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Aether Ind IPO review (May apply)

Review By Dilip Davda on May 22, 2022

•    AIL is a niche player in the speciality chemical business. 
•    It enjoys high margins for its few selected products with repeat orders.
•    Based on its financial parameters, the issue is fully priced. 
•    Well informed investors may park funds with medium to long term perspectives. 

ABOUT COMPANY:
Aether Industries Ltd. (AIL) is a speciality chemical manufacturer in India focused on producing advanced intermediates and speciality chemicals involving complex and differentiated chemistry and technology core competencies. Its business was started in 2013 with a vision to create a niche in the global chemical industry with a creative approach to chemistry, technology and systems that would lead to sustainable growth. In the first phase of development through Fiscal 2017, AIL focused on building team and infrastructure and on R&D centred around building core competencies. 

AIL is one of the fastest-growing speciality chemical companies in India, growing at a CAGR of nearly 49.5% between Fiscal 2019 and Fiscal 2021. (Source: F&S Report, May 2022). It is focusing on the core competencies model of chemistry and technology. According to Frost & Sullivan, chemical companies usually have a single or a couple of chemistry competencies for their entire product portfolio; however, AIL has eight chemistry competencies to use for a wide array of products, which enables it to cater to niche and advanced intermediate requirements of a wider range of end-products and applications. (Source: F&S Report, May 2022). 

All these competencies have been developed in-house, which is one of the core strengths of the R&D team. (Source: F&S Report, May 2022). AIL has three business models under which it operates: (i) large scale manufacturing of its own intermediates and speciality chemicals; (ii) contract research and manufacturing services ("CRAMS") and (iii) contract/exclusive manufacturing. In the view of Frost & Sullivan, AIL is among the few Indian speciality chemical companies to have successfully launched these three separate business models in just 5 years into commercial manufacturing. (Source: F&S Report, May 2022). 

The company has some nuanced criteria for choosing products based on its chemical complexity, niche applications, limited competition, scalability and commercial potential. Using these criteria, it developed and continues to develop, advanced intermediates and speciality chemicals products having applications in the pharmaceutical, agrochemicals, material science, coatings, high-performance photography, additives and oil & gas segments of the chemicals industry. As of March 31, 2022, AIL's product portfolio comprises over 25 products. AIL's products are advanced intermediates and speciality chemicals that occupy a position in the chemical industry value chain between commodity chemicals and final actives and formulations with its products more closely aligned to the higher value range, further away from the commodities and closer to the final active part of the value chain. 

Most of its advanced intermediates and speciality chemicals product portfolio was developed for the first time in India and constitute 100% import substitution, thus furthering the "Make in India" or "Atma -Nirbharta" campaigns of the Government of India. AIL also manufactures customers' products under contractual/exclusive supply agreements (its third business model).

AIL's customers include more than 160 multinationals, and global, regional and local companies. As of March 31, 2022, it sold products to 34 global customers in 18 countries and to 154 domestic customers. Its customers include a rich collection of leading domestic and international multinational companies. AIL places importance on developing human resources. As of March 31, 2022, it had 719 employees (excluding trainees) and 150 contract workers and trainees.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its funding needs for CAPEX (Rs. 163.00 cr.), repayment/prepayment of certain borrowings (Rs. 137.90 cr.), working capital (Rs. 165.00 cr.) and general corporate purposes, AIL is coming out with a maiden combo IPO of fresh equity issue worth Rs. 627.00 cr. (approx. 9766352 shares) and an offer for sale (OFS) of 2820000 shares), thus making an overall size of the IPO of Rs. 808.04 cr. (approx.  12586352 shares) at the upper cap. It has fixed a price band of Rs. 610 - Rs. 642 for equity share having a face value of Rs. 10 each. The issue opens for subscription on May 24, 2022, and will close on May 26, 2022. Minimum application is to be made for 23 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 10.11% of the post issue paid-up equity capital of AIL. The company has reserved shares worth Rs. 7.15 cr. for its eligible employees and from the residual portion, it has allocated 50% for QIBs, 15% for HNIs and 35% for retail investors. AIL did pre-IPO placement worth Rs. 130 cr. and has reduced the fresh equity issue to that extent. 

