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Ducol Organics NSE SME IPO review (May apply)

Review By Dilip Davda on January 6, 2023

•    DOCL is engaged in the manufacturing and marketing of pigments and related products.
•    The super earnings reported by the company for the past 30 months raise eyebrows. 
•    Based on its current financials, the issue appears fully priced. 
•    The sustainability of such margins going forward holds the key.
•    Well-informed investors may park funds for long-term rewards.

Ducol Organics and Colours Ltd. (DOCL) is engaged in the business of manufacturing and selling pigment dispersions, preparations concentrate, paste colourants, and masterbatches. It offers a range of pigment dispersions for various industries like Paints, Inks, Textiles, Detergent, Paper, Rubber, and Plastics. colour solutions for various industries like paints, ink, textile, rubber, plastic, leather, paper, soaps, detergents, and FMCG.

Currently, it is operating out of 2 units in Taloja and a third unit at Mahad is in process of getting established with trials currently being conducted. As on October 31, 2022, the company had 79 permanent employees on its payroll.

The company is coming out with its maiden IPO of 4040000 equity shares of Rs. 10 each at a fixed price of Rs. 78 per share to mobilize Rs. 31.51 cr. The issue opens for subscription on January 09, 2023, and will close on January 11, 2023. The minimum application to be made is for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 27.79% of the post-issue paid-up capital of the company. DOCL is spending Rs. 0.80 cr. for this IPO process and from the residual funds, it will use Rs. 23.78 cr. for working capital and Rs. 6.93 cr. for general corporate purposes. 

First Overseas Capital Ltd. is the sole lead manager for this issue and Bigshare Services Pvt. Ltd. is the registrar of the issue.  BHH Securities Pvt. Ltd. is the market maker for this company and has underwritten a lion's portion of the IPO. 

The company has issued the entire equity so far at par value and has also issued bonus shares in the ratio of 5 for 2 in May 2022. The average cost of acquisition of shares by the promoters is Rs. - (10.29) and Rs. - (10.30) per share. (i.e. a negative cost of acquisitions).

Post-IPO, DOCL's current paid-up equity capital of Rs. 10.50 cr. will stand enhanced to Rs. 14.54 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 113.41 cr. 

On the financial performance front, for the last three fiscals, DOCL has posted a turnover/net profit of Rs. 73.72 cr. / Rs. 0.07 cr. (FY20), Rs. 78.86 cr. / Rs. 2.81 cr. (FY21), and Rs. 88.94 cr. / Rs. 4.91 cr. (FY22). For H1 of FY23 ended on September 30, 2022, it earned a net profit of Rs. 4.17 cr. on a turnover of Rs. 48.75 cr. The sudden boost in the net profits for the last 30 months raises eyebrows. 

For the last three fiscals, DOCL has reported an average EPS of Rs. 3.24 and an average RoNW of 17.66%. The issue is priced at a P/BV of 3.30 based on its NAV of Rs. 23.67 as of September 30, 2022, and at a P/BV of 2.01 based on its post-IPO NAV of Rs. 38.76 per share. 

If we annualize FY23 earnings and attribute it to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of around 13.59. Thus based on its super earnings, the issue appears fully priced. On the basis of FY22 earnings, the issue is priced at a P/E of 23.08. The sustainability of margins reported for H1 of FY23 is a major concern.

The company has paid a dividend of 30% for FY21 and FY22. It will adopt a prudent dividend policy post-listing based on its financial performance and future prospects. 

As per the offer document, DOCL has shown Aksharchem, Asahi Sungwon, Clariant Chemicals, Vipul Organics, Ultramarine & Pigments, and Sudarshan Chemical as their listed peers. They are currently trading at a P/E of 21.49, 15.64, 29.88, 31.11, 14.20, and 38.54 (as of January 06, 2023). However, they are not truly comparable on an apple-to-apple basis. 

This is the 15th mandate from First Overseas in the last four fiscals (including the ongoing one). Out of the last 10 listings, 1 opened at discount, 2 at par, and the rest with premiums ranging from 2.5% to 120% on the day of listing.

Conclusion / Investment Strategy

Super earnings reported by the company for the past 30 months raise eyebrows as it is operating in a highly competitive and fragmented segment. The sustainability of such performance holds the key to future prospects. Based on its current financial performance, the issue appears fully priced. Well-informed investors may consider parking funds for the long term.

Review By Dilip Davda on January 6, 2023

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. My reviews do not cover GMP market and operators game plans. Readers must consult a qualified financial advisor before making any actual investment decisions, based the on information published here. With entry barriers, SEBI wants only well-informed investors to participate in such offers. With crazy listings in the recent past, SME IPOs drew the attention of investors across the board and lead to seer madness. However, as SME issues have entry barriers and continued low preference from the broking community, any reader taking decisions based on any information published here does so entirely at their own risk. The above information is based on information available as of date coupled with market perceptions. The Author has no plans to invest in this offer.

About Dilip Davda

Dilip Davda

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.

(Dilip Davda -SEBI registered Research Analyst-Mumbai,

Registration no. INH000003127 (Perpetual)

Email id: ).

Ducol Organics And Colours IPO FAQs

  1. 1. Why Ducol Organics And Colours IPO?

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

  2. 2. How is Ducol Organics And Colours IPO?

    Read the Ducol Organics And Colours IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. Ducol Organics And Colours IPO what should investors do?

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

  4. 4. Is Ducol Organics And Colours IPO good?

    Our recommendation for Ducol Organics And Colours IPO is to subscribe for long term.

  5. 5. Is Ducol Organics And Colours IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to subscribe for long term to the Ducol Organics And Colours IPO.

  6. 6. When will Ducol Organics And Colours IPO allotment status?

    The Ducol Organics And Colours IPO allotment status will be available on or around January 16, 2023. The allotted shares will be credited in demat account by January 18, 2023. Visit Ducol Organics And Colours IPO allotment status to check.

  7. 7. When will Ducol Organics And Colours IPO list?

    The Ducol Organics And Colours IPO will list on Thursday, January 19, 2023, at NSE SME.