poland, Egypt, France, Thailand, New Zealand, Brazil, Russia, Mexico, Chile, Zimbabwe, Denmark, Greece and many others. Presently, AML majorly manufactures Microcrystalline Cellulose ("MCC"). MCC is an odorless, fine white powder & a purified form of cellulose, which is derived from refinement of highly purified wood pulp. It is widely used as texturizer, anticaking agent, binder, lubricant, a bulking agent, diluent which finds a wide range of applications in Pharmaceutical, Nutraceutical, Food, Cosmetic and other industries. It manufactures 22 grades of MCC, with particle sizes ranging from 20 microns to 180 microns. 

The major grades of MCC manufactured and marketed by AML are branded under the name "accel". Besides "accel" it also sells products under the name "acrocell", "maccel" and "Vincel". During the production process, the various grades of MCC are distinguished using different drying techniques. The company manufactures products by two drying techniques which are branded under different brand names. In the company MCC, MCC Spheres, SMCC, MCC with CMC are manufactured with spray dried product which are branded as "accel". These products are known for its premium quality due to its physical properties such as direct compression, particle size, density, flow, tableting properties etc. On the other hand, MCC, SMCC are manufactured with spin flash dried which are branded as "Vincel".

AML also manufactures co-processed excipients. Co-processed excipients are unique formulations created by combining two or more individual excipients to achieve specific properties or functionalities that cannot be attained with any single excipient alone. To meet the rising demand for co-processed excipients, the company offers "accel SMCC" as product, which is a co-processed blend of Microcrystalline Cellulose (MCC) & Colloidal Silicon Dioxide and it also offer "RC" as a product, which is a co-processed blend of Microcrystalline Cellulose with Carboxy Methyl Cellulose, to cater the growing market of the co-processed excipients. The company distinguishes its product categories as accel, acrocell, maccel and RC. As of September 30,2023, it had the total strength of 173 employees on payroll basis and 161 employees on contract basis.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden book building route IPO of 5600000 equity shares of Rs. 10 each. It has announced a price band of Rs. 133 - Rs. 140 per share and mulls raising Rs. 78.40 cr. at the upper cap. The issue opens for subscription on December 08, 2023, and will close on December 12, 2023. The minimum number of shares to be applied is 1000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.61% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO funds, it will utilize Rs. 54.39 cr. for capital expenditure required for setting up plant at Navagam - Kheda, Gujarat, and the rest for general corporate purposes. 

The issue is solely lead managed by Corporate Capitalventures Pvt. Ltd., and KFin Technologies Ltd. is the registrar of the issue. Prabhat Financial Services Ltd., is the market maker for the company. 

Having issued initial equity shares at par, the company issued/converted further equity shares in the price range of Rs. 30 - Rs, 50 between June 2012 and August 2023.  It has also issued bonus shares in the ratio of 2 for 1 in March 2022. The average cost of acquisition of shares by the promoters is Rs. 0.00, and Rs. 10.60 per share. 

Post-IPO, AML's current paid-up equity capital of Rs. 15.44 cr. will stand enhanced to Rs. 21.04 cr. Based on the upper cap of IPO price band, the company is looking for a market cap of Rs. 294.60 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 134.82 cr. / Rs. 4.80 cr. (FY21), Rs. 167.54 cr. / Rs. 5.89 cr. (FAY22), and Rs. 206.97 cr. / Rs. 13.01 cr. (FY23). For Q1 of FY24 ended on June 30, 2023, it earned a net profit of Rs. 7.06 cr. on a total income of Rs. 59.93 cr. 

For the last three fiscals, the company has reported an average EPS of Rs. 7.17 and an average RoNW of 23.85%. The issue is priced at a P/BV of 3.54 based on its NAV of Rs. 39.60 as of June 30, 2023, and at a P/BV of 2.07 based on its post-IPO NAV of Rs. 67.55 per share (at the upper cap).

If we attribute FY24 annualized super earnings on the post-IPO fully diluted paid-up capital of the company, then the asking price is at a P/E of 10.44. 

For the reported periods, the company has posted PAT margins of 3.62% (FY21), 3.56% (FY22), 6.37% (FY23), 12.00% (Q1-FY24), and RoCE margins of 16.04%, 18.55%, 26.46%, and 12.03% respectively for the said periods. 

DIVIDEND POLICY:
The company paid a dividend of 10% for FY21 and 8% for FY22 and FY23.  It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Sigachi Ind. As their listed peer. It is trading at a P/E of 43.51 (as of December 06, 2023). However, they are not truly comparable on an apple-to- apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 10th mandate from Corporate Capitalventures in the last three fiscals (including the ongoing one). Out of the last 9 listings, 2 opened at discount, and the rest with premiums ranging from 17.65% to 231.63% on the listing day. 

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