The joint Book Running Lead Managers (BRLMs) to this issue are HDFC Bank Ltd. and Kotak Mahindra Capital Co. Ltd. and Link Intime India Pvt. Ltd. is the registrar to the issue. 

Having issued initial equity shares at par, the company issued/converted further equity shares in the price range of Rs. 162.51 to Rs. 642.00 between February 2021 and May 2022. It has also issued bonus shares in the ratio of 10 for 1 in November 2021. The average cost of acquisition of shares by the promoters/selling stakeholder is Rs. NIL, Rs. 0.07, Rs. 1.78, Rs. 2.08 and Rs. 28.78 per share. 

Post-IPO, AIL's current paid-up equity capital of Rs. 114.72 cr. will stand enhanced to Rs. 124.48 cr. Based on the upper cap of the IPO pricing, the company is looking for a market cap of Rs. 7991.79 cr.

FINANCIAL PERFORMANCE: 
On the financial performance front, for the last three fiscals, AIL has (on a consolidated basis) posted turnover/net profits of Rs. 203.28 cr. / Rs. 23.34 cr. (FY19), Rs. 303.78 cr. / Rs. 39.96 cr. (FY20) and Rs. 453.79 cr. / Rs. 71.12 cr.  (FY21). For the first nine months of FY22 ended on December 31, 2021, it has earned a net profit of Rs. 82.91 cr. on a turnover of Rs. 449.32 cr. 

For the last three fiscals, the company has posted an average EPS of Rs. 5.51 and an average RoNW of 47.50%. The issue is priced at a P/BV of 20.08 based on its NAV of Rs. 31.97 as of December 31, 2021, and at a P/BV of 7.96 based on post-IPO NAV (at the upper cap) of Rs. 80.62 per share. 

If we annualize FY22 earnings and attribute it to post IPO fully diluted equity capital, then the asking price is at a P/E of 72.30. Thus, based on the financial parameters, the issue is fully priced

COMPARISON WITH LISTED PEERS:
As per offer documents, AIL has shown Clean Science, Navin Fluorine, Vinati Organics, PI Ind., and Fine Organics as its listed peers. They are currently trading at a P/E of 82.84, 70.39, 62.41, 48.44 and 79.95 (as of May 20, 2022). However, they are not truly comparable on an apple-to-apple basis. 

DIVIDEND POLICY:
The company has not paid any dividends for the reported financial periods of the offer documents. It will adopt a prudent dividend policy post listing based on its financial performance and future prospects. 

MERCHANT BANKER'S TRACK RECORDS:
The two BRLMs associated with this issue have handled 31 issues in the last three fiscals (including the ongoing one), out of which 5 issues closed below the offer price on the day of listing.


Conclusion / Investment Strategy

AIL has posted steady growth in its top and bottom lines for the reported periods. Based on the financial parameters, the issue is fully priced but is worth considering for medium to long term rewards considering its future bright prospects. Well informed investors may park funds with a perspective of medium to long term rewards.

Review By Dilip Davda on May 22, 2022

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at its own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).


About Dilip Davda

Dilip Davda, a freelance journalist

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

Email: dilip_davda@rediffmail.com

Aether Industries IPO FAQs

  1. 1. Why Aether Industries IPO?

    The initial public offer (IPO) of Aether Industries Limited offers an early investment opportunity in Aether Industries Limited. A stock market investor can buy Aether Industries IPO shares by applying in IPO before Aether Industries Limited shares get listed at the stock exchanges. An investor could invest in Aether Industries IPO for short term listing gain or a long term.

  2. 3. Aether Industries IPO what should investors do?

    Aether Industries IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the Aether Industries IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.

  3. 4. Is Aether Industries IPO good?

    Our recommendation for Aether Industries IPO is to subscribe for long term.

  4. 5. Is Aether Industries IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to subscribe for long term to the Aether Industries IPO.

  5. 6. When will Aether Industries IPO allotment status?

    The Aether Industries IPO allotment status will be available on or around May 31, 2022. The allotted shares will be credited in demat account by Jun 2, 2022. Visit Aether Industries IPO allotment status to check.

  6. 7. When will Aether Industries IPO list?

    The Aether Industries IPO will list on Friday, June 3, 2022, at BSE, NSE.